As we sift through the numbers out today, we find that the economy did indeed contact last year. Once again the revisions...
What we have is indecision between inflation and deflation. The housing (which is estimated to be around 1/3 consumer) is imploding and the feds are throwing any and all money to try and prop it. This is very deflationary. In fact so much so that it is causing debts to explode. NY is in trouble, Cal is in trouble etc.
This is why given the choice the fed will always push inflation over deflation. They can always pay back with less dollars whereas in deflation everything collapses under debt burdens.
So while we are imploding with debt making our economy very deflationary, we have the emerging markets exploding driving up every commodity under the sun. If we were as great an economy as we were in past years, our slowdown would effect commodities. However, (sorry folks this does not mean I am UN American just realist) we are no longer the big cheese. Many are starting to figure this out. What we cut back on in consumption is picked up by other countries coming along.
My bet is more inflation of commodities and a contraction of our own economy. Much to the dismay of most economists. It will be awhile before they figure this out.
So long natural resources and short bonds. Remember most of our debt is to foreigners. They will demand more interest from the U.S. in the futures pushing down bond prices.
Thursday, July 31, 2008
Tuesday, July 29, 2008
Stocks Soar as Oil Drops Again
Just as we mentioned. The headlines are all a jitter with oil dropping. The bottom is in some say. I disagree. If you have followed at all, we were salivating waiting for a big drop to get long. Now the drop is here, we are waiting for a good signal to get long XLE. My best guess (and we know how good I am at this) is 70 or so to get long a calendar. We should see some very low premiums as the masses will know that the oil bubble has popped.
We all should know better. But then this is what makes markets.
Also Gold is getting soft and grains...So if you missed the commodity train last stop, you will have one more chance to get on board. It will be a difficult decision if you have not been riding this already. Since the media will be all against this sort of trade, it will take courage.
I have seen the same arguments since oil was at 20 a barrel and gold at 250. Now I am by no means a gold bug but when the forces of inflation line up such as they are, it is silly to listen to the talking heads. We are in one of the greatest bull markets in commodities. The corrections are part of the game. Take the corrections for what they are and don't get sidetracked believing otherwise.
We all should know better. But then this is what makes markets.
Also Gold is getting soft and grains...So if you missed the commodity train last stop, you will have one more chance to get on board. It will be a difficult decision if you have not been riding this already. Since the media will be all against this sort of trade, it will take courage.
I have seen the same arguments since oil was at 20 a barrel and gold at 250. Now I am by no means a gold bug but when the forces of inflation line up such as they are, it is silly to listen to the talking heads. We are in one of the greatest bull markets in commodities. The corrections are part of the game. Take the corrections for what they are and don't get sidetracked believing otherwise.
Accounting
When using spreads, it can be daunting figuring out the accounting.
For example, I start out with 10,000. I buy this amount in options long. Now I sell options. This is premium I collected. For sake of ease here lets just say I received 30%. Now I have 3,000 back in my account. A tidy 30% return if everything goes as planned.
But lets say we took the 3,000 because we want to gain more and buy some more options and once again sell to collect premiums. Now we have just taken on more options than we have in cash to start with. What will this show on our accounting? It should show that we are now at about the same level of 10,000 that we started with. So you ask yourself where did the 30% go? It went to owning another position. We now have 13,000 in options long and the equivalent outstanding short.
So as we roll out to the next month we collect more premiums and if we buy more spreads, we once again are back to 10,000. Our net gain is showing nothing while we are slowly gaining more and more positions. So eventually we would own more than twice as many options as the original 10,000 but only show a slight gain.
If you want the income, then you simple do not buy more positions and let the cash pile up with each roll out. However if you are in the stage in life where you are wanting to increase your assets, then you will want to keep buying more positions ignoring the fact that the overall gain on your account is minimal but you are gaining more and more positions in your portfolio.
It sounds more complicated than it really is. The point here is that you will be hard pressed to figure out just exactly how much you are gaining if you continue to buy more positions, since each new position will once again drain the cash you have and show a slight loss until the spreads starts to work its way through. Then once again any cash would be put to work thereby showing again no increase in cash value, but you are gaining more and more positions.
I hope this helps.
For example, I start out with 10,000. I buy this amount in options long. Now I sell options. This is premium I collected. For sake of ease here lets just say I received 30%. Now I have 3,000 back in my account. A tidy 30% return if everything goes as planned.
But lets say we took the 3,000 because we want to gain more and buy some more options and once again sell to collect premiums. Now we have just taken on more options than we have in cash to start with. What will this show on our accounting? It should show that we are now at about the same level of 10,000 that we started with. So you ask yourself where did the 30% go? It went to owning another position. We now have 13,000 in options long and the equivalent outstanding short.
So as we roll out to the next month we collect more premiums and if we buy more spreads, we once again are back to 10,000. Our net gain is showing nothing while we are slowly gaining more and more positions. So eventually we would own more than twice as many options as the original 10,000 but only show a slight gain.
If you want the income, then you simple do not buy more positions and let the cash pile up with each roll out. However if you are in the stage in life where you are wanting to increase your assets, then you will want to keep buying more positions ignoring the fact that the overall gain on your account is minimal but you are gaining more and more positions in your portfolio.
It sounds more complicated than it really is. The point here is that you will be hard pressed to figure out just exactly how much you are gaining if you continue to buy more positions, since each new position will once again drain the cash you have and show a slight loss until the spreads starts to work its way through. Then once again any cash would be put to work thereby showing again no increase in cash value, but you are gaining more and more positions.
I hope this helps.
Monday, July 28, 2008
600+ pages
That is what the "Housing rescue bill" contains. Now I am by no means a speed reader, but 600 pages to digest and get a real understanding before I vote? Come on leaders give me a break. Not one of you even read those pages. It was so full of pork. How do I know? I did read enough of the bill that I vomited!! I was force fed so much pork I could not handle any more. Chrysler gets in on the act, city and counties can now be rehabbers, first time buyers can now get 7,500 credit, oh and yes the poor screwed over mortgage lenders will get tax credit till the cows come home.
Who is going to pay for all this? Well if you believe what you read, not one penny of tax payer money is on the line here....Wait a minute...what exactly is a tax credit...Oh yeah it means if I do exactly as they say, I don't have to pay taxes on certain things. So if we are now allowed to borrow 10 trillion (yes that is what this bill also allows, the raising of the debt level to 10 trillion) and the large corporations that just fleeced mom and pop for everything they had in the way of any sort of assets i.e. homes, are paying less taxes but we are now indebted 10 trillion, my taxes wont go up?
At least give me a twinkle and a grin Paulson when you speak like this. That way I will understand it is a joke.
Inflation inflation inflation
Who is going to pay for all this? Well if you believe what you read, not one penny of tax payer money is on the line here....Wait a minute...what exactly is a tax credit...Oh yeah it means if I do exactly as they say, I don't have to pay taxes on certain things. So if we are now allowed to borrow 10 trillion (yes that is what this bill also allows, the raising of the debt level to 10 trillion) and the large corporations that just fleeced mom and pop for everything they had in the way of any sort of assets i.e. homes, are paying less taxes but we are now indebted 10 trillion, my taxes wont go up?
At least give me a twinkle and a grin Paulson when you speak like this. That way I will understand it is a joke.
Inflation inflation inflation
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