Investing has become increasingly important over the years, as the future of social security benefits becomes unknown.
People require to insure their futures, and they know that in the event that they are depending on Social Security benefits, and in some cases retirement designs, that they may be in for a shroud awakening when they no longer have the ability to earn a steady income. Investing is the answer to the unknowns of the future.
You may have been saving funds in a low interest savings account over the years. Now, you require to see that funds grow at a faster pace. Perhaps you have inherited funds or realized some other type of windfall, and you require a way to make that funds grow. Again, investing is the answer.
Investing is a way of attaining the things that you require, such as a new home, a college schooling for your children, or expensive toys for your kids. Your financial goals will decide what type of investing you do.
In the event where you require to make lots of funds rapid, you would be more interested in higher risk investing, which will give you a bigger return in a shorter amount of time. But in the case where you are saving for something in the far off future, such as retirement, you would require to make safer investments that grow over an extended timeframe.
The general purpose in investing is to generate wealth and security, over a timeframe. It is important to keep in mind that you won't always be able to earn an income you will finally require to retire.
You also cannot count on the social security method to do what you expect it to do. As we have seen with Enron, you also cannot necessarily depend on your company's retirement plan either. So, again, investing is the key to insuring your own financial future, but you must make smart investments!
Monday, September 17, 2012
Saturday, May 7, 2011
As Predicted, the Oil Price Reverses
by Andrew Butte
Identifying bubbles is not (very) hard, what’s hard is predicting at what price and when they will pop. Two weeks ago I wrote an article titled “FAO Food Index Predicting a Reversal in Crude Oil Prices”. I’d say a 15% decline in Brent from $127 to $110 qualifies as a “reversal”. Outside of noticing that food prices slightly lead oil prices, the logic behind that argument was:
1: The Libya thing was a Red Herring used by the speculators to instill a bit of panic into the market; there never was a short-fall of oil compared to demand (short-term) and there still isn’t.
2: The Saudi’s might have a sulk about what they perceived as misinformed and impolite comments from various corners of the US Administration about the human rights of minorities and all that baloney. But ultimately, they know that the alternative to sucking up to America (making sure oil does not get too expensive for America’s taste), is not an option, and they know America knows that and America knows they know America knows that. Perhaps it wasn’t a coincidence that oil prices tanked soon after Osama bin Laden was in the news (hopefully for the last time), and as that subject hit the headlines, memories were jogged that 14 out of the 19 terrorists in 9/11 were Saudi’s?
3: The correct price of oil right now valued according to what the world can afford to pay (without suffering unduly), is about $90 (Brent). So at $127 oil was a 40% bubble, bubbles do have a habit of popping once they get to 40% over the “fundamental”.
Where Next?
Well, according to the theory, if oil was 40% too high, and if no one is taking the spectre of peak oil too seriously (in which case the “fundamental” value is the replacement cost (i.e. what it will cost to find and produce more oil)), then at some point in the not-too distant future the price of oil “ought” to explore $90/1.4 = $64 (Brent). Whether it does or not, will be a good test of how much the “Peak Oil” idea is gaining traction.
Identifying bubbles is not (very) hard, what’s hard is predicting at what price and when they will pop. Two weeks ago I wrote an article titled “FAO Food Index Predicting a Reversal in Crude Oil Prices”. I’d say a 15% decline in Brent from $127 to $110 qualifies as a “reversal”. Outside of noticing that food prices slightly lead oil prices, the logic behind that argument was:
1: The Libya thing was a Red Herring used by the speculators to instill a bit of panic into the market; there never was a short-fall of oil compared to demand (short-term) and there still isn’t.
2: The Saudi’s might have a sulk about what they perceived as misinformed and impolite comments from various corners of the US Administration about the human rights of minorities and all that baloney. But ultimately, they know that the alternative to sucking up to America (making sure oil does not get too expensive for America’s taste), is not an option, and they know America knows that and America knows they know America knows that. Perhaps it wasn’t a coincidence that oil prices tanked soon after Osama bin Laden was in the news (hopefully for the last time), and as that subject hit the headlines, memories were jogged that 14 out of the 19 terrorists in 9/11 were Saudi’s?
3: The correct price of oil right now valued according to what the world can afford to pay (without suffering unduly), is about $90 (Brent). So at $127 oil was a 40% bubble, bubbles do have a habit of popping once they get to 40% over the “fundamental”.
Where Next?
Well, according to the theory, if oil was 40% too high, and if no one is taking the spectre of peak oil too seriously (in which case the “fundamental” value is the replacement cost (i.e. what it will cost to find and produce more oil)), then at some point in the not-too distant future the price of oil “ought” to explore $90/1.4 = $64 (Brent). Whether it does or not, will be a good test of how much the “Peak Oil” idea is gaining traction.
Tuesday, May 3, 2011
Osama Bin Laden's Death - How will it Affect Markets?
By Jon Elder.
This is a special edition post for Free Money Wisdom. I typically post every other day, but Osama Bin Laden has been killed by the US military. This is great news and provides this country with closure after nine long years of battle in the Middle East. Osama Bin Laden has been killed near Isalamabad, Pakistan. It looks like justice has prevailed, took long enough! However, I do want to note that this is no time to gloat over his death. Although he was a murderer, killing hundreds of innocent Americans, it is not Biblical to rejoice for your enemy's death : 'Proverbs 24:17 Do not gloat when your enemies fall; when they stumble, do not let your heart rejoice.'
This is a special edition post for Free Money Wisdom. I typically post every other day, but Osama Bin Laden has been killed by the US military. This is great news and provides this country with closure after nine long years of battle in the Middle East. Osama Bin Laden has been killed near Isalamabad, Pakistan. It looks like justice has prevailed, took long enough! However, I do want to note that this is no time to gloat over his death. Although he was a murderer, killing hundreds of innocent Americans, it is not Biblical to rejoice for your enemy's death : 'Proverbs 24:17 Do not gloat when your enemies fall; when they stumble, do not let your heart rejoice.'
This is a personal finance blog, so let's dive into the repercussions of Osama's death. The news is pretty clear. Stocks will be in the green tomorrow. This is great for most investors. However, if you bought into the gold and silver rush, this might be the pullback that I've been waiting for. Already, there is early trading going on and it does not look good for the commodities markets.
The news of Osama Bin Laden's death is positive news for the equities markets. It's been a nine year battle over in Afghanistan and Iraq. And now that Osama Bin Laden is dead, this brings much needed closure to this great country we call the United States. This 'close' equals positive gains in stocks tomorrow.Osama Bin Laden's death equates to a lower national security risk. If it's actually safer in the world, who knows, but the markets will be having a nice rebound in the morning. Most likely, bonds markets and treasuries will have some sort of a pullback.
Three commodities to watch in the morning include oil, gold and silver. These three have been going on a steady incline, but I predict that these will fall dramatically tomorrow. It will be a great buying opportunity for anyone wanting to get into commodities. I know that I've been waiting for a silver pull back for some time now. I'm excited to see what happens.There are other markets like defense companies such as Raytheon and Boeing. These should be watched closely, as they could swing in either direction by dramatic amounts, just hard to say at this point.
Basically, this will be a short term gain for the equity markets while the commodities markets will take a massive blow.I'm afraid that Osama Bin Laden's death will cause uprising in the coming months and even more terrorist attacks. I'm praying hard that's not the case. Either way, God is sovereign and everything is happeneing according to his divine plan. Invest wisely!
So what do you think? What is your investment strategy for tomorrow? Comment below.
Thursday, November 25, 2010
3 takeover targets to make you %100 richer!
By Nanacy Zambell
Fellow Investor,
The financial crisis put everyone on red alert. Purse strings were tightened up, and M&A all but dried up. But companies were still growing—and stashing all that extra cash on their balance sheets.
The gig is up.
Recently, we’ve seen more mergers and acquisition activity than… well, we’ve seen in two years! Corporations are being urged to do something productive with their cash hoard—or risk the wrath of shareholders.
Needless to say, the floodgates have opened up…
Now, it’s time for you to grab your share of the pie.
Cash In on the M&A Heat Wave!
There is little doubt that since March 2009 the stock market has been a hotbed of activity!
Savvy investors (like us) have realized that despite the gloom and doom predictions in the mainstream media—as well as significant market volatility—there is money to be made. And that's just what we’re doing in Buried Treasures Under $10.
We’ve booked a lot of profits by carefully selecting fundamentally strong companies whose revenues and earnings were beginning to take off—even during the recession—and whose shares were so undervalued that it was just a matter of time before they began to increase in value. And I want you to know that I’m just thrilled with our results!
But this is only the beginning for us!
The new wave of mergers and acquisitions (M&A) is already upon us in full force and is offering untold opportunities for us during the next year or so. In fact, I've reviewed many financial reports in order to ferret out the best sectors and companies with “the right stuff” that make them attractive takeover candidates.
And what I've uncovered are three gems.
These are not distressed companies that some private equity hotshot thinks he or she can turn around, bust up or suck dry for a big tax write-off.
These five don’t need to be bought out to survive. Each sports strong financials, low or no debt, healthy sales, growing revenue and steady cash flows in industries that are exploding with growth.
Artisan beers... 3-D movies... language translation...
es, language translation (I’ll explain in a moment), and healthcare staffing and specialty electronics and recycling, too.
Diverse as these three are, each offers the same thing healthy suitors crave, which is: expansion-strategy shortcuts.
3 Hidden Takeover Targetsfor the Fourth Quarter
My Buried Treasures Under $10 service is loaded with potential acquisition candidates. The reason why is simple: All are deeply undervalued growing businesses that dominate their respective corners of the market.
Just take a look at three of my favorites:
Takeover Target #1:
Ballantyne Strong, Inc.
Ballantyne Strong Inc. (AMEX: BTN) is a leader in the transition to digital and 3-D, and it is handsomely profiting as the transition takes hold across the industry.
Here’s why: BTN can completely outfit a theater, from top to bottom. It's become a one-stop shopping mall for folks who want to get a movie theater up-and-running, or to retrofit an older establishment with digital or 3-D technology.
So it's not surprising that the company is expected to be integral to the digital transition for both Regal Entertainment and Cinemark Holdings. Digital products have already grown to 39% of the company's sales, up from 23% at the end of 2008. But digital is just in its infancy. The expansion of the industry will create breathtaking profitability opportunities for BTN.
This company continues to knock the doors down! It recently reported that its revenues surged 67% to $32.7 million—a quarterly record—and its earnings rose to $2.8 million, or 19 cents per diluted share, compared with net earnings of $0.9 million, or 7 cents per diluted share last year.
BTN is in great shape, ending the quarter with $24.1 million in cash and cash equivalents. But this is just the beginning, and we have the opportunity to get into this company on the ground floor.
So be sure to check out the Buried Treasures portfolio for my current buy advice on BTN
Takeover Target #2
Strong Alliances With Deep Pockets
Founded in 1981, but already the eighth-largest U.S. brewer based on domestic shipments, this brewer offers craft beers to restaurants, bars and liquor stores, as well as in bottles at supermarkets, warehouse clubs, convenience stores and drug stores.
This company caught the eye of Anheuser-Busch InBev (BUD)—owner of Budweiser—which now owns 36% of the company and is its distributor. That has paid big dividends and allowed it to expand rapidly, which it continues to do. For the past three years, the company has grown its revenue an average of 50% annually and net income by 35% a year.
I think the company is too good to pass up because:
Discounted valuation makes now the time to buy.
I'm going to keep my buy limits tight on this one, as it does not have a great degree of liquidity, so be sure to check out the Buried Treasures portfolio for my current buy advice on this pick.
Takeover Target #3:
Lionbridge Technologies
We've all heard these buzzwords a lot: globalization, global economy and global recession. That's because in recent years, our world has become highly interconnected.
In fact, according to the United Nations, the 30,000 multinational corporations doing business around the world in 1990 has more than doubled to around 63,000. Together, these corporations sell more than $11 trillion in goods and services annually, employ more than 90 million people and account for 70% of the world's trade.
Given these large numbers, there are certainly many challenges. And probably the biggest hurdle for most multinational corporations is conducting business in a foreign language.
As globalization rapidly expands, there is a growing sector of companies that make their living by helping businesses train their employees to translate their products and services in order to communicate more effectively in various languages.
And there is one company grabbing the lion's share of the profits and leading that field.
Lionbridge Technologies (NASDAQ: LIOX) provides language, development and testing services to businesses all over the world. It has operations in North America, Latin America, Europe and Asia. And its customers generate more than half of their revenue from outside of the U.S.—globalization at its best!
