Strategy Lab: Spooking up a 15% weekly gain

October 31, 2008

I look back at this scary week and feel very satisfied to be in positive territory after a terrifying fight with the market. Through the use of technical analysis I have been able to spook up almost 15% total portfolio returns since last week to actually move into positive territory. That is quite a treat in this market.

Sometimes, it is much better to be lucky than good, but I feel that I really positioned myself well for a ricochet in the markets. Federal Reserve Chairman Ben Bernanke came into Halloween week primed to exorcise this possessed market. I am far from safe, though, as there are many skeletons still lurking in the closet that will surely show up in some form of economic data over the coming weeks.

Gross Domestic Product came out horrifyingly low at -0.3% and inflation is on the foggy horizon. It is possible that we will see some equally terrifying data coming out today in the form of the Chicago Purchasing Managers Index, the Reuters/University of Michigan consumer sentiment index and the Commerce Department’s personal income and spending numbers.

Read what we are investing in now HERE

$50 billion of bailout going to bonuses

October 31, 2008

If it isn’t enough to make you sick to your stomach that U.S. taxpayer monies are apparently going to bailout the world’s economies, new information has come to light that several banks are planning to pay billions of dollars in year-end bonuses from the bailout funds they received.  Already investigations are beginning into the nine banks that took in the first $125 billion. Yes, the same $125 billion that was supposed to be used to unclog the credit system which was preventing banks from providing much needed funds for individuals and businesses.

There are many feathers in a ruffle over this and New York Attorney General Andrew Cuomo and several congressmen are furious that over $20 billion has already been earmarked as bonus monies for management and employees. Unbelievably, that is just the estimates from Goldman Sachs (GS), Morgan Stanley (MS) and Merrill Lynch (MER). There are six more banks that are also working on similar heists.

Here is the rationale for why they need to use these funds: Read more…

Really Diggin’ DIG

October 30, 2008

It has been an amazing thing to watch as crude oil has dropped from $147ish to under $60 per barrel. We chose to close out our DUG position for a nice profit, although admittedly too soon. But the recent drop in oil, coupled with the shellacking that the companies within the Oil & Gas Index took was too tantalizing to pass up.

Currently, we have a 10% position for TDI Managed Growth invested portfolios in the ProShares Ultra Oil & Gas (DIG) as well as a similar allocation in my MSN Strategy Lab portfolio.

The impending rate cut was more reason to hold tight to this allocation as we felt that some level of cut would help to push down the parabolic rise in the U.S. dollar causing the price of oil to rise. That occurred right on cue.

Bloomberg is reporting:

Crude oil rose for a second day as interest rate cuts in the U.S. and China, the world’s two- biggest energy consumers, spurred optimism that a global economic recovery will boost demand for fuels.

Oil is set for its biggest two-day gain in five weeks after the U.S. Federal Reserve reduced rates by half a percentage point. China and Taiwan lowered rates while Japan may reduce its benchmark interest rate tomorrow and the European Central Bank is slated to do the same next week.

After the wild market close on Wednesday, additional stimulus in the form of $30 billion of “loans” to emerging markets was provided by the U.S. causing markets around Asia to rocket higher. That in turn helped to boost the idea that global demand could create increased oil demand.

Crude oil for December delivery climbed as much as $2.30, or 3.4 percent, to $69.80 a barrel. It was trading at $69.58 at 11:43 a.m. Singapore time on the New York Mercantile Exchange. Yesterday, crude oil jumped $4.77, or 7.6 percent, to settle at $67.50 a barrel. That was the biggest gain since Sept. 22, bringing the two-day increase to 11 percent.

Crude prices also climbed as the dollar extended yesterday’s decline, falling to a one-week low against the euro. The dollar fell to $1.3183 per euro, the lowest since Oct. 21, and traded at $1.3170 as of 11:16 a.m. in Tokyo from $1.2963 late yesterday. The yen weakened to 98.40 per dollar from 97.39.

If that was not enough…

The Organization of Petroleum Exporting Countries will “probably” cut crude-output quotas a second time to avoid the growth of inventories, Venezuelan Oil Minister Rafael Ramirez said in an interview on state television.

OPEC reduced its production target by 1.5 million barrels a day after meeting Oct. 24. Ramirez said the group would analyze the reaction of the oil market between that cut and a planned Dec. 17 meeting.

U.S. inventories of crude oil and distillate fuel, a category that includes heating oil and diesel, rose last week, an Energy Department report yesterday showed.

