Non Fiction: A Real Life Story of the Bailout

One day, a girl called up her mortgage broker when the 30 year interest rates were at record lows of 4.75 percent ( APR of 5.0% ). This girl has a credit score that always has new loan officers amazed as they rarely see scores so high. She is smart with her money and has maintained a good debt to income ratio with her only debt being a mortgage. She also was careful to save and put 20% down on her house when she bought it and responsible enough to get a fixed rate rather than be suckered into an ARM.

But those honorable and responsible qualities became her downfall. Because her home value three years later has dropped 30% ( 10% lower than the 20% intially put down ), she is not able to refinance her fixed rate to a lower interest rate that would save her $400/month.

Now, I ask........exactly WHO is this "TARP" fund supposed to be helping? Because honestly, if someone like the person mentioned above isn't able to refinance, who is? Those who got 3 and 5 year ARMs most likely didn't put ANY money down and are more under water than the person who put 20%. Why are they able to be bailed out/principle reduced and get a lower interest rate? The same group of people who are foreclosing and caused home values to depreciate 30%+? Honestly. How is a lower interest rate going to help this mess? The 10 year treasury could drop to 1% and our non fiction person in our story STILL wouldn't be able to refinance unless they coughed up another 10% and then would still have to pay $100/month of PMI which she has never ever had to pay on previous mortgages.

idiots.

If only it was real money.......

Not bad for a days work!

$1.042M Total Portfolio Value*Top 0.4% Game Rank*1368th Game Rank Position*36,935 (3.7%)Gain/Loss, Intraday 41,935 (4.2%) Gain/Loss, Weekly*41,935 (4.2%) Gain/Loss, Overall* ( plays were YHOO/RIMM/GOOG/AAPL/IBM )

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Confessions of a trading house wife

I have a confession to make.


I moved half of my husband's 401k into bonds, treasuries and guaranteed income funds back on September 25th. You know.....back when the DOW was around 11000? It was a Thursday night after the market closed for the day that I put in my order. I remember it very well. I had this sick, nagging feeling in my gut the whole day that something bad.....really bad was about to happen. The funds transfer executed sometime on September 26th which was a good thing since the following Monday saw a drop of over 700 points alone. Followed by days of 300 plus point drops leaving us where we are today. Hovering around a DOW 8800.

I know. I know. Some of you are rolling your eyes and thinking, "Don't you know that you should just leave it alone?" or "So you're the kind of person who was bailing and making the market tank?" ( Which wasn't me since the 26th actually ended UP about 100 points ). I know that we have another 20 plus years to "make it up" but I just wasn't willing to gamble with 10 years of retirement savings. I also wasn't willing to "wait out" the incessant selling off of hedge funds bringing stocks to insanely low levels equal to that of 2003. So, I did it and saved us a loss of at least a 3000 point drop that has occured since then. Over the last few weeks, on the really REALLY big down days ( like over 500 point losses ), I've been slowly putting money back in the market from my treasuries/bonds funds into the really beaten down funds.

My "Mad Money" ( my regular investments like my ROTH and Kirk's Rollover IRA which are made up of mostly individual stocks ) on the other hand, have taken a huge hit. I have a higher risk tolerance level though with those funds I manage. I've sold shares over the last few months as well as funding my ROTH with cash to build up my cash position just for this very moment. The time when stocks are at that level that you just can't help but buy more!

So, I did.

I bought Chesapeake Energy ( CHK ) when it got to 14.00 last week! ( It actually dropped to 12.00 but I still think 14.00 is a steal. ) I later discovered it dropped in half in a matter of a week because the CEO ( Aubrey McClendon ) was forced to sell his shares for whatever he could get for them seeing that he bought them on MARGIN! HELLO!?!?! Margin? Seriously? His loss is my gain! I'm up 40% in a matter of 2 weeks.

I bought some more Hugoton Royalty ( HGT ) that is now paying a nice 23% dividend thanks to the huge drop in stock price. I got in around 19.00 and it is currently up around 21.00.

I also bought some more Freeport McMoRan ( FCX ) when it got down around 33.00. I think it is about that same price.

