Archive for November, 2006
So here we sit and see that the USD has dropped and breached the 1.30 mark against the Euro. The question is why? I would have responded on this question earlier, but could not. Last Friday my oldest English Bulldog Patches (11.2 years) went into the doggy hospital, and she died on Monday. Until Wednesday I have been a bit of a vegetable as Patches was my first real dog that I bonded with. So I have been oblivious to what is going on in the markets.
So why did the dollar drop? Is the answer here? Or how about here? What about here? Or what about here? Notice how nowhere you will find the reason why the dollar dropped? I find that really odd! Of course some will say, “Oh its the huge deficits of the US”, or “This drop was long in coming and finally somebody did.” Great love the comments (NOT) as they still do not make it any clearer. Many now say that this is the longer trend, and the drop will be bigger.
For the past two months I have been writing my own automated trading system. Two weeks ago I slowly started trading using manual techniques based on data generated by my software. The initial results are very good, but I am tempering down my glee because I was conservative and focused. It’s like those drugs you test to cure cancer that work in smaller trials, but fail in mass scale. My return has been about 33%, with 95% of the trades being in the money. Being the skeptic I am quite nervous about these results because they are too good to be true. Yet I see the monies in my brokerage account and think, interesting. Time will tell if my software is worth its money.
I was reading Steve’s article and thought “Steve you are a smart guy.” Steve is being smart because I think he is reading the market correctly and getting ready. I read the comments associated with Steve’s article and thought many are missing the message within the article. One comment that caught my eye.
Energy prices are here, there and everywhere. Oil was trading at around 55, then went to 59, USD, March 07 futures are trading at 61 USD, and May 07 Futures are trading at 69 USD. Between now and May oil would have to increase 25%, which is a hefty premium.
A reader of my previous energy update said what I was thinking:
Last week I made a $13,000 mistake (a tax ruling, not in my favor due to most impressive stupidity on my part). In Warren Buffett terms, that mistake cost me $226,842 ($13,000 compounded at 10% for 30 years – see boys, I do know how to do math).
I won’t sugar coat it. It sucked. Big time.
But I can guarantee that it won’t be my last mistake, nor my biggest (yeah, much to look forward to). Making mistakes is part of investing (or any financial decision for that matter).
I think most people create huge, out of reach goals like, “I need to have $1,000,000 in the bank by the time I’m 40.” A great goal, obviously, but I think that may be going about things the wrong way. What if we took that type of goal and switched it around? What if we first started by setting a goal we can control and achieve now?
TheBuyList.com is a nice, simple website with just one purpose: to show you if mutual funds are trading the stocks you’re tracking.
Just enter a ticker and click a button. You’ll be shown a table of “recent” transactions of that stock made by “the top rated mutual funds”. The table shows you how many shares were bought or sold, the name and ticker of the fund, and the general “family” of fund.
Wiley is trying to turn their hit Little Book that Beats the Market (discussion, Amazon.com) into a series: Little Book Big Profits. The second book in the series, The Little Book of Value Investing, is written by Christopher H. Browne and focused on value investing.
While Browne obviously has the pedigree and experience to write a book on value investing, the lack of practical examples ruins the potential of the book. The basics of the value investing philosophy are presented well and in a way that is easy to read. However, the author seems more interested in convincing the reader into buying into value-based mutual funds than teaching us how to become value investors on our own. The book would be good for current value investors looking for more arguments against market timing and day trading strategies. Aspiring value investors will have to go elsewhere for instruction, though The Little Book of Value Investing may be a good, light start for readers new to the concept of value investing.
I was watching a financial call in show last week. The financial “expert” examined stock after stock. Many he dismissed because of the company’s debt load. It didn’t matter why they were carrying the debt, how recent the debt, or what kind of debt it was, his opinion was that all debt was bad.
What a load of hooey.
Oil closed on Nov 3 at 59.14 USD per barrel. These days there are some jittery news that could cause the price of oil to increase. Cramer in his 24-10-2006 podcast said that oil futures were driven up by the hedge funds. I agree and said so in July and Fortune said the same in May of this year. History is that, history, and the question is, where is oil headed in the future?
Let’s start with the basics and see where oil futures are trading. At the NYMEX the oil futures are trading as follows:
- Dec 2006: 59.15
- Jan 2007: 60.88
- Feb 2007: 62.10
- Mar 2007: 63.08
- April 2007: 63.87
- May 2007: 64.51
The various contracts are indicating a higher price as time goes. The increments are moderate, but they exist. I want to focus on the Mar 2007 contracts. Looking at the call options, combing the strike and price of the option the price of oil is hovering for the most part under 70. Looking at the put options they are hovering below 65 for the most part. The traders seem to think that oil will probably trade in the 55 to 75 USD window, with the median probably being around 65.
I think we are headed for very quick knee jerk of increasing oil prices. First it seems hedge funds are slowly moving back into energy. Second, we are headed into the winter season and typically there is more demand for oil and more volatility. Third, Iran is making subtle hints sanctions might hurt others as well. Working against increasing oil prices is the prediction of Environment Canada for a warm dry winter. If sanctions are weak, and the winter is warm it means lower oil prices.
I think there is going to be a quick oil price run-up because of a conversation I had at doggy school. My wife and I regularly attend doggy school with our two English Bulldogs. At the school Louys our male Bulldog has a friend call Xena a Doberman mixture. The owner of Xena is a farmer and we were talking about the weather. I explicitly asked her about the winter. Her reply was, “Yeah it seems like a warm winter, but oddly our horses have an extremely thick fur indicating a cold winter.” We live in Switzerland and her comment was that we would have a cold winter in Switzerland.
In the referenced Environment Canada article prediction wise they are saying warm, but the farmers alamanc is saying cold. What do you believe? I am tempted to think that the farmers might have a nugget of truth that will be exaggerated by the market due to other “factors” such as Iran, Iraq, you name it. So if you have some money to burn on a risk that could pay off, again this is REALLY risky money, buy a March call option at 64.50 for 2.75 or 65.00 for 2.55. If a knee jerk reaction happens I am tempted to believe oil will go over 70, maybe 80 for a short period of time before falling again.
For the near to medium term the trading range of oil should be 55 to 65. My earlier prediction that oil will touch 45 I am stepping back from
Monday, Nov. 6, 2006
by Christian
