UV Market Blogs

Tuesday, March 13, 2007

The other Oilers

Couldn’t forget about the other three big name oil companies you should take an investment.  With oil at $60 per barrel its time to get cracking before its too late.  Summer is right around the corner.

Let’s start things off with Rowan ticker RDC.
Allow me to first start this off with a “ARE YOU SERIOUS” 6.7 PE ratio.  If this isn’t a beacon for private equity I don’t know what is.  Current PEG ratio is .23.  I mean seriously, you aren’t going to beat an investment like this.  Consider this, oil stocks trade for an average of a PE of 9.  Even a “catch up” to the other oil stocks represents a 40% gain in stock price.  To conform to a typical PEG, this stock would have to triple, and that’s for oil stocks.  This is a great stock fundamentally.

This stock was also over saturating the Gulf of Mexico region.  To be frank, the gulf of Mexico is overloaded with rigs and prices are sometimes one fourth of that of the Middle east or Africa.  Rowan, like Nobel is moving many of its rigs from the competitive Gulf to the Middle East to capitalize on bigger daily rates, with no risk of natural disaster.  The company has two rigs headed to Saudi Arabia very soon that will be drilling for a $190,000 day rate, much better than it was receiving in the Gulf.  And along with moving the rigs comes a great earnings boost, some analysts say 66% revenue boost.  Say what?  66%!!!

Three new rigs will be coming on the lines before 2009.  Not to mention the 24 land based rigs that are doing just fine as it is.  Oh, and another thing, the company owns a relatively small rig construction business.  This is the play to cover the overall rig-building, operating, land and sea.  I’m a buyer here, I don’t foresee any resistance until $40, and even then I think its going to retest its highs around $50.  A move to $40 represents a 33% gain, $50 would be a 66% gain.  I’ll provide a chart to show the underlying trend.

Diamond Offshrore ticker symbol DO

This company is another play in the oil drilling industry I really like.  See, because of high oil prices, companies are looking to go to deeper and deeper depths in search of the valuable black stuff.  This company specializes in deep sea rigs.  Two thirds of their operations are semi submersible which allows oil companies an advantage, an ability to seek deeper oil.  Because oil prices are so high, it is now economical to look deeper for oil, and oil companies will.  Diamond Offshore is the major player in deep oil.

While this company flourishes with high oil prices, it is not limited to making money only with high oil prices.  This company locks in its rates, but even then, it should prove profitable even with oil in the low $40s, and I don’t see $40 oil ever again.  I would invest in this company heavily due to the sheer fact that as oil prices rise, it will be in greater demand than other drillers. 

The balance sheet for Diamond is rather impressive in itself, it has $800M in cash and just $900M in debt.  The company should have some price protection as 95% of the outstanding shares are held by institutional investors, that says a lot for its quality. 

I’m a buyer here, and everywhere.  I think Diamond will always be a great prospective company provided oil stays at current levels.  If oil plows forward to $100 per barrel, this company could be the new oil king with great exposure to the deep sea drilling.  You need this one.

Monday, March 12, 2007

Confidence

In todays world there must be something that makes sure people keep negative attitudes about life.  Sure, the US and Global economies might not be at their best, but the last Dow crash and prior drops must have really causes some problems in the minds of investors.

On Yahoo Finance a poll is under way.  The current poll question is: The U.S. unemployment rate fell to 4.5% in February. Where will it be at year-end?

Higher
Lower
Where it is now

Now, Yahoo Finance, in my opinion doesnt represent investing/economic professionals like a site such as Bloomberg or Economist.com would.  Both of those sites are niche, dedicated only to finance (bloomberg) and world events (economist).

The 25948 people who have responded already to this poll have stated:

Higher 52%
Lower 24%
Where it is now 25%

I think this is the perfect example of what the media can do to the thought process of the general public.  People who read Yahoo Finance are probably ordinary people just reading about the business news, and not Hedge Fund managers with $500 Million dollars under their belt.

I think this poll best shows what we have been conditioned to think after the market instability ranging from year 2000 to today.  The last 7 years have given a return of just 7% on the dow.  Mind you this isn’t 7% per year, its just 7%.  In a money market fund, you probably would’ve earned around 20% total. 

These last 7 years have been terrible, and have killed our spirits about everything.  Think positive, and try to look for short term profits.  Unfortunately, one person cannot control the markets so other people’s opinions do matter.  Don’t pick stocks that move with the general markets, you dont want other people’s business to trouble yours.

Friday, March 09, 2007

Oil is hot

Its spring 2007 and we’re just starting the 2007 driving season.  Are you excited for $3 gas, shortages, and a US slowdown? No?  Then you must be a driver.

2006 was a doozy for oil prices.  Oil hit all time highs even after little activity in the hurricane arena.  $82 a barrel anyone?

Today, oil sits at just $62 per barrel.  Don’t get excited just yet though, but I think oil could easily top our 2006 highs of $80+.  This year we could see $90 in my opinion.

