Market’s View of Stimulus

The market doesn’t like the Obama stimulus plan, it doesn’t like the Geithner non-plan, and it just generally doesn’t like anything. I think the problem with all these plans is they are too complicated (even the Obama housing plan, which is relatively simple) and every Tom, Dick, and Harry (or is it Dennis, Steve, and Rick?) has an opinion as to why they won’t work.

Three Items to Look for that will Stage a Crude Recovery

One of the questions that I have been asked a lot lately is; why is oil so cheap today, when only a few months ago it was ridiculously expensive?  Part of the answer has been provided in the question, it was ridiculously expensive, and despite what every ‘analyst’ on CNBC said; there was no fundamental reason for oil to be $147/bbl.  The fundamentals probably stopped making any kind of sense around $75-$85/bbl, so the question is really why is oil 50% off that price?

 

Short Term Tail Wagging the Dog

 There has been a lot of talk lately about the velocity of money, and how it has slowed down dramatically leading to most of our current problems (the subprime crisis caused the decrease in velocity, the decrease in velocity caused the economic crisis).  The velocity of information, meanwhile, has been constantly increasing. 

 

Risk and Cost of Capital

Yesterday we talked about why I thought the market was cheap, although I’m not sure I did a good enough job explaining the situation.  The price you are (or should be) willing to pay for an asset should be based on two things: risk and cost of capital.  If you could make a risk free investment and have it return greater than your cost of capital, then you should make that trade (and repeat until you are a trillionaire). 

 

Risk Reward best in 20 Years

The past few days have been rather uneventful, at least as far as the market is concerned.  In fact the only thing that I have taken issue with over the past few days is the constant talk about 2009 earnings and what that means for the S&P 500.  The theory goes something like 2009 earnings (and maybe 2010) earnings will be weak and therefore the S&P 500 won’t recover. 

 

Gold and Perfect Inflation

Yesterday we talked about why it’s important to own “things” (i.e. commodities, stocks, homes) for the long run, especially since the government is willing to dramatically increase the supply of money (making existing money worth less, and assets worth more).  Basically the government is potentially going to create a lot of inflation at some point down the line.  So the question that is always asked is, if we are heading into an inflationary environment shouldn’t we buy gold? 

 

Money Understood

It’s December 30th, second last trading day of a pretty bad year.  In all likelihood the next two days will see the stock market go higher as portfolio managers window dress their portfolio ahead of year/month end.  You should take advantage of this phenomenon and take a good long hard look at your portfolio and decide what is worth keeping and what isn’t. 

CEG Assets

A few days ago we talked about Constellation Energy and the EDF deal.  I made a bunch of points about how I value the company, based mostly on assumptions I had made surrounding the EDF offer.  What I missed was EDF’s analysis of what CEG was worth.  I have included it below in this table:

 

 

 

EIA 2009 Estimates

Friday we did a morning commentary about the expiring WTI January contract (for oil) and the huge price discrepancy between it and the January Brent contract and the February WTI contract.  The reason for this discrepancy, we assume, is that someone got caught long oil and was unable to take physical delivery of it due to lack of storage. 

Caught Long with West Texas

While I cannot be 100% sure that we are at the true bottom of the crude oil market, it is important to note that the January delivery crude contract (the one currently quoted on CNBC and BNN) is expiring today. Do you remember a couple of months ago when oil went from $102 to $130 in one day? That was also expiry day, what happened there was someone was caught short and couldn’t find the physical supply of crude (or didn’t want to) to deliver.