Recent Home Sales
August 31, 2007
The Smart Profits Report: Issue #452
Friday, August 31, 2007
Recent Home Sales: We’ve Reached A Real Estate Tipping Point… Get Out Now
By Marc Lichtenfeld
Senior Analyst, Mt. Vernon Research
Man, that was some downright ugly data. In July, recent home sales fell for the fifth straight month. The number of existing homes on the market hit a 16-year high. Since June alone, supply has risen by 5%.
The National Association of Realtors says if no more new homes were built, it would still take over 9 months to sell all the existing houses on the market. To put it mildly, this is one tough environment. The word on the street is that buyers and sellers have been engaged in a fierce faceoff.
- Buyers: These folks know they have the sellers over a barrel and are simply waiting for the price to come down.
- Sellers: Those looking to sell still remember the astronomical prices that their neighbors received in 2005 - and are refusing to budge.
Until now…
Recent Home Sale Prices Drop From $505,000 To $395,000
In July, the median home sale price in the U.S. slid by 0.6% to $228,900, compared with July 2006. It was the 12th straight month that home prices fell. In the second quarter, home prices fell 3.2% - the biggest drop since the S&P began its Case/Shiller National Home Price Index in 1987 and news that sent the index to its lowest point ever.
And with prices dropping fast, the e-mail below tells the story of increasingly desperate sellers. In many previously hot real estate markets, investors bought houses and assumed they could then swiftly sell them for a quick n’ easy profit.
But that isn’t happening any more. Sellers are now stuck with houses and need to dump them fast, before the market drops any further. The e-mail below is from a Florida realtor to his client, letting him know of other similar houses on the market. The client’s house was listed at $469,000:
“Here are the details of your closest competition. There are 4 that are definitely “Deals.”
- #1: 06XX Old Ham: Your model: Was 505K now pre-foreclosure @ 395K OUCH!!!!
- #2: 105XX Galleria: New on Market 5-bed Turquoise + Pool @ 425K
- #3: 105XX Galleria: Turquoise Model @ 420K, dropped from 480K
- #4: 104XX Galleria: Your Model @ 450K”
The recipient of the e-mail, along with seller #4, probably expected to get around $450,000 for their home. But now, a seller headed toward foreclosure has taken them out at the knees by pricing $55,000 below the current market. And keep in mind… an interested buyer will smell the desperation like a shark smells a bleeding dolphin. Will the seller accept $375,000? What choice do they have? That drives the price of the other houses down even more.
The rest of the sellers in this community will have to wait until house #1 closes and hope that the market returns to more rational prices, otherwise they will have to come down even lower. But that could be a long time coming.
This type of scenario is playing out in many parts of the country, too.
Think Real Estate Always Goes Up? Think Again…
Perhaps you’re lucky enough to own a home in a strong market like Austin, TX or Asheville, NC. But if you’re not, you can still sleep soundly, clinging onto the conventional wisdom that tells you to hang on for a few years if you don’t have to sell and that real estate always goes up, right? Not so fast…
If you look at the history of real estate in this country, you’ll be shocked at the numbers. According to Robert Shiller in his book “Irrational Exuberance,” the real price increase from 1890 to 2004 was a paltry 0.4% per year. Sure, we’ve seen several price spikes, such as after World War II, the late 1970s and the current decade. But after the post-war rise in the late 1940s all the way through to the late 1970s, real estate prices barely budged.
Want To Sell? With Metro Areas Sinking, Do It Now
So what’s the bottom line here? If you’re in the home that you plan to be in for a long while, there’s likely nothing to worry about. However, if you expect to sell your house in a couple of years “when prices come back,” you may be out of luck.
As Shiller soberly states: “The pullback in the U.S. residential real estate market is showing no signs of slowing down.” And in most parts of the country that had previously hot markets, sellers now have little choice but to slash prices if they want their house to move. Of the 20 U.S. metropolitan areas in the National Home Price Index, 17 showed a decline in their annual growth rates from May’s figures.
But unfortunately, the real estate market isn’t like the stock market, where you can employ sell-stops. So with house price declines likely to continue over the next few years, if you’re thinking about selling, I suggest you try to do so now. If you wait for a couple of years, hoping for a price rebound, you’ll be disappointed when you may have to settle for substantially less.
Hoping your longs go up and your shorts go down,
Marc Lichtenfeld
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Today’s Smart Profits Action Center
- Over the first half of the year, foreclosure filings rocketed up 58% to 925,986, compared with the same period in 2006. And the second half of 2007 has started in similarly ugly fashion. RealtyTrac said July foreclosure filings jumped 9% compared with June’s figures. Year-over-year, the number rocketed up by 93% to 179,599. This puts the U.S. well on track to exceed two million this year, which would put even more houses on the market and further erode values.
- The National Association of Realtors believes the real estate woe is because, “Homebuyers have been getting mixed signals about the housing market, which is causing some of them to hesitate.” And an article in BusinessWeek flatly states, “No Housing Turnaround For Two Years,” with the slowdown continuing into 2009.
- But this is nothing we didn’t already know. In fact, on June 21, Mt. Vernon Research Investment Director Karim Rahemtulla told readers looking to buy a home to “rent… and wait till next year” and that we’re just a few months into a correction that could last two years. Since then, not only have foreclosures soared, the U.S. sub-prime sector has also melted down and affected financial markets across the world. Find out what opportunities Karim and his team of professional traders are looking at now - and how you can make money from them - in the monthly Xcelerated Profits Report. The portfolio has a current success rate of more than 80% and has dished winners this year of 131%, 65%, 45% and just recently, gains of up to 112% on China’s downside. Click this link to find out more.
Related Articles:
- The Real Estate Market: Four Ways To Protect Yourself As The Housing Bubble Bursts
- The Housing Market: Looking For Housing Bargains? Rent… And Wait Till Next Year
- Global Investing: Legendary Investor Predicts Triple Bubble… Four Ways To Beat It
Alternative Energy Sources
August 29, 2007
Smart Profits Report:Issue #451
Wednesday, August 29, 2007
Alternative Energy Sources: How To Profit From The World’s Carbon Dioxide Dilemma
By Martin Denholm
Managing Editor, Mt. Vernon Research
“Can you boys stop breathing for a moment back there?” When I was a kid in the car with my mother, she used to jokingly say this to my brother and I whenever the windows got fogged up. I guess she thought we emitted a lot of hot air!
Or maybe she was just trying to help the planet. The average human cranks out between 35,000 and 50,000 parts of carbon dioxide per million molecules (ppm) in each breath. That’s a lot of CO2 floating around in front of you right now!
Consider these other facts: The amount of carbon dioxide in the atmosphere is higher than at any time in the past 160,000 years. Over the past 150 years alone, the concentration has risen from 280 ppm to 380 ppm - and is growing at 1.2 ppm each year. Increasing CO2 emissions account for 50-60% of overall global warming and scientists on the Intergovernmental Panel of Climate Change say the world needs to reduce those emissions by 60% just to stabilize concentrations.
So what should we do? Stop breathing? Plant more carbon dioxide-loving trees? Actually, some savvy companies are finding innovative ways to turn CO2 into alternative energy sources.
More Humans = More CO2… But Industry Is Helping To Churn It Back
Human activities account for just over one-fifth of the total amount of carbon dioxide concentration in the air. This obviously includes breathing, but also burning fossil fuels, deforestation, manufacturing and waste incineration. Already, the burning of fossil fuels accounts for about three-quarters of CO2 emissions, and U.S. power stations alone spew out 2.5 billion tons of carbon dioxide every year.