Let's see how this next week goes............hopefully UP!

Investing terms for 2008:

NEW STOCK MARKET TERMS
CEO --Chief Embezzlement Officer.
CFO-- Corporate Fraud Officer.
BULL MARKET -- A random market movement
causing an investor to mistake himself for a
financial genius.
BEAR MARKET -- A 6 to 18 month period when
the kids get no allowance, the wife gets no jewelry,
and the husband gets no sex.
VALUE INVESTING -- The art of buying low and selling lower.
P/E RATIO -- The percentage of investors wetting their
pants as the market keeps crashing.
BROKER -- What my broker has made me.
STANDARD & POOR -- Your life in a nutshell.
STOCK ANALYST -- Idiot who just downgraded your stock.
STOCK SPLIT -- When your ex-wife and her lawyer split
your assets equally between themselves.
FINANCIAL PLANNER -- A guy whose phone has been
disconnected.
MARKET CORRECTION -- The day after you buy stocks.
CASH FLOW-- The movement your money makes as it
disappears down the toilet.
YAHOO -- What you yell after selling it to some poor sucker
for $240 per share.
WINDOWS -- What you jump out of when you're the sucker
who bought Yahoo @ $240 per share.
INSTITUTIONAL INVESTOR -- Past year investor who's
now locked up in a nuthouse.
PROFIT -- An archaic word no longer in use.

Making a shopping list...........

FCX @ 33.00 **
NAT @ 20.00
FRO @ 29.00
RIMM @ 50.00
AAPL @ 80.00
RIG @ 70.00
SLB @ 57.00
XTO @ 30.00
CLR @20.00
BEXP @ 4.00
HGT @ 19.00

“Buy when there’s blood in the streets.” Baron Rothschild

Cash'n In

So, the Fed might just bail out whoever is left after all! They are meeting to plan how they can take the bad debts from financial institutions so they will be free and able to move on......at the taxpayers expense of course. I loved watching the press conference and seeing Pelosi and Reid front and center pretending to be the angels of mercy as though it was all their idea. gag.

And I just read that the SEC will most likely ban short selling temporarily! That's a recipe for a HUGE rally!


In light of this new proposition, I'm thinking I might add to my Bank of America position. Seeing that BofA recently acquired Countrywide, the largest mortgage company out there and thus acquired a whole lot of bad mortgage debt. I'm guessing that BofA will benefit greatly from this new proposition bail out. I got in and out a month ago when they reported for the quarter and had a quick 15% jump. I got back in again a few weeks ago when they were trading around $33.00. Depending on how the day starts tomorrow, I might pick up some more if it stays in the $30-31 range. Of course, I'm kicking myself for not picking some up yesterday when it was down to $26. Eh......it's just money.

RIP

LEHMAN BROTHERS

and

BEAR STEARNS

and

MERRILL LYNCH

Now.......can we move on already? I wanna buy some more stuff on the cheap!

Want to see how much damage a liquidating Hedge fund can do?

In a matter of 2 weeks? ( **cough** Ospraies Hedge fund and now Lehman Brothers scrounging to raise capital **cough** )Notice not only the massive drops but also the volume of shares being traded compared to "normal".


Check out Freeport McMoRan:

Then Chesapeake Energy:

How about Continental Resources? Taken out back and slaughtered!

And of course, Frontline. My 23% dividend paying darling:

XTO Energy, another one of my holdings, dropped 23 points in less than six weeks. It dropped 8 points in a matter of days with the liquidation of Ospraies Hedge fund whose ownership of XTO contributed to most of its holdings.

So, this tells me a few things.

1. I must have obviously picked some winners if many of my investments are in companies that were also owned by hedge funds.

2. Hedge funds can obliterate a sector in a matter of days.

3. It feels like CHRISTMAS!!!!!

I am SOOOO excited to see my stocks hit this hard. And I love even more that Lehman was forced to liquidate because their loss is my gain.