Already, the 10 largest software companies and the five largest Internet portals in the world use LIOX to help them internationalize their products and services. Its customers include Expedia, Merck, Motorola, Porsche, Nokia, Oracle, Sony Ericsson and IBM.
This strong customer base helped the company weather the recession, as its top 10 customers expanded their business by more than 8% in the fourth quarter over the third quarter. This helped the company generate $11.7 million in cash flow and improve its gross profit to 33.5%, and revenues grow 7% quarter over quarter.
That's definitely a great sign, especially since technology spending is taking flight, and globalization of industry is in a rapid phase of expansion. All of which will add nicely to the company's bottom line.
Be sure to check out the Buried Treasures portfolio for my current buy advice on LIOX.
Don’t miss out on these three phenomenal takeover targets. Grab these stocks now before they become headline news—and their shares soar.
Wait!I Have 2 More Potential Takeover Targets
But wait! How about 2 more opportunities to cash in on the M&A heat wave with these companies currently in our Buried Treasure portfolio:
Takeover Target #4:
Diversified Leader at Bargain-Basement Prices
This company is the third-largest temporary healthcare staffing company in the U.S. Its services include travel nurse staffing, travel allied health professional staffing and per diem nurse staffing, primarily to acute care hospitals, teaching institutions and trauma centers.
The company has more than 5,000 contracts with hospitals and healthcare facilities, pharmaceutical and biotechnology customers, and other healthcare organizations. It provides other healthcare specialists such as operating room technicians, rehabilitation therapists, radiology technicians and respiratory therapists to acute care hospitals, skilled nursing facilities, nursing homes, sports medicine clinics and schools.
One of the reasons for buying this healthcare staffing company is that their customer bases are varied, which gives the company vast exposure to the staffing markets.
I believe this company is in the sweet spot in the healthcare staffing industry.
So check out the Buried Treasures portfolio for my current buy advice on this hot pick.
Takeover Target #5:
International Distributor
This international distributor has been providing engineering solutions and electronic components to leading manufacturers since 1947.
Basically, the company manufactures, as well as modifies, products that are produced by independent companies, to their own specific modifications so that they can be customized for its customers and sold under the company’s private brands. These products include radio frequency (RF) and microwave components, power semiconductors, electron tubes, microwave generators and data display monitors.
Why I like this international distributor
Fellow Investor,
The financial crisis put everyone on red alert. Purse strings were tightened up, and M&A all but dried up. But companies were still growing—and stashing all that extra cash on their balance sheets.
The gig is up.
Recently, we’ve seen more mergers and acquisition activity than… well, we’ve seen in two years! Corporations are being urged to do something productive with their cash hoard—or risk the wrath of shareholders.
Needless to say, the floodgates have opened up…
- BHP Billiton recently made a hostile $39 billion tender offer for Potash. While the company rejected the bid, its shares have popped more than 34% in just one week.
- Chip giant Intel went out on a limb offering up a $7.7 billion deal for Internet security company McAfee. McAfee’s shares soared on the deal, jumping 57% in just 5 days.
- And then there’s 3PAR, a data storage company that was at the center of a bidding war between Dell and Hewlett-Packard. It’s no surprise 3PAR’s shares skyrocketed more than 180% in just 11 days.
- The biggest winners from all this M&A activity? It’s not the takeover targets or even the bidders. The biggest winners have been shareholders—34% in 7 days… 57% in 5 days… 180% in 11 days.
Now, it’s time for you to grab your share of the pie.
Cash In on the M&A Heat Wave!
There is little doubt that since March 2009 the stock market has been a hotbed of activity!
Savvy investors (like us) have realized that despite the gloom and doom predictions in the mainstream media—as well as significant market volatility—there is money to be made. And that's just what we’re doing in Buried Treasures Under $10.
We’ve booked a lot of profits by carefully selecting fundamentally strong companies whose revenues and earnings were beginning to take off—even during the recession—and whose shares were so undervalued that it was just a matter of time before they began to increase in value. And I want you to know that I’m just thrilled with our results!
- 125% in Power-One (half position) in 4 months
105% in TIBCO Software in 10 months
99% in Aruba Networks (half position) in 11 months
82% in Ares Capital Corp. in 9 months
65% in Saba Software in 10 months
But this is only the beginning for us!
The new wave of mergers and acquisitions (M&A) is already upon us in full force and is offering untold opportunities for us during the next year or so. In fact, I've reviewed many financial reports in order to ferret out the best sectors and companies with “the right stuff” that make them attractive takeover candidates.
And what I've uncovered are three gems.
These are not distressed companies that some private equity hotshot thinks he or she can turn around, bust up or suck dry for a big tax write-off.
These five don’t need to be bought out to survive. Each sports strong financials, low or no debt, healthy sales, growing revenue and steady cash flows in industries that are exploding with growth.
Artisan beers... 3-D movies... language translation...
es, language translation (I’ll explain in a moment), and healthcare staffing and specialty electronics and recycling, too.
Diverse as these three are, each offers the same thing healthy suitors crave, which is: expansion-strategy shortcuts.
3 Hidden Takeover Targetsfor the Fourth Quarter
My Buried Treasures Under $10 service is loaded with potential acquisition candidates. The reason why is simple: All are deeply undervalued growing businesses that dominate their respective corners of the market.
Just take a look at three of my favorites:
Takeover Target #1:
Ballantyne Strong, Inc.
Ballantyne Strong Inc. (AMEX: BTN) is a leader in the transition to digital and 3-D, and it is handsomely profiting as the transition takes hold across the industry.
Here’s why: BTN can completely outfit a theater, from top to bottom. It's become a one-stop shopping mall for folks who want to get a movie theater up-and-running, or to retrofit an older establishment with digital or 3-D technology.
So it's not surprising that the company is expected to be integral to the digital transition for both Regal Entertainment and Cinemark Holdings. Digital products have already grown to 39% of the company's sales, up from 23% at the end of 2008. But digital is just in its infancy. The expansion of the industry will create breathtaking profitability opportunities for BTN.
This company continues to knock the doors down! It recently reported that its revenues surged 67% to $32.7 million—a quarterly record—and its earnings rose to $2.8 million, or 19 cents per diluted share, compared with net earnings of $0.9 million, or 7 cents per diluted share last year.
BTN is in great shape, ending the quarter with $24.1 million in cash and cash equivalents. But this is just the beginning, and we have the opportunity to get into this company on the ground floor.
So be sure to check out the Buried Treasures portfolio for my current buy advice on BTN
Takeover Target #2
Strong Alliances With Deep Pockets
Founded in 1981, but already the eighth-largest U.S. brewer based on domestic shipments, this brewer offers craft beers to restaurants, bars and liquor stores, as well as in bottles at supermarkets, warehouse clubs, convenience stores and drug stores.
This company caught the eye of Anheuser-Busch InBev (BUD)—owner of Budweiser—which now owns 36% of the company and is its distributor. That has paid big dividends and allowed it to expand rapidly, which it continues to do. For the past three years, the company has grown its revenue an average of 50% annually and net income by 35% a year.
I think the company is too good to pass up because:
- It operates in a rapidly growing industry.
- It is making money and stands to make much more in the recovery.
Insider ownership is strong.
- A good portion of its stock is owned by Anheuser-Busch, and a complete takeover would not surprise me at some point in time, which would most likely offer us a very good premium on our shares.
Discounted valuation makes now the time to buy.
I'm going to keep my buy limits tight on this one, as it does not have a great degree of liquidity, so be sure to check out the Buried Treasures portfolio for my current buy advice on this pick.
Takeover Target #3:
Lionbridge Technologies
We've all heard these buzzwords a lot: globalization, global economy and global recession. That's because in recent years, our world has become highly interconnected.
In fact, according to the United Nations, the 30,000 multinational corporations doing business around the world in 1990 has more than doubled to around 63,000. Together, these corporations sell more than $11 trillion in goods and services annually, employ more than 90 million people and account for 70% of the world's trade.
Given these large numbers, there are certainly many challenges. And probably the biggest hurdle for most multinational corporations is conducting business in a foreign language.
As globalization rapidly expands, there is a growing sector of companies that make their living by helping businesses train their employees to translate their products and services in order to communicate more effectively in various languages.
And there is one company grabbing the lion's share of the profits and leading that field.
Lionbridge Technologies (NASDAQ: LIOX) provides language, development and testing services to businesses all over the world. It has operations in North America, Latin America, Europe and Asia. And its customers generate more than half of their revenue from outside of the U.S.—globalization at its best!
Already, the 10 largest software companies and the five largest Internet portals in the world use LIOX to help them internationalize their products and services. Its customers include Expedia, Merck, Motorola, Porsche, Nokia, Oracle, Sony Ericsson and IBM.
This strong customer base helped the company weather the recession, as its top 10 customers expanded their business by more than 8% in the fourth quarter over the third quarter. This helped the company generate $11.7 million in cash flow and improve its gross profit to 33.5%, and revenues grow 7% quarter over quarter.
That's definitely a great sign, especially since technology spending is taking flight, and globalization of industry is in a rapid phase of expansion. All of which will add nicely to the company's bottom line.
Be sure to check out the Buried Treasures portfolio for my current buy advice on LIOX.
Don’t miss out on these three phenomenal takeover targets. Grab these stocks now before they become headline news—and their shares soar.
Wait!I Have 2 More Potential Takeover Targets
But wait! How about 2 more opportunities to cash in on the M&A heat wave with these companies currently in our Buried Treasure portfolio:
Takeover Target #4:
Diversified Leader at Bargain-Basement Prices
This company is the third-largest temporary healthcare staffing company in the U.S. Its services include travel nurse staffing, travel allied health professional staffing and per diem nurse staffing, primarily to acute care hospitals, teaching institutions and trauma centers.
The company has more than 5,000 contracts with hospitals and healthcare facilities, pharmaceutical and biotechnology customers, and other healthcare organizations. It provides other healthcare specialists such as operating room technicians, rehabilitation therapists, radiology technicians and respiratory therapists to acute care hospitals, skilled nursing facilities, nursing homes, sports medicine clinics and schools.
One of the reasons for buying this healthcare staffing company is that their customer bases are varied, which gives the company vast exposure to the staffing markets.
I believe this company is in the sweet spot in the healthcare staffing industry.
So check out the Buried Treasures portfolio for my current buy advice on this hot pick.
Takeover Target #5:
International Distributor
This international distributor has been providing engineering solutions and electronic components to leading manufacturers since 1947.
Basically, the company manufactures, as well as modifies, products that are produced by independent companies, to their own specific modifications so that they can be customized for its customers and sold under the company’s private brands. These products include radio frequency (RF) and microwave components, power semiconductors, electron tubes, microwave generators and data display monitors.
Why I like this international distributor
- The largest portion of its business—RF, wireless and power divisions—will grow like gang busters as the recovery picks up speed.
- Its global reach includes worldwide suppliers as well as global distribution agreements.
The company is making money, reducing debt and increasing cash, positioning it for the recovery.
Thursday, October 28, 2010
11 Market Predictions for 2011
Start preparing yourself for the bumpy ride in the year ahead
Can You Handle the Truth?
I’d love to be the one to tell you that 2011 with be the year the economy recovers, unemployment declines and the bulls drive up the market. But it wouldn’t do me much good to lie to you, now would it?
While everyone wants to believe that things are on the mend, sticking your head in the sand and hoping for the best is no way to make money. In fact, it’s a great way to lose money. So start preparing yourself for the bumpy ride in the year ahead with these market predictions and trading ideas.
#1 Housing Market Languishes On
Unfortunately, 2011 will not be the year the housing market recovers. Instead it will remain in a state of depression . New home starts will not exceed 425,000, the peak being 1.6 million in 2006. Inventory will hit an all-time high. Home prices will continue to fall nationally. Foreclosures will slow in the beginning of the year, but pick up speed in the second half, delaying the housing recovery until late 2013 or early 2014.
Trade: Short the homebuilders and their suppliers.
#2 Double-Dip Recession Becomes Official
Revised numbers will show GDP growth was less than 2% in 2009, and less than 1% in 2010. Without a housing recovery, there will be no economic recovery, as 40% of all new jobs created in 2002-2007 were related to the housing sector.
Trade: Short consumer discretionary stocks, especially luxury retailers, or this retail ETF.
#3 Unemployment Officially Goes Above 10%
Currently at 9.6%, the official government unemployment number will climb north of 10%. Real-world unemployment, which includes those who have fallen off the rolls, those too discouraged to look for work, and those working part time who want to be working full time, is closer 20%, and will climb another 2-3 points in 2011.
Trade: Go long discount retailers and short payroll service providers like Paychex, Inc. (NASDAQ: PAYX).