The trouble is, as the global population swells (up from 1.6 billion in 1900 to 6.5 billion today), so too does the amount of those “human activities” to keep up with demand - which is pumping more CO2 into the air. And levels are only set to increase, with the global population set to jump to 9 billion by 2025.
Bad news, right? Perhaps not. Some companies are finding novel ways to tackle the problem by using carbon dioxide to create more alternative energy sources - especially following some interesting U.S. Energy Department figures. It states that improved and expanded use of carbon dioxide in the oil industry could boost recoverable U.S. oil reserves from 22 billion barrels to 89 billion barrels.
Looking For Alternative Energy Sources… Cue EnCana
Based in oil-rich Alberta, Canada, EnCana (NYSE: ECA) is currently working with the Dakota Gasification Company’s Great Plains Synfuel plant to buy CO2 from the plant and inject it into its 50-year old Weyburn oil field.
OK, so what’s the big deal?
- First of all, the CO2 injections have extended the life of the oilfield, because it helps clean oil trapped in rock and increases the recovery amount.
- Second, the carbon dioxide used helps to reduce the thickness and (for lack of a better word) “gooeyness” of the oil, allowing EnCana to extract more oil.
In fact, the company says the CO2 injections have boosted output by 65% since 2000. What’s more, the International Energy Agency says that almost 100% of the CO2 injected will remain stored underground for at least 5,000 years. That means the Weyburn oilfield can store a projected 14 million tonnes of CO2.
But EnCana isn’t alone. America’s biggest coal consumer is getting in on the act…
America And France Unite! (Through Ammonia)
Ask anyone about France’s most famous exports and you’ll get the usual answers: Great cuisine. Even better wine. Stinky cheese. But you probably wouldn’t get many folks saying chilled ammonia.
But French engineering firm Alstom is putting it to good use in the alternative energy field. Alstom is a global leader in power generation and in the use of innovative technology to produce environmentally friendly alternative energy sources. The company has a unique system of using chilled ammonia to capture carbon dioxide in the air and among other gases, then using it to aid alternative energy production. The process is versatile, too, with the ability to capture CO2 from both coal and natural gas systems.
According to BusinessWeek, American Electric Power (NYSE: AEP) will install Alstom’s chilled ammonia system at a plant in West Virginia next year and pilot test it. If successful, AEP will expand commercially to a plant in Oklahoma in 2011.
With the global population rising rapidly, not only are more humans blowing more CO2 into the atmosphere, industry has to support them by burning more fossil fuels and increasing manufacturing. That places extra demands on an already struggling environment for more alternative energy sources to be found.
But while this is a growing trend, the number of companies aiming to alleviate the additional carbon dioxide emissions dilemma through innovative use of CO2 for alternate energy production is relatively small. But clearly, those able to succeed in this field, either through the sale and use of CO2 itself, or those that help ship the gas could be set to cash in. To be sure, investors looking to invest in alternative energy stocks should keep this sector in mind.
Best Regards,
Martin Denholm
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Today’s Smart Profits Action Center
- The world churns out 8 billion tons of carbon emissions each year. Of that amount, oceans take up 2.4 billion tons; forests absorb about 1.5 billion tons… and the remaining 3.3 billion tons shoots straight into the atmosphere.
- It’s well-known that while humans and industry emit harmful carbon dioxide, trees offset the emissions by using it to live. And you can use trees to turn a profit. In fact, timber returns have not only beaten inflation by an average 3.3% each year over the past century, they’ve also beaten the overall stock market over the long-term. And while timber demand isn’t likely to dwindle any time soon, few investors consider it as a way to make money. Follow this link to find out how you can profit - plus 30 other wealth-building secrets, direct from some of the world’s most respected and successful investors.
Related Articles:
- Renewable Energy Resources: How To Profit From Rising Oil
- Investing in Commodities: Four Reasons Why Commodity Investing is Better
- Gasoline Prices: How To Win Big In The “Ethanol Decade”
Futures Commodities
August 23, 2007
The Smart Profits Report: #450
Thursday, August 23, 2007
Futures Commodities: How To Invest In The Volatile Commodities Market
By Lee Lowell
Futures Options & Commodities Specialist, Mt. Vernon Research
Everywhere you look in the financial media right now, there’s always someone talking about the “stock market woes,” “increased volatility” and of course, the “credit crunch.”
But while many investors curse the current volatility, it’s actually a key element of one market in particular - the commodities market - where some of the biggest fortunes are made through futures commodities and futures options. And if you know where to look - and how to actually use the commodities market’s volatility to your advantage - you can also cash in on this “secret society.”
Not many “ordinary” investors know this, but the commodities market can pack just as much wealth-building punch as the stock market - if not more. But because it doesn’t receive the same attention as stocks, the commodities world is often branded a “secret society,” shrouded in mystery, with stories of people losing their homes, or having 5,000 bushels of wheat dumped on their doorsteps.
But this couldn’t be farther from the truth. And I’ll debunk those fables, bust myths, and give you the scoop on the commodities markets - and how to trade them profitably.
Now, let’s get to the basics…
Commodities And The Breakdown Of Futures Commodities
Commodities are mostly physical products that we use every day. That includes coffee, sugar, cocoa, orange juice, wheat, corn, and even pork bellies. But can you really trade these things and make money from them? You bet. And contrary to some popular myths, it’s not that difficult to learn how.
Just as you can trade stock options, you can trade the above-mentioned commodities through regulated futures commodities and futures options contracts. You’re just speculating on the future direction of these commodities, then buying or selling futures commodities or futures options contracts to do it.
A futures commodity contract simply specifies that a certain amount of a commodity must be delivered to a certain location by a certain date. But while there are players who will actually take or make the delivery of the physical products, we’ll never be doing that. We’re considered the “speculators” of the commodities markets. For us, futures commodities and futures options contracts are just a way to profit on the movements of commodity futures and options.
There are two other groups besides us…
The Commodity Market Chain & Where We Fit In
- Hedgers: These are the farmers who grow the crops and sell them at harvest time. But since they don’t know what price they’ll get, they need to lock in a certain price now. So they sell a futures contract that guarantees them a specific price for their crops.
- End Users: These are the companies that make products out of the crops. For example, Kelloggs uses corn and wheat to make breakfast cereals, while Tropicana uses oranges to make orange juice. Since they need to lock in production costs in advance, they buy futures contracts and secure a buy price now, instead of being at the mercy of the open market when they’re making their product.
Speculators like us fall in the middle. We’re there to provide bid and ask prices for other speculators, hedgers and end-users and profit ourselves. So how are commodities used and priced and how do we access them?
Two Key Differences For Trading Futures Commodities
Just as you need to open a stock trading account to trade stocks, you need to open a commodity trading account. At present, stocks and commodities are regulated differently and you can’t combine the two in the same account (although a few firms are moving towards that).
Once you have a broker, you’re free to trade. However, there are a few key differences between commodities and stocks.
- Expiration Dates: Unlike stocks, which you can hold forever, all futures commodities and futures options contracts have an expiration date. If you trade stock options, you’ll be familiar with this. But whereas stock options expire on the third Friday of every month, futures options have varying expiration dates, which are commodity-specific.
- Point Multipliers: With stock options, each contract is equivalent to 100 shares of the underlying stock. But with futures options, one option contract is equivalent to one futures contract. Also, futures commodities and futures options don’t all have the same point multiplier. Every commodity is different.
For example, crude oil has a minimum price fluctuation of $10 per point with its options contracts, while orange juice has a $1.50 point minimum price fluctuation. Corn, wheat and soybeans have a $6.25 minimum point value, while coffee has a $3.75 per point minimum.
