The other day I was watching CNBC and I saw this anti-cramer commercial advertising Fox Business.  I thought it was going to be a joke, but it was a real commercial.  Either someone at CNBC screwed up badly or CNBC is having a hard time filling their advertisement spots.  Judging how General Electric’s (the parent company of CNBC) stock has been trading lately, I would have to say the latter.  Here is the commercial…

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I bought some IAMGOLD (IAG) today. I think IAG is extremely undervalued at todays prices. I purchased IAG for $5.82 in early trading today and at this price they are trading at a PE of less than 12. Gold companies usually trade at a PE of around 18 to 20, so just looking at the PE IAG appears to be undervalued.

The low PE isn’t the only reason I bough IAG today. I bought IAG because I think gold prices are done going down in the short-term, and I see the price of gold rebounding in the short-term to $900 an ounce as inflation becomes a threat once again. Usually when I start to see gold stocks trading up when the price of gold is down on the day, it is usually a sign that the price of gold is starting to bottom as gold stocks are becoming resilient.

I am buying IAG here for a short-term trade. I am looking to see the high $6 range in 2 to 3 weeks when the price of gold rebounds back over $900 an ounce.

Enjoy!

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It is my opinion that in the short-term oil has seen a peak. I am expecting oil prices to slowly settle down into the $115 per barrel range in the coming weeks. My play to take advantage of oil retreating is to buy JetBlue (JBLU) at current prices.  JetBlue and all the airlines have been beaten down recently because of high jet fuel prices.  If oil appears to have peaked and starts to show some weakness then I expect JetBlue to bounce 10% to 15% off its lows.  JetBlue is a way to play a short-term weakness in oil with minimal downside risk.   I took a position in JetBlue yesterday at $3.87 and as I am writing this post JetBlue is trading up $0.13 at $4.00, which represents over a 3% gain…hopefully I don’t jinx myself going into the close and JetBlue can close strong.

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Today in Rhode Island the statewide average gas price has surpassed $4 a gallon and the national average gas price is currently at $3.95 (source). I am not going to get into all the economic impacts that $4 gas is going to have on the consumer and the nation’s economy, but rather I wanted to make this post to show have arrogant and incompetent President Bush is through the the YouTube video below.

Apparently Bush lives in a bubble…This will probably be the last time the White House allows everyday reporters ask the President questions.

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Back on May 17th I posted the following on my trade of Standard Pacific (SPF)…

“Finally, I took an extremely speculative and risky position in Standard Pacific. Standard Pacific is a homebuilder that operates in most of the regions of the U.S. that were hardest hit by the downturn in the housing market. I bought SPF for $2.90 and it has since traded as high as $2.99 and as low as $2.72, where it closed on Friday. Many people think that SPF is going to go out of business because of cash flow problems. I took this speculative position because I believe that (1) the government is going to do something to help out the housing market (which I don’t agree with) or (2) the housing market is going to recover quicker then the market believes or (3) SPF will get some financing which will make the stock price pop 50% in a day. I do not encourage my readers to purchase SPF. I took this position I can afford to take on the risk and I am prepared to lose it all. I wrote about it here because it is an interesting story and I will be writing about it in the future.”

If you haven’t been following the SPF story then you probably don’t know that on May 27th SPF announced that they have received financing from MatlinPatterson Equity for over $530 million.  That day the stock shot up over 60% during intra day trading and closed up a whopping 49% for the day.  If you look at #3 above you will see that I called and played this perfectly.

I have since closed out of my SPF position at $3.40.  After looking at the fine print of the financing deal it appears that the shareholders are getting a terrible deal.  In my opinion this financing deal is going to dilute the total shares outstanding and delay Standard Pacific’s inevitable fate of bankruptcy.  It probably wouldn’t be a bad move to go short now after that large move in stock price.  Investors will soon realize that they are on the losing end of this financing deal and the stock price will return back to the mid $2 range.

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If you have been reading my blog you know that back on April 18th I recommended buying Western Digital (WDC) at $28.25. On Friday, May 16th Western Digital closed at $35.41. This represents a 25.3% gain on your investment in a little less than a month, which isn’t too shabby. My recommendation here is that you take some (or all like me) off the table as I think WDC is going to correct and trade in the low $30’s in the next few weeks.

If you are looking for somewhere to put your WDC profits I am actually going to recommend that you buy some of their competitor, Seagate (STX). Any price in the low $20’s is a steal for Seagate as I expect it to trade between $24 and $26 in a few months. I have had a buy order in myself the last few trading days to but some Seagate at $21 which hasn’t been filled yet, but I am hopeful that next week there will be some weakness and I can buy some STX at discount prices.

