Cap & Trade - An Economic Nightmare?

The Waxman - Markey bill or better know as the Cap & Trade bill, is currently working its way thru the House of Representatives and Senate. This bill is designed to limit Americas carbon emissions and will end up being one of the largest Taxes ever levied. The bill will actually levy financial penalties against companies that produce carbon dioxide and other gases. Carbon dioxide is a byproduct of burning wood, coal, gasoline, etc.


Who do you think is going to bear the brunt of these taxes? You guessed it you and I along with every energy intensive business in this country. Coal miners, especially those on the east coast will probably be put out of business. Coal power plants that produce more carbon dioxide than they're allowed will have to buy the right to produce more. That additional cost will be passed on to consumers, you and I.

US steel makers are large carbon emitters and will probably get crushed by this legislation also. Foreign steel makers won’t be affected by this and steel imports will rise dramatically, which is just more bad news for our already fragile economy.

Then there’s the refiners they’re responsible for over 40% of carbon emissions and as such will be the biggest buyers of carbon credits. Many of the smaller and older refiners will go out of business and we’ll be importing more foreign gasoline. More bad news for the economy and the price of a gallon of gas.

This whole nightmare amounts to a molehill compared to how little it’s going to affect “global warming”.

Let's all understand one thing right now, this 1,200-page bill isn't about saving the environment over the next few decades, its all about dollars – yours and mine – right now.

According to analysis by the Heritage Foundation (a conservative think-tank), the combined cost of the bill would be $3,000 per family in 2012 and $20,000 per household by 2035.
How can you or your family be expected to handle the burden of an additional $20,000/year. What’s that going to do for your standard of living?

The question you should be asking yourself is, can I profit from this fiasco? The answer is, I think you can.

Who stands to profit most? Probably the Green Energy companies. You can look for some green energy ETF’s, that way you’ll be more diversified than buying one or two of these small cap stocks.
Nuclear power producers will probably be another winner, they don’t produce carbon dioxide. Their cost to produce electricity won't go up, but they will benefit from increased electric prices. They'll just keep getting paid to do what they've always done, but now they’ll have the added income from being able to sell their carbon credits.

Make no mistake selling credits will be big business. That brings to mind the brokers that sell these carbon credits, they’ll also get a good boost to their bottom line.

So if you think our politicians are living in a Fairy Tale world, then send them a wake up call and tell them your fed up with their nonsense. You can do it here. Until they get the message it’s just going to be more of the same with you and I carrying the load.

Good Investing,

TC

Selling Puts - A Powerful Profit Strategy!

I wrote a couple of weeks ago about a Bear Market Rally, and although the Bear Trap has yet to be sprung, the time will come. When it does here’s a strategy you can use to boost your profits. The strategy is selling naked puts

I know, everyone thinks that selling naked options is very dangerous and risky, but if done right its no more risky than selling covered calls.

Selling puts is a strategy in which you get paid for agreeing to buy a specific stock at a specified price at a given time in the future. This idea works best in a down market where investors are scared and are willing to buy insurance for their stocks to guard against further losses. The best time to execute this strategy is when the VIX reaches the upper 30’s or higher. That is when the put option premiums are at their highest.

There are 3 things that can happen when you sell puts. The price of the stock goes up - you profit. The price of the stock goes no where - you profit again. Or the stock goes down and you have to buy the stock at the specified price, in this case you just bought the stock you wanted at a bargain price.

Lets take a look at an example: McDonalds (MCD) is currently trading around $57.50 but you’d like to buy it a little cheaper, you can sell a Dec $52.50 put option and collect a $2.35 premium per share or $235.00 per contract. Remember each option contract represents 100 shares of stock. So lets say MCD drops in price to less than $52.50 at option expiration. You will be obligated to purchase 100 shares of MCD for every option contract you sold. So your cost is $52.50 less the premium of $2.35 per share or $50.15/share. If MCD’s price rises, or stays the same or drops to a level not less than $52.50, then the option expires worthless and you get to keep the $235.00 premium. So as long as MCD remains above $50.15 you will be in profit. If you do end up having the stock put to you ( for this to happen MCD would have to fall almost 14.5%), then you can always turn around and sell a covered call against the stock and collect another premium and reduce your cost even more.

If your interested in this kind of trading you will need to check with your broker and be approved for option trading. Most brokers will allow you to sell puts on margin and put up only 20% of the trade amount. You can also do this trade in your IRA account but you will probably have to put up the full amount of the trade when the options are sold. The funds will be frozen and held till option expiration, so you won’t have these funds available for other trades.

