I heard a great explanation of the current market turmoil a few days ago – “You can’t explain stupid.”  For a moment, let’s set aside the personal loss and devastation of a hurricane and think about it purely from an oil pricing perspective.  About 25% of the US oil and 20% of natural gas production comes from the Gulf of Mexico. When a hurricane enters the gulf, off-shore oil platforms must be shut down and the workers evacuated to safety on land.

Although hurricane Gustav’s bark was bigger than its bite, I understand that it will be November before production is back to 95% pre-hurricane levels.  Basic economics states that a decrease in supply results in an increase in price.  Oil pricing was falling before the hurricane, but shouldn’t a hurricane at least slow the decline?  Prices continued to fall when a second hurricane, Ike, barreled into the Gulf a few weeks later.

Is the answer to our energy problem?

a) Drill, Drill, Drill: off-shore, ANWAR

b) Renewables: wind, solar, bio-fuels, etc.

Wall Street has many great sayings. One that I try to live by is “let your winners run and sell your losers quickly.” Many people buy into the “letting your winners run” part, because they have also bought in to Wall Street’s buy and hold philosophy. However, unless you are planning on “letting your winners run” until retirement – you will need to sell at some point. So when do you sell. In particularly, when do you sell a winner? Let’s take a closer look.

If you really think about it - you have two options for selling a stock: selling as it is rising (into strength) or selling as it falling (into weakness). To accomplish yet another famous Wall Street saying, buy low and sell high, by definition - one must sell into strength.

It is getting uglier and uglier. Bear Stearns (BSC) a major Wall Street investment bank nearly filed for bankruptcy this weekend. In a fire sale, J.P. Morgan (JPM) with backing from the Fed bought Bear Stearns for $2 per share. Bear Stearns closed at $30 per share on Friday. A little over a year ago, January 2007, Bear Stearns traded at $170 per share.

It is simply amazing how much wealth is being lost during this “financial mess.” Billionaire investor Joesph Lewis is light about a billion bucks since his ill-timed investment in Bear late last year. That will sting a little, but he will be OK. However, there are many regular folks at Bear Stearns who are in the red zone (0-5 years from retirement). Their retirements have been delayed, significantly modified or simply won’t happen.

Not a day goes by that I don’t hear a talking head on CNBC talking about a well diversified portfolio. Diversification must be a required course in money management school. Here is a commonly accepted definition from the U.S. Securities and Exchange Commission’s web site,

One of way of diversifying your investments within an asset category is to identify and invest in a wide range of companies and industry sectors. But the stock portion of your investment portfolio won’t be diversified, for example, if you only invest in only four or five individual stocks. You’ll need at least a dozen carefully selected individual stocks to be truly diversified.

It was only a matter of time before another homebuilder CEO would claim that the housing market had bottomed. Ara Hovnanian, CEO Hovnanian Enterprises (HOV), put his stake in the ground on Friday, 9/14/07, per Bloomberg. Apparently he learned from Robert Toll’s pronouncement in March. He added a caveat to his claim, “The bottom is very near but I think it’s going to stay along the bottom for a while before a recovery.”

Those that chose to act on those articles are sitting on almost a double in less than 3 months.

Knowledge is not power. Acting on knowledge is power!

Our survey begins with the Capital Goods & Services sector - home of Farming Machinery giant Deere Company. Deere is a household name, but have you heard of CNH Global NV (CNH)? The company is based in Amsterdam, the Netherlands. It manufactures and distributes agricultural and construction equipment worldwide. The company generates $13B in revenue - making it about half the size of Deere. As the saying goes, good things come in small packages as the market has bid it up 90% year to date.

Regardless of the cause, there is absolutely nothing you or I can do about the price the oil. I have stopped worrying over things that are out of my control. I prefer looking for the opportunity in the crisis. The formula for investors is simple, increased revenue with fixed expenses generates out sized profits. Buying stock in such companies offset rising prices at the pump, grocery store or anywhere else.

Personally, I have made enough money trading Petrobras (PBR) to fill-up my car every week for the next couple of years. Petrobras, headquartered in Brazil, explores and produces oil and natural gas. In 2006, it produced on average 2.33 million BOE (barrels of equivalent) per day. The company has 11 refineries throughout Brazil, with a capacity of roughly 2.1 million barrels per day. It was ranked #86 in Fortune’s list of the world’s largest companies for 2006. An oil company with an emerging market kicker to boot - sounds like a winner.

The stocks are Monsanto Company (MON), a seed producer, Agrium Inc. (AGU), a fertilizer supplier, Bunge Limited (BG), a grain and seed processor and Deere (DE), a farming equipment company. I have been trading energy as well as precious and base metal stocks for a number of years. The idea of playing soft commodities via the stock market was quite appealing. I wrote about it in “Eric Bolling’s Agriculture Stock Play: I Wish I Had Listened Earlier.”