Here’s a great website that gives all the different point values, symbol codes, and trading times for most commodities. Don’t rue stock volatility and curse market unpredictability. Commodities can bring a refreshing change…
The Commodities Market: 4 Reasons Why You Should Trade Commodities
The commodities sector is actually a very beneficial area of the financial marketplace to invest in - and is a lot easier than stocks. Let me tell you why…
- Supply & Demand Economics = Predictability: The commodity markets tend to move in more predictable, smoother patterns, compared to stocks. That’s because their moves are based on supply and demand. For example, many food commodities move according to growing patterns, seasonal tendencies and weather. Prices are based on how well the crops are growing and how much supply is currently in storage. So when predictable natural events like hurricanes or droughts affect that situation, you can take advantage.
- Corporate-Less Commodities: Compared to stocks, commodities have no firms or CEOs running the markets, so the chances of corruption or number-fudging are greatly reduced. In addition, there are no volatile quarterly earnings reports to worry about.
- Fewer Outside Influences: We’ve heard a lot recently about whether the Federal Reserve should stabilize volatility by cutting interest rates. No such debate in the commodities market, though. And commodity investors don’t have to contend with a mass of misinformation and rumors in Internet chat rooms, or what Jim Cramer is recommending on his “Mad Money” show. How are you supposed to project a stock’s next move when you have all these outside factors jerking prices around?
- Mammoth Market Mitigates Risk: Although there are government reports to contend with in commodities, they typically only show how a commodity is progressing in the growing cycle. And although you may read about a hedge fund trying to control a certain futures contract, the commodities market is so large that a hedge fund’s influence may only be short-term.
Investing In the Commodities Market: Hit The Exchanges And Branch Out
Lastly, take a look at the various commodity exchanges online. Just as stocks trade on the NYSE, Nasdaq and AMEX, commodities also trade on different exchanges. The four major ones are:
- The Chicago Board Of Trade (CBOT).
- The Chicago Mercantile Exchange (CME).
- The New York Board Of Trade (NYBOT).
- And the New York Mercantile Exchange (NYMEX), where I worked as a market maker on the trading floor for six years.
You can find anything you want about the various futures commodities contracts by visiting the exchange websites. Plus, they offer a wealth of free information in the form of live and archived webinars.
In today’s rocky stock market climate, commodities represent a viable and profitable alternative to stock investing, allowing you to cut through the fluff and use volatility to your advantage. You may even find them easier to trade, just as I do.
Lee Lowell
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Today’s Smart Profits Action Center
- Here’s a question I get asked all the time by friends, colleagues, and attendees at the investment conferences I speak at: “Why do you gravitate more toward the commodity market, while trying to stay away from stocks?” Great question. And a simple answer for it. While many people make a pretty good living trading stocks, and have increased their net worth, I’ve personally found that in my 15 years of being a professional trader, the wealth I can build up from investing in commodities greatly surpasses stock market returns. I explain why I think the commodities world offers more financial advantages than stocks in Smart Profits #410, Investing in Commodities: Four Reasons Why Commodity Investing Is Better Than Trading Stocks.
- Every day, millions of investors put their money at risk by relying on bland, “one-size-fits-all” information. America’s 8,500 hedge funds pour billions into risky bets. Thousands of economists and analysts dish out “expert” advice. However, none of them know the inner workings of the trading floor and know how to profit from how the market works, not what it does. But Lee Lowell spent six years as a market maker on the trading floor of the NYMEX, one of a few who set the prices for the world’s biggest commodities. Now, you can use this rare, rich source of knowledge to win on 80% of your trades… guaranteed. You’ll even know your risk and reward up front.
Related Articles:
- Corn Commodity: Cashing In With Sales Up 170% On The Government’s Best-Laid Ethanol Plan
- Commodities: How to Create Your Own “Mini Hedge Fund”
- The VIX and VXO: How You Could Have Predicted The Market’s Recent Meltdown
Bear Market Investing
August 21, 2007
The Smart Profits Report: Issue #449
Tuesday, August 21, 2007
Bear Market Investing: Don’t Get Burned By Bears… Here’s Your Five Point Plan
By Marc Lichtenfeld
Senior Analyst, Mt. Vernon Research
See, this is what happens when you put beers and bears together… I can’t think of many worse ways to pass away than by getting eaten by two bears. But that’s what just happened to a Serbian fellow at the Belgrade Zoo during its annual beer festival.
No doubt a little ticked off at having their space invaded by a bunch of drunken revelers anyway, the bears were probably more annoyed when the guy decided to say hello in person by leaping into their enclosure. So they ate him. “There’s a good chance he was drunk or drugged. Only an idiot would jump into the bear cage,” said zoo director Vuk Bojovic. Gee, you think? Talk about understatements!
Right now, investors are worried about the bears currently prowling around Wall Street. And while they won’t eat you, there’s a decent chance bear market investing might take your money. Find out how you can protect yourself with today’s five-point “Bear Plan.”
Rampant Fear + Wild Volatility = Fed Action
Last week’s market action certainly showcased the level of fear in the market at the moment. The wild Dow Industrials index plummeted nearly 400 points in one day before rebounding.
It seems market opinions are all over the place. Some say the intense selling and volume of last week points toward capitulation, while others claim the selloff was just the beginning.
Either way, volatility is rampant, as evidenced by the CBOE Volatility Index. Having traded around 23 at the start of August, it rocketed up to a 52-week high of 37.50 last Thursday. To refresh your memory, when the VIX is that high, it means fear is pretty intense.
But all it took for that fear to subside a little was a 0.5% rate cut from the Federal Reserve last Friday morning. A cut to the discount rate, that is - the rate at which it lends to banks.
I’m not usually a glass half-empty type of person, but when the Fed takes such drastic measures to prop up the markets, I can’t help but sit up and take notice. I suspect Fed chairman Ben Bernanke and his fellow bankers did not make the decision without a great deal of thought.
So what does it mean for us?
Bear Market Investing: Your Five-Point Bear Plan
Whether the next bear market is about to start now or later, it always pays to have weapons in your arsenal that can combat market downside, as well as upside. So here are some ways you can profit during a bear market.
- Sell Short: This is when you sell a stock before you own it and buy it back at a later date. The premise is that you expect to sell high and buy low, in that order. But you need to borrow shares first in order to be able to sell them. And of course, the risk is that a stock can go infinitely higher. Your broker must also approve you before you can sell short.
- Buy Put Options: You can buy put options on a stock or index that you expect to decline. This gives you the right to sell the asset to the seller of the option at a specific price in a pre-specified time. To do so, you must buy a certain number of options contracts - with 100 underlying shares equivalent to one contract. For example, if you think that Schlumberger (NYSE: SLB) is going to decline, you can buy the November $85 puts. This gives you the right to sell the stock at $85 anytime before the third Friday in November (options expire on the third Saturday of each month but transactions need to be completed by Friday), no matter where the stock is trading. If the stock heads lower, your put options should increase in value. Conversely, if the stock is trading above $85, your put expires worthless.
- Sell Call Options: If you own shares that you don’t want to sell, but think the price may fall, you can sell call options against them. This gives the buyer the right to “call away” your shares at a specific price. Let’s say you own shares of Washington Mutual (NYSE: WM). You can sell the January $40 calls for $2.50, meaning the buyer has the right to buy your shares for $40 at any time before the third Friday in January. No matter if WM is trading at $50 at that time, you’ll still be forced to sell at $40. However, if the stock is below $40, the option expires worthless and you keep the $2.50. Your account must be approved to trade options if you want to do this.
- Bear Mutual Funds: There are several mutual funds that seek to profit when markets go down. They include the Prudent Bear Fund (BEARX), Bear ProFund (BRPIX) and Ursa Fund (RYURX). Be sure to read their prospectuses and holdings carefully before you take a position. You’ll also be required to invest a minimum amount up front and pay annual maintenance fees.