Another position I took last week was in Jakks Pacific (JAKK). I bought some JAKK at $22.25. This has been a stock that I have traded a lot in the past 3-4 years and it has done very well for me. JAKK has come down from a high of about $30 a share in mid-April and I expect it to bounce off these lows and be trading in the $25 to $27 range in a few months.

I still own both Lundin Mining (LMC) and Yamana (AUY). Both these stocks were on a tear last week and I have some very nice paper gains. LMC was up about 17% last week and AUY was up about 20% off its lows in late April. I still plan on holding these stocks because I think LMC has a lot of the bad news behind them and the market is now starting to respect the new management. I expect LMC to be trading at $10 within a few weeks and at $12 within a few months. I also think that gold is going to make another run to $1,000 an ounce which will be bullish for AUY and I expect AUY to go to the $17 to $18 range when gold hits $1,000 an ounce for the second time.

Finally, I took an extremely speculative and risky position in Standard Pacific. Standard Pacific is a homebuilder that operates in most of the regions of the U.S. that were hardest hit by the downturn in the housing market. I bought SPF for $2.90 and it has since traded as high as $2.99 and as low as $2.72, where it closed on Friday. Many people think that SPF is going to go out of business because of cash flow problems. I took this speculative position because I believe that (1) the government is going to do something to help out the housing market (which I don’t agree with) or (2) the housing market is going to recover quicker then the market believes or (3) SPF will get some financing which will make the stock price pop 50% in a day. I do not encourage my readers to purchase SPF. I took this position I can afford to take on the risk and I am prepared to lose it all. I wrote about it here because it is an interesting story and I will be writing about it in the future.

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Let me ask the average American this question…how have you personally benefited from ethanol? Now let me ask the average American this question…how have rising food prices affected you? I think the average American can safely say, with gas prices at all time highs, that they have not personally benefited from ethanol. I also think the average American can easily see the enormous increases in food prices at the grocery store.

Now let me ask the average American this question…if you have not personally benefited from ethanol, then why are the U.S. tax payers subsidizing the conversion of grain into ethanol? Besides for the fact that the average American probably doesn’t realize that their hard earned tax dollars are going towards subsiding ethanol production, they probably also haven’t made the connection that the average American is in effect financing the rise in food prices that they purchase everyday. Now this logic doesn’t make any sense…does it?

Currently the world is experiencing the most rapid rise in food inflation ever experienced in history. Wheat, corn, and soybeans have all doubled in price in the last year or two alone. This means that foods that are made from these crops like bread, pasta, and tortillas have also risen sharply. Also, food that is produced indirectly from these crops like poultry, pork, beef, milk, and eggs are also rising at never before seen rates.

In the U.S., prices for wheat bread have risen 12 percent, while milk has increased 29 percent and eggs have increased 36% over the last year. These products are staples of the U.S. diet. The problem isn’t isolated to just the U.S. though. In Italy prices of pasta have risen 20 percent. In Mexico corn meal prices have risen 60 percent. In Pakistan flour prices have doubled. In the U.S. the average person eats 20 pounds of rice in a year, but in the Asian Pacific countries the average person eats 150 pounds of rice in a year. Imagine the economic impact that the doubling of rice prices is having on families that rely on rice as a staple of their diet.

Throughout history food shortages have been caused by bad weather or bad harvests. This food shortage is being caused by U.S. policy in attempt to reduce our dependence on oil. From 1990 to 2005, a time before ethanol policy, world grain consumption climbed by an average of 21 million tons per year. This 21 million ton increase each year was mainly caused by population growth and an increase in consumption of grain-based animal products like poultry, pork, and beef. This 21 million ton increase in world consumption may seem like a lot, but with efficiencies in farming technology and strategic planning, the increases in world demand consumption could be met each year. However, now introduce ethanol demand and the story changes.

From 2006 to 2007 the demand for grain in U.S. ethanol distilleries increased from 54 million tons to 81 million tons. This 27 million ton increase year over year represents more than double the increase in world grain consumption. When you suddenly inject such a large increase in grain demand throughout the world it has dire consequences as demand quickly out paces supply and prices begin to skyrocket.

Looking ahead the outlook for grain prices and food prices is even more gloomy. There are currently 62 ethanol distilleries in production in the U.S. When these distilleries are completed it is expected that grain demand used to product ethanol will rise to 114 million tons. This 114 million tons represents 28 percent of the projected 2008 U.S. grain harvest. Apparently the politicians in Washington haven’t completely thought this one through.

