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A common options strategy used by investors to enhance their short-term return is to write covered calls. By doing so, they take in premium and lower the entry price on their investment. I want to tell you about another strategy I recently employed to essentially achieve the same objectives, but for different reasons. Back in late September/early October, as the market traded near its highs, I began to become uncomfortable with my long ETF (SPY) position which at the time made ...
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Like the prodigal son, the U.S. Dollar is about to return home. At the turn of the Millinium, the Dollar traded nearly at parity to the Euro (1.0368€ to US $1.00). At the same time, the S &P 500 was trading at historic high levels (1,498). Today, eight years later, the dollar has declined to nearly two-thirds (0.68€ to US $1.00)of the value where it traded against the Euro in early 2000. On Friday, the S&P 500 closed at 1,325, down ...
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The January 11, 2008 announcement of the takeover of Countrywide Financial Corporation by Bank of America provides for another risk arbitrage opportunity (placing a bet on the close of the deal). Risk arbitrage is the trading strategy of owning a takeover target and selling its acquirer short after the announcement of a takeover. When a company buys another company with its own stock, the target company (the company being bought) receives in exchange the shares of the acquirer (the ...
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Short-term interest rates are falling faster than a deflated dirigible. In a matter of a year, rates have dropped nearly 200 basis points with 100 of those points coming in the past three months. Today, 3-month treasury bills yield around 3.15% with 6-month bills yielding 3.05%. Longer dated maturities are even worse. Two-year notes yield only slightly more than 2.50% signaling future rate cuts are just around the corner. After the next Fed rate cut, likely to ...
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Is it time to start thinking about preferred stocks as a way to supplement yield and counter the volatile swings in today’s market? No other investment security toils in such obscurity as preferred stocks. Yet today there is reason to give these securities a serious look. Preferred stocks are financial instruments that combine the characteristics of both debt (fixed dividends) and equity (potential appreciation). Some quality REIT preferred stocks have yields exceeding ...
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On Thursday, Nov. 29, VeraSun (VSE) announced it would acquire U.S. BioEnergy (USBE) in an all-stock deal. Under the agreement, 0.81 shares of VeraSun stock will be issued for each outstanding share of U.S. BioEnergy, valuing the deal at $686.2 million, and an 11% premium based on Wednesday's closing prices. The deal is expected to close during the first quarter of 2008 pending shareholder and DOJ approval. Typically after the deal has been announced, the spread between ...
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Anymore, seems like it takes forever for me to get around to writing in this blog. Guess I was getting over my food coma from Thanksgiving. Have been intending for days to comment on the oversold condition in the market and the opportunity to pick up some great values in the U.S. stock market. Wouldn't you know the market would have to go and rally over 500 points (DJIA) in two days before I ever had a chance to say a word. All things considered, and rally aside (S&P ...
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After years of being an investor and an avid market practitioner, I have finally learned my lesson. Owning stocks is a bit like being a passenger strapped in the back seat of a car where the driver is the CEO (I guess this is why investments are often called vehicles). As you know, drivers come in all flavors and unless you know the driver well enough and have ridden with them before, the ride can be quite bumpy, frightening and downright dangerous. Being a shareholder of a company ...
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Yesterday, I attended a luncheon at which Paul McCulley, economist for the Pacific Investment Management Company (PIMCO), was the featured speaker. The topic Mr. McCulley chose to speak on was the current state of the credit markets and where we (the economy) go from here. Mr. McCulley explained that the US economy just experienced a Double Bubble, one in the housing market and the other in the credit market. The correction phase following the bursting of a Bubble ...
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Last Friday, the Dow Jones Industrial Average lost 367 points resurrecting ghosts of crashes past. As it turns out, Friday was the twenty year anniversary of Black Monday. The DJIA suffered a 508-point loss on Black Monday. Many have been tempted to point to Friday’s decline as a precursor to something bigger to come. A kind of “mini crash.” However, that’s an unfair comparison. The Dow is much higher now than it was during ...
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