Invest Now with a Keen Eye and Be Regarded a Genius for Decades 19 comments
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In response to a slew of emails the last months, I thought I would address them in a post since the themes are all similar.
- Financials:
Will not be touching them and are currently waiting for Wells Fargo (WFC) to rally a bit to sell out of it. Why? I no longer know the rules of investing in them. TARP and its requirements change almost daily. Going forward, the term (interest) the Government demands and the shareholder dilution that accompanies them will become more onerous. That is bad news. Also, the second body blow from housing is due this year and next. That means more suffering for financials and shareholders.
Now, this does not mean I will never invest in them again. I just think in 2010 we will still be able to buy them at these levels or lower. Is there value in financials? I just cannot quantify it as long as we have shifting rules from the Government.
- The Market:
Up to 9000, then back to 8000 all year. The market will bounce like a ball but never really go anywhere. I think the risk is to the downside as the recession worsens. Unemployment ought to pass 10%, GDP will be negative for the year and credit is still drying up. So, given those, how do we go to 10,000?
That being said, it is a trader's market. If you sell options you can make some money here. If you trade the range you can also. If you are not a trader, don't try to be one. Be who you are.
- Oil:
I have written a lot about it recently. Why? Demand has fallen true, but the unreported story is production has fallen off a cliff also. Oil is not like a faucet. It cannot just be turned back on. A drilling project shuttered because of low prices today cannot just be flipped back on when prices recover. There is a tremendous lag. As crazy as prices were at $147, they are equally as crazy at $47. U.S. production continues to fall, Mexico's has plummeted and OPEC is more in power now than ever. That only serves to heighten the Geo-Political risk of oil. Translation? One wacko can cause a global oil price spike.
I see the most value here now, or at least a market unfettered by arbitrary Government intervention. Yes, I know that most foreign oil companies are Government owned, what I am saying is that if you buy oil today, your ownership cannot be diluted by the Government like it can and is in equities today.
- The dollar and inflation:
Has anyone ever seen a scenario when massive supply of an item has not caused a devaluation of it? How can the current U.S. Government's "running the dollar printing presses full tilt" like they are now NOT lead to a devaluation of the dollar? Here is the problem. The Government WANTS inflation to return. It will increase home prices, increase prices manufacturers get for their goods, increase equity values etc. The problem is, Government always overdoes it. That means that they will pump too much into the system and inflation will get away from them.
That genie, once out of the bottle is only put back in by inflicting more pain on the economy. It then becomes a vicious circle...
- What to buy?
Right now I am buying nothing but oil. Why? As much as we have seen the rules of the game change in the past year, still more is due. TARP requirements are, the tax code is, a stimulus is coming (we do not know the composition of it) and a Democratic Congress has plenty on its agenda. What looks good today may not tomorrow. Does this mean you should not buy anything? No. There of course will be plenty of equities that do wonderfully in the next year. I just think there will be plenty more that do not.
Management now matters more than ever. Keep it in mind when buying.
- Am I selling?
Only the financials (sold most in the fall). I still like what I hold, Dow Chemical (DOW), AutoNation (AN), ADM (ADM), Borders (BGP), Oil (DXO), (DBO), Phillip Morris International (PM), Sears Holdings (SHLD) and GE (GE). I do have misgivings about Immelt at GE (GE) but I am willing to wait as I think they will be a big beneficiary of infrastructure stimulus.
All dominate their businesses (except Borders and Sears, they are plays on the majority shareholders Ackman and Lampert) and are picking up market share. Dow will lead us out of recession as whatever needs to be made, they make the stuff that makes it and it yields 10%. Wait and see....
This is the environment that one can make purchases that make one look like a genius for decades, it just takes a keen eye....
Disclosure: Long Dow Chemical , AutoNation , ADM, Borders , Oil (DXO), (DBO), Phillip Morris International , Sears Holdings and GE.
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This article has 19 comments:
I like Canroys & MLPs. You get the best of both worlds
1) Steady dividends of 5% to 15% (even with sub $40 oil)
2) A nice capital gain when the price of oil rebounds.
Of course, services companies (DO, Pride, Noble, HAL, etc) will be major beneficiaries as well oil recovers.
In mostly all western European countries a bottle of one and half litres of water costs 0.70 Euros. In order to compare both prices you need to buy 106 bottles of water to get 159 litres, equivalent to a barrel of crude oil, so 106 x 0.7 euro = 74.20 euro
Now we have to change euro to dollar so, 74.20 euro x 1.4 = 103.88 dollars.
As you can see, you have to pay 103.88 dollars to get 159 litres of bottled water, but you only need 35 dollars to get a barrel of crude oil.
80% of the income of countries like Saudi Arabia, Iran, Kuwait, Arab Emirates, Iraq, Venezuela, and almost the rest of the oil exporters’ countries is based on the sale of this raw material.
Oil is a very scarce good and the leaders of these countries must act with caution and responsibility in order to benefit their economies because their political stability and well-being of their citizens depends on it.
