$100 Oil!!!!: "Not necessarily very high."

$100 oil is “not necessarily very high,” said OPEC president Chakib Khelil on Sunday.

The new leader of the world’s largest oil cartel believes inflation-adjusted highs in the 1980s were “between $102-110.” Thus, $100 in 2008 is no big deal.

"The surge in price will probably go on until the end of the first quarter of 2008,” Khelil predicted, “before stabilizing during the second quarter.” How he comes by this view… he didn’t say.

“It would take a lot of economic slowing to arrest the squeeze between growing demand trends and depleting supplies,” notes our own oil adviser, Byron King. “Oil supplies are so tight… between sabotage in Nigeria, bad management in Venezuela, raw depletion in Mexico, Peak Oil in the Middle East.... the slightest amount of bad news -- a hurricane in Gulf of Mexico, a pipeline leak in Alaska, a bomb blast in Iraq… would send prices up even further.”

The new President of OPEC (Oil Producing Exporting Countries), Chakib Khelil said this in a recent speech. He predicted that the "surge in price will probably go on until the end of the first quarter of 2008, before stabilizing."

So, OPEC has now gotten used to the idea of $100 oil and are thinking..."hmmm....how can we squeeze a little bit more..."

Well, expect $100 oil to be a fact of life and remember that inflation-adjusted highs in the 1980s were as high as $110/barrel, so if this is going to be a true record-setting surge, $110+ is not out of the question.

In fact, it may only take one slight bit of bad news like a hurricane in the Gulf of Mexica, a burst pipe in Alaska, increased bombings in the Middle East to send prices to...oh let's say...$125/barrel. Hey, if OPEC can pull numbers out of their keister, why can't I?

Is the high price of oil all about the Middle East and the weak dollar? No. It is also about trouble in Nigeria, increased demand from India and China, depleting supplies in Mexico, bad management in Venezuela, environmental laws, etc. Oil is complicated. A lot of factors are in play, but it only takes one random act to make all of the factors important and in play.

But remember, while some pundits are crying that the sky is falling with Peak Oil, new discoveries are being made, technology is allowing more oil to be had from existing and once thought dead oil fields.

Notes From The Underground:
Dow - 12,818.14 -9.35
Gold - 875.10 +15.10
Silver - 15.57 +0.36
Oil - 96.77 +1.68
Wheat - 9.25 +0.22

To Your Investment Success,

Patrick

Manage Expectations

Well, the Fed did it!

And the markets went in the exact opposite direction of the Fed's intention.

Why?

One huge part of the movement of the stock market is the management of expectations. When analysts (word means something, not the word "anal") expect a certain action, number, etc. often, investments and trades are made by Wall Street with the expectation of that result. If the result falls short of expectations...anarchy! If the result exceeds the expectations...off to the races!

That is why the markets fell off sharply after the Fed announcement of "only" a .25% cut in rates. Anal-ysts were expecting .50% cuts.

That is also why a company gets taken behind the wood shed a shot by traders if it falls short of earnings by a couple of pennies...even if it is better than last year. In anal-yst/Wall Street world, a better this year than last year is not good enough. It must be a better number than expectations.

Which is why a stock can also actually go up if it loses less than what was expected...it still lost money, just not as much as expected.

Now the smart investor comes in after a stock or the market misses some expectation or other and evaluates if it is a trend that is likely to continue or not. Then acts accordingly. Many values and great returns can be found in buying a stock that misses expectations, but the fundamentals and technicals of the company are still sound. Particularly if it pays a nice dividend while waiting.

Notes From The Underground:

Dow - 13,413.66 -60.24
Gold - 801.50 -12.50
Silver - 14.33 -0.36
Oil - 93.30 -1.09

To Your Investing Success,

Patrick

Where To Turn? What To Do?

Now that the Dow seems to be coming back full force, what is an investor to do?

Obviously, the bulls are back and they are running hard!

I like the fact that the market is going back up, but because I treat my investments as a business, I need to look strategically first, before I can take advantage of the opportunities that present themselves.

What was driving the market down?

Well, the declining dollar, rising oil prices due to increased demand, rising commodity prices due to both increased demand and the declining dollar, falling real estate sector due to the credit crunch.

Over the next four days - Monday, Tuesday, Wednesday, and Thursday - I will take a look at each of these reasons and show you why they are still relevant even though the stock market is trying to say that they are not.

The fact of the matter is that the market will be increasingly volatile for some time. We are also in the middle of a great bull market for stocks as baby boomers and the near baby boomers are stuffing as much money as they can into investments to prepare for retirement. The thing is, these same boomers are also looking at asset classes such as real estate and commodities also. So, if you combine the buying power of these individuals with the demand across the world for financial instruments, we are truly in a great era of investing, volatile as it may be.

And that is why you must understand the various asset classes and markets so that you can make money regardless of the direction of the investment, the market cycle, or the level of volatility.

