Bring on 2009!

Not much news today. The market has been slow but in the green today. Looks like there is a good chance for the Dow to end up by triple digits.

From the time I started this blog, we are ending the year with our gold, silver, and blue chip stock positions in the green. Some of the blue chips are at break even and some slightly in the red. I recommend taking some profits off the table as gold, in particular, looks to be overstretched and may retrench in the short term. No need to get greedy trying to attain another point or two. Our lone dog is SRS. I am been doing some options trading on it to recoup some of the losses. I plan to take a 3-6 mo hold position on my remaining shares.

Typically during the few days before Jan. 1, I look back on the year gone by and reflect on the positives. But 2008, unfortunately, had few, if any, at least from a business perspective. It was an incredibly difficult year, but I am thankful for my health and my personal relationships (family and friends). I was chatting with a colleague today and we agreed that in any other time, just one of the events of ’08 would have captured headlines as the catastrophe of the year: Lehman Brothers, Detroit, Merrill Lynch, Madoff, Wachovia, Bear Sterns, WaMu, AIG, and that’s for starters, all fueling growing unemployment rolls. With this as a background, I have a suggestion for the New Year, quoting from Malcom Gladwell’s new book Outliers: “Embrace the challenge”. This is my suggestion for 2009. For sure it will be a challenging year, but embrace it, and it’ll turn out better than you expect!

Also, have you completed your ‘09 resolution? If not, remember it’s not real until you put pen to paper and write it out. I do a new year’s resolution each year and find it more important to do so during these trying times and uncertain economic environment. I typically break it out into the following groups as it helps me to stay focused on my goals through the upcoming year:

• Family/Friends
• Health/Physical
• Spiritual/Creative
• Social/Community
• Education/Mental/Personal Growth
• Career/Financial

I hope what I have been writing has been of some use to you. This blog is a work in progress and will continue to be adjusted and improved upon.

Here’s to a successful 2009 and all of you be safe in your festivities.

- Moolah

Boring Market Action…Happy Holidays!!!

Folks,
The last few days have been uneventful to say the least. The markets have been going sideways and no strong moves either to the upside or the downside. Will we have the typical “Santa Claus Rally?” The technical indicators lead me to believe that it will happen. However, today’s market action was a bit disheartening.

On a positive note, our gold and silver investments have been holding up nicely. Also, the large “masters of the universe” companies with low debt and strong dividends are also holding up well.

On the downside, SRS has been behaving badly in the face of constant negative news for real estate. I am still holding it and will look to exit it once I am back in the green. These leveraged ETFs are tied to underlying derivative contracts which appear to not be the best way to short a sector.

Today, some news came out regarding 3Q GDP. Thankfully there were no major changes. The headline number of -0.5% remained the same, while personal consumption expenditures inched downward to -3.8% from -3.7% previously. All three categories of personal consumption, durable goods, non-durable goods and services, were pulled lower, with durables extending their decline to -14.8% from -14.1%, and services dropping from slightly positive to slightly negative.

Also, new home sales came in at an annual rate of 407,000 for November, falling well below the 420,000 consensus. The Northeast and the West ticked upward from October while the South and Midwest came down a notch. Supply also came down and prices turned slightly higher. Sales of existing homes hit an annual rate of 4.49 million in November, which also fell well below the consensus, which called for 4.90 million. Sales were down across all regions, but particularly in the Northeast. A lot of that is being driven by the destruction of Wall Street.

Here are some articles for you:

• This is definitely a classic. A short and sweet description of the current state of social security in the US.
• It’s good to see that some people are being honest. In this article, the governor of the Bank of Spain issued a bleak assessment of the economic crisis, warning that the world faced a “total” financial meltdown unseen since the Great Depression.

You may not get a post from me over the next few weeks because I am in process of putting together a newly hosted site. I will let you know as soon as it is complete.

Also, I want to wish all of you a safe and happy holiday and a prosperous new year. Be safe and enjoy the holidays. I will be heading to Costa Rica for a few days and am definitely looking forward to it.

All the best,
Moolah

Real Estate, Gold, and Silver…Some New Trades and Insights

This market is all over the place today. We could potentially be in for one of the largest bankruptcies in history if General Growth Partners is unable to extend its debt with the creditors by tomorrow. Even if GGP is able to extend the debt maturities, I still feel that they are in for some tough times and, unless something drastic happens, they will eventually have to declare Chapter 11. What do I mean by drastic? I mean the government jumping in and turning the printing presses on full speed to bail them out. I don’t think they will do it because that would just open up a whole can of worms as there will be several REITs then asking for federal bailout funds. Also, I am doubtful that restructuring their debt will help because that will only provide a temporary lifeline if commercial real estate cap rates don’t start decreasing or even flatten out.