#4 Interest Rates Stay Near 0%
The Fed will rely on quantitative easing and ultra-low interest rates to buoy the economy. Bully for them — and for traders. But the Fed’s quantitative easing efforts will slow down mid-year unless there is a full-blown European banking crisis (more on that in a minute), and the market will fall when the pump stops being primed with cash.
Trade: Go long gold and silver, preferably with call options on gold and silver ETFs SPDR Gold Trust (NYSE: GLD) and iShares Silver Trust (NYSE:SLV ).
#5 European Debt Crisis: The Sequel
Another more serious European debt crisis will come to light. I’d say there is a 50% chance of a full-blown financial crisis and a restructuring of Irish or Greek debt.
The Irish will need to borrow money in mid-2011. The European Central Bank (ECB) will continue to be pressured to stop buying Irish and Greek debt (and if not the ECB, who is there to foot the bill?). And when a German takes over the ECB in July, frugality will be taken to a whole new level.
Trade: The euro will fall, as will the pound, so short these currencies, as well as large European Banks.
#6 U.S. Dollar Rebounds
The U.S. dollar will rebound as other currencies fall. While the greenback’s decline has been steep due to expectations of the Fed printing more money, the second leg of the European debt crisis will knock the euro down, which, in turn, will push the dollar up.
Trade: Go long the U.S. dollar via the PowerShares DB US Dollar Index Bullish Fund (NYSE: UUP).
#7 Political Gridlock in Washington
There is gridlock in Washington after the Republicans take the House in the midterm elections. If they stay true to form, they will refuse to put through any initiatives that stand a chance of passing the Senate or being signed by the president. Their main goal will be to secure the presidential race in 2012.
Trade: Short the sectors that will suffer most from political gridlock.
#8 Trouble at the State and Municipal Levels
States and municipalities will accelerate cutbacks and layoffs. The probability of a municipal default somewhere in the United States is about 99%. The probability of a large (population 250,000 or more) city defaulting is about 50% in 2011, and a near certainty in 2012. Cities can go bankrupt and clean out old contracts and obligations; states cannot.
I agree with analyst Meredith Whitney that at least 500,000 to 1 million public workers will get the ax. This will lead to cries for more assistance from Washington, which will not be forthcoming until the election is in full swing in 2012.
Trade: There is no real trade here.
#9 China Becomes a Serious Problem
The Chinese don’t get it. They have destroyed industries around the world. They enabled North Korea to develop and then export nuclear weapons and know-how to Pakistan and Iran, and then said, “We are your friends, help us, we cannot afford to revalue or cut back on exports.”
The developed world will hit a political tipping point and the trade barriers currently being erected out of sight will become more visible. China will do a small revaluation that will have no impact, and then things will get nasty as the year ends and the presidential primaries draw closer.
Trade: Short China ETFs and companies deriving more than 10% of their profits from Chinese operations.
#10 Corporate Profits Fall, and the Market Along With Them
All of the problems I have just discussed will lead to further economic hardships, which means depressed demand for many products and services provided by corporate America. As growth stalls (in fact, it already has for most companies), profits will fall. As corporate profits fall and quantitative easing slows, the market will drop, probably sometime in Q1. The higher the market is at this point in time, the sharper and faster the decline.
A manageable decline and continued QE through mid-year brings the S&P 500 down to 925-985. A sharp decline, and an unexpected pullback in Fed easing or a major financial crisis, brings the S&P down to 725-785. A financial panic brought on by a European bank crash brings the market down to 585 to 615 for a very brief period, and then back to around 725.
Trade: Hedge all long positions with a macro put option position on the market, such as SPDR S&P 500 (NYSE:SPY) puts. Once the mood turns sour and the market heads south, trade double inverse ETFs, and if you can stomach the risk, buy calls on them.
#11 Giants Go to the Super Bowl
That’s right, the New York Giants will go all the way this year. And this time, I find the cash to go, which, of course, means they will lose.
3 Hidden Takeover Targets to Double Your Money – They’re dirt-cheap, yet they’re growing at rates that leave their bigger peers in the dust. And any hint of buyer interest will send shares soaring. Join me in the next edition as i bring you information about these 3 hidden money makers you cant afford to miss.Thursday, January 14, 2010
5 Sectors to Avoid in 2010
Michael Shulman, January 8, 2010
Despite what Wall Street wants to believe, the economy and the markets are not even close to being out of the woods yet. In fact, the odds strongly favor a double-dip recession. Now, I know that's not what anyone wants to hear, but wishing and hoping won't get us out of this mess -- or make you any money.
There are a number of sectors that are getting talked up right now that are downright dangerous for investors to have their money in. And while the party may last a little longer, if you're long any of these sectors in 2010, there's a good chance you're going to regret it.
What should you do? Well, you have two options. You can avoid these sectors, which is smart, or if you have a penchant for making money, you can profit from them. How? I'll give you the best ETF to trade in each sector.
#1 Emerging/Developing Markets
In the past, Wall Street has lumped China in with Brazil, Russia and India calling them the BRIC countries. But this is no longer a viable way to look at these markets -- they all stand alone.
Simplistic momentum investing has taken hold in emerging market ETFs that cover regions such as Latin America or countries like Poland. Yes, Poland has its own ETF, the Market Vectors Poland (PLND). But there is too much money riding too much momentum in markets that are too small with too few equities and too little profit opportunities compared to the downside risk.
Even though the hottest money is still pouring into some truly exotic markets, Eastern Europe is a sucker's play in 2010. Your broker may call to tell you about ancient cultures, robust cities, etc., but the banking and financial systems of many Eastern European countries are in terrible shape and, more than likely, this will drag their economies down in 2010.
Trade: Buy put options on the SPDR S&P Emerging Europe (GUR).
#2 The Homebuilders
Many analysts say housing has bottomed and are touting the homebuilders in 2010. However, roughly 50%-60% of demand for homes is gone, more than 800,000 foreclosed homes have yet to hit the market with another 1.4 million or more on the way, and no one can get a jumbo mortgage.
Here's what I see happening: The homebuyer tax credit will be allowed to expire in April, there will be no more cash rebates to the homebuilders, and unemployment will continue to stifle demand.
#3 The Financials
The big banks are broke. The technical term is insolvent because they have cash and are paying bills, but their liabilities far outweigh their assets. These assets are being written down slowly -- and that includes many homeowners with prime mortgages now in trouble because of unemployment.
While this problem is common to the larger banks, the smaller banks are also being hit with souring commercial real estate loans. And there will no more bailouts for the bonus crybabies.
Trade: Buy puts on the double-inverse Financial Select Sector SPDR (XLF).
#4 China
I admit, I'm a China bear, and not the panda kind. I lived in Japan at the peak of its bubble, and it all feels the same to me. Where others see growth, I see fraudulent data -- it is not anywhere near the 10% the Chinese government boasts, according to the International Energy Agency.
Chinese state banks are fueling an unsustainable boom similar to Japan in the 1980s, with money going into unneeded factories, as well as equity markets. And it's going to burst, probably in 2010, and, if not, then definitely in 2011. If you invest in Chinese ETFs to take advantage of the bubble, use tight sell stops. But if you want to be prepared for the great China crash, your best bet is to short the ETF that best mirrors the domestic Chinese economy and equity markets …
Trade: Buy puts on the PowerShares Golden Dragon Halter USX China Portfolio ETF (PGJ).
#5 Retail
American consumers have lost one-third their wealth, and almost 1-in-5 is out of work, discouraged from looking for a job or working part time. Consumer credit lines are shrinking, and the Great American Piggy Bank -- the home equity line -- disappeared in the Lehman bankruptcy. Not a great scenario for consumer spending on anything other than necessary items.
So stay away from the famous brands with broken businesses and companies selling what I call adult toys (be good, this is a family publication) such as boats, motorcycles, jewels, $60 steaks and luxury travel.
Trade: But puts on the SPDR S&P Retail (XRT).
Friday, June 19, 2009
The 5 Best Financial Stocks Of 2009
By Billy Fisher
2008 is a year that the financial service sector would rather forget. The Financial Select Sector SPDR (NYSE: XLF) crumbled 55.2% over the course of the year. So far in 2009, the sector has begun to regain its footing. After a rocky start, financials are now approaching break-even. Year-to-date, here are the top five financial stocks with a market cap of at least $10 billion.
Shunning a Bailout
The top performer in this class of stocks has been Barclays (NYSE: BCS) with a year-to-date return of 80%. In an effort to shore up its balance sheet, the company recently agreed to sell its Barclays Global Investors (BGI) business unit to BlackRock (NYSE: BLK) for $13.5 billion. BGI includes Barclays' much sought after iShares asset management business. Earlier in the year, Barclays exhibited a sign of strength when it declined to receive government bailout funds in the wake of the global credit crunch. The bank was able to overcome steep write-offs during its Q1 thanks to incremental revenue that was generated as the result of its purchase of Lehman Brothers' U.S. assets.
Repaying Uncle Sam
The second-best performing financial stock with a market cap above $10 billion as we approach the midway point of 2009 is Morgan Stanley (NYSE: MS). After losing two-thirds of its market value in 2008, the bank holding company has been able to steady its ship in 2009. Shares of Morgan Stanley are up 75% so far this year. The horizon looks even more promising for shareholders as the company was recently approved to repay its TARP money which has come to be viewed as a scarlet letter in the industry. Another bank that was also approved to repay its bailout money along with Morgan Stanley is Goldman Sachs (NYSE: GS). Common shares of Goldman Sachs have risen 70% year-to-date. In mid-April, the firm checked in with a strong Q1 and was able to take advantage of its rising stock price by making a $5 billion common equity offering.
Hitting Their Stride
Denmark-based Danske Bank (OTC: DNSKY.PK) turned in a mixed bag of results in its most recent quarter. The firm reported record Q1 income as it benefitted from strong banking activities. The gains were partially offset by a large amount of loan impairment charges. Nevertheless, the company has seen its stock appreciate 67% so far this year, making it the fourth-best performing stock in this group.
Switching focus to the other side of the pond, CME Group (NYSE: CME) has surged 58% up the charts in 2009. The futures and options products company is bouncing back from a tough Q1 in which pro forma diluted EPS was down 30% on a 21% drop in total revenue when compared to its year-ago quarter. On the plus side, the company has been able to maintain relative strong margins while operating in a brutal macro environment.
The Bottom Line
Coming off of a horrendous 2008, the financial sector has been starting to work its way back towards a state of normality. Some of last year's biggest losers have been among the biggest winners in the space as we approach half-time. We will revisit this race at the end of 2009 to see which companies were able to pull through and which companies ultimately could not keep pace.
Tuesday, June 9, 2009
Top 4 Things Successful Forex Traders Do
by Selwyn Gishen
Trading in the financial markets is surrounded by a certain amount of mystique because there is no
single formula for trading successfully. Think of the markets as being like the ocean and the trader as a
surfer. Surfing requires talent, balance, patience, proper equipment and astute discrimination. Would
you go into the water if there were sharks swimming all around you or dangerous rip tides? Hopefully
not. (Benjamin Graham pioneered cutting edge concepts that propelled other top investors to fame.
The attitude to trading in the markets is no different to that required for surfing. By blending good
analysis with effective implementation, your success rate will improve dramatically and, like many skill
sets, good trading comes from a combination of talent and hard work. Here are the four legs of the stool
that you can build into a strategy to serve you well in all markets.
Leg No.1 - Approach
Before you start to trade, recognize the value of proper preparation. The first step is to align your
personal goals and temperament with the instruments and markets that you can comfortably relate to.
For example, if you know something about retailing, then look to trade retail stocks rather than oil
futures, about which you may know nothing. Begin by assessing the following three components.
Time Frame
The time frame indicates the type of trading that is appropriate for your temperament. Trading off of a
five-minute chart suggests that you are more comfortable being in a position without the exposure to
overnight risk. On the other hand, choosing weekly charts indicates a comfort with overnight risk and a
willingness to see some days go contrary to your position.
In addition, decide if you have the willingness and time to sit in front of a screen all day or if you would
prefer to do your research quietly over the weekend and then make a trading decision for the coming
week based on your analysis. Remember that the opportunity to make substantial money in the markets
requires time. Short-term scalping, by definition, means small profits or losses. In this case you will have
to trade more frequently.
MethodologyOnce you choose a time frame, find a consistent methodology. For example, some traders like to buy
support and sell resistance. Others prefer buying or selling breakouts. Yet others like to trade using
indicators such as MACD, crossovers etc.