The US Dollar is declining at a rate not seen since 1992. In 1992, the US Dollar had reached an ALL-TIME LOW, that has since been trumped by today's US Dollar. The Loonie (Canadian Dollar) has reached par with the US Dollar and surpassed it in value. C$1 now buys $1.05 US. This is a level not seen since the early 1960s. The Australian Dollar is at a 23 year high and is about to reach par to the greenback. Virtually every foreign currency that you look at is at or near and all-time high for the dollar.

What is causing this devaluation of the dollar is the near continual pumping of money since 9/11 by the Fed and the US Treasury. The Fed, under the direction of Yoda (Alan Greenspan) and B-Squared (Ben Bernanke) has defined as its mission to keep the economy out of recession - NO MATTER WHAT! Even if this causes inflation (which we will discuss when we talk about commodities) and even if it makes our assets more attractive to foreign corporate and sovereign funds.

There have been two separate benefits to stock investors because of inflation.

One, US assets have become more attractive and cheaper to buy for foreign corporations and sovereign funds. (As an aside, sovereign funds are surplus currency assets held by foreign governments) Just look at the recent purchase of Commerce Bank by the RBC Bank of Canada, the purchase of 20% of the NASDAQ by the Government of Abu Dhabi, and 4.9% investment into Citigroup by Abu Dhabi. Many of these foreign corporations are taking aim at financial assets here in the US.

For more on sovereign funds, go to my post from today on the Real Estate Lifestyle Public Forum (www.realestatelifestyle.com).

Second, US based companies that do a great deal of business abroad. Exporters and multinationals are able to sell more goods abroad due to the fact that foreign currencies can purchase more dollars, thus our goods are cheaper to buy. Look to big multinationals like Altria that are able to derive 1/3 to 2/3 of there business outside of the US.

Now, the big downside to the devaluation of the US Dollar is the rumbles around the world that oil and commodities may begin to be purchased in foreign currencies like the Euro. The US Dollar is THE standard currency for all commodity transactions worldwide. They are priced in dollars, they are sold for dollars, they are bought for dollars. Once these transactions can be decoupled from the dollar, why would foreign countries need to hold so many dollars in reserves? Sure, to buy US assets, but the purchase of US assets are not their primary use. China has the largest sovereign fund in the world, somewhere between $400 billion and $1 trillion. China has no interest in buying US companies directly. In fact, they are helping there own corporations grow and purchase foreign assets. If nations do not have to hold so many dollars, they will dump them on the open market AND then the value of the dollar will truely plummet.

What to do then?

In addition to what you would normally hold in US stocks, an investor should also be holding a near equivalent amount of quality foreign stock holdings. Many of them actually trade on US stock exchanges like the New York Stock Exchange (NYSE) and the Nasdaq.

Until tomorrow.

Notes From The Underground:
Dow - 13,374.40 +2.68
Gold - 785.90 +3.10
Silver - 14.10 +0.14
Oil - $87.83 -0.88

To Your Investing Success,

Patrick

Happy! Happy! Joy! Joy!

Happy, Happy, Joy, Joy!

Happy, Happy.......uh, why did the music stop?

Early next year, this is what may happen once individual investors and consumers realize that they have been duped by B-squared, Ben Bernanke.

He and his colleagues at the Fed Reserve have been speaking out and making comments suggesting a further rate cut. This has led to mass buying of stocks across the board. Now, realize that most of the smart money had been buying under the radar before these guys decided to pipe up (usually at the insistence of the guys at places like Goldman Sachs, Lehman Brothers, etc. the guys who are the primary advisors to big, smart money).

Now that the "news" is unofficially out that the Fed has all but decided to cut interest rates, everyone else is in a feeding frenzy to buy, buy, buy. Where do you think the supply of shares is coming from? I won't answer that; I will let you come to your own conclusion.

What will happen come next year, consumers and individual investors will realize that the latest round of rate cuts will further erode the buying power of the dollar (inflation) and gas, gold, and everything else will renew it's march up in price.

How far down will the price of oil and gold "correct? Well, some of the analysts that I know are calling for oil to drop to $70 and gold to "retest" $650. I SAY THAT THEY ARE WRONG!

Why?

Well, we are having this rally in stocks due to rate cuts. Rate cuts are inflationary. Inflation also means that the Fed must pump up liquidity. This means that the printing presses must continue running. Gold, silver, and oil are inflation hedges.

The #1 job, as the Fed sees it, is to prevent the economy from going into a recession. We may or may not already be in one. Recessions are tough to say that you are in it. They are usually declared once they are half over. But of course, depending on what you do, and what your outlook on life is, you may be in a perpetual recession (I know that is nobody that is reading this, otherwise you wouldn't be reading this). There can be no inflationary slowdown while all of this is going on. The Fed only cares about keeping back inflation. Wall Street is appeased because it gets short term profits from all of the activity.

But here is the rub, if you inflate too much, too fast, a recession will become a self-fulfilling prophecy. Consumers will say enough and stop buying in the amounts that they are buying.

Remember, salaries are not keeping up with the REAL inflation rate (not what the government tells us) AND credit is tightening for consumers. This will cause a slow down in consumption of non-necessity items. This could take us to recession.

