To wrap up this week, I decided to respond to some reader mail…
Cato asked: For a while I have been loading up on Bakken companies like BEXP. I was surprised about 6 - 8 weeks ago when oil price went up and BEXP went down. How can it be? I think a lot of your readers are puzzled so perhaps you could explain it in your newsletter?
Let me start by saying I am bullish on Bakken oil companies. Especially the small ones that are still ramping up their production.
The most important thing to remember about oil stocks, and oil in general, is that they are seasonal. Institutional investors buy them at certain times of the year, and sell them at others, regardless of what's going on with oil prices.
As you might suspect, Spring is a time when they often sell. Then they will re-buy in mid-summer.
I would recommend buying Bakken stocks on weakness. If you're looking for more some Bakken stock ideas, click HERE.
William C. : Thanks for sending the [Daily Profit about Apple]. My trading buddy, Ray, loves APPLE, and says it is the sector leader and follows it. I sent him your email. PS - Do you trade options, and in particular Credit Spreads?
Funny you should ask about options. I have recently hired a 10-year options trading veteran to launch an options service for Wyatt Investment Research. And you'll be happy to know he specializes in credit spreads. Stay tuned, this service should be ready to roll by the end of th summer.
Geoff asked: LNG, Wyatt, what do you think about Cheniere Energy?
Cheniere may have come up with the only way the U.S. will ever leverage our massive natural gas reserves. That is: sell it other countries.
In Europe, natural gas prices are nearly double what they are here. That's simply because they have less supply. If Cheniere can access foreign markets, it should do quite well.
The main risk is the amount of debt the company has to take on to complete its LNG terminals. Right now, Yahoo Finance says Cheniere has $24 million in cash and $3 billion in debt. Clearly, the company will have to raise cash, and that could be dilutive.
Cheniere's LNG export facilities aren't due to be completed until 2015. So revenues are a ways off. Of course, the promise of business can sustain a stock price. Wynn Resorts WYNN maintained a strong valuation years before it actually offered gaming in Macau.
The best strategy for Cheniere is to buy it on weakness, like if there is a secondary, or if some other news item knocks it down.
Dave asked: What do you think about Shorting the S & P 500 or Shorting Crude Oil w/ Options ( of course ! I don't think I'd like those Nasty margin calls ! ) ?
Well Dave, you asked this question on Tuesday, I believe. And some crude puts would have been a great idea earlier this week.
But today? I'm not sure I'd want to be short at the present time. It seems to me that the market could easily jump if there is any resolution to the Greek debt issue.
For the rest of the summer, though, I think we see choppy, range-bound trading. So if you want to buy weakness and sell strength, that seems reasonable.
I just read [this strategy] ...
"If you bought $100,000 worth of the gold ETF [GLD], you would sell $100,000 worth of the euro ETF [FXE]. And essentially what you have done is construct gold in euro terms. If you bought $75,000 worth of the gold ETF and sold $25,000 worth of the yen ETF [FXY], sold $25,000 worth of the euro ETF, sold $25,000 worth of the sterling ETF [FXB], then you've effectively created gold in all of those other currencies. You've created a gold position not in U.S. dollars."
Definitely a unique idea. It puts you in gold, but scrubs out any position you have in dollars - short or long. This makes NO sense to me... If I purchase $100,000 of GLD I am buying it in dollars from my money market account. If I SOLD $100,000 of FXE "WHICH I PURCHASED IN DOLLARS"...MY PROCEEDS ARE IN DOLLARS!!!!! So how does his commentary work? Makes NO sense to me or it was poorly written up. No matter what I buy or sell it is in dollars!
I do invest in other currencies to minimize my dollar exposure. Actually after selling my gold or silver ETFs I then place the proceeds in or PURCHASE FXF for example and feel secure having my dollars invested in & backed up by SWISS FRANKS. If I then want to do another transaction I SELL FXF and invest those dollars in something else. I will await your response to clear the air on this one.
This sounds like a simple hedged trade. Since currencies can only be valued relative to another currency, the dollar has to fall in relation to something like the euro.
As we know, gold will rise when the dollar falls. And when the dollar falls, the euro rises. So you can hedge a gold position by owning euros as well.
But this hedge trade won't actually make much money, because gains in one asset are offset by losses in another. Frankly, I like your idea better, of taking gains and reinvesting them in something that should make more money.
Finally, don't worry too much about being paid in dollars. If you live in the U.S., you have no choice but to use dollars. The key is to grow the number of dollars you have with good investments.
Mike asked: I like your style but am very late to the table so what do you recommend?
Always a good question. Investing can seem totally overwhelming. And getting good at it is a process. In my opinion, the best place to start is with dividend stocks. They tend to be less volatile then other classes of stocks. Plus, they should be the cornerstone of any retirement planning.
One of the biggest mistakes any new investor can make is thinking about the short-term to medium-term. It's best to start thinking long-term first. If you like, you can check out my income stock advisory service High Yield Wealth. This service is focused on top quality dividend stocks, and it's not very expensive for an annual subscription.