Today started out feeling like a bad hangover. No one knew for sure what to do after not only yesterdays sell off but the continuous seven day slam on commodities and energy. Slowly, I saw people getting back in these stocks. I completely expected a sell off at the end of the day knowing that in this market, to make money, you have to sell into rallies. And gains of 5-10% in energy and commodities is a HUGE rally. But this time, it was different. I sat at my computer the last hour of trading and watched and waited for the sell off. It didn't happen! Maybe I'm kidding myself. Maybe it will take place tomorrow or the next day. But this has to be good news. Especially when I read that several of these energy companies ( XTO, APC and CHK ) are having some serious insider buying going on. Could it finally be that the hedge funds at Lehman has liquidated what it can and we can get back to a more stable, trade on real fundamentals market? I'm going to give it a try.

Chesapeake is trading at MINUS 16x multiple! That's in sane! Freeport is trading at 8x P/E. To put it in perspective......when Bank of America, one of those financial stocks struggling to stay afloat is trading at a 17x P/E, you know something is just wrong.

I've been stocking up in cash over the last couple of months just waiting for this very moment! I think about now is the time to get back in, slowly, and trade these poor, badly beaten stocks.

And while I'm at it.......my commentary on a couple of other issues I see. First is the "cut" from OPEC. Well, it is actually a forced adherance to the 2.8 million bpd production in oil instead of the 3.3 they have been producing. That should help except for the fact that our inventories have been dropping the last couple of weeks due largely in part to the Gulf being shut down because of Gustav and who knows what Ike will bring? Also, China has yet to lift their polution ban as the next two weeks they are holding the paralympics in Beijing. Give it a couple of more weeks, and we will probably see some more movement in China.

Also, gold has tanked and the dollar has risen.......FAST! If history repeats itself, as with oil, huge swings in either direction are cause for a swift correction. The dollar needs to slow down and I think it will when the reality of the government take over of Fannie and Freddie finally kicks in. A simple and win-win way to do so would be for the Fed to cut interest rates soon. You can't prop up a dollar when you're printing it like it's going out of style.

ECHO! Echo! echo!

Did I not just say the same thing a week ago specifically point 3 of my previous blog entry?



http://www.cnbc.com/id/26289118


I'm still sticking with my energy/gold/healthcare/tech plays for now. USAA has an interesting mutual fund ( USAAX ) with companies like Mastercard, XTO, IBM, Monsanto, Google, Oracle, Apple, RIG and Gilead. It's down 20% from its highs last October and with most of those stocks taking a beating over the last 3 - 6 months, I think it might be a good, diverse bet to wade through the upcoming volatile months ahead.

I love a good sale!

Holy cow! What a fast, swift ride down in energy and commodities over the last month! Of course, I bought a few stocks at the peak myself and have quickly lost......well.....a LOT in the last 4 weeks after seeing nice gains in others in the sector. I can't beat myself up too much as I did take profits along the way ( investing 101 ) and bought us a trip or 2 to Disneyland and a backyard patio. But still, that kind of decline that fast is hard to stomach.

Have you seen gold plunge 150 points in the last 2 weeks? Crazy!

Here's my theories:
1. Financials were shorted and beaten down so much and energy was the place to be. When we saw oil hit that 150 mark, it seemed to be the turning point where people ( investment hedge funds ) started profit taking and scrambling to cover their options by pulling money out of energy and putting it into financials. I can justify this reason as causing the initial 15 - 20% drop. The additional 15% drop that followed was pure emotion. Those who couldn't take the heat or see past six months from now, bailed.

2. Oil will be back. I've read many articles about China recently regarding their oil usage. Today, I read they had a 7% drop in demand this last month. To someone who might not know better, they might freak out and think that if China was slowing their demand, prices MUST be high. But what they might not realize is that for the last 6 weeks or more, the Chinese government mandated a cut back in driving as well as closed factories to try and "clear the air" before the Olympics. Plus, the price per gallon that they pay is subsidized by the government. They haven't seen the huge run ups in prices like we have seen here. At least not yet. I'm betting that a few weeks after the Olympics are over we'll start to see the "demand" pick up in that region again.