Credit for investment purposes (real estate and cash flowing businesses) is still readily available because banks are in the business of loaning out money, after all.

And for stock market investors, I would not be making bets on the general market, but this volatility will lend itself to many, many special situations.

Stay tuned because I will have a very special offer for all of you in time for you to start your portfolios off right in the New Year.

Notes From the Underground:
Dow: 13,390.25 +78.52
Oil: 89.50 -1.51
Gold: 783.60 -12.30
Silver: 13.93 -0.35

To Your Investing Success,

Patrick

Yes, Virginia, Dividends DO Matter!

Happy Monday to one and all!

While at the gym this morning, I watched a news item about today being Cyber Monday. The first business day after Black Friday. While many people were out shopping on Friday for Christmas gifts, there were many who do not (yours truly among them). However, a new trend has emerged that today, Cyber Monday, is the biggest sales day online.

It is estimated that 75% of all office workers will shop online today, WHILE AT WORK! So, while nothing gets done of Friday because everyone takes a day off of work, nothing gets done today either. So, if you are not among the shopping AND you cannot get your work done because certain items are being delayed because of Cyber Monday shoppers, then don't join the ranks of the unproductive; bone up on your financial education.

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Now, I also want my stock portfolio, particularly the core portion of my portfolio, to be productive just like employees. You see, I look at stocks like a look at properties. I want to form a core group of dividend paying stocks (rent) and then round out my trading with short term plays and options (flips and wholesales).

And yes, those dividends do indeed matter!

According to research conducted by Jeremy J Siegel, Wharton Professor and author of several stock investing books including The Future For Investors, reinvested dividends account for 97% of the total return on stocks. Capital Gains account for a mere 3%! Professor Siegel's researched covers all of the stocks that traded on the exchanges going back to 1871. Going back 50 years, when ranking stocks by dividend yield, the top 20% (meaning the stocks that paid the highest % dividends) return 14.3% annualized while the 20% of stocks with the lowest yields (meaning that they paid no dividends) return 9.5%. This is quite a difference. In fact, on a $1,000 investment made in 1958, the dividend portfolio would have grown to $462,750; while the non-dividend portfolio would only have accumulated $64,930.

So, YES DIVIDENDS DO MATTER!

In fact, dividends will matter even more NOW! It has been shown through numerous studies that dividend paying stocks perform even better in down markets than they do in up markets relative to other stocks. So, for this purpose dividend paying stocks act as protection in a down market. Dividend paying stocks are often purchased by institutional investors in large quantities when they feel that the market is about to go into a poor performing environment. This is what is known as a "flight to quality." When the market is down, my investments still SHOW ME THE MONEY! And often, when investors start to return, they are typically buying dividend paying stocks first.

Buying on top of buying leads to higher stock prices.

Notes from the Underground:
Dow 13,003.15 +22.27
Gold 826.60 +3.50
Silver 14.81 +0.02
Oil 97.47 -0.71

To Your Investing Success,

Patrick

$100 OIL!!!!

We could hit $100 oil...Today!

After closing at $98.03 in New York yesterday, the price Black Gold peaked at $99.29 in overnight trading. This morning oil opened at $98.63 in New York, however, with today and then Friday being light trading days due to the Thanksgiving Holiday volatility will reign.

Also, remember, that overseas trading has no holiday. They will continue to trade the gooey stuff overnight.

Then there are the concerns that China and India's rapid development and increased demand will put further strain on oil supplies. Refineries are already starting to complain that they aren't getting enough of it. They have exhausted the surplus that has kept gasoline prices at the sub $3/gallon mark.

Currently, oil producers are pumping 85 million barrels a day out of the ground. The US Department of Energy says that consumption is between 85 and 86 million barrels per day. And remember, they are the government, they are here to help, and I have a few grains of salt to throw at their numbers.

On a positive note for the stock market (it needs a few hundred of these right now), it looks like the Fed may be cutting rates again due to what they perceive as slow growth. 2008 forcasts are showing US economic growth between 1.8 and 2.5%. They are also saying that inflation will fall to between 1.8 and 2.1%. Remember that inflation never falls...it just goes up at a slower rate.

Again, are you willing to believe the Fed's numbers when the price of gas is breaking $3/gallon, heating oil is supposed to be 25% higher than last year, and wheat has tripled in the last four years (but producers of foodstuffs have not acted accordingly, yet).

Wall Street did not like the Fed projections. Combined with higher oil prices, the credit crunch, and how it is affecting financial stocks, the Dow is down this morning at 12,925.77 DOWN 84.37 points.

That is all that I have. There are many, many buying opportunities out there. I am going to ferret them out and get back to you soon. Look in your mailbox for updates and notice of these opportunities soon.

Notes from the Underground:

Dow - 12,925.77 -84.37
Gold - 802.50 +12.20
Silver - 14.48 EVEN
Oil - 98.63 +0.60

To your ultimate investment success,

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.