Once you choose a system or methodology, test it to see if it works on a consistent basis and provides
you with an edge. If your system is reliable more than 50% of the time, you will have an edge, even if it's
a small one. If you backtest your system and discover that had you traded every time you were given a
signal and your profits were more than your losses, chances are very good that you have a winning
strategy. Test a few strategies and when you find one that delivers a consistently positive outcome,
stay with it and test it with a variety of instruments and various time frames.
Market (Instrument)
You will find that certain instruments trade much more orderly than others. Erratic trading instruments
make it difficult to produce a winning system. Therefore, it is necessary to test your system on multiple
instruments to determine that your system's "personality" matches with the instrument being traded. For
example, if you were trading the USD/JPY currency pair in the forex market, you may find that Fibonacci
support and resistance levels are more reliable in this instrument than in some others. You should also
test multiple time frames to find those that match your trading system best. (Uncover the history and
logic behind this popular trading tool in Taking The Magic Out Of Fibonacci Numbers, and Advanced
Fibonacci Applications.)
Leg No.2 - Attitude
Attitude in trading means ensuring that you develop your mindset to reflect the following four
attributes:
Patience
Once you know what to expect from your system, then have the patience to wait for the price to reach
the levels that your system indicates for either the point of entry or exit. If your system indicates an
entry at a certain level but the market never reaches it, then move on to the next opportunity. There
will always be another trade. In other words, don't chase the bus after it has left the terminal; wait for the
next bus.
Discipline
Discipline is the ability to be patient – to sit on your hands until your system triggers an action point.
Sometimes the price action won't reach your anticipated price point. At this time you must have the
discipline to believe in your system and not to second-guess it. Discipline is also the ability to pull the
trigger when your system indicates to do so. This is especially true for stop losses.
Objectivity
Objectivity or "emotional detachment" also depends on the reliability of your system or methodology. If
you have a system that provides entry and exit levels that you know have a high reliability factor, then
you don’t need to become emotional or allow yourself to be influenced by the opinion of pundits who
are watching their levels and not yours. Your system should be reliable enough so that you can be
confident in acting on its signals. (Find out how your mindset can play a larger role in your success than
market influences Trading Psychology And Discipline.)
Realistic Expectations
Even though the market can sometimes make a much bigger move than you anticipate, being realistic
means that you cannot expect to invest $250 in your trading account and expect to make $1,000 each
trade. Short-term time frames provide less profit opportunities than longer term, but the risk with
longer-term time frames is higher. It's a question of risk versus reward.
Leg No.3 - Discrimination
Different instruments trade differently depending on who the major players are and why they are
trading that particular instrument. Hedge funds are motivated differently than mutual funds. Large banks
that are trading the spot currency market in specific currencies usually have a different objective than
currency traders buying or selling futures contracts. If you can determine what motivates the large
players then you can often piggy-back them and profit accordingly.
Alignment
Pick a few currencies, stocks or commodities and chart them all in a variety of time frames. Then apply
your particular methodology to all of them and see which time frame and which instrument is most
responsive to your system. This is how you discover a "personality" match for your system. Repeat this
exercise regularly to adapt to changing market conditions.
Leg No.4 - Management (Implementation)
Since there is no such thing as only profitable trades, no system will trigger a 100% sure thing. Even a
profitable system, say with a 65% profit to loss ratio, still has 35% losing trades. Therefore, the art of
profitability is in the management and execution of the trade. (Learn more in The Myth Of Profit/Loss
Ratios.)
Risk Control
In the end, successful trading is all about risk control. Take losses quickly and often if necessary. Try to
get your trade in the correct direction right out of the gate. If it backs off, cut out and try again. Often it
is on the second or third attempt that your trade will move immediately in the right direction. This
practice requires patience and discipline but when you get the direction right you can trail your stops
and almost always be profitable at best, or break even at worst.
The Bottom Line
There are as many nuanced methods of trading as there are traders. There is no right or wrong way to
trade. There is only a profit-making trade or a loss-making trade. Warren Buffet says there are two rules in
trading: Rule 1: Never lose money. Rule 2: Remember Rule 1. Stick a note on your computer that will
remind you to take small losses often and quickly - don't wait for the big losses. (Start your own
investing adventure with the help of some simple guidelines: Tailoring Your Investment Plan.)
Good investing, Kingsley.
Trading in the financial markets is surrounded by a certain amount of mystique because there is no
single formula for trading successfully. Think of the markets as being like the ocean and the trader as a
surfer. Surfing requires talent, balance, patience, proper equipment and astute discrimination. Would
you go into the water if there were sharks swimming all around you or dangerous rip tides? Hopefully
not. (Benjamin Graham pioneered cutting edge concepts that propelled other top investors to fame.
The attitude to trading in the markets is no different to that required for surfing. By blending good
analysis with effective implementation, your success rate will improve dramatically and, like many skill
sets, good trading comes from a combination of talent and hard work. Here are the four legs of the stool
that you can build into a strategy to serve you well in all markets.
Leg No.1 - Approach
Before you start to trade, recognize the value of proper preparation. The first step is to align your
personal goals and temperament with the instruments and markets that you can comfortably relate to.
For example, if you know something about retailing, then look to trade retail stocks rather than oil
futures, about which you may know nothing. Begin by assessing the following three components.
Time Frame
The time frame indicates the type of trading that is appropriate for your temperament. Trading off of a
five-minute chart suggests that you are more comfortable being in a position without the exposure to
overnight risk. On the other hand, choosing weekly charts indicates a comfort with overnight risk and a
willingness to see some days go contrary to your position.
In addition, decide if you have the willingness and time to sit in front of a screen all day or if you would
prefer to do your research quietly over the weekend and then make a trading decision for the coming
week based on your analysis. Remember that the opportunity to make substantial money in the markets
requires time. Short-term scalping, by definition, means small profits or losses. In this case you will have
to trade more frequently.
MethodologyOnce you choose a time frame, find a consistent methodology. For example, some traders like to buy
support and sell resistance. Others prefer buying or selling breakouts. Yet others like to trade using
indicators such as MACD, crossovers etc.
Once you choose a system or methodology, test it to see if it works on a consistent basis and provides
you with an edge. If your system is reliable more than 50% of the time, you will have an edge, even if it's
a small one. If you backtest your system and discover that had you traded every time you were given a
signal and your profits were more than your losses, chances are very good that you have a winning
strategy. Test a few strategies and when you find one that delivers a consistently positive outcome,
stay with it and test it with a variety of instruments and various time frames.
Market (Instrument)
You will find that certain instruments trade much more orderly than others. Erratic trading instruments
make it difficult to produce a winning system. Therefore, it is necessary to test your system on multiple
instruments to determine that your system's "personality" matches with the instrument being traded. For
example, if you were trading the USD/JPY currency pair in the forex market, you may find that Fibonacci
support and resistance levels are more reliable in this instrument than in some others. You should also
test multiple time frames to find those that match your trading system best. (Uncover the history and
logic behind this popular trading tool in Taking The Magic Out Of Fibonacci Numbers, and Advanced
Fibonacci Applications.)
Leg No.2 - Attitude
Attitude in trading means ensuring that you develop your mindset to reflect the following four
attributes:
Patience
Once you know what to expect from your system, then have the patience to wait for the price to reach
the levels that your system indicates for either the point of entry or exit. If your system indicates an
entry at a certain level but the market never reaches it, then move on to the next opportunity. There
will always be another trade. In other words, don't chase the bus after it has left the terminal; wait for the
next bus.
Discipline
Discipline is the ability to be patient – to sit on your hands until your system triggers an action point.
Sometimes the price action won't reach your anticipated price point. At this time you must have the
discipline to believe in your system and not to second-guess it. Discipline is also the ability to pull the
trigger when your system indicates to do so. This is especially true for stop losses.
Objectivity
Objectivity or "emotional detachment" also depends on the reliability of your system or methodology. If
you have a system that provides entry and exit levels that you know have a high reliability factor, then
you don’t need to become emotional or allow yourself to be influenced by the opinion of pundits who
are watching their levels and not yours. Your system should be reliable enough so that you can be
confident in acting on its signals. (Find out how your mindset can play a larger role in your success than
market influences Trading Psychology And Discipline.)
Realistic Expectations
Even though the market can sometimes make a much bigger move than you anticipate, being realistic
means that you cannot expect to invest $250 in your trading account and expect to make $1,000 each
trade. Short-term time frames provide less profit opportunities than longer term, but the risk with
longer-term time frames is higher. It's a question of risk versus reward.
Leg No.3 - Discrimination
Different instruments trade differently depending on who the major players are and why they are
trading that particular instrument. Hedge funds are motivated differently than mutual funds. Large banks
that are trading the spot currency market in specific currencies usually have a different objective than
currency traders buying or selling futures contracts. If you can determine what motivates the large
players then you can often piggy-back them and profit accordingly.
Alignment
Pick a few currencies, stocks or commodities and chart them all in a variety of time frames. Then apply
your particular methodology to all of them and see which time frame and which instrument is most
responsive to your system. This is how you discover a "personality" match for your system. Repeat this
exercise regularly to adapt to changing market conditions.
Leg No.4 - Management (Implementation)
Since there is no such thing as only profitable trades, no system will trigger a 100% sure thing. Even a
profitable system, say with a 65% profit to loss ratio, still has 35% losing trades. Therefore, the art of
profitability is in the management and execution of the trade. (Learn more in The Myth Of Profit/Loss
Ratios.)
Risk Control
In the end, successful trading is all about risk control. Take losses quickly and often if necessary. Try to
get your trade in the correct direction right out of the gate. If it backs off, cut out and try again. Often it
is on the second or third attempt that your trade will move immediately in the right direction. This
practice requires patience and discipline but when you get the direction right you can trail your stops
and almost always be profitable at best, or break even at worst.
The Bottom Line
There are as many nuanced methods of trading as there are traders. There is no right or wrong way to
trade. There is only a profit-making trade or a loss-making trade. Warren Buffet says there are two rules in
trading: Rule 1: Never lose money. Rule 2: Remember Rule 1. Stick a note on your computer that will
remind you to take small losses often and quickly - don't wait for the big losses. (Start your own
investing adventure with the help of some simple guidelines: Tailoring Your Investment Plan.)
Good investing, Kingsley.
Tuesday, June 2, 2009
7 Types Of People Who Fail In Finance
by Marv Dumon
To earn a career (or even a job offer) in finance, you needed to have sufficiently impressed your interviewers. The finance setting in the real world is competitive. Occasionally, HR will let in finance professionals with uber personalities. They have spark, personality and commendable accomplishments. Unfortunately, as their peer group begins to work with them, these peers come to a realization that there are certain dysfunctional behaviors that serve as roadblocks to teamwork, realizing team objectives and smooth execution. Here are seven personality types that you find that injects poison into finance's unique corporate culture.
1. The Pontificator
Pontificators tend to lurk around and blow their own horn at inopportune times, usually when you have a report due in two hours, right before the meeting starts or when you are rushing to the bathroom. Pontificators are focused on themselves, and spend less time thinking about organization or team goals. They also tend to tear down colleagues with biting remarks, and suck up to the boss, but when they meet someone with significantly higher standardized test scores, or well-regarded position within the firm, they worship that person.
Why they fail:
Pontificators waste people's time and irritate everyone. They sap the group's energy through de-motivating and aggravating remarks, and teamwork suffers as a result. A well-functioning organization can boot these people out after input from members of the team. Unfortunately, pontificators can be high performers and some managers are reluctant to let them go.
2. The Selfish Jerk
"Selfish jerks" can occasionally profess to care about organization and team goals – if this opportunistically helps with their image within the company. These people are really only aligned with their personal desires. When the company experiences some kind of adversity – when it becomes critical for each worker to rise to the occasion - the selfish jerk takes off for a new organization in a heartbeat or works at protecting his or her job. The selfish jerk is typically well-versed in financial subjects and industry benchmarks, is obsessed with researching industry statistics on salary and bonus, and runs a covert operation trying to figure out what co-workers are making in terms of salary and bonus.
Why they fail:
These types of personalities repel managers. Finance professionals who show promise as potential leaders possess managerial and leadership characteristics. The underpinning of leadership is service in the interest of the company and the team. Selfish behaviors lead to a nasty corporate culture that nobody wants, that includes "one-upmanship," territorialism, back stabbing, sabotage and lack of teamwork.
3. The Nerd/Doormat
The nerd/doormats have succeeded in a plethora of academic subjects in high school and college. They are widely read, but unfortunately, doormats have completely ignored their communication skills and have difficulty conveying even simple issues in a succinct and understandable manner. Because doormats are usually bright individuals, they can reject receiving training or courses that will help improve communication or management skills.