The oil reserves in operative oilfields started declining years ago but the world needs and demands more and more oil year after year. In the last 20 years, we haven’t discovered any important oilfields and the new ones are very difficult and very costly to operate. Most of them are placed in far open sea and in very deep water sea. The other ones are placed in land but in abysmal depths with low capacities. Take a look at the above chart. During the 1960s, for instance, we consumed about 6 billion barrels per year while finding about 30-60 billion per year. Those consumption/discovery ratios have nearly reversed themselves in recent years. We now consume close to 30 billion barrels per year but find less than 4 billion per year. Oil markets are no longer mainly reliant upon the consumption patterns and trends in the United States, Europe, and Japan like before. The markets of the emerging countries have started to play a major and significant role which is likely to grow in the future.
$100 barrel is too cheap for something that moves the world and that is so scarce.
How long do you think that the price could remain here? 6 month? 1 year? year and half? How lower could it go? $30 pb? $25 pb? $20 pb? Less? Ok, now please tell me, do Us, Japan and Europe want to recover the crisis making cars and building houses? do they want to recover the employment? in order to revive the economy they must put money in it, then the people can get employment and buy cars and houses, it means opened factories and banks, it means money in hand, and IT MEANS OIL DAMAND, this is the true reality, Geopolitical conflicts with Iran in Persian gulf and strait of hormuz , problems in Venezuela, in Arabia Saudi, Israel- terrosit attack in oilfields,etc .etc. natural disasters in gulf of Mexico, India, China, all these MEAN OIL DAMAND, but the world must go on and on, so no matter how long it takes, we will see oil at $147 0r $200 or maybe more, who knows!
Best regards
I am not enamored with GE... what Immelt has done to turn CNBC into a Jerry Springer lookalike-soundalike he seems to be doing to the rest of the company as well. The stock has been an underperformer since he took over, in good times and in bad.
As to Lampert, well, the harder Cramer shills a guy, the more I stay away.
I put 30 gallons of gas in my car a month.I have no choice.
I buy zero bottled water.
Supply and demand.
Economics for DUMMIES should be a prerequisite for your next article
.
I appreciate your article and have become a fan of your straight-forward writing. I like many of the other that have commented agree with your assessment of oil and its prospects in the near future. The geopolitical risks that you speak of, IMO, only become more intense as the price of oil drops...the "wackos" as you call them only become more wacko as their economies are running in the red.
Question: I have been closely watching DXO for a few weeks now, and I have noticed a troubling trend. The double long oil is NOT tracking the price of crude very accurately at all. There are even days were oil futures are down and the ETF is up. Thus far, the tracking errors have only been to DXO investors advantage, at least that I have notice.
Is this a cause for concern? Could you shed any light on what is going on here?
I agree with you 100% about GE and CNBC. One thing about CNBC which has been ignored by the SEC is that their discussion panels seem to comment favorably about certain stocks and knock down others. The Finance Industry analysts they invite on CNBC to comment on companies or industries, have to disclose ownership of all the stocks they own when they do that. Don't you think that the CNBC employees, who favor or disfavor companies or stocks on the show, should be required to disclose ownership in the stocks they talk about?
Seems to me these people could raise or lower the price of the stocks by making favorable commments to increase the value of the stocks they own and speaking against the companies who's stocks they want to buy at bargain prices.
All in favor of disclosure by CNBC employees should write to the SEC to impose this ruling on CNBC employees and other channels that have similar programs. Investors like us are being short-changed by letting them get away with this advantage. The brokerage industry should really be the one to raise hell about this non-disclosure advantage, because brokers are required to disclose ownership of stocks, mutual funds etc. they recommend to their prospects and clients.
On Jan 13 09:04 AM wpdragon wrote:
> Good strategic look at things.
>
> I am not enamored with GE... what Immelt has done to turn CNBC into
> a Jerry Springer lookalike-soundalike he seems to be doing to the
> rest of the company as well. The stock has been an underperformer
> since he took over, in good times and in bad.
>
> As to Lampert, well, the harder Cramer shills a guy, the more I stay
> away.
The market: S & P 500 (better barometer than the Dow 30 in my opinion) should be at 750 to be at its long term 30 year upward trend line. Will it get there, hold, and then do back and forth for a few years? I do not know.
Oil: Agreed. I like VET.UN, as a globally diversified energy play (watch out for the currency translation however), with a nice yield and a select few pipeline stocks.
Dollar: is toast. I don't know when. However, I would suggest to everyone, do not be fooled by the "strong" dollar, "safe haven" dollar talk we hear about from the talking heads. The dollar going up is a flight to "quantity" not "quality". Things take time to occur so the situation bears watching.
What to buy? Like the author I own PM. I own a few US listed stocks (non financial), a few canadian stocks, (2) ETF's, some triple tax free muni's, and some cash. I am thinking about buying some gold and burying it in someone's yard, though I have not.....yet.
