Street Speculator

How times have changed. A previous posting highlighted the financial struggles facing Americans (T.A.D.; The American Dream).

This installment is provided because of some disturbing news I happen to review this morning, courtesy of the Washington Post and a local news affiliate.

It is funny how hypocrites operate. I remember during the mid 90’s Technology Revolution, that many young adults were becoming instant millionaires and even billionaires (Steve Case: AOL, Mark Andreesen: Netscape Navigator, Bill Gates: Microsoft, Michael Dell: Dell Computer, Jeff Bezos: Amazon.com). The news media had a frenzy in covering these companies and their entrepreneur founders. The news coverage was so focused that one news organization had a “Gates Meter”, which was used to show how much Bill Gates had either gained or lost based on the closing price of Microsoft stock for that day.

Funny thing then happened. Churches then began to preach about wealth and financial independence around the same time. It historically was TABOO to speak on finances in the church. There was much emphasis on tithing, GIVING (Giving, giving, GiViNg, etc…..), home ownership, God’s blessings for you, “All these things shall be added”, Prosperity Preachers, and on and on………………….and on!!

I fell into this trap for a brief moment.  The point is that churches became purveyors of T.A.D., as if you did not achieve certain financial benchmarks in your life then somehow you were out of the will of God. This behavior was another of the many factors which caused people to go out and buy what they could not afford, including houses. Now, people are turning to these same churches for financial guidance (Click highlighted area and read the article). Now, according to the New York Post the personal bankruptcy rate has increased, even after a few years ago bankruptcy laws were amended with the goal to help the U.S. consumer.

The next issue was that everyone want to be like the Jewish people. This is because a lot of Jewish people are wealthy. Then Christianity attempted to show how both religions are similar and how Christians can somehow become like Jews.

What’s next, Muslims? I guarantee that there will be these same Christian who try to align with the Islamic faith, based on what is happening in world events financially. Muslim nations are those that seem to have all of the CASH, due to high oil prices. Trust me, it will happen.

This weekend, NACA (Neighborhood Assistance Corporation of America)

held meetings in Washington D.C. with the goal of assisting homeowners teetering on foreclosure. I believe they will contact lenders and ask for a reduced mortgage payments for the homeowners.

BOTTOM LINE!! People in the U.S. are heading toward a historic financial catastrophe. We have gone from Saving and Investing to Purchasing and Borrowing. This behavior has caught up with us.
The government will only intervene when major corporations are looking at insolvency, not consumers. Remember, there were a large number of foreclosures two years ago. The government did not move. However, it only took a little over 48hrs for the feds to make a decision to bail out Bear Sterns. This was done over a weekend.

The government is not a safety net and do not treat it as such. Stop listening to salesmen. Read and study for self!! If you do not acquire a home, car, nice clothes, etc.. you are still a willing and able person and let no one tell you otherwise. The most important the U.S. government can provide to you and I is FREEDOM.

In closing, churchgoers, ask yourself, in the words of the late president Ronald Reagan, as you have been tithing and giving (& giving & giving) for years and years; “Are you better of today than you were 4 years ago?”

Stop being led astray by people who have no clue as to what it takes to create wealth. Anyone can be a fundraiser. It is not difficult to ASK for MONEY. The Girl Scouts do it extremely well each spring. But at least we get something delightful out of it.  SAVE AND INVEST.

I also ad that most of your friends and neighbors with expensive houses, clothes, and cars only qualified for an Expensive Loan. They cannot afford that stuff. People with high salaries live paycheck to paycheck as well. Next time you get into a friends luxury car, see if the gas gauge is ON or NEAR “E”, and whether they give you an excuse or not.

Accumulate Cash MY FELLOW SPECULATORS.

“The key to the game is your Capital Reserves. You don’t enough you can’t piss in the toilet or eat with the big dogs.”

- Gordon Gekko (As played by Michael Douglas in Wall Street)

Oil prices are now below $130/barrel, well off of a high of $147. Financial stocks rose for the 3rd day in a row on NYSE trading.

