Archive for June, 2007
by Greg Silberman
It took me by surprise!
I noticed that the Amex Oil Stock Index had recently broken out to fresh highs after moving above a 1½ year congestion zone.
The first thing I wondered was - what does this meant for the price of Oil? Will it re-challenge its July ’06 highs of $79? And what would that mean for the stock market
It’s worth noting the relationship between Oil and the Oil stocks is not as clean as Gold and Gold stocks.
Gold Stocks lead and the metal follows soon after in the same direction. Not so with Oil. Oil Stocks can diverge from the price of Oil for long periods of time, as can be seen below when Oil Stocks moved higher between 1992 and 1998 whilst the price of Crude hovered around $20/barrel.The reason, Oil Stocks behave like regular stocks in that they benefit from an increase in growth expectations, quite independent from movements in the price of Oil.
Chart 1 - Oil Stock Index looking overbought; Crude Oil (top)
Even though it recently broke to fresh highs, the Amex oil stock Index is currently over-extended:
• The index is nearly 40 above it 200 day moving average and the internal indicators (not shown) are not overbought.
So does a fresh break to new highs in Oil Stocks mean Crude is about to bust out?
Maybe!
Due to the extreme divergences that can exist between Oil Stocks and Oil, we cannot necessarily assume Crude will move higher just because the Oil Stocks have.
But here’s an indication that it might:
Chart 2 - Gasoline vs. Crude Oil (behind)
Gasoline Prices have been on a tear lately. The main reason is bottle necks at refineries. But take into account that we are fast approaching driving season, hurricane season, and never-ending geopolitical strife in the Middle East; one can be forgiven for thinking the price of Gasoline will be heading much higher.
A move above $2.50 would clinch it from a technical point of view. Projecting a target of $3.70. That may very well mean gas at the pump of $5 in some areas. Ouch!!
Based on the close correlation between Gasoline and Crude, a breakout in gasoline would surely be followed by a breakout in Crude!
And that brings us to the stock market. What does a breakout in Crude prices mean for the stock market?
Chart 3 - Oil Stocks : Crude Oil ratio ; S&P (below)
During periods when Oil Stocks outperform Crude Oil, the stock market is usually bullish (the above chart is rising). When Oil outperforms the Oil stocks, the stock market does poorly as can be seen between 2000 and 2002. In other words, rising Oil is not necessarily bad for the stock market as long as Oil stocks are rising.
Current Interpretation: The AMEX Oil stock Index in Chart 1 looks very over extended technically whilst Crude Oil in Chart 2 looks like it may be setting up for a run to its previous highs. Under such conditions the Oil Stock: Crude Oil ratio would decline which as mentioned above is not good for the stock market.
$5 Gas may very well be the consumers’ nemesis. The point where the consumer retrenches and reigns in spending. At least that’s what the market is telling us!
Implications for Gold: A rising Oil price and a falling Stock Market would be a heady cocktail for investors. Inflation would be undeniable and the prospect of money printing to stem a falling market would be huge. Gold has a promising future indeed!
More commentary and an oil stock pick follows for subscribers…
keywords: oil stocks, oil stock
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by Christopher Smith, BBA, JD
Stock options are a highly effective wealth creation and preservation tools, used by large institutional investors and high net worth individuals who have achieved options mastery to enhance and protect their investment portfolios. These wealth creation tools have traditionally been unavailable to the retail public because of high cost structures, limited brokerage support, and a general perception that these instruments carry extreme risk.
In actuality, stock options are ideally suited for limiting risk. They are also very effective for enhancing portfolio returns. This combination of risk reduction and wealth enhancement are precisely why savvy investors have been quietly trading them while the rest of the public has been left to struggle with meager stock market
Stock options are now traded on multiple exchanges with the NASDAQ, one of the world’s largest exchanges, announcing that they will also trade options on their platform. This has resulted in a highly efficient marketplace. There are also a growing number of options savvy brokerages that offer highly competitive commission schedules, which has forced the “big boys” to respond by lowering their rates and improving their support for retail options trading.
The only real barrier that now stands between you and these powerful wealth creation tools is a solid stock options education. The market has responded with an increasing number of stock option educators eager to help you learn option trading principles. However, options are a relatively complex subject and many “big name” educators avoid tackling the complexities of options for fear of losing their audience or simply because they do not fully understand the subject themselves.
The failure to fully grasp the subject typically means that the novice trader does not learn what they need to understand to become profitable. Surprisingly, some of the most expensive educational offerings prepare their students for failure in this very fashion.