You can find your own puts to sell by looking for safe companies that you’d like to own and then selling puts on them with a strike price that you’d like to pay for the stock. Don’t let fear hold you back you can get started by trying 1 option contract at a time until your more comfortable.

If you’d like to learn more about trading options check out Options University. and become a better investor. Or better yet get their Free Report “7 Deadly Mistakes People Make When Trading Options”

Good Investing

TC

Limiting Compensation??

I’m not one to discuss politics, but when I read that the Government is considering limiting executive compensation, it kind of makes the hair on the back of my neck stand-up. They are not only considering limiting the pay of those institutions that received TARP funds but also instituting broader mandates to limit compensation on all financial service firms.

Can this really be happening in the “Land of the Free and the Home of the Brave” the World leader of Free Markets, are we heading toward all out Socialism?

I am not a fan of what took place with companies handing out large bonuses after they have received billions in tax payer monies to keep them afloat. If these companies want to pass out their profits as compensation, so be it, the only ones this type of perfidy hurts are the shareholders. But don’t do it with taxpayer money.

I don’t profess to have a solution to this problem, but I do know this, I don’t want the government in my life any more than they absolutely have to be. I don’t want more government control, I’m looking for less. I’m not interested in giving away any more of my Freedom in lieu of more government control.
I’m an independent person, always have been and always will be. I have always fended for myself and will continue to do so. So lets knock off this nonsense about limiting compensation and all start taking care of ourselves.

Good Investing,

TC

Bear Market Rally - Look Out Below!

Have you been enjoying the recent 3 month rally in the stock market? I know I have been. I have stayed the course and my portfolio has risen from the abyss to an area where I feel much more comfortable. Since I wasn't completely faithful to my "trailing stops" I took a pretty good drubbing, but I have now recovered much of my losses.

But I think it may be time to head to the sidelines for a while.

Now that the markets have climbed nigh on to 30% “straight up” it could be time for the Bear Trap to snap shut. I hope not to get caught this time around and I’m going to start raising a little more cash. I’m not convinced that the bear market is over, unemployment is still rising, the dollar has been driven lower and many people have thrown caution to the wind.

Jeff Clark says: “The stock market is poised to collapse.”

“There's no other way to put it, and I'm hoping that sentence gets your attention. Your financial well being depends on it. Stocks are in dangerous territory. The rally over the past three months has done exactly what bear-market rallies are supposed to do – get everyone excited that a new bull market is underway.”

If you have any doubts that this is not just a Bear Market Rally then check out Jeff's full article “An Incredible Shorting Opportunity is at Hand” in the latest issue of the Growth Stock Wire.
It could open your eyes and save you from suffering another market collapse.

Good Investing,

TC

Selling Covered Calls One of Investings Greatest Income Secrets?

Selling covered calls is probably one of the best ways to add extra income to your portfolio.
The strategy I'm talking about is an "options" strategy and is probably less risky than owning ordinary stocks, it offers high returns and low risks.

The technique is called selling covered calls which is also know as writing covered calls. This is a particularly good strategy when interest rates are rising and when inflation is imminent or while your waiting for the economic recovery. But you want to make sure you choose solid stocks, not the speculative type that can drop 50% in the blink of an eye. It is a strategy that I use for my portfolio to boost my returns. In fact this strategy is considered safe enough for your IRA portfolio.

So how does this strategy work? Essentially you are selling someone else the right to buy your stock for a set price and at a set time in the future and collecting a premium for doing so.

Here’s an example of a recent trade I made. I bought Coca Cola (KO) at $42.70 and sold the May $45 call @ $1.55 which paid me a premium of $155.00 for each contract I sold. Options contracts are only sold in lots of 100 shares, so if you have 100 shares you can sell 1 contract, if you have 500 shares you can sell up to 5 contracts, etc. My cost for KO is now $41.15 which is the $42.70 purchase price minus the premium of $1.55.

So if KO goes to $45 or more by option expiration I will have to sell my shares (it will be called away) @ $45 and I will have a profit of $385.00. If KO is less than $45 at time of expiration I get to keep my shares and the entire premium of $155.00. I can then sell another covered call and receive another premium and thus reduce my overall cost even more. As long as KO remains above $41.15 I will have a profit. Oh, I almost forgot to mention that I also collected a nice fat dividend during this time, as the owner of the stock you also get any dividends payable during the option period.