- Bear ETFs: If you don’t want to short stocks or indexes, don’t have approval to trade options, or don’t want to pay the higher fees associated with funds, you can buy ETFs (Exchange-Traded Funds) that short various indexes instead. For example, the Short QQQ Proshares (AMEX: PSQ) seeks returns that correspond to the inverse of the Nasdaq 100. In other words, if the Nasdaq 100 declines 10%, PSQ should be up roughly 10%. There are also various bear ETFs, including sector specific and leveraged funds such as the Ultrashort Oil & Gas Proshares (AMEX: DUG). This fund seeks returns that equal twice the inverse performance of the Dow Jones Oil and Gas Index.
(Please note: The companies/funds mentioned above are not actual recommendations, just examples).
Make sure you research all these investment vehicles thoroughly before using them, since most aren’t as conventional as buying and holding stocks or most mutual funds. However, they can provide valuable downside protection for your portfolio - and actually help you make money while others are losing it.
Hoping your longs go up and your shorts go down,
Marc Lichtenfeld
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Today’s Smart Profit Action Center
- Is Big Ben baffled? According to Senate Banking Committee Chairman Christopher Dodd, Fed chief Ben Bernanke is a bit miffed that his 0.5% cut in the discount rate last Friday hasn’t had more impact on Wall Street. In response to Dodd’s comments, plus an assertion that policymakers will do whatever it takes to bring more stability back to the markets (perhaps implying that a cut in the broader federal funds interest rate could be on tap), stocks headed higher during the morning session today.
- But the afternoon session proved a little more sluggish once Fed President Jeffrey Lacker essentially reminded investors that it’s not the Fed’s job to dictate market activity and that it won’t base its monetary policy on market fluctuations. Right now, with the market seemingly split between those who want the Fed to do more to help investors and the economy by cutting interest rates and those who believe Fed intervention isn’t the correct way to solve the problems, expect continued volatility.
Related Articles:
- The Market Volatility Index: Using The VIX To Straddle And Strangle Stock Options
- Global Investing: Legendary Investor Predicts Triple Bubble… Four Ways To Beat It
- Fast and Furious Volatility is Back in a Big Way: How To Profit Using Leg Spreads & The VIX
Made In China
August 20, 2007
The Smart Profits Report: Issue # 448
Monday, August 20, 2007
Made In China: How To Profit From China’s Tarnished Toys & Outdated InfrastructureBy Martin Denholm
Managing Editor, Mt. Vernon Research
Two types of the “Sarge” character from the movie “Cars.” Forty-four varieties of Polly Pocket toys. Eleven different Doggie Daycare sets. Four varieties of Batman toys. Two Barbie & Tanner sets. The One-Piece “Triple Slash” Zolo Roronoa figure.
No, not items on my Christmas wishlist (although Batman is pretty cool and I’m kind of intrigued by the Triple Slash dude). Instead, these are the toys made in China that U.S. toymaker Mattel recently recalled, amid fears that they contain lead paint and have magnets that kids could swallow.
In total, 18 million items were recalled - the largest recall since 1998. It also comes just a few days after Mattel yanked 1.5 million toys made in China for its Fisher-Price division). In fact, when the firm pinpointed the Lida Toy Company as culprit, an owner there committed suicide.
Let’s dig a little deeper into this story - and other news that suggests we might be starting to see a kink in the Chinese armor…
Made In China: Christmas Begins In August
Having worked in the retail industry in Britain, August is a very important month for manufacturers and suppliers. Although the holiday season is still four months away, it’s when production and distribution of goods accelerates, so stores have inventory well ahead of time.But considering that 80% of the toys sold across the world are “Made In China,” this year might not be shaping up too well.
In addition to the current recalls, back in June RC2 Corp recalled 1.5 million railroad toys and associated parts that also contained lead paint. The items were manufactured between January 2005 and April 2006 and affected 23 retailers that carried them. And just last month, Hasbro was forced into a second recall of Chinese-made “Easy Bake” ovens.
What’s worse is that an official from the China Toy Association just revealed that the industry has known about the manufacturing defects since March. And this is in addition to the high-profile tainted pet food recall and contaminated toothpaste (how the heck does anti-freeze get into toothpaste anyway?) Not the best way to inspire confidence in “Made In China” products.
In response to the Mattel fiasco, the Chinese government stepped in and banned exports of toys (including Big Bird and Elmo, no less) from two factories. But the U.S. isn’t satisfied. Accusing China of having “lax safety standards,” Senator Dick Durbin has called for third-party product checks. China has rejected the idea, but will send officials stateside this month and in September to review safety procedures with the Consumer Product Safety Commission and FDA.
Then there’s the pace of Chinese industrial production itself…
As Production Cranks At Warp Speed, China Gets Sloppy
For months - no, make that years - China’s manufacturers have cranked the production line up to warp speed. Output has soared and contributed to the economy’s massive trade surplus and double-digit GDP growth rate over the past four years. Second-quarter GDP growth barreled in at 11.9%, the fastest rate in 12 years. But maybe all the expansion and eye-popping profit has made manufacturers sloppy - hence the product recalls. And now, lower export tax rebates could be about to hit.
Let’s face it, an 18% jump in monthly industrial production is pretty darn good. That’s what China achieved in July. However, that was down from June’s 19.4% rate and lower than estimates. It was also the first slowdown in three months, as the government reduced export tax rebates on 2,831 products in a bid to cool the rapid growth.
And you can see why. The enormous amount of cash from the bloated trade surplus is partly responsible for China’s inflation rate shooting to 5.6% in July - the highest level in a decade. This could well force the central bank to raise interest rates for the fourth time this year - part of its goal to prevent economic “overheating” (but when isn’t this the bank’s goal these days?)
With manufacturers now lowering their output and overseas “Made In China” orders declining, economists now expect industrial production and exports to cool over the rest of 2007. And that’s not the only thing slowing…
Government Grounds Soaring Chinese Aviation Expansion
As China’s economy has soared, so too has its aviation industry. Air traffic is up 16% a year. In Beijing, the airport is processing 13 million more passengers per year than it was designed to handle. As a result, the General Administration of Civil Aviation of China will now make substantial cuts to flights serving the airport. China Southern, China Eastern Airlines and Air China have all cut 10 flights per day, with Hainan Airlines cutting eight.
Overall, 332 million passengers passed through China’s airports in 2006 - a 17% jump over 2005. However, that figure is expected to slow to 14% growth per year until 2010. In addition, the regulator has also announced that because the system is so overloaded already, new airline applications will be frozen until 2010, while existing carriers who want to expand will have to pass government controls. Pilots and other airport and airline officials will also have to cut their overtime hours to cool the growth, with officials worried that red-hot expansion will impact safety.
So while China’s economic boom might seem unstoppable, it’s not going to up without stopping, nor last forever. And these could be signs of cooling. The question is… how can you profit?
Will China Choke On An Olympic-Sized Bill And A Dated Infrastructure?
Sure, the Olympics have led to greatly increased spending and heightened awareness even more. But what happens when the Games are over, the people go home, and the spending slows? (Not to mention the country’s fat bill for the event). Much of China’s outdated infrastructure (water shortages being the most serious) is still straining under the weight of such expansion and the country’s growing pollution problem remains a grave health concern.
China is not an impenetrable fortress, immune to market madness. And while nobody else talks about it, my colleague Karim Rahemtulla outlined the problems that China could face over the next 18 months in the July issue of the Xcelerated Profits Report. He also gave readers a way to profit from it - and just cashed out for gains between 40% and 100% in just a few weeks - even as the U.S. stock market got battered.