3. Then there's gold. Come on! Do people really think that we are out of this mortgage mess yet let alone curbing inflation any time soon? I don't. I'm still paying twice for my loaf of bread and 50% more for my juice. Do I really think I'll see the old prices ever again? I wish. Northwest Airlines just announced another $70 "fuel surcharge fee" they will begin charging soon. We all know where the "old" fuel surcharge fees from the early 2000's went. No where. We're just barely dealing with people who got 3 year ARMs. Next year will be those who got stuck in the 5 year ARMs and won't be able to refinance because their home is worth 30% less than what they paid. Not to mention that 40% of the homes on the market in my town are in foreclosure. Two homes on my street were abandoned over eight months ago and are just now being auctioned off. Retail companies are posting losses even after the "stimulus checks" yet we see their stocks jump on the news. How does any of this make sense? It doesn't. And I think the rally in the dollar is just an over reaction to Europe talking about a recession and choosing to not raise interest rates. Another reason I think gold will go back up is that the 800 level seems to be the point where mining companies won't be able to make a profit ( because of higher energy and inflation ) and will slow down mining which will bring up demand and prices.

Here's my game plan. I'm buying beaten down stocks. I know. It's HARD to buy low when you don't know how much lower they "could" go. It's scary. But it's SMART! I bought MCD at $50/share in January after they reported their 4th quarter '07 numbers which were good but not good enough and the stock took a 10% beating. Look at where it is now......$66! More recently, look at XTO Energy. I bought a few shares at its peak a month ago. It dropped 20% pretty quickly each day thinking it couldn't possibly go lower. Then it did. So when it finally hit 25% down and was ridiculously oversold, I bought some more. It's still hovering around that low but I have all the faith in the world that it will be back up soon.

The key is spotting a great deal and understanding the difference between a stock going down because it's a bad company or because it reported a less than stellar quarter.

I'm still buying into my USAGX fund as well. Gold isn't going away any time soon. I'm thinking at near its 1 year lows, it's a pretty good deal.

This is an interesting read:
http://www.financialsense.com/fsu/editorials/dancy/2008/0516b.html

I can't believe I'm going to say this

I'm a big, huge skeptic. I especially have a hard time believing something to be true when all of the actions point to an opposite reality. I live by the mantra both in dealings with others as well as in the stock market, "Fool me once.....shame on you. Fool me twice.....shame on me". I tried bottom fishing with financials way back in the spring when Citigroup was trading around $24/share. Luckily I bailed on the idea around $21/share since it swiftly dropped to $15.

So it's hard for me to swallow what I'm about to say.

( choke ) It might be time to get in on some financial stocks ( gasp. choke. gag. )


I can't believe those words fell out of my mouth.

But, I did it. I sucked it up and did it. I bought some Bank of America shares today. They've been up 50% in just last week alone thanks to "better than expected losses and write-downs". But, I got in first thing in the morning as I followed the quarterly reports of Fifth Third and Wachovia. At the end of the day, I was up a quick 16% before selling 30% of my shares before the market closed to take profits. I bought BAC for a couple of reasons. 1. I knew a few big names were reporting today and took the gamble that they would do as well as the other companies that reported last week who saw 10/20/30% gains in a single day. 2. Congress is supposed to pass some kind of bill to help/bail out Fannie/Freddie and the housing market on Thursday.

At this point, though, how much worse could financial stocks get compared to the beating the energy stocks have taken this last month? Companies that I own like Freeport McMoRan and XTO Energy both reported today. Freeport reported a 14% loss partly related to the Phelps Dodge acquisition last year. They have plans to boost production in both their Morenci and Safford Copper mines this year plus increased their dividend to $2.00/share up from $1.75. This is a company that I've owned off and on over the last year or so. Without fail, the stock value will rise until it is time to report for the quarter and then for some reason, it gets slammed. It will trade up 25 points then pull back 20 which makes for an easy "buy low/sell high" stock to follow. I sold half of my position about a month ago in anticipation for today which did exactly what I suspected. Down 6%. Zero logic.