$90?  That ridiculous, the federal government won’t allow that.  Let’s get past this federal regulation mumbo jumbo because thats just what it is.  No matter what your government says, they can’t put that much pressure on a worldwide market.  Look at the drug market, the war on drugs isn’t exactly working

That’s a totally unrelated market, but the dynamics can be applied here.  Quite simply, if the US doesn’t consume the oil, China will or India, or Mars.  Point is, oil isn’t going to be destroyed like it was in the 90s.

If you’re one of the few, the hardcore, the proud, investors who possess a futures account, I want you to long oil right now.  Right now, and don’t think anything about it for another year.  Or atleast until fall, when you can cash out and reverse your trade.

If you do not have access to a futures account, perhaps I can interest you in some of the following Oil stocks, destined to rise in price as oil does.  These stock are already off their highs but continue to post significant earnings numbers and boast PEs as low as 7.  Can’t be that anywhere!

Its not the refining companies I want you in.  You need to be invested in the drillers, these companies are receiving hundreds of thousands per day just for locating their offshore drillers in the seas.  Companies such as Exxon Mobil or BP have had to pay three times as much as they were previously.  The best part about these drillers is that their contracts are slowly expiring and the drillers are reaping the rewards.  Some drillers are getting $300k a day payraises, a 300% increase over the last contract signing.

When these drillers sign to a contract they are GUARANTEED that amount.  Imagine, locking in now for $80 a barrel even if oil drops to $2.  These drillers will not loose money.  Catastrophe in the Gulf is the only way we could see these drillers go under, but as many drillers leave the Gulf of Mexico to sights such as African coasts or the Persian Gulf these drillers are leaving risk behind. 

Now to the companies:

Noble (NE)
This company was over exposed to the Gulf just a few years ago with 18 out of 49 of its drillers in the Gulf of Mexico.  Now it has only 9 of its 60 vessels parked in the Gulf of Mexico.  Many have attributed the recent success of the company to moving its drillers out of the Gulf of Mexico and into better, higher paying, areas of the world.  Many of the contracts are expiring this year, which many investors have feared.  Although these contracts are expiring, nearly all of the new contracts will pay more than the old.  One of the companies rigs currently receives a rate of $128,000 per day to be drilling off the coast of Africa for Exxon Mobil.  On January 1, 2008 this rig will be part of a new $433,000 a day contract to drill for Anadarko.  This company is set to make large amounts of cash as these contracts expire.

The company is expected to earn $1.2Billion dollars in 2007.  This amounts to $8.98 a share up from $5.35 per share it earned last year.  This huge growth in earnings is the sole reason I think you should be in this company for the long term.  Noble is also unleashing a healthy stock buyback plan, set on buying 11% of the outstanding shares.  This should give even better returns to an already well priced stock.  The current price to earnings for this stock is 8, with a PEG of .2.  Analysts typically recommend stocks with a PEG of 1, this means Noble could rise in value fivefold before it would even be a recommended purchase.  This is a stock for the future, get in while its cheap.

Wednesday, March 07, 2007

Google?  Google!

Do you google?  A lot of us Google, an estimated 80% do at least.  Some estimates rank Google as high as 90%; foolproof, 100% numbers are impossible to obtain because such competitiveness between the big three search engines, MSN, Yahoo and Google.  Back to Google.  You wouldn’t believe what a trendsetter this company happens to be, just check out the stock chart.

Google, besides it 500% return since its IPO has been a rather boring company, seriously.  This stock has touched the same two trend lines twelve times between the two and has remained a fairly constant mover amongst a sea of undecided stocks.  Google has always marched to the beat of its own drummer, and I would expect nothing more from it.

Quite frankly, fundamentally, this stock is the worst on the market.  Growth rates, brand strength, blah blah blah.  Yahoo and MSN have entered online text advertising, a market once held nearly 100% by Google.  At this point, Yahoo and MSN should have the same valuations as Google.  Yahoo isn’t even close and MSN is a part of Microsoft.  Simply, buy Yahoo for the fundamentals. 

But for you techies out there :D we like seeing those boring stocks that move back and forth between a set or prices.  Google is one of those that does, and has moved between two trend lines nearly perfectly for the last two plus years, since its inception.  There are a few theories I have proposed as to why this trendline, the bottom one, is so strong. 

First, institutional buyers.  Institutional buyers generally trade long term technical plays like that of Google.  Its all about generating cash flow for their investors and while providing a liquid portfolio.  The private equity sector is a large buyer of Google, as I would expect.  Stanford university, among others, is another very large holder of Google.  The venture capital company which brought Google to the masses is still holding to its large chunk of the online advertising mogul.  From the institutional side, ie the people who actually move the markets, no one is selling nor would I expect them to do so.

Second, this is a very old line.  Its not some intraday trend drawn up by a day trader on the one minute charts.  Since this line started at the beginning of the company, investors believe the line to be more credible.  And they should, this is all the stockholder of Google has ever seen.  You don’t know something until you’ve seen it, and at this point it seems as though this stock will trade up forever. 