The market made a great turnaround for the consumer this week. But before celebrating, know that this was only a temporary rally. Here’s why..

OIL - Many analysts say that consumer demand has dropped within the past month, all due to high gas prices. However, there were no new middle east conflict developments to report this week. Be aware that any news of Iranian nuclear weapon progression, Nigerian rebel attacks on oil facilities, or a major storm shutting down a U.S. oil refinery, will bring the SPECULATORS right back into the market. Don’t let this week fool you or create a false sense of optimism. High oil prices will return.

FINANCIALS - Citigroup (C), Wachovia (WB) , Merrill Lynch (MER), and Bank of America (BAC) all experienced huge stock price increases this week. Wachovia was at one point trading under $10. These gains are another bit of news you should view with a keen eye. Financial stocks will drop again.

Remember one important factor. Banks are reporting LOSSES. One headline reporting Citigroup’s $2.5 billion dollar quarterly loss was LESS THAN ANALYST EXPECTATIONS. Whether an analyst expects a $1 billion or a $500 million dollar loss, a loss is a loss. Also, Merrill Lynch sold a revenue generating asset just to cover losses (They sold their 20% stake in Bloomberg, LP this week for a little over $4 billion).

Selling assets to recover losses is a short term fix. Longer term, they will need to come up with a method to reproduce the lost revenue from that previous asset. Also, many banks have shut down lending completely, especially on real estate projects, mergers, and on LBO’s (Leverage Buyouts). Lending is the life blood of the financial industry.

The SPECULATORS suggest you to be patient. Financial stocks will drop, maybe within the next month. Remember, selling revenue generating assets to cover losses is a SHORT-TERM SOLUTION. The question you need to ask is how will the banks replace the lost revenues? Start buying bank stocks when they drop below $15/share (BAC, C, WB, MER, STI). Only Citigroup (C) has cut its dividends. Wachovia may suspend or reduce its dividend payment in the near future according to published reports, which is done to conserve cash.

Wall Street was great this week to those who did a bit of profit-taking. For those of you owning financial stocks and just marveled at the price increases, take your profits on Monday morning when the market opens. Otherwise, you could get burnt. This market is too unpredictable to ride out any potential rallies. I do not believe we will see another “Tech Boom” type long term Wall Street rally as in the mid-90’s. Get your profits when you can and conserve cash!

As you are well aware, President Bush lifted a previous ban on offshore drilling. The purpose behind such action, I imagine is to reduce U.S. gas prices by using more domestically produced oil.    

Ask yourself these question as we are all potential economists here:

Will this really help drive down oil prices? (Before answering remember, that oil is a publicly traded commodity)

If China, India, and Taiwan ask Exxon is they could purchase their DOMESTICALLY PRODUCED OIL, will Exxon say “no” because they are saving it all for safety and welfare of the U.S. citizens?

If on the public markets oil trades at $135/barrel consistently, will Conoco, Exxon, Shell, etc… sell the product to U.S. citizens for a cheaper price, because they feel our pain at the pump?

The answer is NO!!!!!!!!!

Don’t be fooled by the political pandering. Any publicly traded commodity, whether oil, cocoa, gold, natural gas, wheat, will sell at a price determined by the “investor speculators” in these products.

The media has attempted to make these guys the scapegoats for the high oil prices–

But, these speculators are no different than the speculators (You Included) who invest their money in Mutual Funds, Stocks, Real Estate, and even Education. You go in with the attitude that you will receive some return on the investment. If such is the mindset, YOU MY FRIEND ARE A SPECULATOR!!!!!
& there is nothing wrong with that.

The total value of your stock is wiped out when a publicly traded company files bankruptcy. Companies file bankruptcy for various reasons. They include the ability to renegotiate loan terms with creditors while continuing business operations (Chapter 11) or just to sell all of its assets and go out of business (Chapter 7).

For shareholders, bankruptcy spells disaster. Shareholders are the last in sequence to receive any portion of the company assets, if any exist. The secured creditors, usually the bondholders, are paid first followed by the unsecured creditors. When the company exits bankruptcy, new shares are issued and the previous shares are cancelled. This means that the previous shareholders loose the value of their entire investment.