Add to that today’s inventory release:

Crude oil stockpiles climbed 493,000 barrels to 311.9 million barrels in the week ended Oct. 24, the department said. A 1.55 million-barrel gain was forecast, according to the median of 12 analyst estimates before the report.

Distillate inventories rose 2.33 million barrels to 126.6 million barrels last week. Analysts forecast that supplies increased 1.05 million barrels. Gasoline stockpiles dropped 1.51 million barrels to 195 million barrels, the first decline in five weeks. A 1.5 million-barrel gain was forecast.

Imports of crude oil fell 0.6 percent to 10.3 million barrels a day last week, the Energy Department said. The amount of oil products brought from overseas declined 12 percent to 2.9 million barrels a day.

On the other hand…

Demand for residual fuel, a category that includes heavy fuel oil, averaged 436,000 barrels a day during the period, down 31 percent from a year earlier. Some manufacturers and utilities can switch between residual fuel and natural gas depending on costs. The department measures shipments from refineries, pipelines and terminals to calculate demand.

No matter how you look at it, it appears that a nice bounce for the Oil and Gas index could be imminent.

$500 Billion of 401k wealth is destroyed

October 30, 2008

There is real concern these days that many people who were planning on retiring will have to postpone that idea for a few more years or perhaps indefinitely. That brings up a whole host of problems that will probably show up in unexpected ways. For one, as these “senior” workers keep their jobs, the cost for benefits will go up – potentially costing companies more and more.

More worrisome though is the fact that the jobs that were supposed to be slotted for a new crop of young workers will be unavailable. Remember, these are the spenders while the older population are considered the savers. So while this is possibly good news for the investment markets as more money may be poured into savings accounts, it may be bad news for the economy as spending is reduced. Read more

Bruce Springsteen’s Economic Wisdom

October 29, 2008

As I was thinking about all that is going on, I cobbled together a summary of the market madness inspired by a list of Bruce Springsteen’s songs. I am even thinking of writing him in as my choice for President since I am having a very difficult time deciding who to vote for.

I hope The Boss would approve….

(Song titles in bold/caps)

I am certain that there are BETTER DAYS ahead as the markets are generally BORN TO RUN. My advice is simply: DON’T LOOK BACK and realize that there is no MAGIC formula in the world of investing. Right now, there is panic OUT IN THE STREET and in the REAL WORLD these days every REAL MAN is having troubles and RESTLESS NIGHTS because PARADISE seems LOST IN THE FLOOD of the market turmoil.

This has been a LONG TIME COMIN’ and the worry about keeping a MAN’S JOB on top of this mess makes this time TOUGHER THAN THE REST. It is clearly a WAR taking place started by the financial companies stoked by greed that made many investors now understand that WE ARE OUR OWN WORST ENEMY. Bruce Springsteen for President

We borrowed too much and created an environment of ALL OR NOTHING. But, be sure that you, me and WE SHALL OVERCOME. Right now though, the market is being pushed and pulled by many DEVILS AND DUST particles will surely begin to settle after the election.

Remember, the markets cannot deal with uncertainty and when the MAN AT THE TOP is found and that LUCKY MAN is known, we will be ONE STEP UP towards reduced volatility.

One thing we do know is that right now, investing in the financial markets is a ROLL OF THE DICE or perhaps more like a game of ROULETTE, but there is REASON TO BELIEVE that the SEEDS planted by the FED and Treasury will eventually SPARK THE FUSE that could create a bull FEVER from these levels.

How long will it last is the real question as we all wonder WHEN THE LIGHTS WILL GO OUT on the rally. Now it is right to be a CAUTIOUS MAN into a time when short sellers are screaming COVER ME and frantically pushing stocks up in an environment of NO SURRENDER.

This is no longer a world that is run by those who are “in-the-know” who have our best interests at heart. Rather, it appears that those in charge are PART MAN AND PART MONKEY that gave us THE PROMISE of the American Dream only to issue more and more credit; better know as THE TIES THAT BIND.

THE LINE has been crossed and it appears that while we may seem TRAPPED AGAIN by bills and financial worries, those that have realized early on that it is time to take matters into their own hands will eventually LAUGH ALL THE WAY HOME. We know all too well that the credit crisis was BORN IN THE U.S.A. and has spread ACROSS THE BORDER and now beyond THE RIVER. But, in the REAL WORLD, things have a way of cycling and this too shall pass. Now we need to look OVER THE RISE to seek and plan for yours and MY BEAUTIFUL REWARDS.

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