XTO has been a thorn in my side. They report a 33% increase in profit today after boosting their earnings estimates to 20% last month and the company's shares fell 9% which is better than down 11-12% like it was in early trading. It's nuts! This company just bought out a company called Headington Oil Company who has about 350,000 acres of leasehold in the Bakken Shale in Montana and North Dakota. Why is that important to me? Because I know for a fact that there is oil in that area because my parents receive a hefty check every month from the former Headington Oil Company for their mineral rights on that land. If there wasn't oil, they wouldn't be receiving a check which has gone up a LOT in the last year. So, if Headington found oil, XTO now owns it. So why on earth has XTO shares gone down almost 30% in the last month? Who knows. The large drop in natural gas probably. Reporting on a day when the price of oil per barrel dropped $4.00 was just dumb luck. I did buy back some more today since I thought the smack down they've received has been ridiculous. Their earnings growth and potential deserves better than that.

Natural gas plays are typcially cyclical and tend to trend down in July and August. Once hurricane season and winter gets closer, they hopefully should move up.


EDITED: So I bought some BAC last week. I made a nice 16% profit in one day before selling some of my shares. I put a stop limit to sell the rest at a 10% profit because I just don't have the stomach for it just yet. So, in 2 days, I did a pretty good, quick trade. I'm still going to be cautious and have a "wait and see" attitude........

Run to high yields!!!

With the Dow down 20% since its high last October, people are hard pressed to find some place to hide and ride out the brutal bear market. The usual places people go during a recession aren't working this time around. Places like healthcare and staples for example. Those who flocked to United Health saw a swift drop from a high of 85 down to 37 in six months. Coca Cola is usually recession proof if it weren't for its decline from 65 to 50 in the same six months time.

This recession is different.

So what do you do? Find the high paying dividend stocks preferrably in the energy sector because energy and metals/mining are the only thing working. And there are several to choose from. I'm talking yields of 10% or more. High yields shield you from drops in stock price and gives you more cushion. If you have a stock that has dropped 5% in value from what you bought it for but pays a 12% dividend, you're still ahead 7% which is a lot better than being down 20% like the DOW average for the last nine months.

Here's my picks that pay a nice hefty dividend and that have done well the last few months:

1. Frontline
Frontline is an oil/ore/coal tanker company. I purchased my first set of shares when it was trading around $47. I've added to it over the last couple of months. Frontline pays an awesome dividend of 18%! Some of the shares I purchased are actually down 6% right now but with an 18% cushion, I'm still WAY ahead of the curve.

2. Hugoton Royalty Trust
I mentioned this one in a previous entry. HGT pays around a 12% dividend. The big plus with HGT is that it pays out monthly instead of quarterly. I actually purchased some more shares this week right before the ex-dividend date to get the payout. It basically averages to $15 for every 50 shares you own. It's had a big drop in value this last week when energy stocks got hammered but over all, it's a great yield which pays way better than any savings account! Who WOULDN'T want an extra $30 - $100 per month which is over and above any increase in stock price?

3. Linn Energy
Linn ( LINE ) pays a little over 11% a year for its dividend. It doesn't have huge swings in stock price and trades pretty flat but the guaranteed 11% makes it a pretty safe choice to stash some money and ride out the market.

4. Nordic American Tanker
Nordic is an oil tanker company that pays out almost 13% annually for its yield. Again, not a huge overall mover but a great place to stick some money and make a great dividend.


Over the last few months, I've been buying and selling mostly in these securities. If they hit a high, I sell off some. If they pull back, I use what I sold to buy them back. So far, it's worked well and why mess with a good thing?

Retirement. Where should I put my money?

If your company offers a 401k, it's a great place to put your pretax money with each paycheck. One reason is because the money is deducted pretax and is out of sight out of mind which is great for people who have trouble saving money. Unfortunately, what you also don't see are the management fees associated with your 401k plan. I looked at my husband's account the other day and noticed that in the last six months, they deducted at least $60 in maintenance fees from one of his funds. Also, the fund options I have to choose from are extremely diversified and has us investing in sectors like financials which I don't want to be in a 3000 mile radius of right now. The maintenance fees we've been charged for the privilege of losing 10% on our account in the last six months is equivalent to eight or nine trades using my own online account which I can have more control over. Needless to say, I've transferred a bulk of the 401k into bonds and a small amount into a heavier weighted energy fund and a tech fund.