Stock options are “derivative” securities, which means the value of an option is derived from factors other than the option itself. The relationship of these factors has been explained through a mathematical formula, commonly referred to as the “Black-Scholes Model.” That formula is the foundation upon which we can begin to build an understanding of how options work.
A sold stock option education must start by addressing the Black-Scholes pricing model, so that you understand what factors may effect option prices and how they interact with each other. Obviously, the option pricing model is an advanced subject and many educators do not cover this material in detail or, if they do, they save this material for advanced seminars. Failing to develop an understanding of option pricing theory results in a knowledge gap and leaves their students in a vulnerable position should they attempt to trade the markets without first learning how their positions will react to market changes.
The goal of any option education program should be to achieve options mastery. To do so, the stock option course must explore the option pricing model and provide a detailed explanation of each input to the model. By doing so, you will understand how stock prices effect option values, how market volatility can cause your position to rise or fall, how time can be used to your benefit, as well as the effects of possible dividends and interest rates.
The task may seem daunting, but learning this material is not that difficult. It is not necessary for you to be able to calculate option prices by hand. You simply need to develop an understanding of how option prices will respond to changes in stock price, increasing or decreasing volatility within the marketplace, the lapse of time, etc.
Stock options offer far too much opportunity to achieve significant wealth not to learn option trading methods. As you set out on that path, make sure any program you invest
TheOptionClub.com assists traders of all experience levels to achieve options mastery and transition into profitable options trading.
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by A Raymond Randall
Lisa and I walked 5 miles around Boston to celebrate our wedding anniversary. The Swan boats, Italian food in the Northend, a new “doo” for Lisa on Newbury Street, and new summer sweaters for me(”About time you got some sweaters with bright colors!”, Lisa said).
At Fanueil Hall Marketplace we watched “Formerly known as ‘Jim the Juggler,’ now known simply as “Jim, from The Jim Show.” Jim does daffy juggling as children giggle and parents laughed (we laughed and giggled). Jim balanced on a large beach ball while juggling.
I cannot stand on a beach ball nor can I juggle. Yet every morning my brain attempts the economic juggle, a dance registered investment advisors do
in their office (privately). No need to mention the balls required, but here is an outline of what each ball lofted represents. Each subject has current relevance, especially when the market movers sell more stock than they buy. I will
define and explain the relevance in my opinion.
* Interest Rates
* Bond Rates
* Inflation
Other influences driving the stock market
1. Interest Rates: Lisa’s grandmother laments about the Bush administration while she longs for Jimmy Carter. “Those were the good ole days when the banks paid you for investing
Now, let’s calculate what that means to your spending power. We can calculate the affect of inflation: $1+($1 x .2714)= $1.2714 or $1.27. This means your investment account per thousand must earn at least $270 more per thousand just to keep up with inflation.
The current Inflation Rate is 2.57%.
“Inflation causes reduced consumer spending, it squeezes profit margins,'’ said John Kornitzer, who manages $6 billion at Kornitzer Capital Management in Shawnee Mission, Kansas. (Bloomberg.com, U.S. Stocks Retreat on Inflation Concern…, Michael Patterson)
What do you prefer? High interest rates or low inflation? Juggle them if you can; for me, logic recommends asset allocation.
Ethos Advisory Services offers a simple, yet intelligent risk-tolerance assessment tool. Get username and password: http://www.ethosadvisory.com/contact
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by Rick Martin
Many of the most popular wealthy people have made their fortune through real estate investing
As we have already mentioned, many of the most famous and wealthiest people have made their fortune through real estate investment. Clans like Trump and Hilton are two of the richest people in the world and they have built their fortune and passed it from generation to generation in the form of real estate. With a little inspiration and some financial education, each of us has a good chance to make a fortune through real estate investing.
Real estate, also called real property, is one of the safest investments there are. That is because it is the only type of property rarely diminishing its value. Other types of property usually depend on a great deal of variable factors that influence their stock price. Real estate only depends on a series of local factors the estimation of which is usually easy to undertake.
Experience of other successful businesspersons has shown that real estate investing in some of the most flourishing areas like Las Vegas can guarantee you a substantial financial leap. This is because property in such commercial locations will continuously increase its price as long as these locations go on with being commercial attractions irrespective of the national financial state.
