Where is the Economy Heading? Follow the Transports.

Have you ever wanted to read a crystal ball, read the tea leaves, consult an astrologer, etc. to find out what the direction of the economy is going to be?

Well, you don't have to go that far. You can have something much, much more concrete.

Some months ago on Jim Canale's Real Estate Lifestyle website forum, I wrote about the troubles that YTC, the former Yellow Transportation was going through with lower shipping volume and higher fuel costs. The CEO was making the case that the Fed did indeed need to lower interest rates because the economy was at the beginning of a period of increased inflation AND lower economic output. Well, today FedEx came out with lowered expectations on future profits because of....you guessed it, lower shipping volume and higher fuel costs.

Lower shipping volume indicates that there are not as many goods being produced by manufacturers which leads directly to lower profits for everyone. When combined with higher transportation costs, profits all around drop for everyone. The transportation companies, the manufacturers, and the financials. The financials get hit because if their is less economic output, companies are less likely to borrow for expansion that is not needed.

This has been reflected by the drop in the Dow Jones Transportation Index which has fallen some 950 points since its July high to 4563.84. A 17% drop! This is much greater than the 7% drop in the Dow Jones Industrial Average.

So, follow the transports as a leading indicator on the economy.

For now,

Notes from the Underground:
DJIA - 13,176.94 +66.74
Gold - 793.60 -19.40
Silver - 14.483 +0.031
Oil - 95.10 +1.67

Dow Jones Transports - 4,563.84 -74.85

Patrick

GET PAID to ride out volatility!

Volatility increased in the markets again today after recovering from a roller coaster Monday and Tuesday. The day was pretty serene for the most part with the Dow hovering just above flat. Then at the end of the day there was a 75 point sell off.

What must be remembered here is that the market has been all over the map this past month (not to mention all year) and traders are skittish about holding on to gains for very long. If they have them, they are locking them in by selling them.

On the stock front, I have a pretty easy solution to how I handle this kind of market and skittish traders in particular. One, I hold dividend paying stocks. I GET PAID TO WAIT THIS MARKET OUT!!!! I hold dividend paying stocks for the long term, I hold BIG NAMES in there respective industries. I hold stocks that are paying out at least a 3% dividend and have the financials to grow the dividend whenever they choose.

The dividend gives me the ability to reinvest in other opportunities as they spring up in this volatile market.

For example, I am actively buying I-Shares Silver Trust (SLV) to hedge inflation. Silver and gold prices have recently pulled back due to profit taking (essentially, I am taking advantage of a dip) and the brief idea that inflation (according to the government's numbers) ain't that bad.

Remember, the Fed is LYING to you when it comes to inflation. Food and energy is not included in the number. The CPI is due to come out tomorrow and we will see how much of a fib it is this month.

I am also buying silver in particular because it is selling at a great discount to gold. Traditionally, gold trades at 17x silver, so with gold at $817/ounce, silver should be trading at $48/ounce. Instead it is hovering just about $15!!!! This is a great buying opportunity for silver which in addition to being a hedge to inflation and a precious metal used in jewelry, is also has many industrial uses and is in great demand in China and India whose economies are growing by 10% a year.

So, you could be buying silver directly, or you could be buying a paper certificate that trades on the New York Stock Exchange.

Until tomorrow, which is THURSDAY.

Notes from the Underground:
Dow - 13,231.01 -76.08
Gold - 817 +19.80
Silver - 15.03 +0.46
Oil - 93.99 -0.10

SLV - 149 +0.33

Patrick

PS THURSDAY is REAL ESTATE DAY, so draw your own conclusions to the theme of tomorrows post.

Follow the BIG MONEY!!!

How should you play the Credit Crunch?

Follow the BIG MONEY!

When I talk about BIG MONEY, what am I talking about?

Two men.

Warren Buffet and Wilbur Ross.

Everyone knows who Warren Buffet is. Mr. Buffet is the 2nd richest person in the US behind Bill Gates and the 3rd richest in the world behind Gates and Mexican entrepreneur, Carlos Slim.

Wilbur Ross may not be on your radar. Mr. Ross is a multi-billionaire investment banker who specializes in bankrupt and distressed securities. If he were a real estate investor, he would be the equivalent of a foreclosure and preforeclosure guru investor. Mr. Ross made his fortune buying steel, mining, and auto parts companies that were either in or facing bankruptcy, replacing management, and turning the companies around.

