Wednesday, August 31, 2011

Where's China Heading

The Chinese economy is approaching a fork in the road.  On the one side, there is a very positive outlook. Global market analysts are swinging from a fearful stance to a very bullish, optimistic outlook. And the Chinese government is well armed and prepared to fight inflation and stabilizing growth. Both of these factors have caused a recent spike in the Chinese markets.

However, Fitch has warned of pending doom in the Chinese housing market. And, the end of the commodity boom and high growth era threaten those business that built to handle historic capacity demands.

Thus we are left in a situation where we have very good short-term news to spur a rebound in the recent downturn to China, and a very poor long-term outlook as China continues to face growing pains and the resulting problems.

But, this does not mean China is going to rally over the next month or two then begin a long-decline. For investors, they should actually do the exact opposite.

Investors are going to need to be very cautious of developments to major Chinese industries over the next few months. As the developments in each industry play out, the story will become clearer. It is likely some industries are going to face steep uphill battles, while others will cruise to success.

In the long-term, Investors that remain fearful are going to miss out on great opportunities in the Chinese markets. Its not going to be all rosy and happy, but the Chinese market is poised to outperform US and European markets over the next few years.

So, lets not charge into anything quite yet. Over the next month or two the Chinese economic story is going to unfold and begin to tell investors where to enter the market. However, if you must enter China. Stay well diversified and look mainly at blue chips.

Sunday, August 28, 2011

The Week Ahead and the Week Before Recap

Oil did not hit the mid 70's rather it experience a slight rally to the mid 80's.

LDK Solar experienced a 20% rally and Hollysys ran up almost 6%.

Interest rates also rebounded nicely, and an investment in TBT would have yielded about a 5% return.

This week, look for Clearwire (CLWR) to continue there successful run. As Sprint once again nears a business deal which could send both companies on a much needed rebound.

Also, interest rates are still going to climb. Be prepared look at funds that short bonds, they will be a good safe bet.

Thursday, August 25, 2011

Grandpa Buffet Has Gone Senile, The Gold Bubble has popped, and Steve Jobs new Job

You thought the news surrounding the financial markets over the past few weeks were a cause for concern. Well, its getting worse.

Imagine if 1 week ago a soothsayer told you that Buffet was gonna buy BAC. Gold prices would tumble, and Steve Jobs was gonna leave his role at Apple.

You would have laughed in this guy or gals face, and lost out on huge price changes would would have secured huge returns. Don't worry there are still moves that can be made to make money post-news.

First, why is Buffet investing in BAC? BAC is still on shaky footing and Buffet is looking for near-term improvements that will allow him to flip his discounted shares at a considerable profit in year or two. Don't follow Buffet, the oracle got a special deal, and now BAC is even more overpriced. What is the financial play here? I doubt BAC is gonna head southward. So buy some shares, buy some in the money long-dated calls, and sell a ton of long-date $10 calls.

Wow - what is happening to Gold? Simple, people have lost interest in worthless metal.Get out why you still can and sell that damn shit to cash for gold. If you have a futures trading account, I would sell from short-term futures.

Apple's price really hasn't changed. But having this overhanging uncertainty finally clear up is all the more indication to get on board the Apple boat.  Buy some shares, I'd expect them to end the year just above $400 a share.

Wednesday, August 24, 2011

Quick Thought 8-24

As a follow-up to my post yesterday about investing in Real Estate. If you are looking for an alternative to investing into new home builders I think the next best option are high-yeilding REITS.

My favorite in Annaly Capital Management (NLY). Over the past two years this company has stayed in a fairly constant price window (~$17-18), but it also has held pretty consistent dividends. The company currently yields 14.5% annually.

With the feds promising low rates for the next two years I see no reason why NLY would have problems continuing their current dividend levels. This is a great power play for anyone who loves dividends.

Tuesday, August 23, 2011

Building New Homes Ain't Like It Used To Be

In real estate shopping, you want the house with the best potential for your family and best deal for your money in the perfect neighborhood. In investing you want the stock with the most potential for your money, in the best market. Because let's face it in a bear market, even good stocks can head south. So, the question is which house to I want to live in?

Real estate in the US will always be part of the American Dream. New home construction will always exist. Brokers will sell houses. People will make fortunes off of flipping houses. And investment trusts will continue to use low interest rates to their advantage.

The biggest challenge for the market is how will companies need to change their business model to adapt to a post-bubble environment. This challenge exists regardless of their position in the market. Whether they be Builders, Suppliers, Brokers or Property Managers the way of doing business, selling, and making money in real estate is changing.