It is only natural for an international attraction site like Las Vegas to be the best place for real estate investment activities. It is a fast growing city; it has increased its surface and population at a rapid pace, climbing seven places from the twenty-ninth to the twentysecond rank in the top largest cities in United States in just six years. Some of the greatest commercial centers in the United States and in the world are currently under construction in the area.
The only problem is that these real properties are very expensive. Therefore, it is nearly impossible for a beginner in real estate investment to start straight with property investing in Las Vegas. Nevertheless, if you have started real estate investing for some time now and you have managed to make a good profit, you have a good chance to add a substantial profit to your fortune if you begin getting interested in property investing in Las Vegas.
The dream of every real estate investor should be to get his or her hands on such a location. The concept that supports this choice is that it is much more profitable to buy good quality real property than a large quantity of poor real property. Any businessperson will confirm the profitable experience of property investing in Las Vegas. Set this type of transactions as you goal and start your own real estate investing.
This might seam out of your reach but it is not so. All you have to do is start small, settle for realistic plans first; get plenty of general financial information and real estate investment education. After some successful experiences, you will be able to afford some of the best locations in the country and even such real estate jewelry as Las Vegas property is.
You can step on the footpaths of some of the wealthiest people of the world if you make some bold and inspired real estate investments such as property investing in Las Vegas. These business conceptions have proved to be profitable for some years now, so, with minimal risks, you can make a considerable fortune yourself by investing in real estate.
Foreclosure real estate investment may be the most profitable transaction in the domain of Las Vegas real estate investment. Find details about Foreclosure Real Estate Investment in general and Las Vegas real estate investment, here, on our website.
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by Cornie Herring
Most of us know how to spend the money but many do not know how to make use of money to work for them. Spending is not your only option when comes to make the smart choices about using money. You can smartly combine Savings and Investing
Savings Vs Investing
Saving and investing are two different things. When you save you earn interest, when you invest
You create your emergency fund through savings. This fund is important to protect you if you lose or quit your job and need time to find a new job. An emergency fund is important to save you from any financial crisis and helps you to sleep well at night because you know you are prepared for what might happen.
After protecting your short-term needs through savings, you can grow a portion of you money for long-term needs or generating a steady stream of income to improve your living style. Here’s comes the important of Investing. The main purpose of investing is to use money to make more money for you. Almost all investments have certain level of risk; in general, the higher the risk, the better the potential return. It’s also means that the higher the risk, the higher the potential loses. You may need to take on additional level of risk in exchange for a higher level of return than what you can earn in an ordinary savings account. That’s why the combination of savings and investing are a work perfectly to make your money work for you through investing while protecting you from any financial disaster through savings.
When we talk about investing the money, commonly it means that putting your money into the money markets. Money markets are really mutual funds of cash investments like U.S Treasury bills, CDs (certificates of deposit), and cash, and are managed by professional money managers. Many investment companies that offer a money market account will waive your initial investment if you set you a regular investment plan with them such as $25 or $50 per month. You can utilize this advantage to get your money market account open and put your money to work for you.
In Summary
Investing into money market get you a higher return than savings accounts, it is a good way to use your money to makes more money for you. While investing your money into the money market, you need to create your emergency fund in your savings account so that you are protected from any unexpected financial crisis.
Cornie Herring is the author for http://www.studykiosk.com. Visit Credit Card Game and The Advantages of Claiming Bankruptcy for more information about debt solutions and debt consolidation.
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by Reno Chris
Gold and other precious metals have been moving rapidly upward in the market, and investors wonder what investment vehicles are the best choices to capture that upward price appreciation in the precious metals market. Many wish to buy and hold the precious metals themselves, but there are a number of alternatives. Each of these different options has its own strengths and weaknesses. This discussion gives some basic information on the most common possibilities. Depending on what your goals are, you may choose to use one or more of the available options described below. I’m not an investment counselor, nor am I offering any investment advice, but here is a brief explanation and introduction to each of the best known opportunities for precious metals investment:
US and international gold bullion coins
The US and many other countries have made and are continuing to make gold bullion coins for sale. These are not coins which are rare and have numismatic value, but are coins made for investors interested in their bullion value. The American gold eagle coin is available and denominations of 1/10 ounce, one quarter ounce, one half ounce and 1 ounce. The great advantage of bullion coins is that they are easily available, liquid and portable. Most coin shops buy and sell them. If you plan to buy small amounts of gold, perhaps half an ounce a month for investment purposes, this is the kind of thing you may be interested in. The disadvantage is that they have a significant cost of getting in and out. It will cost about $25 plus the spot price for 1 ounce coin, and if you sell it you will receive a few dollars less than the spot price. The cost for a buy and sell combined is about $30. Foreign bullion coins, such as Canadian Maples or Krugerrands are slightly less liquid but may also have lower buy and sell costs. There are also one ounce silver bullion coins, which are available with a similar significant cost to buy and sell.