Some of the most notable bankruptcy filings include ENRON, WORLDCOM, GLOBAL CROSSING, UNITED AIRLINES, and DELTA AIRLINES.

One company on our watch-list as a potential candidate for filing bankruptcy is Charter Communications (Symbol: CHTR). Charter is a communications company specializing in cable, high-speed internet, and phone services. They compete with Comcast, Time Warner Cable, Verizon, and the satellite companies.

Charter’s 52-wk high stock price was at $4.93. The company now trades under $1.00 per share. The most critical part of the company’s balance sheet is its debt level. Charter carries $20 billion in debt, with only $541 million in cash. Their debt grade is low which means they pay a substantially higher interest rate as the potential of default is high. Although Charter generates about $6 billion in annual revenues, most of this money goes to service this debt and company expenses. This leaves very little for research and development in new products and services.

Although the largest shareholder in Charter is Microsoft co-founder Paul Allen, he does not seem to be adding new equity into the company nor purchasing additional shares. Charter refinances its debt frequently, but I believe this practice will not prove fruitful much longer. Charter faces new competition in an already crowded digital consumer market. Traditional phone companies are now able to provide cable and other digital services.

If not for the debt load, Charter may be seen as an attractive takeover target. However, the company serves the less dense populated areas in the United States. Charter also sold some of its assets about two years ago. The asset sale was thought to help reduce its debt load. Their debt level has increased since that time.

I would not recommend purchasing Charter. The debt load leaves this company with limited options for growth. Charter also received a notice of delisting from the NASDAQ this past April.

TIP: Do not purchase the stock of companies trading under $2.00/share. The share price is this low for a reason. Also, stocks with low share prices, according to market sentiment, may be on its way to a bankruptcy filing.

It seems as though every spectrum of the U.S. economy is in some type of disarray. High oil and commodity prices, low consumer confidence, bank failures coupled with government bailouts, slowdowns in the automotive industry, and an increase in health care costs. Need I say more!

One industry seems to be insulated from these market forces. Where other industries are affected by the current economic climate, the SPORTS INDUSTRY continues to grow day-by-day.

Pro athletes continue receiving record contracts as rookies and veterans (A-Rod, Alex Rodriguez of the New York Yankees, latest baseball contract was worth more than what JP Morgan paid for Bear Sterns, one of the most prestigious Wall Street investment banks). Professional sports team values have increased in value for the past 4 years (Source: Forbes magazine). Last year, the lowest valued NFL team (Minnesota Vikings: $782 million) was worth more than the top NBA team (New York Knicks: $608 million).

And to all cable and satellite subscribers, ESPN, the 24-hour sports channel, is the most expensive cable channel. More than Fox, CNN, Lifetime, MSNBC, HBO, etc….. Cable companies pay a per-subscriber rate monthly to ESPN (ESPN is owned by Disney) to broadcast the channel to its subscribers. The cable and satellite all balked at ESPN’s annual rate increases, but usually conceive at the end of the day.

ESPN Rates:

2000- $1.20/month/subscriber

2001- $1.80/month/subscriber

2004- $2.60/month/subscriber

The Dallas Cowboys, also known as America’s team, is a model company when exploring the Economics of the Sports Industry.

A new $1 billion dollar stadium is due to be complete by opening day of the the 2009 season. Jerry Jones, owner of the Cowboys, is seeking close to $1 billion dollars for the stadium naming rights. AT&T is said to be the front-runner.
Even more impressive than those numbers are the the luxury suite sales numbers. Jeff Mosier of the Dallas Morning News reported that the Cowboys have already sold all 200 suites which ranged in price from $200,000 to $500,000 per year.

This Cowboys had to subsequently build an additional 100 suites to meet the unexpected demand. An exceptional story, but one in the world of sports that is not rare to report.
Either everyone has misinterpreted the state of the current economic climate, or we just place a such a high value on sports than on anything else.

Sports Guys, keep up the good work!!!!!!!!!!!!!!!!!!!!!!!

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