The Whole Picture

AutoZone Buying Opportunity

How does a 1% reduction in shares result in a 3% increase in earnings per share? Sure seems to me that a 1% reduction in shares would result in about a 1% increase in earnings per share.

The Great American Ponzi Scheme (Part II)

Having worked in both the construction industry and the automotive industry, I would suggest there are big differences that would lead the government to bail out one and not the other. In the case of the automotive industry, the closure of the automakers would lead to a dramatic shift of jobs from the United States to other countries. It is relatively easy for companies in other countries to compete because they can simply ship their products here. Those companies already exist and are ready to take over the business.
The construction industry is different. It is an extremely fractured industry. It has a surprisingly low barrier to entry. I have often seen a construction company fail, only to have its key employees immediately start a new company. Construction jobs are not going oversees. Companies from other countries cannot ship houses or office buildings to the United States. The jobs stay here, but only if there is a reason to build. If we let industries such as the automakers move to other countries, we will have less reason to build and won't need those builders.

Testing the S&P 500 vs. OEX Put/Call Strategy

This is great information and adds another tool in making investment decisions. The return would be even better when adding the returns of alternative investments when not in the S&P. Returns from other investments could be fairly significant since one is invested in the market less than half the time (48.7%). And, I appreciate the author's transparency in showing the downside risk, which is clearly less than the risk of a buy & hold strategy. One question I have is whether or not the CBOE's equity options (less the index options) ratio works the same way?

Lock in Low Gas Prices

Over the last 30 years, gasoline has not gone up much more than inflation. In fact, it usually lags inflation. Perhaps that will change in the future, but at this point, investing in TIPS would do just as well in the long run.

Once we add future taxes and carbon trading to the mix, gas prices at the pump will likely go up much more than the actual price of gas or oil. I assume that investing in UGA will not help offset these extra expenses. Meanwhile, these extra expenses will likely reduce demand, thereby reducing the underlying prices of gas and oil. In this scenario, hedging with UGA could result in an investment loss while still paying more at the pump.

How Much Longer Can Money Managers Hang in Behind Energy?

If you are going to write an article as though you know something, you might want to research the subject a little more. You have several obvious mistakes about Governor Palin's history that clearly indicate you do not know what you are writing about. For example, she led her high school basketball team to a state championship -- not volleyball. She is hardly a star of "big oil" -- she passed an oil windfall tax in Alaska and went after the ethics of the oil industry. Just because she is for domestic drilling does not mean that Governor Palin is all about big oil. If you stop and think for a minute, the oil industry makes the most money when there is a shortage. Shortages result in $140 oil which results in big profits. Opening more drilling pushes oil prices, and subequently oil profits, down. Even repeating the "quite the high schooler" comment is considerably condescending. The fact that Governor Palin is pro-2nd amendment and pro-life isn't exactly surprising, being that they are part of the Republican platform. Why would Republicans want to nominate people who are opposite their platform just to win? And finally, your comment "not to say I disagree with those positions" is a weak attempt to stand above the issues as an independent or possibly even a Republican and is shameful. If you are going to be a Democrat, be honest and admit it. There is nothing wrong with being a Democrat, but being a deceitful reporter cannot be trusted.

Wall Street Breakfast: Must-Know News

To Pilar:

Except for the relatively few items being traded on multiple markets, stocks don't really "move" after extended trading hours. It is simply a case of supply and demand. Let's say a stock ends the day at $10 per share. After trading stops, let's assume some very bad news is published about the company. The next morning, when trading begins, no one in their right mind would enter a bid for $10. The best bid might be for $5, so that the first trade of the day was $5. The stock did not move overnight from $10 to $5. You did not lose out on a chance to trade on the way down after the news was released. There were simply no buyers as the price dropped from $10 to $5.

After saying that, there are some private markets (i.e., those used by larger institutions) that may be in after-market trading, but I am not sure that is the case. Regardless, the same rules apply -- the price does not move around in a linear fashion -- it jumps around based on available buyers and sellers.

A good example of where this can hurt you is with a stop loss price. Let's say you own a stock trading at $10. You want to protect yourself from any major losses, so you put in a stop loss order for $8. However, some bad news is released such that all buyers reduce their bids to $5 or less. Unless your broker was kind enough to "guarantee" your stop loss order (highly unlikely), your stop loss would be forced to sell at $5 because there are no available buyers at $8. The price jumped from $10 to $5 instantly.

This is one of the reasons businesses make announcements after trading stops. It allows all shareholders and potential investors equal access to information, so that the share price can adjust appropriately and the market open at a fair price given the new information.