I took a closer look at SRS and have determined that this is ideal for short term trading because it is not tied to REITs but rather the credit default swaps of those REITs. In effect, it is a series of derivatives bundled together that should return the inverse of 2x the IYR on a daily basis, which is does achieve. The “daily” aspect is important because at the beginning of each day, this ETF starts from zero. So, effectively, if IYR were to stay flat, SRS could eventually go to zero. Also, in any particular day, if IYR were to experience extreme volatility (+10%, -5%, +7%, and -8% all in the same day), this would send SRS all over the place. So, with this understanding, look to hold this for the short term. I am on the look out for a better long term way of shorting the commercial real estate sector, rather than shorting individual stocks since your upside is limited but your downside is unlimited (that’s why I like SRS because upside is unlimited but downside is limited to your principal investments), since I think it will be heading south.

With that said, if you bought SRS, I realize that you are sitting on some losses. Personally, I continued to buy it all the way into the 70’s because I am expecting a 1 or 2-3 day pop in the price. Today, we got that as SRS was up 25% for the day and is up even more in the after hours. If GGP does declare Chapter 11 and we have poor retail sales info tomorrow, we should see this jump even higher. Plus, with the other REITs that are struggling and soon to either declare Chapter 11 or go private, that will only add more fire to this trade. Because SRS has a daily focus, take your gains when you get them and cut your losses if you are in the red for a few days. I would consider last week to be an exception as I continued to buy on the dips. As I have said and this applies to all of your trades, be sure to skim some profits as you enter the green. Remember, no one ever went broke making a profit.

As for gold and silver, we are doing well and should be in the green. GLD, GDX, SLV, and SLW are riding high. I bought some calls on SLW to get more juice in the trade. With the US dollar at a top and talks of inflation on the horizon, that is only gold and silver friendly. Additionally, you could go long the Canadian and Australian dollars because they are both supported by precious metals and natural resources.

Another stock you may want to take a look at is PAL (North American Palladium) granted the Detroit Big 3 Auto Makers are not being allowed to fail and with the dollar soon to come off its top, this would be a positive for palladium. Yesterday, there was a huge spike in this stock. I am waiting for it to return to circa $1.30 and then I am going to buy some shares. As for the Auto Bailout Plan, it looks like it is being held up in the Senate. Regardless, I am sure (whether right or wrong) they will get some amount, whether it is $10B, $15B, or $30B. You already know my views on this from prior posts but I am trying to figure out how we can profit in this environment.

Here are some articles for you:

• This article discusses why REITs are in for potential downgrades. That should only bode well for SRS.
• This one is a WSJ article about the CEO of Madoff Securities telling his employees that the hedge fund was a “giant Ponzi scheme.”
• Here is a brilliant article comparing the plight of the “Big 3″ US auto makers to the days when pianos were the big-ticket item of past generations.

Until later,
Moolah

Job Figures…A Market Rally?

Today’s posting will be short and sweet as there isn’t too much out of the ordinary to write about.

The official job loss figures came out and it wasn’t pretty. For November, employers cut 533,000 jobs which was the most in 34 years. This catapulted the unemployment rate to 6.7%. These new figures, released by the Labor Department Friday, showed the crucial employment market deteriorating at a rapid rate and handed Americans some more grim news right before the holidays. The net loss of more than a half million jobs was far worse than analysts expected.

So, what did the markets do? Initially on the news, the Dow dived by circa 200 points but finished the day in the green by almost 260 points! It was amazing and for those of you having bought blue chips were rewarded.

However, a speculative recommendation I made yesterday on SRS nosedived by the end of the day. As I said, this can be volatile, and you should only allocate a small amount of capital towards this at any one trade. I sold some shares early in the day at near break even because I was concerned that it hadn’t increased by much considering the market as a whole was tanking. The 4.5% mortgage rate by the government has provided artificial optimism for the public. This only affects residential and SRS is primarily commercial focused. Overall, I am slightly in the red on SRS on my current holdings (I do have some profits from day trading) but decided to buy a bunch more once it hit $98. I still believe in my thesis that I outlined in yesterday’s post and am confident that this will surely rebound providing for some nice short term profits. However, if we have that year end rally, then everything will rise which will be a negative for SRS.

Also, I know it’s tough times for us all and thought you might find a blog link for “Credit Card Watch” that is posted in the Blogroll section of my blog to be of interest.

Hope your weekend is going well, and here is an interesting article for you:

• This article discusses the manipulation of gold prices and why the government may be forced to take the other side and force gold prices higher to decrease the value of the US dollar, thereby decreasing the value of their debt obligations.

- Moolah

Continued Market Volatility…Additional Stock Recommendations…

I was mildly humored yesterday when I read that Goldman Sachs was looking to establish an online banking business. It was definitely an entertaining read. To me, this shows that GS has lost its prestige and is full fledged stuck in the middle of this financial mess. They are expected to report a loss of $5/share…roughly around $2 billion loss. Ouch! Just wait till their level 3 securities eventually have to be offloaded or marked to market, rather than marked to model.