Third, this is an extremely measured pace.  Using some slope algorithms I learned in the fourth grade I have concluded that this stock has moved up $16.67 every month on average, according to the bottom trend.  That’s a nice ROI in my book. 

Ta da!  A nice pretty chart with lines.  A picture really is worth a thousand words, or at least one thousand dollars. 

Play the trends my friends.  The trend is your friend, and when it bends, CASH it IN!  Take the trend and run with it.  This isn’t going to end soon, as you can see google has already made a bounce off the bottom line and is headed back for $500.  Don’t miss the boat, but for the long term, Yahoo is the internet play!

Thursday, March 01, 2007

DOWN Jones Industrials

DOWN Jones Industrials

Today brought another large sell off in the history of the US markets.  The Dow shed 416 points, the S&P500 had only two stocks that advanced, and experts suggest some hedge funds may have gone belly up in the onslaught that occured on February 27.  This wasn’t good news to the ears of relatively new investors who haven’t yet seen some of the impressive returns of 2002 or more recently the Fall of 2006. 

This dropped seemed out of the blue to some.  People thought he market to be in a perfect equilibrium of balanced interest rates and investor confidence.  While I don’t think much confidence was lost due to the drop I do think that there was some loss in investor confidence.

It has yet to be determined the reason for the drop but its evident to me that this was just an example of what happens when anyone can trade the markets via online brokers.  Liquidity is at an all time high but so is margin.  The ability to buy shares of stock with other people’s money causes a more volitile market.  After a consistant slide downward yesterday it seemed like thousands of stop losses and sell orders were made all at one time.  This may have been the repercussions of a hedge fund protecting its worth or a large institution selling out of a bad trade.  The source has yet to be decided but it is sure that a surge of orders was created, backing up the system.

The slide of 200 points was made greater by thousands of sell orders hitting at the same time.  No one was buying so no ask prices could be set.  The slip went from a gradual trend to a 300 point wild ride.

I think technicals may have had their foot in the door of this fall.  The below chart may explain some of the losses yesterday.

In the end, this isnt the end.  The markets aren’t doomed, and you will be able to eat.  Don’t panic, this was only a long overdue correction.

Tuesday, February 27, 2007

Wal-Mart invasion

Wal-Mart invasion

Known for low prices, employee mistreatment and grocery dominance, Wal-Mart is now taking foot in the most populous country in the world; China.  The Chinese marketplace may be extremely different than that of the US but basic economics are universal.  Low prices mean more customers.

Wal-Mart begins this invasion with the purchase of a 35 percent stake in Chinese super-center company Bounteous Company Ltd.  Wal-Mart will also receive the option of acquiring a majority stake in the firm by 2010, making Wal-Mart the owner of the largest retailer in yet another country.  Bounteous operates only 101 super-centers in 34 Chinese cities leaving much room for growth from both Wal-Mart and Trust-Mart, the company that is owned by Bounteous.  These two labels may eventually cover China like Kmart and Wal-Mart did in the 90s prior to the crash of Kmart.  It is this kind of competition that China currently lacks; perhaps Wal-Mart can bring the communist country to 21st century standards.

Either way, it is these emerging markets that are so important to Wal-Mart growth rates.  US sales growth has been slowly because of over-saturation of Wal-Mart stores.  Negative press has certainly been a factor too, not a day goes by that a story about the atrocities that occur in Wal-Mart’s human resources department is broadcasted.  Total sales rose 10.9 percent to $98.9 Billion dollars.  International sales rose 29.6 percent to $22.7 Billion while US sales increased 1.6 percent.  1.6% increase in sales hardly beat inflation, yet alone set record numbers.

The worldwide markets should prove to be very valuable terrain for such a slowing company.  Wal-Mart might be finally showing its age with such low growth rates.  International markets are a largely untapped resource for Wal-Mart, and a place to achieve growth rates needed to boost share prices.  I see this acquisition playing a key role in Wal-Mart developing in the Asian market.

Monday, February 26, 2007

Apples all around

Apples all around

Apple Computer and Cisco have completed what I believe to be a landmark agreement in the two company’s history.  Cisco held the rights to the name iPhone and Apple Computer is planning to create a phone and label it the iPhone, follow the long withstanding “I” prefix to many of Apple’s products.  The agreement states that both companies will be able to use the name and states that the companies in the future may work together to fuse the two iPhones together into one product.

I think this is the best proposal Apple has made in a very long time, at least since the time when Microsoft stole their whole design.  See, the Cisco iPhone had many, many different functions and abilities that if added to the Apple iPhone would create the best smart-phone on the market.  Cisco’s iPhone is meant to be used with the free computer to computer chat program Skype which is owned by Ebay.

Skype is chat software similar to that of AOL Instant Messenger, MSN Messenger or Yahoo Instant Messenger.  Skype though, offers unparalleled clarity in its voice chatting.  Skype users can use headsets or phones hooked to the internet via landline, fiber or even wirelessly and chat to other skype members who are connected in the same way.