Even better… having taken profits, he issued a new play that means investors are now essentially hitching a free ride on China’s downside. And with today’s volatile market, he’s constantly on the lookout for the next moneymaking opportunities in China and elsewhere. Make sure you don’t miss it - see below for details.
Best regards,
Martin Denholm
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Today’s Smart Profits Action Center
- The Federal Reserve leapt into action on Friday morning and slashed the discount rate at which it lends to banks, by 0.5% to 5.75%. Great for the crippled hedge funds that dived into the sub-prime area and got their butts kicked, but it doesn’t do much for the little guy.
But Xcelerated Profits Report subscribers aren’t complaining. Check out what a few of them had to say on Karim’s China trade…
- Karim, I just wanted to drop you a quick e-mail comment on our contrarian options play. Per your recommendation, I purchased 6 contracts on 7/23/07 for $4.00 and sold all six today 8/16/07 for a 112% gain at $8.50. This was a quick and tidy profit of $2,700 in less than 1 month. I truly appreciate your timely and informative e-mail updates that keep us in the know! Thanks Karim to you and your staff! - Robert B, Land O’Lakes FL.
- This is exactly the type of support I appreciate. Thanks for providing this guidance, as it is tough in these market conditions to make the correct decisions and your comments certainly make it easier. I exited at $7.60 and bought at $4.50 for a 69% gain in six weeks, which I take anytime. Wish I had been able to afford more than 10 contracts this time! - Joe B, Wilton, CA
- Hi Karim, I am a recent subscriber and I think you are a genius. You are making money for us when everyone else is losing. I sold for $4.70 and so my position on the $90 put is free. Keep up the great work and thank you very much. - Theresa S, San Francisco, CA
- Karim, boy you people are terrific. I took your advice on the 2 puts I got for $4.40 AND SOLD THEM THIS MORNING AT $7.60. Thus ending up with a 70% profit. I am really impressed with you people. So far you all are batting 1000. Keep it up. - Bob C, Smyrna, GA
For more information on how you can join in on these kinds of profits and become a subscriber of the Xcelerated Profits Report, click here.
Related Articles
- The China Stock Market: Shanghai Selloff Triggers Global Fallout… But The Warning Signs Were Already There
- Global Markets Investing: Get 300% More Bang For Your Investment Dollar And Diversify Your Portfolio
- Investing In The Stock Market: Three Factors That Could Buckle The Bulls
The Real Estate Market
August 14, 2007
The Smart Profits Report: Issue #447
Tuesday, August 14, 2007
The Real Estate Market: Four Ways To Protect Yourself As The Housing Bubble Bursts
By Marc Lichtenfeld
Senior Analyst, Mt. Vernon Research
I’ve seen this movie before - and I know how it ends. In fact, I’ve lived it. During the dot-com boom, my wife and I lived in San Francisco. The Bay Area was the heart of the Internet. Venture capitalists were lining up everywhere, clamoring to pump millions of dollars into companies with big dreams and big hype, but precious little else.
On both an institutional and individual basis, the spending was unbelievable. Everyone was invested in the stock market. We attended parties, featuring private concerts with James Brown (yes, that James Brown), where the talk always turned to which Internet stock would take off next. How stocks were the only way to make money. Doctors and lawyers were quitting their jobs to day-trade stocks like Ariba and Commerce One.
There were millionaires everywhere. Paper millionaires, that is. People who planned to retire at 35. It was an amazing time and place to live. But when the party ended in spectacular fashion, portfolios plummeted and the dot-com era died, taking jobs and fortunes with it. And today, another speculative bubble is about to pop, the real estate market…
The Next Wave Of Mass Hysteria In The Real Estate Market
These days, my family and I live in South Florida. But instead of talking about stocks being the way to wealth, the conversation turned to the real estate market as “the only way to make money.”
Not surprising, considering Florida is one of the country’s fastest-growing states in terms of population growth and is, of course, a prime destination for millions of America’s baby boomers.
But the trend is nationwide. Ordinary people with ordinary jobs built or renovated three or four houses at a time, figuring they can flip them for an easy five or six-figure profit by the time the project is completed. And just like during the dot-com boom, while a few people enjoyed some profits at the beginning, there are now many more stories of people who own four houses, but can’t sell them.
But there’s a big difference between being stuck in the dot-com vortex and the increasingly serious real estate market wreck - and this one is worse. Here’s why…
Central Banks React As Foreclosures Jump And Borrowers Feel The Squeeze
Investors who got suckered into the dot-com debacle ended up with some shredded portfolios. An ugly outcome, for sure. But it’s a lot worse to be paying four mortgages and eventually being forced into foreclosure.
Over the first half of the year, foreclosure filings rocketed up 58% to 925,986, compared with the same period in 2006. When measured against the last six months of 2006, filings shot up 30%, according to RealtyTrac, an online foreclosure marketplace. And as the real estate market continues to sag and borrowers remain overstretched, the full-year number could well hit two million.
Unlike in the stock market, where market makers or other investors will buy your unwanted stock (albeit at a less favorable price), these houses are being dumped on the real estate market - but there are no buyers. This is why we’re now starting to see the credit markets crack and the stock markets reel. As interest rates rise and house price values drop, borrowers are feeling the financial squeeze - particularly in the sub-prime mortgage sector.
Hedge funds and institutions have packaged up these businesses into funds, available to buy and sell like any other. But there is no liquidity for these instruments and, in some cases, no accurate way of pricing them.
Within the global economy we’ve already seen the demise of two of Bear Stearns’ sub-prime mortgage funds, as well as trouble in three held by French bank BNP Paribas. And as hedge funds are buckling under the weight of these credits, the sector has crumbled and both the European Central Bank and U.S. Federal Reserve have recently flooded the market with cash to offset the fallout. Even so, some of the major financial institutions will not be able to escape this crisis.
But you can. Here’s what this means for your portfolio - and how to prepare for it…
Four Ways To Dodge The Credit Crisis From The Real Estate Market Fallout
The Fed and ECB did the right thing by injecting liquidity into the markets and trying to calm fears. But this credit contagion is serious and I expect that we’ll feel the consequences over the coming months. Here are four things you can do today to protect yourself from the real estate market fallout…
- Dump The Sub-Prime Slobs: If you own a financial stock that has exposure to sub-prime mortgages, get rid of it - even if you have to take a loss. We’re already seeing the fallout and I suspect these stocks will be hit particularly hard in the near future.
- Set Stop-Losses: The real estate slowdown and sub-prime collapse is making the stock market very volatile right now. Make sure you employ stop-losses on the other stocks in your portfolio. That way, if a broad and serious decline occurs, you’ll escape much of the pain.
- Let Your Long-Term Holdings Lie: If you own mutual funds with a time horizon of five years or longer, don’t touch them. There’s a reason you’re in them and over the long haul they should be fine.
- Whip Your Stock Watch List Into Shape: In Smart Profits Report #445, I discussed the benefits of creating a watch list of stocks you want to buy when the market gives you an opportunity. It may do so shortly.
Hoping your longs go up and your shorts go down,
Marc Lichtenfeld
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Today’s Smart Profits Action Center
- In its statement on August 7, the Federal Reserve said its “predominant policy concern remains that inflation will fail to moderate as expected.” So today’s latest inflation numbers probably triggered some concern. Producer prices climbed 0.6% in July, a full 0.5% higher than expectations. A 2.5% rise in energy costs led the increase. If today’s consumer price numbers show a similar rise, it could nudge the bankers closer towards an interest rate hike.
- But the Fed needs to balance inflation with a weakening housing & real estate market and intensifying credit problems that could curb GDP growth. While investors panicked, the bankers pumped $24 billion into the market last Thursday and a further $38 billion on Friday to alleviate market fears.