In terms of the market, I think it will probably be stuck in a tight trading range until the Capitol Hill show (the “small” 3 auto episodes) comes to an end, and then there will be a decided move higher or lower. The market has successfully fought off any bouts of weakness this week, and even today has staved off a big pullback as it remained above 840 for the S&P. In the meantime, the market still looks vulnerable even after solid gains in the last nine sessions. I still think that 8,400 for the Dow is an important swing number, but the key support point should be 8,000. A move below 8,000 would most likely mean a re-testing of the low. Tomorrow, if the market shrugs off more than 400,000 jobs lost last month, a close above 8,800 should trigger a big short squeeze and fresh round of buying that could lift the index toward 9,600.

There was no reprieve on the initial jobless claims front. Initial jobless claims totaled 509,000, which was slightly better than the 520,000 consensus estimate. I really feel that we haven’t seen the worst to come on the jobs front. With each passing day companies both large and small are laying off workers to stay afloat. For example, several more companies announced layoffs today… Credit Suisse, Switzerland’s second-largest bank, will cut 5,300 jobs, 11% of its workforce, and withhold bonuses for its top executives after nearly $2.5 billion of losses in the past two months. Private equity giant Carlyle Group said it will lay off 10% of its workforce, or 100 employees. This will be the first large U.S. private equity firm to do so. They are also the first layoffs in Carlyle’s 20-year history. State Street, a large cap regional bank, announced up to 1,800 job cuts. Also, several employees were laid off at NBC News this week as part of $500 million in planned cuts at General Electric Co.’s NBC Universal. The corporate goal for GE is to execute a 3% budget cut. Now, GE is supposed to be the bellwether for the Dow. It’s the only original Dow component still remaining, and the company touches so many industries and markets. Consequently, this is why I think we could very easily get a spike to a new level of claims in the first half of 2009.

With that said, I like GE as a stock to own for the long term..meaning the next few years. The stock has been absolutely pummeled the last two months. It has traded as low as circa $13 and is now at around $17. It’s dividend yield is at 7%, and I am as confident as possible that GE will not be going bankrupt anytime soon. The market has hammered GE for the GE Capital component due to the amount of short term commercial paper on the books. GE has vowed to maintain its AAA credit rating and has announced that it will reduce its commercial paper balance by 50% by end of 2009 and has set a target of decreasing its leverage from 7:1 to 6:1. Keep in mind that the Wall Street investment banks were levered up to 30:1 on average. GE Capital is much better off than the rest of Wall Street. There is still some repositioning going on in the GE portfolio but the company is definitely here to stay. I am including this on my list of blue chip leaders with 4%+ dividend yields that we want to buy on market pullbacks. I bought some shares yesterday and will look to add to it if the market pukes at tomorrow’s official job loss claims figures.

Also, as I mentioned in an earlier post, take a look at SRS which doesn’t hold any real estate but rather derivative contracts that return two times the inverse of the commercial real estate index. I like to have some shares of this because, as I have mentioned earlier posts, I feel we are experiencing the end of the REIT model. Of course, some will survive but we will be experiencing a wave of bankruptcies and public to private deals in this sector. For example, GGP declared bankruptcy, AmREIT went private, DDR has announced some distressed selling and a halt in new opportunities, and Kimco is acquiring little to no assets currently. Plus, SRS has made for some good day trading profits. If you choose to day trade SRS, keep your positions small because it can move violently intraday.

To further support SRS, the Commerce Department reported a larger than expected decrease of 1.2% in construction spending for October. Many analysts had been expecting a drop of 0.9%. We already knew that the real estate sector (mainly residential) has taken a major hit. However, these figures, along with other recent economic stats, point to a more worrisome decline in commercial construction, which until recently had been relatively stable.

That’s about it for today. Here are some articles for your reading pleasure and don’t forget to check out the Recommended Section as I have added some new items:

• This article discusses whether real estate investing is your best chance at wealth and the difference between your own and a rental property that you might own. I agree with this 100% and believe the current environment will force people to understanding that their home should not be viewed as an investment, as would be the case with a cash flowing rental property.
• Here is a good read on why a “Depression” could be looming around the corner. I highly recommend you take the time to read this as it is very informative.
• I have attached a cartoon for you. Here it is. All of this spending of taxpayer money and aimless printing of US dollars will eventually be fantastic for those of us holding some form of gold and silver. Right now, we are experiencing a liquidity crisis where everyone is forced selling and looking to raise cash. Eventually, inflation (maybe hyperinflation) will set in which will be precious metal positive.

Also, I would like to leave you with two quotes:

• “A recession is when your neighbor is out of work. A depression is when you are out of work.” So, in these times, focus on your strengths, have an appreciation for your abilities, and realize that if you are to unfortunately experience being laid off, be confident that there is a firm out there with a need for your talents.
• “The recipe for perpetual ignorance is: Be satisfied with your opinions and content with your knowledge.” – Elbert Hubbard

- Moolah