Handwriting is on the Wall
Research for Online Investors

by John Dalt

7/19/10

“Fin Reg” was passed last week and President Obama will sign the massive financial regulation bill this week.  The head of the SEC, Mary Shapiro, will announce the agency’s intention to hire about 800 new bureaucrats tomorrow.  She is scheduled to testify before congress.

I feel safer already.  Charles Payne of WStreet.com echoes my thoughts from last week.  I wrote that investors need confidence that the economy is recovering, and that government will quite spending and regulating.  Charles calls it optimism.  He believes that optimism is being drained out of the market.  While eurozone countries are cutting budgets and paying off debt, the U.S. government continues to pass regulations and additional spending bills.

The Euro is up almost 10% in the last month.  There are over 70 credit rating agencies around the world.  The newest one, Dagong of China started the rating of U.S. sovereign debt at “AA”.  Norway, Denmark, Luxembourg, Switzerland, Singapore, Australia and New Zealand all received “AAA” ratings.  China, Netherlands, and Canada received “AA+” ratings.  I hope Geithner is listening and reading.  He might want to tell the Administration and Congress that time is running out.  The handwriting is now on the wall.

According to the New York Times, there are “undetermined anomalies” on the ocean floor in the area of BP’s gulf well Macondo. The U.S. has given BP another 24 hours to keep the well sealed and monitor for leaks. Carol Browner, White House Energy Adviser, told CBS the seepage was less than two miles from the well site.

The FDIC has closed 96 banks in 2010. That includes six this past weekend. We knew this was coming. We wrote in April that the FDIC was hiring an Army of number crunchers to review bank balance sheets. Your editor’s daughter interviewed, but chose a different (more exciting) internship. Last year the FDIC had closed 57 banks half way through the year. The higher numbers are indicative of problems in the commercial real estate market.

At the end of March the FDIC identified 775 ‘problem banks.’ The FDIC insurance fund was in the red $20.7 billion dollars on March 30. Last year at the end of June, the FDIC was tracking 416 problem banks. The trend is going in the wrong way. In early 2010, the FDIC mandated that banks prepay about $45 billion in premiums. The money is gone. Not to worry, the FDIC is backed by the government and can borrow money from the Treasury.

Reuters reports that Moody’s cut Ireland’s credit rating but changed their outlook to ‘stable’ from ‘negative.’ Ireland is scheduled to sell 1.5 billion Euros in debt tomorrow. Ireland nationalized Anglo Irish Bank last year. Ireland ran a budget deficit of 14% in 2009, and their deficit could hit 20% of GDP this year.

Moody’s estimates the Irish economy will grow at two to three percent next year, less than the four percent projected in government budget documents.  The IMF warned last week that Dublin would not meet the eurozone’s target of three percent deficit to GDP by 2014.

To the mailbag:
I'm not getting the impression the financial regulation pile on was a positive.   More of the same ball and chain, just made the ball heavier.---paid up subscriber D.F.

John’s Reply:  I think it will destroy smaller banks.  From all I hear the cost of compliance will make it prohibitive for them.  It is part of the ongoing plan by the left to regulate business until everything is under control of the government.

I am very interested in your premium services.  My interest lies in selling puts on dividend stocks(maybe naked) that I want to own anyway and selling covered calls on owned stocks.  How does that apply in your service? Is that conservative and practical?--- subscriber T.D.

John’s reply: Yes, it is very conservative.  If we identify XOM as a stock we want to own, and know the price we would like to pay for it, why not sell a put and get paid for buying it, if it drops to our price?

I believe selling covered calls is the best way to play the present market.  We are down now because the stocks we buy have a higher alpha to give us larger call premiums.  Higher alpha results in bigger swings.  Since the market has swung down ours have swung lower.  Not to worry, we keep selling calls against them and lowering our price.  We will sell them on a bounce, and make our return!

We own up to 20 stocks in the long term portfolio and 10 in the buy, sell, hold service.  We will help you make money!

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.

MarketToday Home Page

Back to Top