As I see it there are 3 essential elements of change for companies in the real estate industry to survive.

1. They need to be focused on the core customer, those that will still act even in a downturn.
2. They need to reconfigure pricing, across the board real estate operates at a discount. That means everyone needs to lower their fees, their margins, and their expectations. Doing business at a low margin is more valuable than not doing business.
3. Cost controls - during the boom this industry was plagued by out of control costs. The companies that are able to reduce costs and still operate will be the ones that succeed through the time of change.

So, where do the investing potential hide?

Well there are some in every industry. One that caught my attention over the past few days was Pulte Group, Inc. They are a new home / community building company. They are attractive for two main reasons:

1. Recent debt downgrades have caused their already beaten stock to stumble.
  PHM is now trading at a new post-crash low.

2. Cost-cutting and unique market creating measures have allowed them to regain lost ground. They now have a forward P/E of 13.9 and EPS for Next Year of $0.26 a share. This could become an amazing value over the long-term.

Investing in PHM could be tricky, the short-term may still be dicey and the stock itself could become very volatile over the next few months. I would plan on holding this one into 2012. Selling long-dated covered calls that are slightly out-the-money at a 1:2 options to stock ratio. (Assuming you go with the January Calls) That way you may have a 6% downside cushion but could still make 50% of the returns above and beyond $4.

Why Today's Quake Knocked Over My Pile of Gold Bricks

Gold really took a tumble today  which  is probably the most reasonable event I have seen in the market for awhile.

I have been a believer for a long time that Gold Prices were reaching bubble status. Today's pop did nothing more than confirm that there are still 2 types of reasonable people in the world. Those that take profits, and those that refuse to buy shit. 

Now just to be clear the bubble didn't pop, today. There are still insane people that think that Gold will protect them from inflation, or a recession, or a slow growth economy. And they will say gold is at a discount today.

However, Gold is the most inflated commodity over the past few years. Which is a good thing because if wheat inflated like gold people would starve and if gas inflated like gold we'd be doing a lot more walking. 

Nevertheless, when I'm looking to buy a growth company I look at companies with growth potential. Think Amazon back-in-the-day. I don't look for companies that have experienced so much growth they are now the industry leader (Think Amazon in recent times). 

The same is true for gold. We cannot depend on gold to be correlated with inflation, a recession, or a stagnate economy. It is simply a whimsical investment vehicle, for people to store cash until they realize gold has little to no intrinsic value.

Eventually, everyone will come to realize that gold is the most useless commodity of all. Just like they did in the '80s.

If you want my advice: Cash for Gold. Cash out now before its too late.

Monday, August 22, 2011

Prepare for A Crash - But they make great Auto Parts

Over the past since the beginning of this year Tenneco Automotive has hovered around $40-$45 per share. But the recent market conditions have sent the stock tumbling.

Now if you don't remember in April 2009, Tenneco (TEN) traded for $0.67 a share. The company could have made you rich (if you didn't sell at $2 a share celebrating 200% returns.

Now times are not the same today as they were back in 2009. But Tenneco is starting to stumble - I'm not yelling buying and I haven't done enough research, but I do suggest adding this one to your watch list for the next few weeks.


MGM has lost 42% in the last month, and their Sept 17 options trade at a fairly high implied volatility. This may be a good covered call move. Looks like the in-the-money $9 call at $0.85 premium has $0.70 in time value over Monday's closing price -- Or about an 8% return in just under a month. And I think I have better odds at the blackjack table than MGM trading at $8.30 in a month from now. Losing money would be tough on the bet.

Korea loves Bank of America, America loves Goldman Sachs – and everyone is quite wrong

Korea plays it safe, avoids risky US debt.  Korea Investment Corp (KIC) just invested $78 million more into BAC (Bank of America), I assume they were trying to cost-average their loses after losing 50% on investments made earlier in the year.

What a smart move, after all Bank of America is too big to fail... Worst case scenario: some other US bank buys of BAC at some ridiculous price (say $7 a share would be a pretty good premium on their currently worth).

However, the downturn of Bank of America is not my primary concern. I am more interested in why KIC is so in love with BAC - Well its simple: the KIC-BAC (sound it out) love affair.  Korea needs investment capital, strong banking relationships, and US interest to support its continued growth.

Why KIC may not be making a fortune anytime soon off of BAC, they are preparing for business. KIC will likely utilize its closeness with BAC, and its other overseas investments to spur economic activity at home. Giving the Korean economy an excellent 1-2 punch for strong growth despite a rocky global economy.

This is just one of the many reasons I like the investment potential in Korea.