Why they fail:
The doormat's desire to be left alone – and avoid co-workers when the need for teamwork arises – produces costly miscommunication and disconnects. Often, if there is conflict within the group, the doormat cannot muster the necessary backbone to stand up for what is right. They are passed over for promotions for more assertive colleagues.
4. The Procrastinator
Procrastinators have succeeded in school and in prior work experiences. This track record of success leads them to believe that their successes were more of a function of individual personality rather than hard work, insights and sheer execution. The procrastinator has become complacent, and waits for quasi-emergencies before stepping up.
Why they fail:
Being late with monthly, quarterly and annual financial reports is unacceptable in finance. Alternatively, when procrastinators turn work in on time, the quality suffers significantly. In finance, bottlenecks produce missed deadlines or poor work product. In an effort to make the team more efficient and effective, managers fire the procrastinator. (If you're interested in improving your time management skills, take a look at Time Management Tips For Financial Professionals.)
5. The Excel Lightweight
The Excel lightweight excelled in college accounting and finance classes. The lightweight's prowess in understanding the theoretical concepts, however, is no longer sufficient in the real world. In a finance setting, practical skills such as advanced Excel knowledge are a driver for garnering increased responsibilities, higher productivity and spreadsheet formula accuracy. How can you succeed in finance without excelling in its major form of communication, spreadsheets? The Excel lightweight doesn't understand much about keyboard shortcuts, macros, advanced formulas and add-ins.
Why they fail:
The Excel lightweight causes blow ups from time to time in the form of inaccurate Excel numbers and formulas. Those with little or no prior real world experience think that their superior knowledge of finance theory translates into practical application on the job. The Excel lightweight can cause tremendous amounts of re-work as well as investigation of the root cause of spreadsheet or database problems, especially with large projects. They can also torpedo careers. Embarrassment and anger run amok and are directed towards the Excel lightweight's managers by higher-up executives or clients.
6. The Error-Prone Dummy
The error-prone dummy is typically a junior analyst or junior associate that had connections and got into the firm through the back door. He or she went to the same college as the interviewer, or has a dad who is an investor in the company. You won't find senior people that are error-prone dummies because they've already been ushered out, even with their connections. Accuracy, dependability and reliability are critical success factors in finance. Unfortunately, the error-prone dummy spends time daydreaming about prospective nighttime activities or is more interested in college football scores than work. His or her work product suffers, and the team is stuck wasting time doing re-work or researching what went wrong.
Why they fail:
They get fired because doing so is an effective cost-saving correction action. Error-prone dummies are not able to catch redundant adjustments, incorrect industry assumptions, overly optimistic forecasts and missed calculations. If finance is viewed as a game of football, then the error-prone dummy is equivalent to a player who never catches a pass or fumbles the ball when he or she does catch it.
7. The Apathetic Cyborg
Apathetic cyborgs do not care; they will work only as much as needed to prevent being fired - nothing more. In a setting where people are rushing to meet deadlines, the apathetic cyborg never displays passion. Don't bother telling him or her anything of importance, as it's going out the other ear.
Why they fail:
The apathetic cyborg is perpetually uninformed. It doesn't matter if the CFO repeatedly blasts emails about the importance of complying with Sarbanes-Oxley, or that 12% is the new cost of equity for the company. The apathetic cyborg risks non-compliance with critical regulatory statutes, or provides field operators with the wrong cost of equity percentages to use to evaluate new projects. Because the apathetic cyborg is out of the loop, pretty soon he or she be out of the company.
Parting Thoughts
If you want to succeed in finance and within your organization, constantly gather feedback from your peers and managers. There are unique issues and objectives that are critical within finance: teamwork, meeting deadlines on reports, alignment with organizational objectives, excel prowess and clear understanding of initiatives (Sarbanes-Oxley compliance). If you know where you stand, you will be in a position to take concrete action to improve certain areas. Finance is a competitive field and there are not that many chances given to those who are on the radar for getting the boot.
To earn a career (or even a job offer) in finance, you needed to have sufficiently impressed your interviewers. The finance setting in the real world is competitive. Occasionally, HR will let in finance professionals with uber personalities. They have spark, personality and commendable accomplishments. Unfortunately, as their peer group begins to work with them, these peers come to a realization that there are certain dysfunctional behaviors that serve as roadblocks to teamwork, realizing team objectives and smooth execution. Here are seven personality types that you find that injects poison into finance's unique corporate culture.
1. The Pontificator
Pontificators tend to lurk around and blow their own horn at inopportune times, usually when you have a report due in two hours, right before the meeting starts or when you are rushing to the bathroom. Pontificators are focused on themselves, and spend less time thinking about organization or team goals. They also tend to tear down colleagues with biting remarks, and suck up to the boss, but when they meet someone with significantly higher standardized test scores, or well-regarded position within the firm, they worship that person.
Why they fail:
Pontificators waste people's time and irritate everyone. They sap the group's energy through de-motivating and aggravating remarks, and teamwork suffers as a result. A well-functioning organization can boot these people out after input from members of the team. Unfortunately, pontificators can be high performers and some managers are reluctant to let them go.
2. The Selfish Jerk
"Selfish jerks" can occasionally profess to care about organization and team goals – if this opportunistically helps with their image within the company. These people are really only aligned with their personal desires. When the company experiences some kind of adversity – when it becomes critical for each worker to rise to the occasion - the selfish jerk takes off for a new organization in a heartbeat or works at protecting his or her job. The selfish jerk is typically well-versed in financial subjects and industry benchmarks, is obsessed with researching industry statistics on salary and bonus, and runs a covert operation trying to figure out what co-workers are making in terms of salary and bonus.
Why they fail:
These types of personalities repel managers. Finance professionals who show promise as potential leaders possess managerial and leadership characteristics. The underpinning of leadership is service in the interest of the company and the team. Selfish behaviors lead to a nasty corporate culture that nobody wants, that includes "one-upmanship," territorialism, back stabbing, sabotage and lack of teamwork.
3. The Nerd/Doormat
The nerd/doormats have succeeded in a plethora of academic subjects in high school and college. They are widely read, but unfortunately, doormats have completely ignored their communication skills and have difficulty conveying even simple issues in a succinct and understandable manner. Because doormats are usually bright individuals, they can reject receiving training or courses that will help improve communication or management skills.
Why they fail:
The doormat's desire to be left alone – and avoid co-workers when the need for teamwork arises – produces costly miscommunication and disconnects. Often, if there is conflict within the group, the doormat cannot muster the necessary backbone to stand up for what is right. They are passed over for promotions for more assertive colleagues.
4. The Procrastinator
Procrastinators have succeeded in school and in prior work experiences. This track record of success leads them to believe that their successes were more of a function of individual personality rather than hard work, insights and sheer execution. The procrastinator has become complacent, and waits for quasi-emergencies before stepping up.
Why they fail:
Being late with monthly, quarterly and annual financial reports is unacceptable in finance. Alternatively, when procrastinators turn work in on time, the quality suffers significantly. In finance, bottlenecks produce missed deadlines or poor work product. In an effort to make the team more efficient and effective, managers fire the procrastinator. (If you're interested in improving your time management skills, take a look at Time Management Tips For Financial Professionals.)
5. The Excel Lightweight
The Excel lightweight excelled in college accounting and finance classes. The lightweight's prowess in understanding the theoretical concepts, however, is no longer sufficient in the real world. In a finance setting, practical skills such as advanced Excel knowledge are a driver for garnering increased responsibilities, higher productivity and spreadsheet formula accuracy. How can you succeed in finance without excelling in its major form of communication, spreadsheets? The Excel lightweight doesn't understand much about keyboard shortcuts, macros, advanced formulas and add-ins.
Why they fail:
The Excel lightweight causes blow ups from time to time in the form of inaccurate Excel numbers and formulas. Those with little or no prior real world experience think that their superior knowledge of finance theory translates into practical application on the job. The Excel lightweight can cause tremendous amounts of re-work as well as investigation of the root cause of spreadsheet or database problems, especially with large projects. They can also torpedo careers. Embarrassment and anger run amok and are directed towards the Excel lightweight's managers by higher-up executives or clients.
6. The Error-Prone Dummy
The error-prone dummy is typically a junior analyst or junior associate that had connections and got into the firm through the back door. He or she went to the same college as the interviewer, or has a dad who is an investor in the company. You won't find senior people that are error-prone dummies because they've already been ushered out, even with their connections. Accuracy, dependability and reliability are critical success factors in finance. Unfortunately, the error-prone dummy spends time daydreaming about prospective nighttime activities or is more interested in college football scores than work. His or her work product suffers, and the team is stuck wasting time doing re-work or researching what went wrong.
Why they fail:
They get fired because doing so is an effective cost-saving correction action. Error-prone dummies are not able to catch redundant adjustments, incorrect industry assumptions, overly optimistic forecasts and missed calculations. If finance is viewed as a game of football, then the error-prone dummy is equivalent to a player who never catches a pass or fumbles the ball when he or she does catch it.
7. The Apathetic Cyborg
Apathetic cyborgs do not care; they will work only as much as needed to prevent being fired - nothing more. In a setting where people are rushing to meet deadlines, the apathetic cyborg never displays passion. Don't bother telling him or her anything of importance, as it's going out the other ear.
Why they fail:
The apathetic cyborg is perpetually uninformed. It doesn't matter if the CFO repeatedly blasts emails about the importance of complying with Sarbanes-Oxley, or that 12% is the new cost of equity for the company. The apathetic cyborg risks non-compliance with critical regulatory statutes, or provides field operators with the wrong cost of equity percentages to use to evaluate new projects. Because the apathetic cyborg is out of the loop, pretty soon he or she be out of the company.
Parting Thoughts
If you want to succeed in finance and within your organization, constantly gather feedback from your peers and managers. There are unique issues and objectives that are critical within finance: teamwork, meeting deadlines on reports, alignment with organizational objectives, excel prowess and clear understanding of initiatives (Sarbanes-Oxley compliance). If you know where you stand, you will be in a position to take concrete action to improve certain areas. Finance is a competitive field and there are not that many chances given to those who are on the radar for getting the boot.
Monday, June 1, 2009
The Biofuels Debate Heats Up
by Zoe Van Schyndel,CFA
Concern over pollution, air quality and the availability of gasoline has elevated biofuels as a key solution to environmental and energy problems. However, a closer look at the issue reveals that these fuels are unlikely to be a magic potion for energy needs. There are a host of problems associated with biofuel production ranging from water, air and land pollution to the distortion of agricultural commodity prices and the destruction of sensitive ecosystems. In addition, these fuels make up a very small percentage of the energy marketplace, which would require difficult and expensive measures to change. In this article, we'll take a look at biofuels, examine their benefits and drawbacks and examine what these new energy products might mean for the environment and for investors.
What are biofuels?
Biofuels originate from some type of biomass, or biological matter that can be used for fuel. The two most common types of biofuels are bioethanol and biodiesel. Bioethanol is created by fermenting sugar or starch; corn and sugar are most often used. Biodiesel, on the other hand, is made by combining alcohol, usually methanol, with vegetable oil, such as that found in soybeans, palm oil, animal fat or recycled cooking grease. Once biomass is converted into liquid fuel, it can be used for a variety of energy needs. Ethanol and biodiesel are often blended with gasoline and diesel as additives to reduce vehicle emissions or may be used in their pure forms as renewable alternative fuels.
Corn Crazy
In corn-belt states like Illinois, ethanol additives appear in close to 50% of the gas sold in the state, according to the Illinois Corn Growers Association. Ethanol is a home-grown fuel, but it is also an attractive additive for several other reasons. Adding ethanol to gasoline reduces the amount of hydrocarbons and carbon monoxide in vehicle exhaust, and in its pure form, ethanol has a very high octane rating, which generally means it will provide more power.
However, although ethanol is considered a cleaner burning fuel with less carbon monoxide and other toxic emissions, the troubling thing about using corn for energy is that the fossil fuel energy used to create ethanol is very high. According to a 2002 report by the U.S. Department of Agriculture, ethanol yields only 34% more energy than is used in its production; however, other studies, such as one by David Pimentel and Tad W. Patzek published in Natural Resources Research in 2005, suggest that corn and other ethanol crops require more fossil fuel energy that the fuel they produce. In addition, corn production also requires herbicides and fertilizers, which can contribute to soil and groundwater pollution.
Despite these issues, the U.S. has vastly expanded the amount of acreages devoted to corn, a move that has been driven in part by subsidies and tariffs that restrict imports. According to a 2004 report by the California Energy Commission, the U.S. government has also maintained national tax incentives to encourage ethanol production since 1978.
