Dip, Drop, Plunge
Research for Online Investors

by John Dalt

6/22/09

The sell off that was widely expected, appeared today.  I am reminded of an old politically incorrect joke about the commonality of a Texas thunderstorm and rape, once you realize it is inevitable, you might as well enjoy it.

I opened a position in FAZ (financial bear 3X) quickly this morning, the Dow opened down 50 points and was losing ground, but FAZ did not seem to be moving. Financials opened lower but did not continue to sell off. I waited to verify who was leading the market. I did not want to buy the leader that was going to turn the market around. I waited for a confirmation of direction. It sounds simple, but I am not comfortable entering a ‘momentum’ trade based on so little information. This just seemed more of a seat of the pants trade.

Oil, commodities, metals, all the recent high flyers were scalped. The World Bank predicted that the global economy would shrink 2.9% this year.  The dollar showed unusual strength.  Dollar strength going into an FOMC meeting might signal an expectation of a rate increase.  Their announcement will be Wednesday at 1 p.m.  The dollar showing strength does not make sense, unless in comparison to other even weaker currencies.  Currencies of countries that have large commodity exports do not look so good when the commodities are tanking.  Britain is following the same stimulus foolishness we are, the Europeans are trying to show restraint but are reluctant participants else they be at a competitive disadvantage with an expensive currency.

Treasury has $104 billion in bonds to sell this week.  I do not know why they even have an auction, with so little inventory!  Come on guys, you can’t sell from empty shelves!

The Fed closed three more banks over the weekend. That is 40 failed this year. Total FDIC cost over $11.5 billion.

Last week I wrote:
On June 29, Iraq will open bids to develop and operate six oil fields and two natural gas fields.  In 1972, foreign companies were kicked out of Iraq.  Some of these fields are some of the easiest in the world to develop.  In Iraq, the oil still bubbles to the surface in places.  Iraq is estimated to have as much oil reserves as Saudi Arabia.  You can read the Sunday Times of London story about Iraq Oil.  What is an oil concession worth where the exploration risk and costs are so low?

This is a risky play, I do not recommend a large position, but the stock is certainly worth looking at. ADXTF trades on the “Pink Sheets”, that is one strike against it and it does not trade very many shares, that's two strikes. I do not like story stocks, but we are talking about 112 billion barrels of oil. Anyway, we will know in a little over a week if this company is batting 1000 and a doubler, or more.

I listened to an audio report about Iraq’s oil loading platform Saturday morning while driving to an event.  It can load four tankers at once, but it takes up to four days.  Corrosion and lack of maintenance have left the industry with antiquated equipment.  Wars have left it in a barely usable condition.  They will have to spend money to increase exports.

The market closed down 28 to settle at 893 on the SP500  We are close to support at around 880.  Will it hold, I do not know but feel that timing is on our side.  The end of the quarter is in a week and the FOMC meets this week.  As long as we do not get any bad news, we could get a bounce with some good volume.  Today was a sell off on low volume; mutual funds must be fully invested at the end of the month.  Let’s watch, and see how it plays out.  I would not get nervous, this dip was well advertised, and should have been expected.

Is this our next FDIC Chairman?

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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