Why is this the greatest thing since sliced bread?
Free wireless internet is all the rage.  Companies such as Google are purchasing unused fiber by the ton to allow access to the internet anywhere within wireless range.  Google plans to make whole cities wireless hotspots so that people anywhere within range can access to internet for free with no restrictions.  Some Cities have also caught on and are offering free wireless for their inhabitants.  My city in particular has made Main Street wirelessly connected to the internet and cities like Philadelphia now offer city-wide wireless coverage as one of the many benefits of living there.

So who cares?  Wireless has been around forever.  Imagine though, that if every place in the world was covered by a giant wifi hotspot.  (This isn’t that out there, I can see it within 10-15 years as technology races ahead.) Now imagine that you and everyone else you know has a phone that can connect to wireless hotspots and access the program Skype.  You would essentially be able to log onto your skype account and call anyone in the world for free!  The voice functions would be sent wirelessly to any other person you would like who is currently in a wifi hotspot.  All your communications would be made over the internet in real time, much like cell phones minus the monthly charges. 

This new iPhone could essentially be a free phone for life.  Your correspondence will be dispatched over one of the many internet hotspots offered by your city, or even in your own home to another person hundreds of miles away who is also connected in the very same way.  You, as the consumer, would incur no extra data charges and you could kiss that terrible monthly bill goodbye.

Am I a buyer?
Of the phone, yes. The companies involved, no thanks.

Apple and Cisco are both overpriced in my opinion.  Apple represents a company lagging that of its cost cutting competitor.  Its software is largely unused in the corporate world which represents a large portion of the overall market and only 10% of people actually own a Mac.  Apples core businesses, software and hardware for computers is slowly falling out.  The iPod and iPhone lines are two very profitable lines that will completely eclipse the sale of computers and computer parts. 

The rapid expansion of Apple, in my opinion is less than positive.  I cannot expect the same growth rates from a company now showing its age.  Increased product lines do ensure a stable company but can also bring gloom if Apple can’t keep on top of its core businesses.  It is important to note that Apple has increasing competition from its superior in computers, Microsoft, in the mp3 market.  The iPod is king, but only if the price is right.

In the end, neither company is worth purchasing.  Stick to the phone, it will probably save the consumer $300-$1000 per year in cell charges if the product is created as I have envisioned.  This new phone will quickly become THE phone, but only if these two companies allow it.

Thursday, February 22, 2007

Airlines

Airlines

The Airlines have been receiving much publicity after JetBlue stranded its passengers on a grounded plane for hours.  JetBlue was formerly the only airline that I would have considered investing any of my hard earned money into. 

After the incident, today JetBlue has announced that it will cut its first quarter earnings.  The company has taken heavy losses after thousands of flights had to be cancelled due to poor weather in the northeast.  I think the company could have made it trhough the first quarter without coming out to restate its earnings outlook.  But this is just the JetBlue way, maximum disclosure to its investors even if it may hurt its share price.

Oddly, the price of JetBlue shares improved today from 12.90 to $13.37.  I would not have expected this from a company that announced it expected to lose money in the first quarter, although both JetBlue the corporation and the investors behind it are a little different to begin. 

The company is now busy hammering out a “bill of rights” or a list of services that JetBlue fliers should not only expect, but also receive while on it’s flights.  I think this is a positive for the airline industry that has taken a more scandalous look after the terrorist attacks and frequent flier scams.

Higher gas prices have threatened the profitability of most major airlines.  Southwest and JetBlue are the only companies who have seemingly circumvented higher costs.  JetBlue has traditionally been a low cost airline while Southwest enacted a contract to buy fuel at a set price.  This has proved to be one of the smartest business moves Southwest could make, effectively locking the price of oil at slightly less than $60 a barrel.

JetBlue expects to return to profitability in the summer months as travel picks up.  This quarter was really just a fluke in the growth of a baby airliner.  I think JetBlue could rise to the status of Southwest, a bigger jet line known for its entertaining crew and classless flights.  Southwest trades under the ticker symbol LUV.

Tuesday, February 20, 2007

XM and Sirius Deal

XM and Sirius Deal

I think this could be the best thing that has ever happened to these two, very similar, companies.

Both have been locked in a bitter rivalry that has cost each company millions of dollars to sign stars such as Opra and Howard stern.  The bitter battle between the two unprofitable satellite radio companies is finally over and the expected merger will hopefully spark some much needed savings.

Both companies have spent billions of dollars to win new customers.  And both are still unprofitable.  Now that the two have merged, the new company will face several tasks including: finding a new name for the merged companies, creating a schedule of radio content, deciphering the need for satellite radio and the most important, convincing the FCC to allow the merger.

The merger is somewhat crippled by an FCC provision that specifically mentions the two companies will not be allowed to combine.  The merger would create one company controlling 100% of the satellite radiowaves.  Traditionally the consumer has best benefitted from a marketplace with two competitors.  The new company must prove that the merger is in the customers best interest.