What are these two guys doing with banks and mortgage companies during the credit crunch/crisis?

For starters, Warren Buffet, through his company Berkshire Hathaway, is buying significant chunks of companies like Bank of America and Countrywide that have the bankroll to hold off the worst and then rebound when the market recovers. In the case of Countrywide, Mr. Buffet also used his influence with Bank of America to buy Countrywide convertible preferred stocks.

What is convertible preferred stock?

Convertible preferred stock are stock that pay dividends, have no voting power, but the owner can convert the preferred stock to common stock at any time. This means that once Countrywide rebounds, Mr. Buffet can convert to common stock and collect a huge capital gain. This particular deal pays a 7.25% dividend and allows the holder of stock to convert to common at an $18/share cost basis.

Wilbur Ross takes a much riskier, but much higher collateralized position on his subprime investments. Mr. Ross typically buys the debt of his target investments. Why? Because when these companies go into bankruptcy, all power shifts away from the stockholders and into the hands of the debt holders. When this happens, Mr. Ross typically organizes the rest of the debt holders, goes to the bankruptcy court, and becomes the new owner of the company. He then either brings in a new management team to turn the company around, or begins selling off pieces of the company, keeping the juiciest pieces for himself. In the subprime situation, Mr. Ross isn't even buying the debt of companies such as American Home Mortgage. Instead, he is buying their mortgage assets directly. In doing this, he is buying their most valuable assets, which are the only assets that AHM has that are worth anything, so that AHM can pay off its creditors as well as it can before silently disappearing. The advantage to Mr. Ross is that he is shortcutting the bankruptcy proceedings all together and getting the ASSETS that he wants in the process.

This situation is happening every day for us as real estate investors today.

I recently had a discussion with one of my realtors. He was telling me that he is being shown REO packages and packages directly from the mortgage banks ranging from several properties worth $500,000 to $2,000,000 in total all the way up to packages of properties worth $1 Billion in total. These packages are being divvied up and offered to individual investors at 30, 40, 50, 60 cents on the dollar. You should be calling to real estate agent to find out if he has access to them. If not, you should be calling other agents so that you can create your own fortune and get your piece of what Warren Buffet and Wilbur Ross are already enjoying!

Notes from the Underground:
Dow - 13,161.99 +174.77
Gold - 804.20 -1.60
Silver - 14.55 -0.16
Oil - 91.19 -3.43

Until Tomorrow,

Patrick

PS I have properties available on a regular basis for real estate investors. For a list of properties, go to www.CheapAssRealEstate.com and register for your password and put down my name as your referral.

Welcome!

Welcome to Underground Investing For Fun And Profits!!!!

This blog is a place for exploration and discussion of serious investing topics in a fun, light hearted way.

Why should we be cold like Wall Street on a snowy February morning?

We are all here on this planet at this time to enjoy long, healthy, productive lives...not slog through and kill everything that moves so that we can eat.

Wall Street is not here for you! The Federal Reserve is not here for you! Corporate America is not here for you!

BUT we can use what they are telling us both directly and indirectly to our advantage in our businesses, our stock investing, and in our real estate investing. And I am here to help you navigage through and pick out what those "tells" are that you, me, us can take advantage of...I will interpret and weed out all of the jargon that you are bombarded with on a daily basis.

The bottom line is, you just want the best moves for you and your family in regards to the business and investment moves that you make. And to do that, you already know that you need to know how stocks and other paper assets, real estate, and business interact with each other and with the constant economic and political data that comes out. Otherwise, you would not be reading my blog!

Well, I welcome you.

In the coming days, weeks, months, there will be many improvements made to this site. It will eventually become a full blown website complete with access to data, articles, links, webinars, and teleseminars to help you improve your financial education and your investment performance.

I will introduce you to my advisors, mentors, and colleagues who will add there ideas to mine in terms of where the markets and the economy is heading and what you can do about it.

For now, subscribe to the blog my placing your email in the box to the left. This will allow you to receive notification when I post the next entry as well as to give you updates to site enhancements.

I look forward to telling you about my investing philosophy between stocks, real estate, and business.

Notes from the Underground:

Patrick