The Sweet and Sour of Sugar
Brazil is the current poster child for biofuels usage. Unlike the U.S.'s dependence on corn, Brazil relies on sugarcane as its primary ethanol feedstock. After OPEC crippled the Brazilian economy with its oil embargo in the 1970s, Brazil's government made a concerted effort to wean itself from oil. After years of heavy subsidies and tax incentives, by 2005, 73% (according to a January 2006 article in Fortune magazine) of cars sold in Brazil came with "flex fuel" engines, which are capable of running on any mixture of alcohol or gasoline.
Sugarcane has also proved more efficient than corn; sugarcane provides 570 - 700 gallons of ethanol per acre, while corn yields 330 - 420 gallons (Nature, December 2006).
Sugarcane does have its negative side as well, in both human and ecological terms. Most Brazilian cane is cut by hand, which can be a dirty and deadly business for workers in the heat as some sugarcane growers host terrible working conditions. In addition, the cane fields are often burned before harvesting to make it easier to harvest and to flush out pests like snakes. Unfortunately, this burning process contributes to the release of green house gases. Furthermore, each additional acre allocated to sugarcane means that natural vegetation is displaced somewhere to make the crop land available, further exacerbating the negative impact of this fuel.
Palm Oil
Palm oil is relatively inexpensive to produce and that can make it attractive as a feedstock for producing biodiesel. Biodiesel is biodegradable and nontoxic, and can be used alone or blended with petroleum diesel. In addition to being used as motor vehicle fuel, biodiesel can be used as heating fuel in both domestic and commercial applications.
Southeast Asia, Indonesia and Malaysia in particular account for the majority of palm oil production, most of which goes for human consumption or other uses besides energy. Unfortunately, oil palm trees are often grown on newly cleared rain forest or peat swamp, thereby destroying habitat and opening up the remaining forest to poaching. While the oil itself may be a more environmentally friendly alternative compared to fossil fuels, the processes that are used in growing palm may contribute to significant damage to the environment.
Biofuels Reduce Food Supply
Corn kernels and sugarcane juice are common feedstock for creating ethanol, while palm oil has a central role in biodiesel. What these commodities all have in common is that they have a competing purpose of being a source of food and fuel.
The conundrum of food versus fuel and the increased demand for these products as a feedstock for biofuels can cause increases in commodity prices. Such an increase generally translates into higher food prices for consumers. Furthermore, even if price isn't a concern, the supply available is also a hotly debated issue, and some critics contend that these competing interests could lead to food shortages. In November 2007, Oxfam, a leading humanitarian aid agency, cautioned the European Union to ensure that its plans to switch to biofuels won't hit farmers in poor countries. The agency warned that increases in biofuel production could trigger a "land grab" that could force poor farmers off their land and reduce the land available for food production.
Specific Stocks
Investment opportunities to participate in the biofuels boom range from newly listed companies like, Biofuel Energy Corp. (Nasdaq: BIOF), which is a development-stage company that builds and operates ethanol production facilities in the midwestern U.S., to long-established giants like Archer Daniels Midland (NYSE: ADM) and ConAgra Foods (NYSE: CAG). Furthermore, as venture capital flows into startup biofuel companies, this will provide additional opportunities for investors to participate in the boom as these companies become public traded.
The Way Forward
Biofuels may be one of the keys to weaning ourselves off the petroleum merry-go-round, but several issues must be addressed to make them a true competitor with petroleum. Until the holy grail of biofuel feedstocks is found, it is likely that there will be continued pressure on agricultural products as the dual interests of food and fuel fight for the same raw commodities. Opportunities for investors are growing in this niche and, as more companies go public, there are likely to be additional options to choose from.
Good investing, Kingsley.
Concern over pollution, air quality and the availability of gasoline has elevated biofuels as a key solution to environmental and energy problems. However, a closer look at the issue reveals that these fuels are unlikely to be a magic potion for energy needs. There are a host of problems associated with biofuel production ranging from water, air and land pollution to the distortion of agricultural commodity prices and the destruction of sensitive ecosystems. In addition, these fuels make up a very small percentage of the energy marketplace, which would require difficult and expensive measures to change. In this article, we'll take a look at biofuels, examine their benefits and drawbacks and examine what these new energy products might mean for the environment and for investors.
What are biofuels?
Biofuels originate from some type of biomass, or biological matter that can be used for fuel. The two most common types of biofuels are bioethanol and biodiesel. Bioethanol is created by fermenting sugar or starch; corn and sugar are most often used. Biodiesel, on the other hand, is made by combining alcohol, usually methanol, with vegetable oil, such as that found in soybeans, palm oil, animal fat or recycled cooking grease. Once biomass is converted into liquid fuel, it can be used for a variety of energy needs. Ethanol and biodiesel are often blended with gasoline and diesel as additives to reduce vehicle emissions or may be used in their pure forms as renewable alternative fuels.
Corn Crazy
In corn-belt states like Illinois, ethanol additives appear in close to 50% of the gas sold in the state, according to the Illinois Corn Growers Association. Ethanol is a home-grown fuel, but it is also an attractive additive for several other reasons. Adding ethanol to gasoline reduces the amount of hydrocarbons and carbon monoxide in vehicle exhaust, and in its pure form, ethanol has a very high octane rating, which generally means it will provide more power.
However, although ethanol is considered a cleaner burning fuel with less carbon monoxide and other toxic emissions, the troubling thing about using corn for energy is that the fossil fuel energy used to create ethanol is very high. According to a 2002 report by the U.S. Department of Agriculture, ethanol yields only 34% more energy than is used in its production; however, other studies, such as one by David Pimentel and Tad W. Patzek published in Natural Resources Research in 2005, suggest that corn and other ethanol crops require more fossil fuel energy that the fuel they produce. In addition, corn production also requires herbicides and fertilizers, which can contribute to soil and groundwater pollution.
Despite these issues, the U.S. has vastly expanded the amount of acreages devoted to corn, a move that has been driven in part by subsidies and tariffs that restrict imports. According to a 2004 report by the California Energy Commission, the U.S. government has also maintained national tax incentives to encourage ethanol production since 1978.
The Sweet and Sour of Sugar
Brazil is the current poster child for biofuels usage. Unlike the U.S.'s dependence on corn, Brazil relies on sugarcane as its primary ethanol feedstock. After OPEC crippled the Brazilian economy with its oil embargo in the 1970s, Brazil's government made a concerted effort to wean itself from oil. After years of heavy subsidies and tax incentives, by 2005, 73% (according to a January 2006 article in Fortune magazine) of cars sold in Brazil came with "flex fuel" engines, which are capable of running on any mixture of alcohol or gasoline.
Sugarcane has also proved more efficient than corn; sugarcane provides 570 - 700 gallons of ethanol per acre, while corn yields 330 - 420 gallons (Nature, December 2006).
Sugarcane does have its negative side as well, in both human and ecological terms. Most Brazilian cane is cut by hand, which can be a dirty and deadly business for workers in the heat as some sugarcane growers host terrible working conditions. In addition, the cane fields are often burned before harvesting to make it easier to harvest and to flush out pests like snakes. Unfortunately, this burning process contributes to the release of green house gases. Furthermore, each additional acre allocated to sugarcane means that natural vegetation is displaced somewhere to make the crop land available, further exacerbating the negative impact of this fuel.
Palm Oil
Palm oil is relatively inexpensive to produce and that can make it attractive as a feedstock for producing biodiesel. Biodiesel is biodegradable and nontoxic, and can be used alone or blended with petroleum diesel. In addition to being used as motor vehicle fuel, biodiesel can be used as heating fuel in both domestic and commercial applications.
Southeast Asia, Indonesia and Malaysia in particular account for the majority of palm oil production, most of which goes for human consumption or other uses besides energy. Unfortunately, oil palm trees are often grown on newly cleared rain forest or peat swamp, thereby destroying habitat and opening up the remaining forest to poaching. While the oil itself may be a more environmentally friendly alternative compared to fossil fuels, the processes that are used in growing palm may contribute to significant damage to the environment.
Biofuels Reduce Food Supply
Corn kernels and sugarcane juice are common feedstock for creating ethanol, while palm oil has a central role in biodiesel. What these commodities all have in common is that they have a competing purpose of being a source of food and fuel.
The conundrum of food versus fuel and the increased demand for these products as a feedstock for biofuels can cause increases in commodity prices. Such an increase generally translates into higher food prices for consumers. Furthermore, even if price isn't a concern, the supply available is also a hotly debated issue, and some critics contend that these competing interests could lead to food shortages. In November 2007, Oxfam, a leading humanitarian aid agency, cautioned the European Union to ensure that its plans to switch to biofuels won't hit farmers in poor countries. The agency warned that increases in biofuel production could trigger a "land grab" that could force poor farmers off their land and reduce the land available for food production.
Specific Stocks
Investment opportunities to participate in the biofuels boom range from newly listed companies like, Biofuel Energy Corp. (Nasdaq: BIOF), which is a development-stage company that builds and operates ethanol production facilities in the midwestern U.S., to long-established giants like Archer Daniels Midland (NYSE: ADM) and ConAgra Foods (NYSE: CAG). Furthermore, as venture capital flows into startup biofuel companies, this will provide additional opportunities for investors to participate in the boom as these companies become public traded.
The Way Forward
Biofuels may be one of the keys to weaning ourselves off the petroleum merry-go-round, but several issues must be addressed to make them a true competitor with petroleum. Until the holy grail of biofuel feedstocks is found, it is likely that there will be continued pressure on agricultural products as the dual interests of food and fuel fight for the same raw commodities. Opportunities for investors are growing in this niche and, as more companies go public, there are likely to be additional options to choose from.
Good investing, Kingsley.
Wednesday, May 20, 2009
The Greatest Currency Trades Ever Made
by Andrew Beattie
The foreign exchange (forex) market is the largest market in the world because currency is changing hands whenever goods and services are traded between nations. The sheer size of the transactions going on between nations provides arbitrage opportunities for speculators, because the currency values fluctuate by the minute. Usually these speculators make many trades for small profits, but sometimes a big position is taken up for a huge profit or, when things go wrong, a huge loss. In this article, we'll look at the greatest currency trades ever made.
How the Trades Are Made
First, it is essential to understand how money is made in the forex market. Although some of the techniques are familiar to stock investors, currency trading is a realm of investing in and of itself. A currency trader can make one of four bets on the future value of a currency:
* Shorting a currency means that the trader believes that the currency will go down compared to another currency.
* Going long means that the trader thinks the currency will increase in value compared to another currency.
* The other two bets have to do with the amount of change in either direction - whether the trader thinks it will move a lot or not much at all - and are known by the provocative names of strangle and straddle.
Once you're decided on which bet you want to place, there are many ways to take up the position. For example, if you wanted to short the Canadian dollar (CAD), the simplest way would be to take out a loan in Canadian dollars that you will be able to pay back at a discount as the currency devalues (assuming you're correct).
This is much too small and slow for true forex traders, so they use puts, calls, other options and forwards to build up and leverage their positions. It's the leveraging in particular that makes some trades worth millions, and even billions, of dollars.
No. 3: Andy Krieger Vs. The Kiwi
In 1987, Andy Krieger, a 32-year-old currency trader at Bankers Trust, was carefully watching the currencies that were rallying against the dollar following the Black Monday crash. As investors and companies rushed out of the American dollar and into other currencies that had suffered less damage in the market crash, there were bound to be some currencies that would become fundamentally overvalued, creating a good opportunity for arbitrage. The currency Krieger targeted was the New Zealand dollar, also known as the kiwi.
Using the relatively new techniques afforded by options, Krieger took up a short position against the kiwi worth hundreds of millions. In fact, his sell orders were said to exceed the money supply of New Zealand. The kiwi dropped sharply as the selling pressure combined with the lack of currency in circulation. It yo-yoed between a 3% and 5% loss while Krieger made millions for his employers.
One part of the legend recounts a worried New Zealand government official calling up Krieger's bosses and threatening Bankers Trust to try to get Krieger out of the kiwi. Krieger later left Bankers Trust to go work for George Soros.
No. 2: Stanley Druckenmiller Bets on the Mark - Twice
Stanley Druckenmiller made millions by making two long bets in the same currency while working as a trader for George Soros' Quantum Fund.
Druckenmiller's first bet came when the Berlin Wall fell. The perceived difficulties of reunification between East and West Germany had depressed the German mark to a level that Druckenmiller thought extreme. He initially put a multimillion-dollar bet on a future rally until Soros told him to increase his purchase to 2 billion German marks. Things played out according to plan and the long position came to be worth millions of dollars, helping push the returns of the Quantum Fund over 60%.