The new company hopes to show that this isn’t about Sirius and XM radio but rather satellite radio vs regular radio, TV and other traditional methods of communication.  The consumer may be the ultimate benefactor in the merger because of decreased prices of the hardware needed to receive broadcasts.

A deal like this has been expected for months, most notably by investor Jim Cramer who appears each night on Mad Money on CNBC.  The new company should have an easier time convincing users to buy commercial free radio broadcasts at $13 per month.

Thursday, February 15, 2007

Toyota building a Factory in India

Toyota building a Factory in India

There is no other company in the world so aggressive and successful as Toyota motor company.  They make inexpensive cars and sell them at high prices with all the fixings.  Not to mention most Toyotas make it past 250,000 miles.

That said, let’s look at this with an open mind.  I know many a World War II veteran who would never buy a Japanese car yet alone invest in a foreign company.  Put the guns and nationalism behind, because they aren’t going to help you with your money.  Put your money where the money is, not where your mouth is. 

Now lets look at this fundamentally.  Toyota has the legacy, the money, and the ability to produce cars to completely destroy anything Detroit could produce.  And for all intents and purposes they have.  GM and Ford can’t keep up with the competition, that being mainly Toyota .

The simple facts about Toyota :
Market Cap: 237.88B
P/E:16.03
Forward PE: 14.2 (PE one year from now with expected earnings)

This stock is IT!  Huge growth prospects and outright cheap, but I think we could see it come back down in price, ripe for a snatching.

Price to earnings, a factor I rarely give the time of day, is cheap.  A stock with the growth prospects like that of Toyota should be selling at even a PE of 25.  Right now, I see this stock undervalued by 50%.

Competition
Competition from companies such as GM and Ford is less than nothing, truly. Toyota has more effective and less expensive health care and pension programs than American corporations. And it is these same things that have really put the financial strain on American automobiles.

GM and Ford have resorted to building more expensive, higher margin automobiles, aka SUVs and big trucks. These products, I believe, have come out of favor with consumers of the 21st century. High gas prices and a limited need for such obscure automobiles leaves little money to be made.

Toyota and Honda have simply pioneered the future of hybrid and other fuel efficient cars. Toyota has the prominent Camry and Corolla lines in both regular and hybrid forms. Its products like these that keep the automobile industry moving forward while their competition stays in the dark ages.

This new factory allows Toyota to enter the coveted Indian and perhaps eventually Chinese markets. It is expected that India will grow into a country with one of the largest car ownerships per capita. India is experiencing extreme growth rates from telemarketing and customer service job openings. Outsourcing to Indian labor provides inexpensive alternatives to companies that can then pass the savings onto the consumer.

I expect the Indian populations to start buying personal cars. Today’s India is much like that of post WWII America.

It is in these Asian markets, Japan included of course, that Toyota will reach global dominance as an autmobile manufacturer. I can foresee Toyota stock trading at a single digit PE and a stock price of $200+. This is the value play for 2007 and beyond.

Pickup some of this stock if you want a play to protect yourself from a falling dollar, a slowing American economy or to invest in a company that is leading the way in its field. Simply, this stock is it.

Monday, February 12, 2007

Trendy and profitable

Trendy and profitable

Cigarettes.  Known as the killer of millions worldwide each year but still consumed at regular intervals throughout the day by its addicts, cigarettes and their manufacturers are finally coming back to “investment grade.”

You would think, that a product with the reputation like that of a cigarette would have to be given away for free in order to get people to use them.  In the US, smoking is being outlawed in public places city by city, more and more taxes are applied each year to retail price and part of the cigarette company’s marketshare dies each year because of cigarettes yet the price of the manufacturer’s stock couldn’t be in a better position.

Altria, formerly Phillip Morris, has announced that it will spin off its Kraft Foods unit (which it purchased just a few years ago) to return to a 100% tobacco product manufacturer.  This is certainly interesting news.  How could a tobacco company survive on its own when the consumer base dwindles each year?  Even grade school children are subjected to antismoking lectures at least 2-3 times a year by programs such as DARE or various other anti-drug programs.  The tobacco industry must have something up their sleeve.

It is also worth noting that the leading tobacco stocks have outperformed the S&P 500 for the last 6 years.  Also, Altria is the best performing stock of all time when including dividend reinvestments.  This is surely something that cannot go ignored.

So why are these stocks performing so well?

Product
There is not a chance that a new and improved cigarette will come out to replace the current products.  Smokers have no other way to get their nicotine buzz but from a cigarette, unless they really like nicorette gum

Addiction
Stopping smoking is relatively easy, that’s why each smoker tries it 10-15 maybe even 100 times.  (That was a joke) Nicotiene addiction is a serious issue that goes farther than just a desire to smoke.  Cigarettes could easily be the only legal product that leaves a user in severe disrepair when the cigarette is not available to a craving smoker.  These withdraw symptoms are surely the reason for such high rates of smoking because when health risks are compared to the buzz achieved from smoking, most smokers would probably rather not smoke.