- Some investors, however, are dodging the current fear and volatility in stocks and finding out that’s it’s possible to make money in any kind of climate by playing another market instead… commodities. Like the investors who just pocketed a cool 71% return-on-margin today from something as simple as orange juice. What’s more, you don’t have to take on risky positions to do it - your reward and risk is known from the start, simply by knowing how the market works, not what it does. And here’s the former floor trader who will show you how to win on 80% of your trades… guaranteed.
Related Articles:
- The Global Economy: U.S. Sub-Prime Mortgage Meltdown Effecting World Markets
- The Housing Market: Looking For Housing Bargains? Rent… And Wait Till Next Year
- Global Investing: Legendary Investor Predicts Triple Bubble… Here’s Four Ways To Beat It
Global Economy
August 10, 2007
The Smart Profits Report: Issue #446
Friday, August 10, 2007
The Global Economy: U.S. Sub-Prime Mortgage Meltdown Effecting World MarketsBy Martin Denholm
Managing Editor, Mt. Vernon Research
The power of the global economy and its effects on markets around the world was underlined again yesterday, as the intensifying U.S. sub-prime mortgage mess spills over into Europe.
If want some “unlimited cash,” head to Europe, where the European Central Bank (ECB) is pumping out extra cash faster than it takes Lindsay Lohan and Britney Spears to bounce out of rehab.
And it’s giving one of Europe’s biggest banks a punch in the mouth for its troubles, forcing the ECB to intervene in an unprecedented way…
The Global Economy Flops As Paribas Funds Hit The Skids
I got into the office yesterday morning to find the the global economy of the major European markets getting crushed, in response to French bank BNP Paribas suspending activity in three of its large, asset-backed funds, due to the “complete evaporation” of liquidity.
And you can see why:
- According to Bloomberg, the BNP Paribas ABS Euribor, BNP Paribas ABS Eonia and Parvest Dynamic ABS funds are worth a combined 2 billion euros ($2.8 billion).
- But 700 million euros of that is exposed to U.S. sub-prime mortgages, with a credit rating of AA or higher.
- These funds have slumped 20% over the past two weeks.
Doesn’t exactly do much for the credibility of Paribas’ CEO Baudouin Prot, who boldly claimed recently that the bank’s exposure to the U.S. sub-prime mortgage sector is “negligible.” I think not, Monsieur!
In response, the ECB intervened and tossed 94.8 billion euros ($130.2 billion) into the market - what the bankers called a “liquidity-providing fine-tuning operation.” That’s some pretty hefty “fine-tuning,” to give you an idea of the scale of this “fine-tuning operation,” that’s 25.5 billion euros more than they injected into the market the day after the terrorist attacks on New York and Washington, D.C. temporarily crippled the markets. The move allows banks to borrow at the bank’s main 4% interest rate, following the jump in the overnight rate to 4.7% - the highest level since 2001.
But BNP Paribas isn’t alone. Its fellow French company, AXA, an insurance firm, has also suffered losses on sub-prime assets.
Over in Holland, investment bank NIBC has suffered whopping losses around 140 million euros ($192 million), due to dodgy U.S. sub-prime investments. It’s even forced the company to postpone its plans for an IPO. And in Germany, IKB is hoping to receive a 3.5 billion euro ($4.8 billion) bailout from fellow German banks to help it recover from sub-prime losses. Three top executives have quit the firm in the wake of the disaster.
U.S. Sub-Prime Disasters = Little Investor Value
And speaking of sub-prime disasters, Bear Stearns provided dramatic evidence of this just recently, saying that, “… preliminary estimates show there is effectively no value left for the investors in the Enhanced Leverage Fund and very little value left for the investors in the High-Grade Structured Credit Strategies Fund as of June 30, 2007.”
Last weekend, Bear’s President and COO Warren Spector got the heck out of Dodge and quit. And last week, CFO Sam Molinaro said, “These times are pretty significant in the fixed-income market. It’s been as bad as I’ve seen it in 22 years. The environment we’ve seen in the last eight weeks has been pretty extreme.”
Gee, you think? Everyone is piling on the wounded Bear. The S&P recently downgraded the stock to “negative.” One of the biggest investors in the company’s High-Grade Structured Credit Strategies Fund is suing the company, unhappy with the management’s “meager steps,” despite the crisis.
But the Bear is fighting back - and fighting dirty. The lawsuit comes as the firm sneakily ships the crippled funds off to the Cayman Islands for bankruptcy protection and probable liquidation.
And need I mention American Home Mortgage (formerly listed as AHM on the NYSE). From trading in the mid $30s as recently as February, the wheels have totally fallen off the bus. Following a 90% plunge and the suspension of its stock last week, the company filed for bankruptcy protection on Monday and is now delisted.
And if you think the sub-prime situation is bad in the U.S., Britain might be about to slide down the same slippery slope…
The Real Estate Market: The U.S. Is Cold But The U.K. Is Still Hot
Over the past few years, both the U.S. and U.K. real estate markets have enjoyed similar explosive increases. But while the U.S. market is cooling, the strength continues over in Britain.
This week, the National Housing Federation said house prices will soar by 40% over the next five years. That would vault the average house price over £300,000 ($608,250). While that makes ugly reading for Brits, it’s not entirely surprising, given the lack of space and land prices at a premium.
But the problem is that the average U.K. house price is already more than 10 times higher than the average salary - and homeowners are struggling with debt. The ratio of household debt to personal income is 1.62, according to the National Institute of Economic and Social Research. That’s 0.20 higher than in the U.S.
And already, about 125,000 households are behind with their mortgage payments - and it’s starting to show. Over the first six months of 2007, banks and other lenders foreclosed 14,000 properties - a worrying 30% jump over the same period in 2006 - according to the Council of Mortgage Lenders. And the group attributes the bulk of the blame on “an increasing amount of sub-prime mortgage lending.”
But the problems for borrowers with bad debts could get worse - for two reasons:
- First, there’s virtually no chance that house prices will decline enough to give borrowers some breathing room.
- Second, the Bank of England has already raised interest rates to 5.75% - and signaled that another hike to 6% is likely to follow in the coming months, as it battles inflation.
So if you can’t afford your mortgage and it’s worth more than the current market value of your house, you’ve got a problem that you can’t solve by simply selling up. It may be that consumers will have to cut back on their spending - a situation that could squeeze the growth of the global economy.
Talk to you again soon,
Martin Denholm
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Today’s Smart Profits Action Center
- “Rent… and wait till next year.” In Smart Profits Report #432, that was the advice Mt. Vernon Research Investment Director Karim Rahemtulla passed onto to folks looking to buy or look for real estate investment bargains. It was also as many pundits were boldly predicting that the real estate market was bottoming out. And now that the sub-prime mess has spilled over into Europe, Bear Stearns funds have got whacked, and another sub-prime company has bitten the dust, his assertion that we’re only six months into a correction that could last 18-24 months, is looking pretty accurate.
- Find out what investment opportunities Karim and his team of professional traders are looking at now - and how you can make money from them - in the monthly Xcelerated Profits Report. The portfolio has a current success rate of more than 80% and has dished winners this year of 118%, 65% and 45%. Click this link to find out more.
Related Articles:
- The Housing Market: Looking For Housing Bargains? Rent… And Wait Till Next Year
- Housing Starts: The 16-Year Real Estate Party Is Over… More Woe In Store For Real Estate
- Global Investing: Legendary Investor Predicts Triple Bubble… Here’s Four Ways To Beat It
Stock Watch List
August 7, 2007
The Smart Profits Report: Issue #445
Tuesday, August 7, 2007
Stock Watch List: How To Track The Best Stocks And Win
By Marc Lichtenfeld
Senior Analyst, Mt. Vernon Research
For four years now, investors have reaped the rewards from a very generous stock market.
