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Week Ahead 06-01-2010

admin on 06 1, 2010

Week Ahead

I hope everyone had a relaxing Memorial Day.

Thank you to all of the veterans and their families for all of their sacrifices.

Even though our markets were closed here, the rest of the world continued on with business and the BP oil spill kept on gushing into the Gulf.  It is a sad state of affairs when companies are allowed to operate without any contingencies for when problems arise like this.  I keep asking the question of how can we allow a deep oil drill if they can not contain or turn off the leak in a timely manner.  If they have the tools to do work that deep, shouldn’t they have the tools to turn it off.  To be honest, I am trying not to watch it, because it is such a horrible tragedy.  The economies in the Gulf are going to be destroyed for many years.  My family has been doing commercial clam farming as long as I can remember.  I can only imagine what something like this would do to our state’s seafood business if something like this happened off of our coast in New Jersey.  My thoughts and prayers are with those trying to cope with this horrible situation.  I honestly don’t think it is getting the publicity and attention that it deserves.

Another Talking Head on CNBC

I normally don’t do this but I wanted to make sure that everyone is trying to think independently for themselves.  From one of the rare occasions I watch CNBC, I saw Jared Levy recommend one of the worst trades I can imagine without any clear logic behind it.  He told people to sell puts in BP last week.  I applaud the next speaker of that next show who went out of his way to say that Levy is just plain nuts to recommend people to sell a put in a stock with nothing but liability in front of it.  There is no clear cost of this mess yet so there is no way to tell where the stock price will go or if the company will survive.  To come on to TV and tell people to sell a put in that stock is just downright irresponsible to every one of CNBC’s viewers.  I guess you have to take the good with the bad in terms of getting ideas, but that is one reason I rarely watch the channel.  I just hope that you are truly thinking for yourselves and questioning what these talking heads are talking about.  It is clear from this example that I would not want this person investing for me.

Oil Industry

In terms of the oil industry, I think there are some decent buys in the sector that are getting pushed down because of the Gulf mess.  Clearly, a long term investor should wait until we see a support area established.  “Don’t try to catch a falling knife.”  There are times though when you want to start to dabble a little bit.  For the major moves like this though, I want to see some stability in the sector so it starts to form those support areas.  Then I would look for the potential movers.  Potential pitfalls could be future legislation against the entire industry. Tread carefully.

Spain Downgrade and Greece (the first Euro Dropout?)

Spain’s debt was downgraded which caused more fear and pressure on the Euro.  Spain is not in as bad of shape as Greece. They recently passed a 5% pay cut for public sector and freeze on pay through 2011.  Only time will tell if it is enough.  The wolfpack will let us know.  The cost of raising debt will rise just like Greece if they are truly in trouble.  Greece had a recommendation to drop out of the Euro.  “The Centre for Economics and Business Research (CEBR), a London-based consultancy, has warned Greek ministers they will be unable to escape their debt trap without devaluing their own currency to boost exports. The only way this can happen is if Greece returns to its own currency.”

So after all of that money that was borrowed from IMF, they will just default…kind of like the US trying to bailout our auto industry.

Watch the Perception of the News

One last thing that I want to mention is the news, the perception of news and the trading of the news.  A lot of news is just news and it does not move markets.  There are positives and negative movements to positive and negative stories.  If the littlest positive news story drives the market up 100 points then the perception may have been out of line.  If the market moves up on negative news or seems to be absorbing all of the bad news then be ready for a potential large upswing.  The news doesn’t really matter… it is the how the traders perceive or expect the market to react to news.  There are rarely surprises in the market that some group does not know about.  If something doesn’t seem right question the news cycle and what news could be coming out, because someone may know something that you don’t.  Most of the time it is not worth fighting with the institutions.