US 90% coin silver
Until 1964, all US coinage other than nickels and cents were made of 90% silver. These coins also have a bullion value based on their silver content. You can normally purchase from just a few to a big bucket full, and they are sold both by weight and by face dollar amount - by weight is probably the better deal as some old coins are worn. These coins are available at most coin shops. Like other bullion coins, there is a significant cost to buy and sell.
US Gold numismatic collector coins
Many investors are interested in gold collector coins. These are coins with a large numismatic (coin collector) value premium in addition to their bullion value. These coins will fluctuate somewhat with precious metal prices, but many times they also contain a significant price premium due to their desirability as collector coins. Sometimes the collector price appreciates significantly, but for those who really wish to invest
There are many more potential investment choices for gold and silver. Check out the Author’s website for further discussion. http://nevada-outback-gems.com/gold_invest/investing_gold_vehicles.htmChris’s Web page and BLOG on investing
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by Reno Chris
Many investors are realizing that gold and silver now have an upside potential to appreciate that has not been seen since 1980. Similar to the situation of the late 1970’s, investors are once again seeing gold coins and bullion as an important hedge against the uncertainly of war, inflation and the potential destruction of wealth due to a shaky dollar. Gold’s recent performance is also attracting serious interest from investors because it has outperformed the S&P 500 index for the past five years in a row. Gold and silver prices have moved steadily upward since 2001, as the value of the dollar has weakened.
Many experts believe that this is a longer-term rally, which is quite young.
Robert McEwen, chairman and chief executive of a Canada-based gold mining company is very bullish on the future outlook for gold. “I expect it to test $850 by the end of 2008, and by the end of 2010, north of $2,000, possibly $5,000,” McEwen stated in a recent interview. Strong gold and commodity prices are spurring investment in the search for new deposits by many mining companies across the world. His company is currently exploring for gold on mineral lands in central Nevada and expects to spend about $50 million to develop the site over the coming years.
Gold is seen as a profitable opportunity by many investors, having risen over 50% during the last two years, from $430 per ounce in May of 2005 to its current spot price of around $660. While McEwen’s price projection is considerably above the current spot gold price, he is not the only industry executive who foresees steeply increasing prices in the near future. The former CEO of a large well known US based gold mining company, Pierre Lassonde, believes gold will reach $750 by Christmas of this year. In spite of the price increases in the past several years, actual production of newly mined gold from most nations continues to decline, as costs rise at existing mines.
In spite of the fact that gold prices have been rising toward their May 2006 peak of $725, they have failed to break above the $700 mark this year, and are still seen as consolidating after the sharp run-up in prices last year. In addition, selling of the gold reserves of certain European nations, most notably Spain, is seen as depressing prices in recent weeks. Silver prices have also remained strong.
Many experts believe that although demand from jewelry makers will likely drop off as gold prices rise, it is likely to be more than made up for by increased purchases from investors who are seeking a liquid investment alternative to the dollar. Investment in gold and silver for both large and small investors has been made considerably easier in recent years with the creation of Exchange Traded Funds — funds whose assets are gold or silver held in storage. That expected increase in investment demand, coupled with the declining value of the dollar, rising costs to mine gold and the geopolitical risks around the globe, should tighten the supply and demand picture for the precious metal providing the driving force to move prices upward in the coming years.
The author is an independent investor and not a consultant, advisor or broker. The information and opinions expressed in this article are presented for educational purposes, and are not intended to be used as investment advice. The reader is strongly urged to fully identify and consider all the risks before making any investment.
For more information on the case for investing
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by James Grantworth
Buy to let investment properties may appear to be the easiest method of building a second income but it is important to bear in mind the long term implications of this kind of investment as without careful planning you may end up paying out more than you had initially anticipated. A buy to let property is generally regarded as a long term investment and the decision to purchase should not be taken lightly as it can take quite a long time to get your money back once it has been invested if you revert your decision. A buy to let investment should be regarded as a small business which requires the owner to take on various responsibilites and is accountable to entities like the tenant, the mortgage lender, the council and the tax office.