Compounding the problem even further is that as long as it is more profitable for companies to use corn to make ethanol rather than sell it as food, they will continue to use corn to make ethanol and put further pricing pressures on grain and food prices. A study performed by the University of Illinois shows that with oil at $50 a barrel it is profitable to convert corn into ethanol as long as corn is below $4 a bushel. With oil at $100 a barrel, it is profitable for ethanol distilleries if corn is below $7 a bushel. Finally, with oil at $140 a barrel, ethanol distilleries can still pay $10 for a bushel of corn and still break even. This means that as long as the price of oil keeps climbing, so will the price of corn, grains, and all the food we buy. As I write this article, the price of oil is $115 per barrel and corn trades at $6.15 per bushel. With oil at $115 a barrel it means that ethanol distilleries will still be profitable as long as corn is under $8 a bushel, so as long as oil keeps hitting record highs, corn will follow right behind.

So how do we fix this mess? We need to stop ethanol production immediately (although this will not happen because politicians won’t admit that they screwed up). Our tax dollars should go towards solar and wind energy only. Solar and wind energy are the only two pure sources of clean energy that we have available to us. We can then convert solar and wind energy into electricity, which can then power our electric cars. These two alternative energy sources are the only two alternative energy sources that we should be focusing our time and tax dollars on.

Along with the economic implications of ethanol, there are also many critical social and ethical issues with ethanol that I will discuss in a later post.

I hope everyone gives this article some serious thought…

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I learned something about the hard drive industry this week.  Western Digital beat Wall Street’s earnings estimates by $0.14 and the stock goes down 9.09% the next trading day.  To the average person analyzing just Western Digital’s business it doesn’t make sense at all.  The company had an outstanding quarter…so why the hell did it crash?  In order to find an answer to this you have to see how their competitor, Seagate, has been managing their own business and in particular their inventory.  The bottom line is that Western Digital got hammered because Seagate couldn’t manage their inventory and in the next quarter they are going to flood the market with low priced hard drives in order to decrease their inventory.  Western Digital is also going to suffer because their competitor screwed up.

For the Western Digital investor this just plain sucks.  I guess this is why the market puts a PE of 7 on WDC and this is the reason that the hard drive industry seems so “undervalued”.  I guess there isn’t room for 2 competitors in this industry.  It probably now makes sense to move your money to Seagate (STX) because they are now the more “undervalued” company and will probably rebound this quarter.  I must admit, I misplayed this industry.  I thought I was buying  a great company in Western Digital…and I was, but I just didn’t realize how much their competitor could screw up their business and guidance going forward.

I guess you live and you learn.  I won’t make this mistake again in an industry where there are few competitors that compete on price.

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Well it looks like WDC has beat their earnings by a substantial margin like I predicted, but the stock is selling off in after hours.  I haven’t fully analyzed the conference call yet, but it appears the stock is selling off due to guidance going forward.  Management is predicting some pricing pressures that could hurt margins in the 4th quarter.  I think this is just management being ultra conservative and keeping to their tradition of under promising and over delivering.

So how can you profit from the after hours trading activity of WDC?  My prediction is that WDC is going to open tomorrow’s trading lower.  WDC will probably open up tomorrow’s trading down around $1.  This is your opportunity to buy.  Shorts will quickly start to cover in early trading and send the stock into positive territory by the close.

Buy at the open…sell at the close…make an easy 3-4% in one day…it is that easy.

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Traditionally gold has been the hedge (and only hedge) against a weak dollar and and rising inflation. So why has gold retracted from $1000 an ounce to $890 an ounce where it trades today?

I think there are a few explanations for this decline in the price of gold, but I think the main reason is that investors have found new ways to hedge inflation during this cycle. Investors are finding greater gains in food, coal, and oil stocks, so money is flowing away from gold stocks to these other commodities. Wheat, rice, corn and a bunch of other food commodities have seen extraordinary gains in the past year. Everyone also knows how oil has been trading as well. Oil is currently pushing $120 a barrel and going into the summer season it doesn’t appear that it will be going down anytime soon.

So why do investors prefer oil and food over gold? Both oil and food are demand driven, meaning there is only a fixed supply and when demand starts to exceed supply and draw down inventories, you see a large price increase in the commodity. This is exactly what is happening with both food and oil right now. Gold on the other hand increases in value due to speculation. When people think gold prices will go up or people think the dollar is going to continue to get weaker they will buy gold. There is no supply and demand price support with gold, so investors flock to oil and food commodities because it is easier to gauge price changes by forecasting demand.

So how do you play this? I still think the gold bull run isn’t over. Any sign of oil or food prices weakening will send gold up over $1,000 an ounce again in a couple weeks. I think this pull back in gold is just a short-term bear market in an overall upwards price trend. I think as summer approaches food prices will come down and you will see that money flow back into gold. I don’t see oil prices coming down again until late summer, so gold prices might not fully materialize to their greatest potential until late summer or early fall. I would be creating positions in quality gold companies during this pullback in prices.

Have a nice day.

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