Possibly due to the success of his first bet, Druckenmiller also made the German mark an integral part of the greatest currency trade in history. A few years later, while Soros was busy breaking the Bank of England, Druckenmiller was going long in the mark on the assumption that the fallout from his boss's bet would drop the British pound against the mark. Druckenmiller was confident that he and Soros were right and showed this by buying British stocks. He believed that Britain would have to slash lending rates, thus stimulating business, and that the cheaper pound would actually mean more exports compared to European rivals. Following this same thinking, Druckenmiller bought German bonds on the expectation that investors would move to bonds as German stocks showed less growth than the British. It was a very complete trade that added considerably to the profits of Soros' main bet against the pound.
No. 1: George Soros Vs. The British Pound
The British pound shadowed the German mark leading up to the 1990s even though the two countries were very different economically. Germany was the stronger country despite lingering difficulties from reunification, but Britain wanted to keep the value of the pound above 2.7 marks. Attempts to keep to this standard left Britain with high interest rates and equally high inflation, but it demanded a fixed rate of 2.7 marks to a pound as a condition of entering the European Exchange Rate Mechanism (ERM).
Many speculators, George Soros chief among them, wondered how long fixed exchange rates could fight market forces, and they began to take up short positions against the pound. Soros borrowed heavily to bet more on a drop in the pound. Britain raised its interest rates to double digits to try to attract investors. The government was hoping to alleviate the selling pressure by creating more buying pressure.
Paying out interest costs money, however, and the British government realized that it would lose billions trying to artificially prop up the pound. It withdrew from the ERM and the value of the pound plummeted against the mark. Soros made at least $1 billion off this one trade. For the British government's part, the devaluation of the pound actually helped, as it forced the excess interest and inflation out of the economy, making it an ideal environment for businesses.
A Thankless Job
Any discussion around the top currency trades always revolves around George Soros, because many of these traders have a connection to him and his Quantum Fund. After retiring from active management of his funds to focus on philanthropy, Soros made comments about currency trading that were seen as expressing regret that he made his fortune attacking currencies. It was an odd change for Soros who, like many traders, made money by removing pricing inefficiencies from the market. Britain did lose money because of Soros and he did force the country to swallow the bitter pill of withdrawing from the ERM, but many people also see these drawbacks to the trade as necessary steps that helped Britain emerge stronger. If there hadn't been a drop in the pound, Britain's economic problems may have dragged on as politicians kept trying to tweak the ERM.
Conclusion
A country can benefit from a weak currency as much as from a strong one. With a weak currency, the domestic products and assets become cheaper to international buyers and exports increase. In the same way, domestic sales increase as foreign products go up in price due to the higher cost of importing. There were very likely many people in Britain and New Zealand who were pleased when speculators brought down the overvalued currencies. Of course, there were also importers and others who were understandably upset. A currency speculator makes money by forcing a country to face realities it would rather not face. Although it's a dirty job, someone has to do it.
Tuesday, May 19, 2009
Play Foreign Currencies Against The U.S. Dollar - And Win
by Todd Shriber
For decades, if not longer, the U.S. dollar has been known as the world's reserve currency. Foreign investors and central banks have gobbled up greenbacks and debt issued by the U.S. government on the premise that the dollar is the world's dominant currency and American economic strength will bolster returns on dollar-denominated investments.
While the conventional wisdom regarding dollar strength has proved to be true over the years, it is important that investors remember that currencies act just like stocks or other financial instruments. They enjoy runs of success and suffer through periods of doldrums. And while the dollar has been a highly desired currency for the international investing community, it experiences periods of decline.
A fall in the dollar isn't cause for panic, though. Savvy investors can exploit the mighty greenback's decline when it happens and profit from it. Best of all, the avenues to profit from a dollar drop continue to increase.
Where to Turn When the Dollar Tumbles
There are generally a few key warning signs that indicate a decline in the dollar is on the horizon. A consistent pattern of key interest rate cuts by the Federal Reserve, a surge in the national debt and rising commodity prices, especially among gold and oil, can all help investors identify potential peril for the dollar.
And when the dollar falls, that likely means other key currencies are rising, because investors are flocking to perceived quality. For example, a tumble in the dollar combined with rising exports and economic growth in Japan would lead investors to the Japanese yen. On the other hand, if U.S. economic growth is stagnant, but Europe and the U.K. are performing well, the euro and British pound become safe havens for currency investors. (For more insight, read Top 8 Most Tradable Currencies.)
Another avenue to consider is the Swiss franc. While Switzerland is in Europe, the country doesn't participate in the common currency and likely never will. In addition, the Swiss government and central bank take almost painstaking efforts to keep the franc strong relative to competing currencies. As such, in 2009 the franc ranked as the world's fifth most-traded currency behind the U.S. dollar, euro, pound and yen.
Watching the Dollar? Watch Commodities, Too
Because many commodities are denominated in dollars, meaning their quoted price is in dollars, investors should watch certain commodity markets to get a sense of where the dollar is headed. For example, rising oil prices have generally resulted in dollar weakness because the dollar's purchasing power suffers and consumers get less gas for their cars and heating oil for their homes when crude oil prices rise.
To hedge against the dollar's fall when commodities are in a bull market, look toward commodity-based currencies such as the Australian and Canadian dollars. When precious metals, such as gold, are in high demand, the Australian dollar often benefits. Likewise, Canada's dollar rises when demand for crude oil surges. Another more recent play on a commodity currency is the Brazilian real. Formerly an emerging market, in 2009 Brazil stands as the 10th largest economy in the world and is rich with natural resources, particularly oil.
Plenty of Options to Profit From the Dollar Decline
Trading in the foreign currency markets can be daunting as the daily dollar volume in these markets dwarfs that of U.S. equity markets. Investors need to be aware that playing in FX markets is not for the faint of heart and they can lose more than their initial investment. For many, the best choice is to leave this arena to the professionals and seek out other methods for profiting from a fall in the dollar.
Fortunately, there is no shortage of products to help investors do this. One is the U.S. Dollar Index, which tracks the dollar against a basket of foreign currencies. It is updated 24 hours a day, seven days a week and trades on the New York Board of Trade. There is also a plethora of mutual funds that track foreign bonds or short the dollar against the other currencies. These funds give investors the international exposure their portfolios need without the headache of directly tracking wild intraday swings in the currency markets.
Equities, both international and domestic, provide another area for investors to profit from a dollar slide. If the forecast appears grim for U.S. equity markets, certain foreign markets may be poised to benefit. Of course, there are U.S. stocks that can benefit from a fall in the dollar, too. Large multinational firms that count on overseas markets for a fair amount of their profits benefit when the dollar is weak as they convert a British pound or Japanese yen back into a greater amount of U.S. dollars. Names like Procter & Gamble (NYSE:PG), General Electric (NYSE:GE) and PepsiCo (NYSE:PEP) come to mind.
Conclusion
Investors need not suffer at the hands of a weak dollar. The methods to protect one's dollar-based investments are plenty and effective hedging can serve as more than just protection: it can boost a portfolio's bottom line. In addition, the global economy means there are global opportunities to help investors sleep a little easier when the dollar drops.
Good investing, Kingsley.
Monday, May 18, 2009
Trade Of The Day - Natural Gas ETF Shows Continued Strength
by Houghton and Atkeson.
United States Natural Gas Fund (UNG) -- As Sam mentioned on Friday, this trust invests directly in futures contracts on natural gas and is traded on the NYMEX. We see further evidence of UNG's strength.
The price of UNG has been in a steady decline since July 2008 when it was trading at more than $63. Today, it is about $16.
Virtually every market-traded asset has seen appreciation since the March low, including oil, which has rebounded from about $30 per barrel to the mid-$50s. Natural gas typically has a high positive correlation with oil. (see image above)
In the past few days, a lot has changed for UNG. From a technical standpoint, it is beginning to breakout from its 10-month decline on rising volume. We believe UNG has hit its lows and there is a high likelihood the gas ETF will climb above $20.
Join me tomorrow as a bring you another hot trade of the day in this new segment; Trade of the day.
Good investing, Kingsley.
Friday, May 15, 2009
5 Penny Stocks to Buy Now
By Jamie Dlugosch, Editor, InvestorPlace.
A Great Buying Opportunity in Low-Priced Stocks
Last December I wrote about the Top 5 Penny Stocks to Buy Now. At the time, I suggested that readers could enhance returns by speculating on stocks with market caps of less than $500 million. By taking a chance on these beaten-down stocks, investors could reap a huge reward.
And now six months later, we can see how true that statement really was. Four of the five stocks have generated positive returns, with three of the four up more than 50%. Only one stock is down, posting a small loss of just 6%.
Those are fantastic returns and are even more remarkable considering that they have been generated during a time when the market has fluctuated greatly.
The market meltdown has created a great buying opportunity in low-priced stocks. Keep in mind that I'm not talking about non-listed pink sheet garbage. These are real companies with some on the list with market caps of more than $250 million.
Here is an update on my top five penny stocks…
Penny Stock 1 WPT Enterprises Inc. (WPTE)
The company that kicked off the recent craze in Texas hold 'em poker with its franchise World Poker Tour became a low-priced stock due to its inability to sufficiently monetize its brand equity.
While other companies shunned U.S. law with online poker sites that operate illegally in this country, WPT Enterprises Inc. (WPTE) made the decision to stay out of the U.S. online poker market. At the same time, interest in poker appears to have peaked based on attendance at last year's flagship event, The World Series of Poker. In addition, a global recession impacted even so-called recession-proof companies, including those involved in the gaming space.
In December, WPTE traded at 52 cents per share. Since then, the stock is up more than 50% to 79 cents per share. In its recent earnings report, WPTE announced that its season seven was doing well on the FSN Network and that the company inked a deal for season eight on the same channel.
Although the company shuttered its WPT China effort, its clubWPT.com continues to grow. The company is engaged in discussions with customers and other parties in order to best leverage the WPT brand. The translation is that the company may be sold. If so, it will be at a higher price than 79 cents per share.
Penny Stock 2 TriQuint Semiconductor (TQNT)
If you believe that the economy will eventually recover to begin a new growth cycle, investing in technology makes sense. While the rest of the market is struggling to move higher in 2009, the technology-heavy Nasdaq is well into positive territory.
Within technology, the semiconductor space is really seeing stocks surge higher in value. That is certainly the case with TriQuint Semiconductor (TQNT). The stock is up more than 65% so far in 2009. Even so, the stock is still down more than 50% from where it traded in early September 2008.
Assuming the next business cycle lasts the typical four years, the recent move in TQNT could be just the beginning. This is a stock that has the potential to triple in value or more. The timing is right, and the valuation is attractive.
It's a must-own penny stock for those looking for such risk exposure.
Penny Stock 3 ION Geophysical Corp. (IO)
Oil prices are on the rise again. As a result, it's highly profitable for oil companies to increase exploration activities. Serving that market is ION Geophysical Corp. (IO).
Thus far, IO is the one stock that has failed to yield any gains in 2009. Shares are down approximately 6%. This includes being down more than 10% on Wednesday of this week due to a less-than-stellar earnings and future guidance report.
The market appears to be missing the mark. IO is a lagging indicator on the economy. When oil prices are falling, lower prices will adversely impact IO results for months after. It should be no surprise then that the company is struggling with oil prices dropping hard over the last 10 months.
That said, oil has been trending higher this year. Such a state should bode well for IO, and the company did say that they are seeing more land-based exploration activity as of late.
It may be late in coming, but I expect IO to do very well in the last half of this year as oil prices continue to rise.
Penny Stock 4 U.S. Home Systems Inc. (USHS)
Another lagging stock on this list has been U.S. Home Systems Inc. (USHS). The stock is very thinly traded and down nearly 10% this year. The credit crisis has negatively impacted USHS as many of its sales are done on credit through its relationship with Home Depot (HD).
This week, the company announced that sales decreased during the first quarter as loan approvals fell to 79%. USHS lost 13 per share in the period.
Fortunately, it would appear that the economy is turning. When it does, look for USHS to move higher. The company's relationship with Home Depot has been challenging as that partner has struggled, but ultimately a recovery will take hold, and with such a strong partner like Home Depot, the future looks bright for USHS.
Penny Stock 5 Osteotech (OSTE)
The baby boomers are aging, and yet they want to remain active. That bodes well for Osteotech (OSTE), a maker of biologic products for orthopedic and spinal surgeons.
Shares of OSTE are up 70% since December, and according to analysts who follow OSTE, the stock has much more upside as profits are expected to come in 2010. Last quarter, OSTE lost 10 cents per share, and even though analysts expected a smaller loss, OSTE's share price held up well given future expectations.