Production
The production of tobacco and then cigarettes is extremely cheap.  No R&D spending will ever be needed to sustain a tobacco company because simply cigarettes can’t and won’t change.  They haven’t for decades.  There is already a market in place for cigarettes that won’t soon disappear. 

Pricing
We’ll pay whatever it costs to get what we want.  When gas topped $3 in the United States I saw no real slowdown in driving but in just one instense where I saw a biker with the words “Hey at least I’m doing something about it” written across his back.  If cigarettes jumped $1 per pack for every brand the amount of consumption would stay the same.  Cigarette smokers can only change brands, they can’t just go buy something else to get their fix. 

Lawsuits
Lawsuits over health issues stemming from smoking dominated the airwaves in the late 90s and into the 2000s but the majority of these cases have been settled and judges and jurors alike have become less likely to hand out money to smokers.  The mindset of “you chose to smoke” has finally settled in.  The lawsuit era is hopefully coming to a close.  I’m sure we’ll see less and less tobacco related lawsuits in the years to come.

After dumping Kraft, Altria has plenty of money to both buyout competitors and to invest in other areas to keep their money working.  The money generated from the sale of Kraft will probably be used to fund further investment into the cigarette marketplace.  If one company controls a majority of cigarette production, they can raise prices as much as they want because most smokers won’t live without a smoke.

Smoking is becoming more and more accepted in emerging markets outside the US and Europe where the amount of smokers is dwindling.  There are millions of smokers in China, an estimated 300 million.  Even in the US, there are 45 Million smokers, or 15% of the population.

Expect nothing but the best of returns from Altria and various other cigarette manufacturers.  These companies will not be replaced any time soon.  Smoking is here to stay because of the addictive qualities of tobacco.  The best way to profit from this “evil” is to take stake in the companies.  I see no shortage of oversized earning reports in the future.

Saturday, February 10, 2007

General Motors

General Motors

Sell time again?

This company is in the biggest financial crisis ever.  If that’s not reason to sell, maybe the trends will be.  This stock is a dumper, now.

The only true support that I see for this stock is at the price per share of $20, breaking through twenty could mean this stock becomes a penny stock.  If you look at the trend lines since this company’s peak at $80 a share you will see two things, the first being that all the trend lines were down, the second would be the amount of pressure by the 200 week moving average to keep this stock down.

Even Kerkorian himself, the previous number one investor in GM dumped his portion of GM to invest more into his thriving vegas real estate and gambling empire.  He stuck with GM through thick and thin but apparently prices in excess of $25 per share were the right price for his tattered GM stock.  He sold out completely, in a time of less than a week he had dumped every last share.

No longer does this brand, as an investment, carry any namesake or weight to it.  I thought that the company’s best shot would lie in the strength of Kerkorian’s name as one of the best investors this world has seen. 

The stock has recovered slightly from decade lows of $20 per share and now trades at almost $34 per share.  As far as I’m concerned, the price of GM should be $20 right now.  A fall to $20 per share would represent a 42% loss, good enough for an investment in my book.

Just look at the trend, that’s all you really need to see.  The last few months of gains were bounce from the $20 mark.  GM should take another dive to $20 again, and very soon according to this chart.  I expect fully GM to touch $20 by the end of 2007.

I recommend trading this play with options.  Options are one of the best ways to leverage your investment into a really big gain.  Options for Jan08 would be best because of the timeframe

Friday, February 09, 2007

GBPUSD revisited

GBPUSD revisited

Just for a little while anyway.

The GBPUSD is what I expect, about to shed a lot of value.  The USD looks oversold at this point and in my opinion can only go up in value from here.  I expect this pair to shed in upwards of 1000 pips as I have said before.  This means a 500% ROI at just 50:1 leverage.  Factor in compounding every double, you could see $32000 just from a $1,000 investment.  Its not the straight up returns that make people rich, it’s the compounding in and out of investments.  I’m already on my third investment into this pair, I think this pair truly has what it takes to make me rich.

A major factor was overcome today, that being the 200 period 3 hour bar, simple moving average of course.  The movement through the 200 period MA was as expected, extremely violent with a strong burst over just 30 minutes today.  We saw the pair move to the MA then have some remorse and travel back upward for 30-40 pips before slamming back through the MA and even now the GBPUSD remains below the 200 day MA.

So there you have it, yet another “hey look this is for real” deal and a “technical analysis really does work” post.  I really do want readers to get in on this, I make nothing from recommending this as the general public doesn’t have enough money to truly move the market like an oversized institution could.  AKA the FED.

Thursday, February 01, 2007

January 2000

January 2000

We all know what that time period was.  The most recent crash yet, this time it was the falling tech sector.  Much like the 1929 crash that ultimately caused the great depression, this crash was because of an over hyped market with little “true value.” The market had no sense of what a security should be worth, just what it could be worth.