To know whether buy to let property investments are right for you or not, you need to ask yourself the right questions such as:
• Will I earn enough in the near future so as to take care of my monthly instalment commitments and other expenses in case I am unable to find a tenant who pays the desired amount of rent?
• Will I be able to bear phenomenal losses in case there is a slump in the real estate market?
Will the but to let mortgage loan affect my creditability; will I be able to apply and remain eligible for other types of loans in the future?
You need to consider all the costs involved in investing
Other potential expenses may relate to the repair, maintenance, or replacement of gas and electrical appliances so as to ensure that they confirm to fire safety codes as required by government authorities. You might also have to consider legal costs that might arise in case your tenant starts defaulting and refuses to move from your property.
Before making any decision, you need to carefully assess your current and future financial position if you want to achieve the best possible return from your buy to let property investments. Making a profit from buy to let property is not as easy as it may seem so it is best to conduct careful research before going ahead with the purchase.
James Grantworth is the marketing director for Let Mortgages Limited, a company which specialises in buy to let mortgages for investors offering buy to let mortgages which require the absolute minimum of capital investment. For more details visit: http://www.letmortgages.com
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by Victor Smithston
The British insolvency code is under attack from small to medium sized business owners. There are elements of the code that said owners find quite biased. Here, in a nutshell, we will expose a few of the issues to stimulate further research.
Economist contend that when secured creditors hold all, or nearly all, control rights for a company in distress, then it creates an non-objective tendency towards liquidation. It is further argued that small and multi-party creditors are difficult to rescue when insolvency standards are not based with collective action. It is proposed that they in turn will not succeed in realizing the value of collective action, and thereby panic themselves into a ‘creditor’s run’ mentality.
‘Lazy banks’ are created as a result of heavy collateral lending in the UK banking system. With such collateral on the line, the banks fail to monitor the vitality of businesses until they are in financial distress. Lenders therefore possess superior bargaining positions in terms of working out agreements. This often prevents valuable renegotiations from taking place. On a more positive note, companies are often spared mandatory insolvency proceedings if they replace management and make substantial, yet partial repayments of principal.
Unlike in the US, the British insolvency code is operated almost entirely outside of the court system. The bank’s powers are seldom questioned or challenged. It is prevalently argued that this undisputed control exerted by the banking system hinders competition in the general marketplace.
The most common method of recuperation before forced insolvency utilized by business owners and individuals in financial distress are CVAs and IVAs. CVAs (Company Voluntary Arrangements) allow a company to settle their debts. Current directors remain in control of the business. Creditors favor CVAs because they receive more with these than a company that goes under. They ease cash flow issues and stop court actions.
Individual Voluntary Arrangements (IVAs) likewise allow individuals to relax by stopping chasing letters and court actions. They also freeze interest from accruing on debts. Both CVAs and IVAs must have cooperation from 75% or more of a company’s or individual’s creditors.
Written by Victor Smithston. Find more information on Insolvency London UK
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by Victor Smithston
Unlike the modern day US views on bankruptcy, the Brits look upon bankruptcy as an extremely humiliating and unfair non-solution to indebtedness. There is a stigma attached to all forms of bankruptcy in the UK that really never goes away from someone who has filed. If you possess any substantial assets, bankruptcy should definitely be considered only as a last resort. The new Enterprise Act is sometimes said to discharge bankruptcies within a twelve month time frame, yet this is rarely experienced.
In the UK, bankruptcy is a very public matter. For years it will be difficult, if not impossible, to obtain a mortgage or get any credit. The bankruptcy petition will be posted in your local newspaper as well as the London Gazette. Your creditors, bank, building society & landlord will all be informed immediately. Any business that you own will be immediately shut down. All future assets including: inheritances, insurance payouts/maturities, equity in property, windfalls, and possibly even pensions will be lost.
Not enough? All of your bank accounts and credit cards will be immediately closed. Anything that you are purchasing on lease or HP will be immediately returned to its owner. The minimum period for bankruptcy is 5 years. This can continue for up to 15 years in cases of repeat bankrupts. Professional and business status will be lost. Also memberships to many societies and associations will also be terminated.
Individual Voluntary Arrangements (IVAs) are the prevalent discourse to bankruptcy. These are legal contracts made with a mandatory 75%+ of your creditors to alleviate financial distress. They stop chasing letters. They bypass court action. They are not made public. Compared to the alternative of bankruptcy, IVAs seem like the way to go, if you happen to be a Brit in financial peril.
Written by Victor Smithston. Find more information on Bankruptcy London UK
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