Chrysler Bites the Dust er!
Research for Online Investors

by John Dalt

4/30/09

Chrysler is all over the news today.  Will they declare bankruptcy or not?  It seems like secured debt holders are not willing to give up their rights to the assets of Chrysler for twenty-five cents on the dollar.  The administration is not happy with lenders that hold debt guaranteed by the assets.  These lenders feel they can do better in a bankruptcy; break it up and sell the assets.  The money would flow to secured creditors first.  Why would they take a haircut?  The answer came mid-day, Chrysler filed for bankruptcy in New York at noon.  OH! Bama is upset with the holdouts that chose to maximize their investor’s returns, rather than get crammed down by the administration.  Sounds like a repeat of the attitude treasury had with Bank of America, “You have to do this bad thing, and lose money, for the good of the country.” Chrysler is closing assembly plants and laying off white-collar workers next week.

I stopped by the office of an old friend yesterday, on the return trip from the golf tournament. We ended up in the hall with a crowd visiting and laughing about old times, and the state of national politics. One of the guys eventually asked what to buy now. I asked him a question, “Do you have any doubt that oil is going to cost more next year than now?” Crude is hovering around $50 a barrel, as soon as the economy gives a nod of improvement or a terrorist attack, it will take off. The best way to hold oil is with the USO etf. USO tracks the price of crude on the near month futures contract. It is not a perfect vehicle because of this. I like etfs that actually own the underlying asset, but with this commodity, it works pretty well. You may want to check out the Ultra crude etf (DXO); it seeks to double the movement in the crude oil futures on a daily basis. It is not for faint of heart. Both of these etf’s have “tracking error” because they deal in the futures market, the percentages will not be the same as the spot price fluctuations, but close enough for speculation. The DXO “tracking error” will be larger over a longer period because of its ultra status.  You can read about etf's in Investor Resources.

The previous point is absolutely correct, but in the subverted world of investing, it can absolutely cause you to lose money. How? Everyone talks about being a long-term investor, but at the first sign of a loss gets nervous and sells. There is a current glut of oil in the U.S. and overseas. If you buy oil today, you may take a bath short term. EIA reports bulging oil stocks in the U.S. as we have documented previously. Bloomberg reports that Rotterdam, Europe’s largest refinery center may be running out of crude oil storage space. Ships have been diverted or are waiting outside the port until space is available. We are recommending USO and DXO in our Swingtrader service right now, at certain buy points. We are buying on the dips for quick profits, or holding longer for the trend to play out.  I am calling Crude Oil the Trade of the Year, you cannot lose on oil going up in price!  On Jan. 17th we gave a trade to lock in $1.70 gasoline for next year, you can read it here.

Vice-President Biden stuck his foot in his mouth again today. He said he would not fly on a plane or ride a subway for fear of catching the swine flu virus. Russia and China have banned imports of pork from the U.S. Never mind the virus does not come from hogs. Never mind it did not start in the U.S. Why let facts get in the way, it is a chance to ban imports from the U.S.

News is leaking out that as many as six banks subjected to “stress tests” may need to raise additional capital.  Earlier speculation concerned Bank of America and Citi, we will know more early next week.

After my story yesterday, A.F. sent in a link to an inspirational story, about golf.  Thought I would pass it along.  You will enjoy this video.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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