Over that time, we haven’t seen a correction of 10% or more - a truly impressive feat. And as share prices have zoomed steadily upward, you haven’t had to look very far to find bloated permabulls breathlessly calling for more. Talk about collective amnesia! Seems like someone forgot to tell these folks that stocks go down as well as up, which is why I don’t dress up in silly party hats whenever the market hits a new milestone.
Likewise, when it drops precipitously - as we’ve seen it do recently - there’s no reason to shift into bear mode. There are always moneymaking opportunities available - and if you use this remarkably simple and effective stock watch list method, it’s much easier and quicker to find them when needed…
Stock Watch Lists: Scan The Radar For The Leaders And Laggards
Whenever the market soars or crumbles, I always make a point of checking out the extensive list of stocks I have on my stock watch list to see if I can take advantage of the move.
Many times, market volatility actually presents a great opportunity to enter positions at better prices. For example, a stock might be oversold and primed for a run the other way. Conversely, maybe a position is overbought and due for a pullback.
Keeping a stock watch list is a simple, yet remarkably effective thing you can do. It keeps you focused, disciplined, and ready to take action faster than if you start from scratch.
For example, as I watched the market come back to earth, I scanned a list of stocks at 5:00 A.M. the other morning - and thought my bleary eyes were deceiving me. Up popped a biotech firm that I’ve had on my radar for some time now - one that may have the answer to a disease that could reach epic proportions over the next 20-30 years.
It’s not that the stock trumped the market and rose during the selloff. It declined with the broader market by 12%, actually. But while most investors might blindly follow the crowd out the door, I was happy. It’s noteworthy that it did so on no negative news. In fact, the fall occurred despite the company beginning two clinical trials.
The stock has now dropped almost $3 to a very attractive price - and I plan to recommend it to subscribers in the next Xcelerated Profits Report issue. Chalk up another stock watch list winner.
The Tools To Make You A Better Investor Are Out There… So Use Them
Having a stock watch list is a simple concept. And having a shortlist of potential companies to choose from when it’s time to pull the trigger can be a real timesaver. Of course, you still need to do your due diligence and revisit your detailed reasons for buying, but you’ll have a good headstart on the crowd if you have candidates. And when the market and individual stories change, you can add and delete from your list.
Ever since I started investing, I’ve kept a list of stocks that I’m interested in buying (or shorting) but either couldn’t or wouldn’t. When I was right out of school, it was simply a case of not having the funds. But now, other factors come into play:
- Maybe the price is too high right now.
- Maybe the market conditions aren’t right.
- Or maybe the company simply isn’t profitable.
But many financial/investment websites like Yahoo! Finance and online brokerages have simple tools these days that alert you when a company has news or the stock hits a certain price. You can also enter your stock watch list data into an Excel spreadsheet that will help you calculate hypothetical returns rather easily.
A Stock Watch List Ensures No Opportunities Are Missed
Regardless of whether you go low-tech or high-tech, a stock watch list is an incredibly useful tool. Not only will it help ensure you don’t miss an opportunity in a stock that you’re keeping close tabs on, it will help you evaluate your own strengths and weaknesses as an investor.
Be sure to review your stock watch list and your reasoning at least on a quarterly basis (even the stocks you’re no longer interested in). No doubt you’ll have a few, “What the heck was I thinking?” moments as you’ll have the benefit of 20/20 hindsight. But it’s a good lesson that will only make you a better investor going forward.
Hoping your longs go up and your shorts go down,
Marc Lichtenfeld
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Today’s Smart Profits Action Center
- A tip for selecting top stocks: Keeping a stock watch list is a great way to stash away investment ideas that you can revisit on an ongoing basis. But how do you know which stocks to watch? It’s critical that you diversify: Include stocks from a broad range of sectors and industries, and make sure you select both large-cap and small-cap stocks. This will allow you spread your risk and lower volatility - more important than ever right now, with the stock market wobbling.
- For more information on the Xcelerated Profits Report and to get in on that new biotech firm with a very attractive price, click here.
- Don’t limit your stock watch list to just stocks either. Ensure that you maximize your moneymaking opportunities by including safer investments like Treasury bonds, high-grade bonds and gold investments - all part of a prudent asset allocation strategy. Find out how to execute this just like a pro in this special report - plus receive 30 other top strategies of America’s wealthiest, most successful investors.
Related Articles:
- The VIX and VXO: How You Could Have Predicted The Market’s Recent Meltdown
- Market Transitions: The Three Main Market Conditions, and a Plan for Each
- Improve Your Investing Results: Your 8-Step Checklist To More Successful Investing
Stock Market Prediction
August 3, 2007
The Smart Profits Report: Issue #444
Friday, August 3, 2007
Stock Market Prediction: Fibonacci Retracements Point Towards A Real Correction For This Market
By D. R. Barton, Jr.
Quantitative Analyst, Mt. Vernon Research
Here’s a stock market prediction: the market has arrived at a juncture - and it’s more critical than many folks might realize.
Let me break it down for you: What happens over the next few days of trading could set the stage for the next one to three months - and maybe more.
The stock market’s reaction to the May 2006 and February 2007 pullbacks was typically full of angst, as emotions ran high and investors scrambled to sell. But it’s important to remember that neither pullback was big enough (not greater than 10%) to be called a true correction.
The drop we’ve seen over the last week or so has triggered similar angst, with a growing consensus believing that the credit crunch seems more real this time… that U.S. dollar really is in deep trouble, having received a sound thrashing from most currencies. In short… yes, things could be different this time. Let’s see how…
After 5 Years, Is This Market Ready To Really Correct?
It’s easy to see why the recent stock market drop has caused such a similar range of emotions. In just six days, the market completely unwound three months worth of hard-fought price gains. The old saying that, “Markets crawl up the stairs and then jump out the window” was certainly right on the money on this occasion!
So is the market really ready for its first real correction in almost five years? Or will investors shrug off the negativity and propel the market forward once again? The charts reveal that this is a critical point…
Stock Market Prediction - More Than a Passing Fancy?
If you’re looking for a critical area for a stock market prediction on the S&P 500 index, then cast your eyes towards the 1,460 area. On the chart below, you’ll see three important times when this zone has proved very important.
So let’s trace back the S&P’s three 1,460 points:
- As you can see, the first time the index hit 1,460 was in February 2007 - a multi-year high that occurred just before the February 27 drop.
- In April, the index broke through this resistance level and powered upward for three months to all-time highs.
- This is where the index is now - trading around this important area again.
But there’s one more important piece to this puzzle…
The Fibonacci Retracement Proves Important… Again
In past articles, we’ve shown how investors use Fibonacci retracement points to calculate potential reaction areas in order to better predict the movements of the stock market.
Simply put, Leonardo Fibonacci was an Italian mathematician who devised a distinct sequence of numbers. When applied to investing, it states that a market/stock will “retrace” an upward/downward move by three main amounts - 38%, 50% and 62% (you can get more information on Fibonacci retracements in today’s “Related Articles” section).
In the chart below, I’ve drawn a Fibonacci retracement from the March 2007 lows to the July highs. And it comes as no surprise that the 50% retracement from this last stock market move takes us exactly to that crucial 1,460 level.
This highlights how important the 1,460 area is. And here’s why:
- On Tuesday and Wednesday this week, the index closed at 1,455.27 and 1,451.59 respectively on higher volume.
- Because this is under the 1,460 mark by a notable amount, it could now pave the way for the index to re-test the March low and puts an honest 10% into play.