Getting back to an earlier point, when BAC goes under (not saying that they will) who is going to buy there shares? Well the most practical question is who has the most capital? And while I think Steve Jobs would make a fine banking executive, and online banking would be more secure, faster, easier, and end-use friendly if it were run by Apple - I think we need to look at more practical companies:

Goldman Sachs?, JPMorgan?, Citi?, Wells Fargo?, Royal Bank of Scotland?

Well if you ask investors GS current 10.5 PE outpaces JPM & C who are both in the 7's and WFC who is in the 8's. What does this say about Goldman? Well to be fair and honest... GS does slightly different banking than all of those Super-Regionals that get bogged down in Consumer lending and customer support hotlines. And because banking with businesses is less risky, more profitable, and more sustainable.

But if that is the case then why does UBS, Credit Suisse, and Barclays both only have PEs in the 7's and 8's. Well because they are too close to the European Union and that is risky too.

Okay well then why does Jefferies and Deutsche Bank have PEs in the 11 and 12's? It's obvious. We are pricing banks on a new model.  First, we are banking on the likelyhood that BAC will spin off its investment banking division like Motorola did as it was fading, in hopes that someone will pick up the healthy parts.

Well BAC's investment banking arm may be the only good thing it has going for it, thus we are pricing banks on there ability to acquire BAC's spinoff. This can be the only possible explanation.

Well Jefferies and Deutsche Bank have a good chance at making some sort of move to acquire BAC or atleast grow in the BAC's demise. But does GS really have growth potential, do they have the same reputation they once did, and can they still rule wall street? GS is not gold - they need to quit being valued like they are gold.

GS is about as worthless as other banks right now, they have as much risk on their plates, and in the event of an economic downturn they will struggle just as much. At least BAC is trying to run a little bit leaner. 

If you want my take on the banking industry: stay out of it when investing.  The hurricane season has just begun, and the worst of the waters are still ahead. The industry will never change, it will never have a creative idea (like spinning off good banking arms), it will never become efficient, and it will never be worth what investors value the companies at. 

Banks may be too big to fail, but their never too big to be failures.

Sunday, August 21, 2011

The Week Ahead

The Week Ahead: Bold Predictions – Lasting Thought

The markets fear a recession. The Middle East is stabilizing. Gold is approaching $1,900, and 30-year treasuries remain near all-time lows

1 – Crude Oil spot per barrel settled in the low 80’s last week. As the Middle East stabilizes and the markets continue to fear slow economic growth – speculation on the energy market may continue to subside for the week. Let’s plan on mid-70’s by the end of the work week.

2 – There were two stocks took huge beatings on the NYSE last Friday, Hollysys (HOLI) and LDK Solar (LDK) losing almost 20% and 23% respectively. Both companies are Chinese-based corporations, boing a majority of business in China, have high-growth prospects, and deal with fairly lucrative high-technology products with good margins. Even better Hollysys trades at a 6.2 PE and LDK trades at a 1.7 PE as both near 52-week lows. I expect investors to quickly rationalize that these are potential bargains – expect to see a few days in the green this week.

3 – Can interest rates go lower? ABSOLUTELY. But this is not the week. I expect nice rebound in rates especially the longer-term bonds. TBT – the ProShares UltraShort Long-term Treasuries will be a nice play for the coming week.

Lets see how this week unfolds – next Sunday night I will be certain to visit my predictions and analyze what went right and most importantly where it all feel apart.

*Also, I believe I need to note for legal purposes I do own all of the specific stocks aforementioned. It’s a pretty shitty move to make predictions and sit on the sidelines.


Nothing fancy, nothing trendy, and nothing that will make you a million dollars overnight.

Welcome to I Have Options – a place free from the mass sensationalizing of investing. A place for discussion around the current macroeconomic environment, a place to explore historical contexts, and a place for sophisticated thought on personal investing.

First things first, however you have come to this blog I am sure you are already asking the question: “how is this bullshit any different from every other big-mouth blogger?”

We’ll here are a few my thoughts:

1. I follow over a hundred investing blogs, but I have yet to find on that discusses my favorite area of investing: derivatives. Specifically, as the name implies this blog will talk a great deal about options and options investing.

2. Sharing original content is great, but being a great filter for the best content is even better. There are blog-writers that have some really interesting pieces, but very few share the interesting pieces that they found.  

3. I want to have unique weekly installments that will be exciting, refreshing, and useful. Those pieces that will become stalwarts of your Sunday morning routine, like coffee and political talk shows.

So feel free to read on – find something interesting, learn something new, and most importantly share with me your thoughts so that I can learn something new as well.