The above example has the potential return of 9%+ in approximately 60 days. So selling covered calls can produce potential annual returns of 15 - 25% or more.
This type of strategy will give you the premium up front, a chance for a capital gain and helps limit your downside.

There are 2 downsides to selling covered calls that you need to be aware of, one is, if your stock tanks, then the premium you received probably won’t do much to help offset the loss you face. In this case you will need to buy back your call and sell your stock before your loss gets to big. To avoid these potential large losses you can get the FREE Report “7 Deadly Mistakes People Make When Trading Options” The other pitfall you face is having your stock skyrocket and giving up enormous gains. But with this strategy were looking for solid income not huge capital gains.

You should probably only sell calls against stocks that you wouldn't mind selling at the agreed upon price. If the stock moves higher later, do you really care? You’ve achieved your goal of capturing the income you were after.
Just remember to start with the proper stock selection and keep in mind were not buying risky options, that’s for traders and speculators. Most options expire worthless so were going to be on the other side this time. We’ll let someone else sit there with that deteriorating asset.

Too get started using this strategy you will need to check with your broker to make sure your account is approved for selling covered calls. If you would like to learn more about options trading check into the Options University. Or get the Free Report “7 Deadly Mistakes People Make When Trading Options”

Good Investing.

TC

FISCAL POLICY or FISCAL IRRESPONSIBILITY?

Thanks to the government’s current fiscal policy, its economic stimulus and relief programs, aka TARP etc. It’s pouring huge amounts of money into the economy in an effort to curb the current recession. Thus we are looking at an astronomical budget deficit of $1.5 to $2 trillion dollars for fiscal 2009. What was once a few million dollars is now a few billion here, and a few billion there, and has us looking at a total national debt of $10 trillion dollars plus (that’s more zero’s than I can comprehend) and it’s growing daily. How are we ever going to pay the interest on that debt let alone pay it all off. If that doesn’t scare you, I don’t know what will?

In the real world when you spend more than you take in you end up going bankrupt, but the US government doesn’t have that problem, they just crank up the printing presses and increase the money supply by printing more dollars. In the end this leads to higher inflation and destroys your purchasing power. For every dollar the government prints the dollars you hold are worth less (did you catch that worthless!).
The inflation rate may not be a problem right now, but higher inflation is certainly not too far off.

So how do you protect yourself from this calamity? You should look at some hard commodities like gold, silver, oil, etc. You can buy coins, bars, or one of the ETF’s that hold these assets.

Good Investing

TC

An Investment Strategy for the Intelligent Investor

Here's an investment strategy that everyone should consider especially if you are like me and self directing your retirement portfolio, or your investment advisor has let you down and your returns are less than stellar. Then join the crowd, we have probably all suffered large losses in the recent stock market collapse, at least more than we should have, especially if we had all followed our trailing limit stops. What’s this you say, trailing limit stops, what are they? A trailing limit stop is merely a stop loss. The idea is to keep from loosing large amounts on any investment you make.

If done correctly it should keep you from ever loosing more than 1% of your total portfolio or retirement funds. The first thing you should consider is position sizing. If you never invest more than 4% of your total portfolio in any one investment and if you set a trailing stop of say 25%, then that would be equivalent to 1% of your total portfolio.

Here’s an example of a trailing limit stop, if you buy XYZ stock at $50 and it goes to $100 and you have set a 25% trailing stop, then you should sell it if it closes below $75, this way you have protected your profit and you can ride your winners for all their worth and thereby increasing your returns. Now lets say that same $50 stock you just bought goes down and you have a 25% trailing stop loss, then you need to sell if it goes below $37.50 figured by multiplying .75 x 50 = $37.50. You may not have made money but you kept from taking a much larger loss in hopes that the stock would return to $50.

Something to keep in mind if you loose 50% on a stock it will have to go up 100% for you to break even. Take the example above if your $50 stock looses 50% and goes to $25, for that to go back to $50 would take a 100% move $25 x 100% = $50.
You can set your stops even tighter if you wish, at say 15 or 20% if that makes you feel more comfortable. This unfortunately is not a set it and forget it strategy. You don’t have to check your stocks daily but you should check them at least weekly.

It takes discipline to execute this strategy, even the most sophisticated investors have trouble with this, but nobody takes care of your money as good as you do , or as good as you should!
One last thing always keep your stops private, never enter your stops into the market or tell your broker what they are, market makers can see your stops and can manipulate the pricing to their advantage and possibly pick up your stock for a bargain.
Until next time.


Good Investing,

TC