With these values in mind, it is impossible to think that any investment in the market was a good one. 

Now there is a new study out that says anytime a majority of newsletter, magazine or newspaper magazines see a rising market, that usually indicates a future fallout.  How can we not say articles are for the most art in favor of the markets after titles like “New record” “Dow tops 12000” “Best year of the decade!”

In 2006, the S&P500 returned a whopping 14%.  This was one of the best years for the markets as a whole.  Many companies were sold or purchased by domestic and foreign money.  2006 was the best year for any value investors due to lower and lower PE ratios.

These scenarios are especially true with the recent real estate boom in the United States.  Just as the market started falling out, book upon book upon book was coming out and more people appeared on TV promising to teach the average person how to become a real estate millionaire.

Getting cash back at closing and using it as a down payment on yet another home became all the rage in most of the United States.  Now we’re oversaturated with houses and as rates fell, more people could afford bigger house.  At higher rates though, the market is almost stagnant, winter probably didn’t help this situation either.

The facts are there and will always be there.  Risk can not be avoided if any gain is expected.  When we mix this risk with our own human psyche we tend to psych ourselves out.  Our emotions are the worst thing to let out of control, besides politicians of course!  Gains or losses on the markets can be huge emotional gains or losses.  We tend to act differently as when we are calmed and relaxed.  When I am amped up and trading I know for a fact I act differently, I’ll reconsider all of my trades and have some suicidal financal thoughts.  Take profits and stop losses can help prevent your inner self from taking the wheel but none of it is 100%.

Dollar cost averaging also takes the guessing work out of investing.  When we average our investments into the market over time, it can benefit us if our positions lose in the short term.  Losses can be turned into profits because of decreased share prices.  With dollar cost averaging I can buy into stocks at their worst and best and still profit from both.  This takes away some potential profits but also some risk.

Time for the hard numbers:

In January 2000, 56% of investment articles were bullish.  This was right before stocks crashed.  Today, 60% of newsletter writers see stocks rising.

Obviously this data is not a 100% prediction.  There is no way to truly predict 100% what direction the market will move, these numbers are merely for consideration and pondering. 

Looking at the past 5 years, the markets have been doing rather well.  This would complete the cycle that has existed since the beginning of financial markets.  4-5 good years then one poor year, rinse and repeat.  Just something to think about.

Buy bonds

Buy bonds

Bonds are the hot investment right now, but what are bonds?

Bonds are essentially debt.  When a bond is purchased, the buyer is entitled to be returned the amount of the bond (debt to the issuer) along with an interest rate specified when the bond was sold.  It is made with the understanding that the issuer will have enough money to repay the purchaser at a set end date, although some bonds can be redeemed early.  Obviously, this cuts into future interest rate returns but also lowers the risk the issuer might go broke before your investment is returned.

The bond market is hard to understand because everyday investors have been hidden from it.  Much like the options market, the bonds markets are full of jargon that would only make sense to someone very familiar with the trading of said bonds.  MBAs really like to sound intelligent

When bonds are first “created” or generated they are sold to investors in amounts that would make sense, round numbers if you will.  Lets say Disney wants to raise $1M for a new ride at Disney world.  The corporation could issue 1000, $1000 bonds in order to raise enough money.  The bonds are sold to the buyers with an attached interest rate, we’ll say 5% a year.  Each year 5% of the $1000 ($50) is returned to the investor, this may also take place in monthly or quarterly payments, semi-annually is another time period that is used but more rare than monthly or quarterly.  At the maturation date the bond is cleared by a $1000 payment back to the investor.  At this point the bond terminates, its no longer existent.  The investor has received his or her dividend each year along with their original investment and the corporation received a cheap loan.  The difference between a bond and a loan is that a bond can be easily traded in unit sizes (in the previous case, $1000) and typically the bond has a standard contract form.

There are many types of bonds:

1 The US treasury bonds, or any countries federal borrowing system.
2 Corporate bonds
3 Municipal bonds
4 Junk bonds

1 The US treasury issues bonds to fund the federal government’s interesting practices.  The treasury has a very big advantage in borrowing over that of a corporation because the treasury can essentially print however much money is needed in order to make good on payments.  Regardless of what you heard in your High School economics classes, the US can print money whenever it desires, this doesn’t mean it isn’t bad on the economy, its terrible.  The federal government has this right but using it will come to be a loss for anyone in possession of US dollars.  A few other countries borrow from themselves but usually, especially in developing nations with debt issues, the countries borrow foreign money.  (Foreign money is always better because it increases the overall worth of the nations economy) Foreign money comes at a price however.  As I have mentioned before, borrowing from one country to deposit in another can be financially devastating if the exchange rates are volatile.

If the economy of the borrowing country falters, the value of its currency falls and the payments to the lender are more than before because the new exchange rate.  Developing nations have come up with a system to beat this terrible cycle by holding masses of US dollars to pay for loans when their own currency loses value.  The holding of the dollar by foreign countries is also helpful to the United States.  Less money in circulation means its worth more!

