Will The Real Bailout Plan Please Stand Up? Retail Sales Tumble. Natty Gas or Oil? Should We Take A Lead From The French?

This is driving me nuts. What seemed to be life and death a few weeks ago is now no longer so important? I remember just a few weeks ago that Hank Paulson was on his knee (behind closed doors of course) pleading with Congress to get agreement on the $700 billion bailout to buy bad loans. The package is being rewritten on a daily basis (Bernanke said it is still “evolving”) and there seems to be no one around to approve this. Now, the dollars are going towards propping up the big banks in the form of preferred shares. How does that help the everyday Joe? I would be more confident if they bought common shares. As it stands right now, only less than 15% is still earmarked for buying mortgages. Ultimately, it will probably be less.

So, it looks like reality (unemployment on the rise, retailers in trouble as consumer spending takes a hit, credit card debt on the rise, etc.) as stepped back into the equity markets. We are down over 3% in the Dow as retail sales were lower than expected…actually the worst in 3 years. More specifically, the Commerce Department reported today that retail sales fell 1.2% in September, which is nearly double the 0.7% drop expected by economists. Even when auto sales (3.8% decline) were stripped from the data, sales still fell 0.6%, which is three times the 0.2% decrease economists had forecasted. So, how do we profit from these stats as the holidays are soon to arrive? Rather than take the kids on a vacation, parents are more likely to buy toys for them. Rather than buy clothes from Macy’s and Bloomingdale’s for friends, purchases are more likely to be made at discount retailers. Companies with strong distribution models and ability to sell a wide range of consumer goods rather than focus on specific brands will flourish in this environment. That is why I think Wal-Mart will stand out in the end. Additional companies to prosper include Costco and Target.

To show the trend of retail sales for the last few months (excluding automobile sales, building material sales, and gasoline station sales), check this out as it definitely tells the story of how we are trending:

• September: -0.2%
• August: +0.1%
• July: Flat
• June: +0.3%
• May: +0.7%

If we head into a recession, which will hold better: oil or natural gas? Take a look at the data (from the Energy Information Administration) and info below that I pulled from an investment letter I subscribe to:

Use                            Oil                      Natural Gas
Transport                   70%                            3%
Industrial                   24%                           34%
Residential               < 5%                           22%
Electricity                   2%                            30%

So, what does this tell us? During a recession, transport and industrial activity should fall. These categories comprise 94% of the total use of oil but only 37% for natural gas. Residential use includes cooking, heating, and hot water. This should remain stable during a recession because people are likely to curb spending on eating out, going to the movies, etc. and more likely to spend more time at home. We are already seeing that today. So, this is why, especially at today’s prices, natural gas should hold up much better than oil.

Not sure if you caught the CNBC program last night discussing nuclear energy but it was interesting and an eye opener. Here is a link to a summary presentation and another link to additional information covered on the program. A few key takeaways:

• A finger tip of uranium produces as much energy as a ton of coal.
• France currently produces circa 80% of their energy from nuclear means. They are truly energy dependent.
• Nuclear energy is clean and the waste is 96% reusable.
• Dr. Patrick Moore, a founder of Greenpeace, now supports it and said he would be happy to live inside a nuclear reactor.

My thought is that for the US and other nations to truly be energy independent (granted you are not a nation in the Middle East), nuclear is the only way to go. Solar, wind, and hydro will help but alone can’t bridge the gap. The uranium spot price and related mining companies had an amazing and unsustainable ramp up over the last few years and have since crashed ($140/oz to $60/oz spot price) due to hedge funds piling in and then having to dump them due to having to raise capital because of the mortgage crisis. Once nuclear energy takes hold and the economy settles down, an opportunity will arise where we should invest in these companies.

Here are some articles and charts you might find useful:

• This graph should tell you all you need to know regarding which banks control the gold short positions on the Comex.
• This article discusses the issue with gold and silver bullion shortages and the current spot prices telling two different stories.

Well, earnings season has started. I am planning to sit on the sidelines for now due to the government intervening being in full force (consequently, shorting the financials is done for now) and see what the companies have in store for us. As I have said, once the dust settles, that’s when we want to make bigger bets. I have been told by some very wealthy individuals that I like to emulate, “if you really want to make big money, you need to know one thing: when to bet big and when to bet small.” Funny thing is that I read a similar quote today by a successful trader in an investment letter that I subscribe to.

ciao,

Moolah

Monkeys…And How To Make A Quick Buck

Some humor for you. A buddy of mine sent this to me.

Once upon a time, in a place overrun with monkeys, a man appeared from the jungle and announced to the villagers that he would buy monkeys for $10 each. The villagers, seeing that there were many monkeys around, went out to the forest, and started catching them. The man then bought thousands at $10 and as supply started to diminish, they became harder to catch, so the villagers stopped their effort. The man then announced that he would now pay $20 for each monkey.

This renewed the efforts of the villagers and they started catching monkeys again. But soon the supply diminished even further and they were ever harder to catch, so people started going back to their farms and forgot about monkey catching.

The man increased his price to $25 each and the supply of monkeys became so sparse that it was an effort to even see a monkey, much less catch one. The man now announced that he would buy monkeys for $50! However, since he had to go to the city on some business, his assistant would now buy on his behalf.

While the man was away the assistant told the villagers, “Look at all these monkeys in the big cage that the man has bought. I will sell them to you at $35 each and when the man returns from the city, you can sell them to him for $50 each.”

The villagers rounded up all their savings and bought all the monkeys. They never saw the man or his assistant again, and once again there were monkeys everywhere.

Now you have a much better understanding of how the stock market works!