Cage Match: The President vs. The CEOs

January 27, 2009

1-27-2009-12-08-07-amFrom my latest MSN Strategy Lab Journal:

Market manipulators won’t go down without a fight against President Obama’s reform plans for Wall Street.

It appears that we could be heading for a showdown. In one corner: the Masters of Disasters, the Thrashers of Crashers, a.k.a. the Lending Loonies (theatrical pause) . . . Bank CEOs and Financial Company CEOs and Upper Management! In the other corner, the Cool of Rule, the Pope of Hope, the Arranger and Changer … President Barak Obama. (crowd roars).

It is no joke. The likes of Goldman Sachs (GS) Morgan Stanley (MS) and JP Morgan (JPM) have a lot to worry about. No one argues that there is a new sheriff in town and he is aiming to clean up the street. So far, he has not given the “you are out of this town by high noon tomorrow” speech, but who knows how far you can push a man on a mission.

For too long, the markets have been run and even at times manipulated by those that will do anything to make a buck. Just this summer, we were astonished to learn that a little known legal loophole was left open after the Enron debacle. Now known as the Enron Loophole, it was one of the main reasons that the price of oil was headed to $200 per barrel. Only until the Commodity Futures Trading Commission intervened and ultimately changed the definition of who was considered a speculator did the price of oil begin to fall.

Yet, all the time, Goldman Sachs analyst “Arjun “where is he now?” Murti was projecting that we should see oil at $150-$200 within a year. Here is something to think about: What firms made a killing trading oil during 2007-2008?

Read the entire journal entry HERE

Strategy Lab: UPDATE – Horowitz Up 13.5%

January 23, 2009

This week’s summary from MSN Strategy Lab:MS Money Logo

Banks are still in big trouble, the job market is worsening and Wall Street is a minefield for investors. Yet one of our players has managed a double-digit gain since August.

Disciplined Investor Andrew Horowitz, meanwhile, went even further on the frustration scale in his journal “Why invest in this market anyway?” He rejects the notion stocks are cheap and takes on folks like Warren Buffett and Vanguard’s John Bogle.

“This is not a popular commentary. I know that many investors would prefer to hear all about opportunities to make money on the ‘upside,'” he writes. “But until there is one shred of good news, I refuse to throw my hard-earned money into a bonfire just to watch it be incinerated.” Read more

Video: Keys to a Successful Portfolio

January 23, 2009

I am asked about the general strategy that has kept our Strategy Lab portfolio ahead of the S&P 500 by +40%. How did we get there, where do we see the markets going….?

Click to see the video on The Money Show site


Have you checked out these videos?

Strategy Lab: Why invest in this market anyway?

January 21, 2009

stratlabOver the past few months, there have been many voices shouting out about the need for investors to get into the market, as pricing is now considered “cheap.” Warren Buffett spoke up about it in October — Berkshire Hathaway  is down 10% more in 2009 — as did a few other astute pundits. I would not want to take anything away from them, as they are much wiser and wealthier than I. But how about a dose of reality and a touch less self-serving blather?

Just Tuesday morning, I was watching Vanguard’s John Bogle discuss the need for a transaction tax on investments. Now doesn’t that seem to be a commenter who is hoping to move more people into a buy-and-hold (aka, till-death-do-us-part) strategy? That’s the same strategy that has pummeled the average investor over the past 12 months. Why would Bogle even consider something so radical?

Oh, that’s right, he runs a company that earns it keep by providing low-cost index funds with low turnover. Of course, low turnover would provide protection against a trading tax and hurt those pesky advisors who attempt to get out of the way of a speeding truck, also known as a market correction.

Where do we go from here?

Read the entire journal HERE

Strategy Lab: The Impact on the Market from Option’s Expiration

January 19, 2009

stratlab(From my latest journal entry for the MSN Strategy Lab. Take a look on the left at the current standings)

In this volatile market, contracts on options have become increasingly more expensive. This is because the main pricing components of options are: expected rate of return, volatility of the underlying security and time until expiration.

As we saw the key volatility indexes soar in 2008, we saw premiums on options — which give you the right to buy a stock at a certain price — increase. Volatility in the market presumes there is higher probability that an option will be exercised before the option itself expires.

Generally speaking, most funds are sellers of premium, which basically means they are selling a call or put to make money from an option. During an options expiration day, if the underlying security is approaching a level where there is quite a bit of open interest for a large fund, then that fund may protect its options by keeping it below the strike price. Read more

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