2 Corporate bonds are another form of bonds.  These bonds are much like my Disney scenario above where bonds are issued to fund the company’s operations.  These bonds usually carry more rules and stipulations such as “call rights” that allow a company to buy back the bonds for the debt amount at certain times, such as two years into the debt issuance.  Some corporations also allow a bondholder to convert the value of the bond into shares of stock.  This only happens on rare occasions. 

3 The municipal bond is offered by local offices to fund things such a new football stadium or to make a new bike trail in the city.  These bonds offer additional tax benefits that greatly increase their value.  The value of municipal bonds isn’t in its interest as much as it is in its tax benefit to the individual investor.

4 Junk bonds.  Junk bonds are basically like the credit card debt of lower class America.  Junk bonds are just that, junk bonds.  These bonds are labeled as junk bonds because they do not fit investment grade like corporate or US treasury bonds.  These bonds often pay double digit returns because of their extreme risk and the possibility the issuer may go bankrupt.  Junk bonds are not an investment I would recommend to any investor.  Most junk bonds are funding start ups with no income or established companies just waiting to go bankrupt.

It is important to understand that interest is only paid on the base price of a bond.  When bonds are sold on the open market, a $100 bond may sell for $102, although the interest payments will be calculated on a $100 investment, not $102.  It is also true that bonds may sell for a discount such as $98 for a $100 bond, in which case interest will be calculated on the $100 issue amount.  Buying a $100 bond means you are buying $100 in debt to a company, it is possible that you could pay just $1 for $100 in debt.  Granted, a bond at $.01 to the dollar will probably not pay interest next due time because the company is most likely going under.

The yield on a $1000 bond purchased for $900 will be considerably higher than the original yield.  If I were to purchase a $1000 bond at 9% for $900, I would receive $90 per year or 10% on my investment.  This relationship makes most sense on US treasuries.

US treasuries are known for being virtually lossless investments because the government will always have the ability to make good on payments via printing more money.  The rates are extremely important because the rates are THE number for how much money is available to the government.  The rates not only affect the federal government but they also trickle down to affect even credit cards or a student loan.  This interest rate is IT!

The term used to describe the change in return due to a price change of a bond is known as duration for whatever reason.  The duration is not how long a bond is valid, do not get these two mixed up.  The duration is simply an equation used to determine the interest rate in regards to a price that differs from the original issue.  Basically, the duration tells you what you’re going to get on your money.  Important, no?

If you own treasury bonds with a duration of 7, duration is the multiplier of course, and the interest rate rises .1%, expect the price of your bonds to DROP by .7%.  Interest rates never really change, they just adjust to the price of the bond.  When the bond drops in price, the effective interest rate goes up because the interest is still paid on the original issue, NOT the new value.

This is the bonds way of equilibrium.  In loans, money market accounts or various other forms of interest, the interest rate is adjusted.  In bonds, the value is adjusted by the markets to raise or lower the interest rate.  $20 is 10% on 200 while it is 50% on a $40 bond.

It is important to remember though that duration is a word that is changed in and out of financial texts.  One day you will find it as a “multiplier” or a “interest multiple.” Investors don’t like to make anything simple, although the most simple things often yield the most money.

Another, semi-complicated piece to bond investing is the Bond Rollup.  See as your bond ages it goes from a 10 year bond to a 9 year bond to a 8 and a half year bond (half year was a hyperbole) but you get the picture.  If I buy a 10 year bond right now, in 5 years it will trade on the market as a 5 year bond, and thus, receive 5 year interest rates.  For the first few years of the bond’s life is when it pays the best interest rate.  Any time after this the rate will slowly deteriorate because the longevity of the bond is also decreasing.

In normal scenarios, long term lending pays the highest rate.  Right now and at various points throughout history the yield curve will go upside down and short term is cheaper than long term.  As the bond ages it becomes a short term bond and more people are willing to invest in such a bond as people don’t like to lock up funds for a decade at the time.  This means that the interest rate will probably drop but the price of the bond will also rise as you have a greater market to sell your bonds.

Everything in the markets is equal.  Buying short term bonds means low rates, long term bonds means you lock up capital for longer but this time in exchange for a slightly higher rate of return.

Another drop in the bond bucket is the ability to invest in overseas bonds with cheaply borrowed capital.  For example, in forex, borrowing from Japan to loan to Brazil at an 18% yearly interest rate.  This is very risky because the exchange rate can go up or down and further add to the amount made or lost.

There are many different types and grades of bonds.  Bonds have grades but not like that of school.  An A grade bond is the best corporate bonds can be.  I would not suggest investing in B grade bonds, leave these for the professionals even though a B really isn’t that bad schoolwise.

The bond market can be fun and rewarding.  The best way to get into bonds would be through a mutual fund that specializes in bonds.  Picking individual bonds can be a tricky task so leave it up to a manager to do it for you.  Bonds have a lot more variables than just a PE ratio or trendmapping.