Am i selling anything? No. All the stocks I own, have been reporting very good numbers, all thru the downturn, thus far. I am an investor not a speculator, so i continue to follow the companies very closely. Besides who am I kidding, I am the world's worst trader and would never claim to be otherwise.
This is the speal and propaganda that drove up the ridiculous price of oil. Oil should be around $25/$30 a barrel at most, and water is...... well it's FREE.
You speak like a "long oil" true believer.
On Jan 13 09:00 AM nostradamus1 wrote:
> A barrel of crude oil is cheaper than bottled water in supermarkets.
>
>
> In mostly all western European countries a bottle of one and half
> litres of water costs 0.70 Euros. In order to compare both prices
> you need to buy 106 bottles of water to get 159 litres, equivalent
> to a barrel of crude oil, so 106 x 0.7 euro = 74.20 euro
> Now we have to change euro to dollar so, 74.20 euro x 1.4 = 103.88
> dollars.
>
> As you can see, you have to pay 103.88 dollars to get 159 litres
> of bottled water, but you only need 35 dollars to get a barrel of
> crude oil.
>
> 80% of the income of countries like Saudi Arabia, Iran, Kuwait, Arab
> Emirates, Iraq, Venezuela, and almost the rest of the oil exporters’
> countries is based on the sale of this raw material.
>
> Oil is a very scarce good and the leaders of these countries must
> act with caution and responsibility in order to benefit their economies
> because their political stability and well-being of their citizens
> depends on it.
>
> The oil reserves in operative oilfields started declining years ago
> but the world needs and demands more and more oil year after year.
> In the last 20 years, we haven’t discovered any important oilfields
> and the new ones are very difficult and very costly to operate. Most
> of them are placed in far open sea and in very deep water sea. The
> other ones are placed in land but in abysmal depths with low capacities.
> Take a look at the above chart. During the 1960s, for instance, we
> consumed about 6 billion barrels per year while finding about 30-60
> billion per year. Those consumption/discovery ratios have nearly
> reversed themselves in recent years. We now consume close to 30 billion
> barrels per year but find less than 4 billion per year. Oil markets
> are no longer mainly reliant upon the consumption patterns and trends
> in the United States, Europe, and Japan like before. The markets
> of the emerging countries have started to play a major and significant
> role which is likely to grow in the future.
>
> $100 barrel is too cheap for something that moves the world and that
> is so scarce.
>
> How long do you think that the price could remain here? 6 month?
> 1 year? year and half? How lower could it go? $30 pb? $25 pb? $20
> pb? Less? Ok, now please tell me, do Us, Japan and Europe want to
> recover the crisis making cars and building houses? do they want
> to recover the employment? in order to revive the economy they must
> put money in it, then the people can get employment and buy cars
> and houses, it means opened factories and banks, it means money in
> hand, and IT MEANS OIL DAMAND, this is the true reality, Geopolitical
> conflicts with Iran in Persian gulf and strait of hormuz , problems
> in Venezuela, in Arabia Saudi, Israel- terrosit attack in oilfields,etc
> .etc. natural disasters in gulf of Mexico, India, China, all these
> MEAN OIL DAMAND, but the world must go on and on, so no matter how
> long it takes, we will see oil at $147 0r $200 or maybe more, who
> knows!
>
> Best regards
>
>
In the '80s the same thing happened in Japan. Interest rates went to zero if not negative. Quantitative easing. Pleas for consumers to spend? Was there any inflation? Nope.
So few people seem to understand how much money is being destroyed it's little wonder the comments run 20:1 on SA in favor of the inflationary holocaust scenario. Remember, every time US consumer debt falls -- as in people paying down their credit card debts -- that equates to a dramatic rise in US savings rates. The Fed can print all the money they want, so long as the velocity continues to decline there will be deflation. Deflation causes destruction of demand and supply; negative growth. By the end, inflation isn't inflation because it ends up being expansion concordant with growth.
I'd test-fire a few more missiles and announce that I have a nuclear weapon ... perhaps even threaten somebody with it. Or threaten to close the Persian Gulf over the perpetual Gaza conflict.
The US administration then does its part (well publicized threats & bluster) and oil hits $100/barrel again. My government would again be flush with cash and the American public that supports the worldwide price of oil will again fail to notice that they've been had.
One reason the price of crude has been crushed is to Dube the masses " that is safe to buy a gasguzzler " My neighbor just bought 2 gM suburbans ! This helps the bottom line for the failing us car companies . Folks - DO NOT be fooled .
Additionally, the government is incentivized to cause an inflationary spiral instead of a deflationary spiral, because it increases the velocity of money (one measure of money supply). Hence, the printing of money is a GOOD THING.
I have a dozen valid business ideas, but the banks won't open up lending. I wish a few would fail to make room for the good ones. Every idea the government has lands squarely on my shoulders.
Hence, I've learned Spanish and hope to retire somewhere where freedom from government is still valued. No, not in Spain. That place is full of tools and knobs.