Majority of Americans Support Ethanol

The "studies" showing ethanol takes more energy to produce than you get out of it are quite dated and obsolete. Ethanol production is continually getting more efficient. It is also becoming cost effective, even without subsidies. Within 20 miles of my house I can purchase ethanol (E85) for $2.85 while E10 is selling for $3.95 and gasoline without ethanol is $4.05. Even without the subsidies, E85 would be about $3.36. I used to own a chain of convenience stores and know several people in the industry. Right now they are earning 20 cents more margin per gallon on E85 than gasoline. The net difference is this: $4.05 - ($2.85 + $0.51 - $0.20) = $0.89 or about 22% less. I have talked to several people who use both E85 and gasoline. Their gas mileage drops by 15-20%. So, E85 is more economical if available locally. Their biggest complaint is one of convenience. They can only purchase ethanol when they are driving near a station that offers it. Of course, this is why margins are so much better for ethanol.

Unfortunately, ethanol requires costly modifications or replacement of pumps, tanks, and fuel lines. This has prevented many gas stations from adding E85 as an option. If there is one good reason for a subsidy, it is this: the subsidy helps promote the ethanol infrastructure.

Quite frankly, I would like to see this go further. The best way to prevent huge spikes and volatility in the price of any item is to make sure there are plenty of subsititutes. In our current state, oil obviously has very little price elasticity -- despite gasoline prices increasing by over three times in one decade, we are actually using more gasoline than we were then. Imagine what would happen if you could pull up to a gas station and have your choice of gasoline, natural gas, propane, ethanol, electricity, and compressed air. Then, imagine if every car is "flex-fuel," by which I mean every car can work on at least two different fuel types.

When I owned convenience stores, we often discussed adding E85 capability. Our biggest concern was the government. We were afraid we would make the investment only to see the government change direction in the same way it did with CNG (compressed natural gas) and EVs (electric vehicles in California).

Making vehicles "flex-fuel" is not expensive. In the case of ethanol, the cost is only a few dollars.

My suggestion ... 1) stop subsidizing alternative fuels, 2) increase taxes on gas from oil by 50 cents over 10 years (5 cents / year), 3) require all vehicles sold be flex-fuel within 10 years by incrementing the amount that should be flex-fuel by 5% each year.

One last note: let's be a little more fair about the effect of ethanol on food prices: 1) the increased demand for grains from China and India exceed the worldwide demand from ethanol by a factor of two, 2) the byproduct of ethanol production is used for feed for cattle so that only half of the food value is lost, 3) a large portion of the grain price increase is from the fall of the dollar and 4) one of the biggest reasons grain prices are up so much in third world countries is because the cost to transport the grain has skyrocketed along with the price of oil. I'm not saying that ethanol doesn't compete with food, but it is a much smaller part of the equation than many like to think.

Setting the Record Straight: Taxpayers Not Funding JP Morgan's Bear Buyout

Actually, you could argue that the "bailout" actually improved government revenues. The fed may never be required to provide a single dollar to fund the guarantee of Bear Stearns. However, the stability it created likely reduced the amount of losses investors would have incurred -- not just for Bear Stearns investors, but for many investors in the financial sectors. Reducing losses means reduced tax deductions. The result is more money for the federal government, not less. So, in some ways, this "bailout" reduced the potential taxpayer burden.
Of course, this does not address the costs of "easy money," which has it's own problems. By flooding the economy with easy money, the Fed certainly contributed to the housing crisis / finanicial collapse in the first place. That is where the taxpayers really were hit.

SPY: The Myth of a Decline in Corporate Earnings

Just out of curiousity, how do appliance & furniture sales drop 240%? Sounds like most of last year's customers must have returned last year's purchases for a refund. I agree, that is "crazy" weakness.

Increasing Ethanol Demand and the Likely Price Implications for Corn

While there is no doubt that increasing demand for ethanol is contributing to higher corn prices, the article does not give enough credit to other contributors to higher prices. The amount of corn used for ethanol has increased by about 2 billion bushels over the last five years. However, approximately 1/3 of the calories in corn is left-over for feedstock, so the "adjusted" amount of corn being used for ethanol has increased by about 1.3 billion bushels in the last five years. During the same time, China has switched from a corn exporter to a corn importer -- with a net difference of about 0.5 billion bushels over the same period. Other countries, such as India, have similar situations. When increase non-US demand is combined, the sum is similar to the increase we have for ethanol. If you look at the projections over the next few years, the rate of increase for other countries is accelerating, while the growth rate for ethanol is starting to subside. Last year corn use for ethanol increased by about 1 billion bushels, but this year it is expected to increase by about half that at 0.5 billion bushels. And, of course, you cannot forget the impact of the falling dollar on international commodities. In summary, ethanol is not the "big cause" of increased prices, but one of the "big 3" contributors.