Featured Trades: (XOM), (USO)
United States Oil Fund ETF

3) Pick Up Big Oil While it is Still Cheap. I have always been an unfashionable person. I was still wearing my bell bottoms and mutton chop sideburns well into the eighties, and even today people laugh at my yellow power ties which are 30 years old. It's all part of my living antique image. To be consistent, I am remaining unpopular in my fascination with oil companies, which are now trading at multi generational lows, thanks to the errant ways of BP. ExxonMobil (XOM) has stoked my interest further, announcing a blowout of a different sort today, with Q2 revenues soaring 24% YOY to $92.4 billion. Higher crude realizations, a new LNG project coming online in Qatar, and sharply recovering refining margins all contributed, enabling EPS to jump from $1.46 to $1.60. I have followed this company decades before the 1999 merger with Mobile Oil, back when it was still the Standard Oil Company of New Jersey, have met various members of the founding Rockefeller family over the years, and helped guide their foundation into some early hedge fund investments. David Rockefeller, John D.'s grandson and chairman of the Chase Manhattan Bank, once told me that I was one of 70,000 names in his rolodex. This is the world's most conservative company, and there is a reason why the Gulf blowout happened to BP and not to them. I think rising oil prices (USO) are going to be a major investment theme from here on, and that we will revisit $150/barrel oil sooner than you think. I wrote about Occidental Petroleum (OXY) earlier (click here for the piece). My investment in an all electric, carbon free Nissan Leaf also anticipates this move (click here for that piece). I'm putting XOM on my 'buy on meltdowns' list.

Featured Trades: (TBT), (TMV)
ProShares Ultra Short Lehman 20+ Year Treasury ETF
Direxion Daily 30 Year Treasury Bear 3X Shares ETF

 

1) It's Time to Revisit the TBT. Shorting the world's most overvalued asset, the 30 year US Treasury bond, has got to be the big trade from here. The relentless whirring of the printing presses is so loud that they keep me awake at night, even though, according to Mapquest, I live 2,804.08 miles away. What will be unique with this meltdown is that it will be the first collapse in history of a bond market in a non-inflationary environment.

It is not soaring consumer prices that will execute the coup de grace to the long bond. It will be the sheer volume of issuance. The Feds have to sell nearly $2.5 trillion of debt to cover a massive budget deficit and refund maturing paper, easily the largest cash call in history. Bring in a double dip recession and a second, larger stimulus package, and those numbers ratchet up considerably.

Pile on top of that trillions more in offerings from states and municipalities that are bleeding white. By the end of 2010, total government debt from all sources will rocket to a staggering 350% of GDP. Throw in private debt requirements, like the rolling over of a trillion dollars worth of commercial real estate financing and your garden variety corporate offerings. The rush to borrow has started overseas too, with hundreds of billions of dollars more in Eurobonds floated by cash strapped sovereigns like the PIIGS. It's clear that the bond markets of all descriptions are going to become very crowded places, driving rates irresistibly higher.

At some point, the world runs out of buyers, and the long bond yields will begin their inexorable climb from the current, ridiculously low 4.10% to 5.5%, 6%, and higher.? Even Moody's is talking about a ratings downgrade for the US debt, not that we should give that disgraced institution any credibility whatsoever. The unfortunate camel whose back is on the verge of breaking is about to have sticks come raining down upon him.

I am a worshipper of the TBT, a 200% bet that long bonds are taking the Lexington Avenue Express downtown. I managed three round trips in Q1 covering the $46-$51 range before a flight to safety bid stopped me out in April. It has clawed its way back up from $34.80 to $37.15, compared to the $70 it traded at in 2008.? Falling interest rates have a silver lining in that the annual cost of carry for this leveraged ETF has dropped appreciably, from 10.5% to only 8.2%.

If short interest rates double from the current levels, a virtual certainty, so does America's debt service, from the current 11% to 22% of the budget. This could happen as early as 2014. That's when the sushi really hits the fan.

If I'm wrong on this and the 30 year bond prices surge to a yield of 3% in some sort of second Great Depression scenario, as they did last year, the TBT will drop down to the high $20's. If I'm right, the final target could be as high as $200, when long rates top 13%. That's where they were when I bought my first coop on Manhattan's Upper East Side in 1981.? If you have a serious pair of cajones on you, take a look at the 3X short ETF (TMV) with its higher cost of carry.