But the past is the past, and demographics being as they are, profits should be forthcoming in coming years. OSTE has the potential to reach double-digit figures in a very short period of time. OSTE represented the high risk, high reward opportunity perfect for those interested in penny stocks.
Good investing, Kingsley.
Tuesday, May 12, 2009
Get Paid to Trade Options!
by Bryan Perry
Let's face it: It's not our parents' economy, and the ways they made their money isn't likely to work in this environment.
The good news is that it isn't our parents' market, either. Gone are the days of simply buying and selling stocks … that is, if you had enough capital left over from the extraordinary fees that brokers charged simply for the privilege of working with them.
With the arrival of more trading exchanges, armies of brokers competing for your business and the explosion of the derivatives markets (i.e., commodities, options, single-stock futures) during the past few decades, it's exciting to wonder what new ways of making money our children and grandchildren will be using.
In the meantime, we've got plenty of strategies to tap into, to turbo-charge our portfolios today.
TO MAKE LONG-TERM GAINS, THINK LIKE A SHORT-TERM TRADER
When the markets are non-directional (i.e., up one day, down the next, with no clear pattern or predominant bullish or bearish bias), some folks cash out their holdings and wait for an "all-clear" signal when the market starts trending higher on a more-regular basis. Others leave their money in the same securities they liked before the craziness started and hope that things don't get too much worse before they get better.
You may trade options for a variety of reasons -- the potential profits you can make on a relatively modest investment, the rush that comes with cashing in a winning trade, or the ability to keep some skin in the game while you wait for a better opportunity to tend to your long-side portfolio.
We all know that you can make money -- oftentimes pretty quickly -- by trading options, whether stocks or the market itself are going up or down.
But using options as a speculative tool is only one way to pad your portfolio with "extra" profits. There are other strategies out there -- using both options and something called "hybrid options" to help investors to use their existing stocks to generate income.
MILLION-DOLLAR METHODOLOGIES
Making a million bucks with stock trading has gotten increasingly difficult during the past year, but options traders are finding it easier than ever to practically print money for themselves, thanks to the influx of new options and innovative strategies.
You might not automatically consider options when it comes to building your retirement wealth or for generating income, but think again. Options are one of the fastest-growing investing strategies -- and with good reason.
There are multitudes of ways to profit from options but some are more attractive to income investors than others, namely covered call writing, put selling and newer hybrid options securities like Stock Return Income Debt Securities (STRIDES).
DON'T KNOW WHERE TO START? YOU'RE 'COVERED'
There's an options income strategy for every level of investor, and one of the easiest to implement and understand is covered call writing. Simply put, covered call writing means selling calls against stocks that you already own.
Covered call writing is a bet that a stock you already own will continue moving up or will trade sideways for a bit. (That's when it's trading within a range and not making any significant jumps or drops.)
The calls you sell (also known as "writing") are considered "covered" because you already own the underlying stock. This means if you are "called" to produce the stock, you are covered because you already have the shares.
However, if you are new to investing or simply don't hold many stocks long in your portfolio, you can benefit from the action that covered call writing can bring by buying into an Exchange-Traded Fund (ETF) like the S&P Covered Call Fund (BEP).
The best part is that you don't have to do any of the call writing yourself, but you can profit from the legwork being done for you!
This basket fund invests in stocks that the S&P 500 Index (SPX) holds and the professionals who run the fund write call options on the S&P 500 Index. Funds like this one are as liquid as common stocks, and you can buy them as you would any other security through your online trading platform or your broker.
The downside with funds like BEP is that someone else is deciding what calls to write, and finding out the particular transactions can be difficult.
THE 'WRITE' WAY TO CREATE INCOME WITH OPTIONS
The converse of the covered call is the naked put-write, which simply means you sell puts on stocks that you don't currently own but might like to. With this strategy, you get income up front for selling, or writing, the put.
Don't be intimidated by this strategy. If you can buy an option, then you can sell an option.
The caveat, however, is that you might end up owning the stock, which is why it's imperative that you only establish put-writes on fundamentally solid stocks that you would be happy owning -- even at reduced prices. Investors like writing puts because it helps them to buy stocks at a discount or to get paid while they wait.
STRIDE RIGHT
While the two strategies I mentioned above are easy to understand and execute, there are a host of new options income strategies that require just a little bit more work -- but have shown that the profits are worth it.
Earlier this year, I began using Callable Stock Return Income Debt Securities, or STRIDES, to generate income with my options trading experience.
STRIDES use a short-term bond coupon that paired with an option strategy. They are Merrill Lynch (MER) products that serve as hybrid-types securities. They are structured like bonds that mature in a fairly short time frame (one to two years), which allows you to get fairly quick profits while still enjoying long-term taxation.
Even better, each pays a dividend yield. The amount varies, but the STRIDES' name will tell you exactly how much.
For example, a name might read the Apple (AAPL) 12% STRIDES.
I like these kinds of products because they pay 9%-12% in a world where one-year CDs are only paying 2%.
The downside here is that these types of positions are often less liquid than traditional options because, in most cases, you must go through a broker to get them. They do have ticker symbols, but the more important identifier is the nine-character Committee on Uniform Securities Identification Procedures (CUSIP) number to identify the security.
The American Bankers Association owns the CUSIP system and it's operated by Standard & Poor's to identify stocks of all registered U.S. and Canadian companies, as well as U.S. government and municipal bonds. Your broker will know how obtain these for you.
INCOMING: OPTIONS CAN BRING WEALTH YOUR WAY
Just consider that at one point the stock market was a new idea. In time, investors will come to understand that options can make millions and you don't have to be one of the laggards. Bottom line: Start trading options today help secure your tomorrow.
Should You Have More Than One Forex Dealer?
By John Jagerson.
I was recently involved in an interesting conversation about forex dealers and there was discussion and debate as to whether certain companies were financially sound. I think that is certainly a great question to ask, because when financial institutions run into trouble, as many are now, the account holders are the last group to recoup their money, if they ever do.
When it comes to your forex trading account, there are some great solutions to deal with this potential uncertainty.
Don't miss reading: 10 Rules for Surviving This Bear Market
Dealer Diversification
I am sure all of us have either been affected directly, or through someone we know, by a dealer or broker's solvency problem. Any of us that have been in the forex business for more than a few years can remember Refco, the largest futures dealer in the market, going out of business in a period of just a few weeks.
To deal with these potential risks and to optimize their own performance, I think traders should consider dealer diversification.
Risk Mitigation
Just like diversifying across asset classes and strategies, having more than one account is a great way to minimize your exposure to the risk of a dealer problem. A collapse or closure by a regulator agency can happen quickly, leaving all your money exposed or in the hands of someone you don't even really know.
Let your dealer know they don't have all the money you could deposit to keep them on their toes and
Strategy Optimization
Some of us are long-term traders, others are carry traders, and a lot of us are short-term traders. Each dealer competes on their relative advantages, and I haven't seen a one-size-fits-all solution.
A dealer that pays great rollover rates may have wider spreads. They may be great for long-term traders, but terrible for short-term traders and scalpers. Pick the dealer that fits your strategy. Most of us probably use a blend of strategies and should pick a dealer for that part of our account that offers the best advantages.
Product Breadth
No dealer is created equal. Some may offer very tight spreads but don't have the breadth of crosses you may want for other strategies. One important differentiator right now is options. If you want to trade options but don't want to abandon the dealer you have currently, what can you do? Work with both of them.
If you have ever been torn between two attractive dealers but felt like it may be difficult to manage your accounts, I think you may be surprised how useful a good spreadsheet can be. Use all the tools that you have available and you may be shocked about how much the variety keeps your trading creativity flowing.
Good investing, Kingsley.
Taking the Pain Out of Real Estate Investing With REITs
by John Jagerson
Investing in real estate has been a strategy that falls in and out of favor depending on what the general economy is doing.
In 2008-2009, real estate investors took a hard hit with prices dropping significantly, but now that the economy seems to be flattening, real estate bargain hunters are beginning to reemerge.
This article will discuss how a savvy investor can include some exposure to the real estate market within their portfolio without all the headaches.
Real estate investors are drawn to the market because of the perceived potential for large returns. However, what many investors don't understand is that the unusually large returns in a strong economy are due to the use of leverage through loans.
Because of the high cost of real estate, excessive leverage is one of the only ways most individual investors can participate in the market, but it comes with significant and often unanticipated risks.
Excessive leverage in a fairly illiquid asset like real estate can become an account killer quickly. This is the situation so many investors find themselves in now. Leverage has left them upside down on their losses and, in many cases, has wiped out years of profits.
The stock market offers opportunities to invest in real estate, including the possibility of large profits without the usual problems. This can be done through Real Estate Investment Trusts (REITs) that are publicly listed as a stock and available to almost any investor.
A REIT invests in real estate and then sells shares of ownership in the trust on the public market. When you buy a share of a REIT, you are buying partial interest in a real estate investment. This allows you to buy real estate without having to use leverage.
Many REITs are specialized in a specific kind of real estate like Plum Creak Timber (PCL) that invests in land used for lumber production.
Through REITs you can own a share of stores, commercial properties, residential neighborhoods or other income properties that would otherwise be inaccessible to most individual investors.
If investing in a single REIT or real estate strategy doesn't offer the level of diversification you desire, then you may want to consider REIT exchange-traded funds (ETFs). (Learn more about investing in ETFs.)
These ETFs pool investments in many REITs so that diversification can be improved. The iShares FTSE NAREIT Industrial/Office index (FIO) (commercial property) and the iShares FTSE NAREIT Residential index (REZ) (residential property) are good examples of these kinds of ETFs.
An ETF or REIT adds the advantages of liquidity, low entry prices and transparency to the possibilities of profits.
REITs are usually (but not always) negatively correlated with stocks, which helps to smooth your portfolio's growth over the long term. While REITs can experience share price growth, most profits come from dividends that can reach 10% or more. This makes them an interesting addition to tax-sheltered accounts held over the long term.
When compared to the management requirements, financing hurdles, liability and liquidity issues of a real estate investment, REITs present an attractive alternative.
Good investing, Kingsley.
Investing in real estate has been a strategy that falls in and out of favor depending on what the general economy is doing.
In 2008-2009, real estate investors took a hard hit with prices dropping significantly, but now that the economy seems to be flattening, real estate bargain hunters are beginning to reemerge.
This article will discuss how a savvy investor can include some exposure to the real estate market within their portfolio without all the headaches.
Real estate investors are drawn to the market because of the perceived potential for large returns. However, what many investors don't understand is that the unusually large returns in a strong economy are due to the use of leverage through loans.
Because of the high cost of real estate, excessive leverage is one of the only ways most individual investors can participate in the market, but it comes with significant and often unanticipated risks.
Excessive leverage in a fairly illiquid asset like real estate can become an account killer quickly. This is the situation so many investors find themselves in now. Leverage has left them upside down on their losses and, in many cases, has wiped out years of profits.
The stock market offers opportunities to invest in real estate, including the possibility of large profits without the usual problems. This can be done through Real Estate Investment Trusts (REITs) that are publicly listed as a stock and available to almost any investor.
A REIT invests in real estate and then sells shares of ownership in the trust on the public market. When you buy a share of a REIT, you are buying partial interest in a real estate investment. This allows you to buy real estate without having to use leverage.
Many REITs are specialized in a specific kind of real estate like Plum Creak Timber (PCL) that invests in land used for lumber production.
Through REITs you can own a share of stores, commercial properties, residential neighborhoods or other income properties that would otherwise be inaccessible to most individual investors.
If investing in a single REIT or real estate strategy doesn't offer the level of diversification you desire, then you may want to consider REIT exchange-traded funds (ETFs). (Learn more about investing in ETFs.)
These ETFs pool investments in many REITs so that diversification can be improved. The iShares FTSE NAREIT Industrial/Office index (FIO) (commercial property) and the iShares FTSE NAREIT Residential index (REZ) (residential property) are good examples of these kinds of ETFs.
An ETF or REIT adds the advantages of liquidity, low entry prices and transparency to the possibilities of profits.
REITs are usually (but not always) negatively correlated with stocks, which helps to smooth your portfolio's growth over the long term. While REITs can experience share price growth, most profits come from dividends that can reach 10% or more. This makes them an interesting addition to tax-sheltered accounts held over the long term.
When compared to the management requirements, financing hurdles, liability and liquidity issues of a real estate investment, REITs present an attractive alternative.
Good investing, Kingsley.
Subscribe to:
Posts (Atom)