- If however this retracement is all the downside that the market can muster for now, then look for the all-time highs to be challenged again over the next 4-12 weeks.
So this is no time to panic or go value shopping just yet. Give the stock market some time to adequately test this important support level. We’ll then have a much better stock market prediction of which direction this market will take next.
Great trading,
D. R. Barton, Jr.
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Today’s Smart Profits Action Center
- “Profits offset credit worries,” blared a MarketWatch headline this afternoon. With the market deep into earnings season, investors once again shook off negative news (rising mortgage defaults) and placed more weight on strong earnings reports from companies like Nokia. The Finnish cellphone firm said second-quarter earnings more than doubled from 1.1 billion euros to 2.2 billion euros on the back of a 28% jump in sales. Cellphone sales for the quarter hit 100 million - 29% higher than Q2 2006 figures. In response, shares shot up 8.7% to a new 52-week high of $30.93.
- Despite all three major stock indexes rising today, the market remains delicately balanced. While strong earnings might lift stocks in the short-term, longer-term negative factors like the real estate slowdown, credit woes and dismal dollar could bring the market back.
- But you shouldn’t worry about WHAT the market does, when HOW it works is far more important. It’s this kind of strategy that will produce profits in ANY market - and there’s one person who can show you exactly how to do this. To read a report that will show you how this former market maker at the NYMEX uses expertise gained direct from the trading floor to rack up profits like 111% in 14 days… 85% in 16 days… and 51% in 8 days, click this link.
Related Articles:
- Leonardo Fibonacci: Predicting The Stock Market’s Next Move With The Fibonacci Sequence
- Investing In The Stock Market: Three Factors That Could Buckle The Bulls
- Market Transitions: The Three Main Market Conditions, and a Plan for Each
The Chart Of The Week
If you look at the same Fibonacci retracement dates for the Dow as we did above for the S&P 500, we see a very interesting similarity. While the retracement isn’t nearly as deep just like the S&P, it also stops on an important Fibonacci retracement level - the 38% mark.
Lee Lowell
August 1, 2007
The Smart Profits Report: Issue #443
August 1, 2007
Lee Lowell: How To Make Money In Any Market
By Karim Rahemtulla
Investment Director, Mt. Vernon Research
Can you really make money in any kind of market? Most investors look at that question and think, “Yeah, right.” Or they just laugh it off as another marketing ploy.
Yet there’s one person that can show you how to do exactly that. And that person is Lee Lowell…
Right now, many economists are predicting that the credit crunch will warp into a worldwide meltdown, sucking stock prices down with it, and crushing portfolios from Maine to Mumbai. It could even postpone retirement for the 8,000 Baby Boomers a day who are checking out of the workforce to live on the beach.
And here’s the best part. I’m not talking about buying put options or executing risky short sell positions. I’m talking about one investment strategy that, without direct knowledge of how exchanges like the NYMEX work, is completely market neutral. And I’m going to show you how to profit from it…
Lee Lowell: The Best Way To Find Out How The Market Works
The key to these investing profits is fairly simple: There’s only one strategy that makes money from HOW the market works, NOT what it does… Yet, until I met Lee Lowell, I didn’t think this was possible.
Lee Lowell is someone who knows the inner workings of the exchange better than just about anyone and can show you how to scoop embarrassingly large profits from exactly that: The inner workings of the exchange itself.
That’s because he spent six years working there on the trading floor itself as a market maker. Lee was one of a few guys who actually set the prices for the world’s major commodities like oil and natural gas - and who still has direct connections to the trading pits.
That’s a pretty rich source of knowledge and information. Certainly better than what millions of individual investors rely on every day. Better than approximately 8,500 active hedge funds. Better than thousands of economists, analysts and financial advisors across the U.S. And much better than the bland, “one-size-fits-all” commentary in the media. Because this hard-fought wisdom comes direct from the trading floor and gives you a crucial edge…
The Market’s In Trouble… Here’s Your Escape Route
Let’s face it… right now, most investors don’t know which way to turn. They’ve endured market hell over the past few days.
- Just yesterday, a hedge fund run by a former endowment manager at Harvard buckled under the pressure.
- The wheels on the private equity bus have fallen off, with Blackstone and Fortress both trading at 52-week lows.
- The real estate markets woes continue: Prices of single-family homes dropped for the 18th straight month in May. Foreclosure filings leapt 58% over the first half of 2007 and could pass 2 million by the end of the year. And the subprime mess claimed its latest victim today, with American Home Mortgage (NYSE: AHM) shares crushed by 90% today (trading was even suspended at one point).
So how do you make money when you rely on the market, but really can’t trust it? You ignore it.
Yes, you read that right. For decades, Lee Lowell has used a strategy that does not rely on the whims of the marketplace or individual investors. Instead, he’s developed a precision-guided strategy that makes money from HOW the market works, not WHAT it does. And it’s this subtle difference that puts him a cut above most traders.
Let me tell you why…
Hitch A Ride On The 83% Wagon
Imagine if you were out of pocket by $20,000 before you even placed your first trade. That chunk of cash could pay for a new car, or your child’s college tuition for a year. But at the NYMEX, that’s what it costs today just to set up shop for one month. The price of making money in any market. And while Lee Lowell was there, he saw them all - bullish, bearish, flat, you name it.
However, you quickly learn to either adapt to the market’s rules, or collapse. Lee had to make money to survive and thrive in any market - and he did. So while $20,000 might seem like a heck of a lot of cash for most people, it’s nothing for him. In fact, he can recoup that - and more - by the time he’s on his second cup of coffee.
His system is so efficient and so profitable that it now boasts one of the best track records in the business, bar none. Here’s just a sample of the results:
Over the last 10 months, Lee’s service has racked up an impressive 83% win rate, with cumulative gains totaling 635%.
Total losses over that time? A measly three (hey, nobody is perfect!) But results like this are nothing short of what you would expect from a trader who cut his teeth in the “make or break” pits at the NYMEX - a place where secret strategies are devised and fortunes are created. This is the pinnacle of high finance, high anxiety - and high success.
How successful? After his six years at the exchange, Lee moved himself and his family to Hawaii.
So what’s the secret? How does Lee Lowell do it? How does he win so often that he can guarantee, in writing, that he will win 80% of the time?
Simple…
Get In The “Triple Zone” With Lee Lowell
Lee Lowell uses a strategy that allows his readers to know what the risk is on every trade. There are no open-ended results. They know going in exactly how much they can make and how much they have at risk. And like a master trader, he follows every pick like he did for his firm in the NYMEX pits.
But here’s the kicker: Lee often isn’t concerned with where the price of an investment is going to go, he is concerned with where it is not going to go. And using his probability calculator, Lee can figure out - with over 80% accuracy - where something will not go.
Then, using his expert judgment, honed and perfected by years in the pits, he knows how to increase his odds of winning even further on simple-to-execute investments.
Think about it… if you can figure out where something won’t go, then you can clean up in any market. It’s like having a money machine in your back pocket.
When Lee Lowell first joined the Mt. Vernon Research team, I knew he was good. But as the saying goes: “I’m from Missouri…show me.” He has.
And now he’s going to show you, too, bringing his unparalled expertise to his exclusive Triple Zone Trader service. I urge you to check it out.
Good investing,
Karim Rahemtulla
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Today’s Smart Profits Action Center
Lee Lowell has shown a select group of readers exactly how to make money in any market - something that many people simply don’t believe is possible. In addition to being a bestselling author Lee has also written several dozen articles, like Smart Profits #410, Investing in Commodities: Four Reasons Why Commodity Investing Is Better Than Trading Stocks.
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