Although I loved the idea I couldn’t fully commit. On Friday, I cherry picked Agrium out of the group and purchased it. However, during the entire day I was constantly asking myself why did he buy Agrium instead of Potash Corp. or some other fertilizer company? By the end of the day, I bailed out of Agrium. I have learned that it is hard for me to blindly commit to someone else’s idea. My preference is to borrow ideas and as they say on American Idol “make it my own.” So, with a tweak here and there I was up and running with my own version of Bolling’s Ag play on Monday. So what tweaks did I make?

Jim Rogers stirred my interest a few years ago when I read his book “Hot Commodities.” He made it quite clear that we are in the midst of bull market in all “real things” not only oil, natural gas, and metals, but also wheat, corn, soybeans, etc. However, Rogers cut his teeth as a commodity trader. He believes that the best way to participate is to buy the underlying commodity (futures) or a commodity index fund. Since futures are not for me and mutual funds are right up there with watching paint dry, his book didn’t provide any implementation insight that I could leverage.

Bolling’s trade was exciting, because it is perfect for stock traders. His play is Monsanto Company (MON), a seed producer, Agrium Inc. (AGU), a fertilizer supplier, Bunge Limited (BG), a grain and seed processor and Deere (DE), a farming equipment company. The premise is that higher commodity prices allow farmers to spend more money on new equipment, higher yielding seeds and better fertilizers.

First and most importantly, I determine how much risk I am willing to take on a trade. My preference is to limit risk to 1-2% of my portfolio. In this example, I will use a portfolio size of $50,000 and limit the risk to 1%. So that means I am willing to only lose $500 on a trade (1% of $50K).

Next, I search through my favorite stocks to see if any of their charts look appealing. I like stocks that are either breaking to new highs or breaking their downtrend lines. Since gold is overdue for a run, let’s take a look at Central Fund of Canada (CEF). It’s a gold and silver bullion fund and one of my favorites.

The article states that a “Financial Gender Gap” study conducted by Prudential Securities revealed significant differences in how men and women invest. The study places investors in one of the following three zones: Action, Comfort and Caution.

Back in the glory days Intel (INTC), Cisco (CSCO), Dell (DELL) and Microsoft (MSFT) were known as the four horseman. They were the “go to” stocks. Owning them were like having your own money tree. However, they have all taken it on the chin since then - Intel and Cisco are down 71% and 67% respectively from their high points in 2000, while Dell is down 54% and Microsoft are down 49% since 1999.

Most recently I have formed The Big Spend [TBS] portfolio to capitalize on the new wealth being created in the emerging markets. The thinking being that people in the emerging markets are no different than ones in the developed markets - money burns holes in their pockets too and must be spent. Stocks like AAPL, NOK and MA form the nucleus of the TBS portfolio.

This strategy also keeps me away from themes where I can’t identify a driving catalyst. A few weeks ago I wrote an article, SPDR Homebuilders ETF Rallying: How Could This Be? The Homebuilders ETF (XHB) was rallying, but why? Are interest rates going down? Nope. Have the homebuilders sold off their bloated inventories yet? Nope. Has the guy down the street sold his house yet? Nope.

Since reading a report “Five Key trends in Chinese economy: Merrill Lynch,” about a month ago, I have been constantly thinking about creating another basket of stocks based on the industrialization of the emerging markets. My current basket, BBO (Big-Build Out), a basket of 12 stocks critical to the industrialization of BRIC, leverages the infrastructure boom as the emerging markets build railways, airports, highways, etc. This is actually #2 on the Merrill Lynch list. I have investing in this theme for the last three years.

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I have written several articles on the subprime fiasco (Subprime Lenders Gone Too Far - A Time Bomb Waiting to Explode and The Real Estate Market: Why “Bottom” is a Dirty Word) including one discussing an ideal short setup provided courtesy of New Century (NEWC.PK) (Subprime Trade Nailed (With a Little Help From Napoleon and Trump)). As the shorts stopped working around mid-April, I moved on. Needless to say that has proved to be the right move.

As the cost of energy continues to rise, businesses are turning to Echelon’s control technology to protect their bottom line — and show their commitment to the environment.

Our products make energy conservation painless. For example, the Balanced Office Building [BOB] in Aachen, Germany, slashed its energy costs by installing an integrated HVAC and lighting system based on LonWorks technology. BOB is now one of Germany’s most energy-efficient buildings, with HVAC and lighting costs 80% lower than those found in similar buildings.

Whirlpool Corporation (WHR) was amongst the first reporting companies to highlight that international sales were offsetting declining U.S. demand. Afterwards, many multinational companies echoed similar sentiments. Low and behold, the U.S. had sneezed and the rest of the world hadn’t caught a cold. This gave the talking heads something new to talk about. Head after head began repeating the global growth theme. Every CNBC viewer should now know that there is a high probability that large caps will outperform small caps due to their exposure to international growth as well as the currency benefit. A lower dollar relative to foreign currencies translates into increased revenue for U.S. based companies selling products overseas.

Fortunately, I was reading and listening to the right people and have been leveraging this theme for the past three years. Initially by purchasing suppliers of natural resources such as copper, aluminum and iron ore - the least common denominator of infrastructure projects like highways and bridges. Over time the portfolios have expanded to include other supporting companies like heavy equipment manufacturers and engineering companies (see latest portfolios).