So, what I have learned..........


ONLY invest up to the amount that the company will match. For my husband's company that means if we invest at least 6%, his company will match another 3%. I don't care if I can put up to $15,500 this year into the account because all I'd be doing is flushing money down a toilet each month.

What to do with the rest of the money? Sink it into a ROTH IRA. If both you and your spouse have your own accounts you can each invest up to $5000 per year at the current contribution for 2008. That way, you have control over what you want to invest in. You want to invest in McDonalds? Go for it! You want to own a few shares of Research in Motion because you think their new Blackberry is super cool? Do it! If you want to be a little more conservative, you could invest in a mutual fund that is sector specific. You aren't tied down to what funds the company offers. Plus, you get to keep all of the dividends and you only pay a fee if you make a trade! And the best part is that all of the money the ROTH makes is completely tax free when you start to withdraw on it later.

If you're lucky, your company might offer the ROTH 401k plan. This just started a couple of years ago. If you aren't sure, contact your Human Resources department and ask. It's the same principle as a traditional 401k but it is invested after taxes. You can invest in either one or put some in each up the $15,500 limit. Depending on how many deductions you have, you might actually be better off with the ROTH 401k. For us right now, because we have two mortgages and one rental property, we are able to claim a lot in deductions so the amount we'd save by investing in the pretax 401k isn't worth it to us. In 2010 ( assuming Obama doesn't become president and repeals the tax cuts like he claims he will do as soon as he gets into office ), you will be able to transfer a traditional 401k/IRA to a ROTH with no income limits. Currently if you make over 100k you aren't allowed to make the transfer. Also keep in mind you'll have to pay taxes on the money but if you make the transfer in the year 2010, then the IRS will allow you to spread the taxes over two years. ( Editorial comment: So help me.......... Obama better not become president! )

Energy! Energy! Energy!

Energy is the place to be right now.With the price of oil up over $140 per barrel, there is more pressure to drill and explore areas where we might find oil. One of the most popular areas right now is the Haynesville Shale ( natural gas ) in northern Louisiana. Chesapeake Energy( CHK ) along with Petrohawk ( HK ) hold the most acres. Luckily, I own Chesapeake for myself. I've owned it off and on over the last couple of years. I recently bought back into it on May 30th so in the last month, it has jumped over 30%. Unfortunatly, I DIDN'T buy Petrohawk when I was looking into it a week ago. If I had, I would be up over 25% in just a little over a week. I think I'll wait for a pull back before I get in. That's a huge run in a short period of time.

The other energy play that is hot right now is the Bakken Shale in the Dakotas/Wyoming/Montana area. There are several smallish companies drilling in the area right now. One of those is Continental Resourses ( CLR ). I bought them at the end of April and in one short month, it almost doubled in value. I saw it starting to decline so I sold off all of my shares. I might get back in again but for the last month it has been flat. Another small player is Brigham Exploration ( BEXP ). This is my speculative play. It hasn't done much since I bought it a month ago. I'm hoping they will ride with big news from other companies. Proabaly the biggest player in the Bakken right now is EOG. I contemplated buying them, but they've been trading flat so I decided against it.

Another way to play the energy sector right now is with Hugoton Trust ( HGT ). They are a trust account for XTO. Not only do they pay an awesome 12% annual dividend but they pay out a percentage of the dividend each month around the 15th. So the dividend compounds monthly as opposed to quarterly. Plus, since I bought my initial shares at the end of April, it has seen an increase of 21% which makes the monthly dividend gravy. I bought 220 more shares last week, just in time to get the next dividend payout and it is already up another 3%.

Today, there was a HUGE sell off in all things energy, oil, coal and gas related. Even though the price per barrel was up again almost $3.00, I think people were just looking to keep SOME profits wherever they could find them. These stocks typically have huge swings plus or minus 5% on any given day but today, they were slammed big. But, in a couple of days, there will probably be a great buying opportunity since I don't see these commodities coming down anytime soon.