Money on Trees

September 23rd, 2008  by Cale McCulloch

Closing Data

Dow Jones down 373 @ 11,016	NASDAQ down 95 @ 2,179	Gold up 44.3 @ 909
Oil Up 18.56 @ 122.6	FTSE down 75 @ 5263	Silver up .98 @  13.45
Copper up 191 @ 7276	Lead up 87 @ 1977	Zinc up 61 @ 1813
Aluminum up 12 @ 2495	Nickel up 532 @ 17,305	Tin up 710 @ 17,750

There is money to be made and saved…

We have a lot of news coming out at the moment - so for today I will try not to talk about Banks as there were no real developments overnight. Morgan Stanley and Goldman Sachs decided they would become banks (instead of Investment Banks as investors have decided that model is broken), and Morgan Stanley found a Japanese investor in Mitsubishi UFJ.

Anyway, to my headline – who is going to fund the US Government and all of their rescue plans?   With everything going on at the moment people seem to have forgotten to ask where the cash will come from! Someone said to me yesterday that they can print more because they are the government.

Someone will ultimately need to fund these plans, and unlike the past when high personal taxes and a reluctance to provide adequate social benefits to the public meant sufficient cash to do so, now they face the issue of falling income tax in an attempt to stimulate the economy, along with rising unemployment (meaning Uncle Sam gets to pocket even less), not to mention a dramatic reduction in tax on imports received on the back of a falling US dollar and hence a reluctance of those who now have little money anyway to actually import goods.

So who will pay?

Well given they forgot to keep track of the trillions in US dollars they so happily sent to China as payment for cheaper goods over the past decade or so, maybe they will help out in return for an enormous IOU, or perhaps silence over the quality of those toys. If they won’t perhaps the Arab Nations will, they don’t want the US Dollars they are receiving as payment for all of the Oil anyway, but this may come at the cost of the US oil industry, as protection for the US producers and refiners will undoubtedly disappear.

Unfortunately I don’t have the answer, but as investors you need to be aware that a bucket shop plan by the US government will have unforeseen consequences that not even they will have either envisaged or planned for. I am however in favour of what has been done by the government, and I think that it will prove, in time to be the  stop loss that the Housing Market and Financial System needed to allow it to begin fixing itself.

How should you make money:

Well last night saw an unusual occurrence in Oil Trading, with oil soaring almost 18%. This was essentially a squeeze in supply of October delivery contracts as one punter scrambled to close out a massively wrong bet that was placed last week. A trader who last week while oil was in the mid USD 90 a barrel range took a bet that oil would be below 90 a barrel on expiry (last night). With the subsequent climbs in the oil price the trade needed to be closed out through the purchase of an equal number of contracts for the same expiry. With it being expiry day for oil in the US there was of course thin volume and the price on the October contract soared.

There is money to be made in this as oil stocks will follow the price higher on the open, but come tonight, when prices fall back towards the more heavily traded contract for November delivery which was only up $6 a barrel or so, prices of these stocks will again follow. So if you own oil stocks there may be an opportunity to sell today and buy back later in the week at a cheaper price.

Gold also followed the oil price higher, although not to the same degree - it may be a good opportunity to sell premium into the strength or reduce your holding in the short term.

Also, with options expiry Thursday, if you are holding a bank position you are nervous about, the fall this morning will present an opportunity to close the position at a minimal cost. This will enable you to sell again into strength when it returns to the sector.

Don’t be fooled by the volatility into thinking that you have missed the boat! We said last week it would be a rough time, and it has been so far and will probably continue for some time yet.

Keep a cool head, there is money to be made and saved.

Quote of the Day: “I would rather miss the boat than be on it when it sinks”

Contact your Freeman Fox Stockbroker on 07 3031 9960 or 1800 003 369 Ext 7.

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