A 20% downside risk and a 540% upside potential sounds like a good risk/reward ratio to me. If the TBT dips again in August, it might be time to take another bite from the apple.

Featured Trades: (RAIL TRAFFIC)

 

1) Is 'Snookie' our New Investment Guru? The ultra bears were sent packing in recent days, thanks to a spate of economic indicators showing some unexpected strength. Take a look at the chart below for rail car loadings showing an unequivocal spike upward. I warned last week that there was some positive action in this area (click here for the piece), and the latest data confirms my belief that we are not going into another crash, or even a double dip, but merely a slowdown to a 2% annualized GDP growth rate. It also gives credence to my expectation that the stock market is not going to collapse, but merely move to the lower end of a long term 900-1,200 range in the S&P 500. You knew that when the media was blaring in unison about 'death crosses,' stocks could only rally. But how much money do you want to put into a market where the characters of MTV's 'Jersey Shore' get to ring the opening bell?

Our New Investment Guru?

Featured Trades: (GOOGLE), (IBM), (MSFT), (YHOO), (BIDU)

3) Is it Time to Buy Google on the Cheap? As much as I adore Google products and use their search engine all day long, the stock definitely left something to be desired when it was trading in the $600'S. That's why I steered readers away with my piece 'Why I'm Not Buying Google on This Dip' (click here for the link). At the time, Google was at war with China over censorship, the antitrust lynch mob in Europe was baying for blood, Apple was eating its lunch on the mobile front, and copyright and anti piracy lawyers were sharpening their knives. Naysayers predicted that GOOG was the next slow growth IBM (IBM), or worse, Microsoft (MSFT). While these challenges remain, the $400 handle puts it in a completely different kettle of fish. After much sturm and drang, the company renewed its license in the Middle Kingdom. It sits on a staggering $30 billion of cash worth $95 a share, and annually generates another $27 in free cash flow. While it may be a one trick pony, with 97% of its revenues coming from search, that's not a problem if the equine's name is Seabiscuit, with a 70% global market share. Even acquisitions that people originally laughed at, like YouTube, have been turned around, with the online video forum thought to bring in $500 million in profits this year through ad sales, something Google is incredibly good at. Revenues are expected to rise by a not bad 24% this year, delivering profit margins of 32%, on an anticipated $30 billion in revenues, giving it an ex-cash flow multiple of 13. That compares to 19 for Yahoo (YHOO), and a stratospheric 39 for Chinese competitor Baidu (BIDU). I confess, this all appeals to my inner tightwad. It's enough earnings momentum to take the stock back to $700 in a couple years, up 42% from today's level of $492. You might consider adding GOOG to your buy on dips list, especially if a technology frenzy returns, which it inevitably will. Just ignore their space program.

Featured Trades: (THE HARSH REALITIES OF TRADING)

3) It's Harder Than it Looks. A recent piece at the underground website, Zero Hedge, by one 'pivotfarm' resonated with me in explaining how hard it actually is making money in the market (click here for the link). It looks deceptively easy from the outside. You buy a share, watch it go up under its own power, and sell for a profit. How hard is that? This is why the securities industry has such a long history of attracting those interested in shirking hard work, aspiring to get rich quick. If you do encounter those with new found fortunes, they usually stole it. You want to run a mile from managers touting perfect track records, as they are usually fake. The reality is a little bit harsher. The author lists the great lengths that the pros go to insure success, including endless education, iron clad self discipline, and independence of thought. He refers to New Yorker writer Malcolm Gladwell's insight that if you look behind the scenes, success can usually be explained by unbelievable hard work (click here for my 'Evening With Malcolm Gladwell' ). I draw these simple analogies for potential traders. Just because you like listening to music on your car radio doesn't mean that you can compose Beethoven's Fifth Symphony, reading the Sunday papers doesn't bestow on you the gift to write Tolstoy's War and Peace, and watching weekend movies doesn't turn you into Steven Spielberg.

Potential Trading Wizards?