As always, feel free to write me anytime at ianwyatt@wyattresearch.com
Market News and Data brought to you by Benzinga APIsCato asked: For a while I have been loading up on Bakken companies like BEXP. I was surprised about 6 - 8 weeks ago when oil price went up and BEXP went down. How can it be? I think a lot of your readers are puzzled so perhaps you could explain it in your newsletter?
Let me start by saying I am bullish on Bakken oil companies. Especially the small ones that are still ramping up their production.
The most important thing to remember about oil stocks, and oil in general, is that they are seasonal. Institutional investors buy them at certain times of the year, and sell them at others, regardless of what's going on with oil prices.
As you might suspect, Spring is a time when they often sell. Then they will re-buy in mid-summer.
I would recommend buying Bakken stocks on weakness. If you're looking for more some Bakken stock ideas, click HERE.
William C. : Thanks for sending the [Daily Profit about Apple]. My trading buddy, Ray, loves APPLE, and says it is the sector leader and follows it. I sent him your email. PS - Do you trade options, and in particular Credit Spreads?
Funny you should ask about options. I have recently hired a 10-year options trading veteran to launch an options service for Wyatt Investment Research. And you'll be happy to know he specializes in credit spreads. Stay tuned, this service should be ready to roll by the end of th summer.
Geoff asked: LNG, Wyatt, what do you think about Cheniere Energy?
Cheniere may have come up with the only way the U.S. will ever leverage our massive natural gas reserves. That is: sell it other countries.
In Europe, natural gas prices are nearly double what they are here. That's simply because they have less supply. If Cheniere can access foreign markets, it should do quite well.
The main risk is the amount of debt the company has to take on to complete its LNG terminals. Right now, Yahoo Finance says Cheniere has $24 million in cash and $3 billion in debt. Clearly, the company will have to raise cash, and that could be dilutive.
Cheniere's LNG export facilities aren't due to be completed until 2015. So revenues are a ways off. Of course, the promise of business can sustain a stock price. Wynn Resorts WYNN maintained a strong valuation years before it actually offered gaming in Macau.
The best strategy for Cheniere is to buy it on weakness, like if there is a secondary, or if some other news item knocks it down.
Dave asked: What do you think about Shorting the S & P 500 or Shorting Crude Oil w/ Options ( of course ! I don't think I'd like those Nasty margin calls ! ) ?
Well Dave, you asked this question on Tuesday, I believe. And some crude puts would have been a great idea earlier this week.
But today? I'm not sure I'd want to be short at the present time. It seems to me that the market could easily jump if there is any resolution to the Greek debt issue.
For the rest of the summer, though, I think we see choppy, range-bound trading. So if you want to buy weakness and sell strength, that seems reasonable.
I just read [this strategy] ...
"If you bought $100,000 worth of the gold ETF [GLD], you would sell $100,000 worth of the euro ETF [FXE]. And essentially what you have done is construct gold in euro terms. If you bought $75,000 worth of the gold ETF and sold $25,000 worth of the yen ETF [FXY], sold $25,000 worth of the euro ETF, sold $25,000 worth of the sterling ETF [FXB], then you've effectively created gold in all of those other currencies. You've created a gold position not in U.S. dollars."
Definitely a unique idea. It puts you in gold, but scrubs out any position you have in dollars - short or long. This makes NO sense to me... If I purchase $100,000 of GLD I am buying it in dollars from my money market account. If I SOLD $100,000 of FXE "WHICH I PURCHASED IN DOLLARS"...MY PROCEEDS ARE IN DOLLARS!!!!! So how does his commentary work? Makes NO sense to me or it was poorly written up. No matter what I buy or sell it is in dollars!
I do invest in other currencies to minimize my dollar exposure. Actually after selling my gold or silver ETFs I then place the proceeds in or PURCHASE FXF for example and feel secure having my dollars invested in & backed up by SWISS FRANKS. If I then want to do another transaction I SELL FXF and invest those dollars in something else. I will await your response to clear the air on this one.
This sounds like a simple hedged trade. Since currencies can only be valued relative to another currency, the dollar has to fall in relation to something like the euro.
As we know, gold will rise when the dollar falls. And when the dollar falls, the euro rises. So you can hedge a gold position by owning euros as well.
But this hedge trade won't actually make much money, because gains in one asset are offset by losses in another. Frankly, I like your idea better, of taking gains and reinvesting them in something that should make more money.
Finally, don't worry too much about being paid in dollars. If you live in the U.S., you have no choice but to use dollars. The key is to grow the number of dollars you have with good investments.
Mike asked: I like your style but am very late to the table so what do you recommend?
Always a good question. Investing can seem totally overwhelming. And getting good at it is a process. In my opinion, the best place to start is with dividend stocks. They tend to be less volatile then other classes of stocks. Plus, they should be the cornerstone of any retirement planning.
One of the biggest mistakes any new investor can make is thinking about the short-term to medium-term. It's best to start thinking long-term first. If you like, you can check out my income stock advisory service High Yield Wealth. This service is focused on top quality dividend stocks, and it's not very expensive for an annual subscription.
As always, feel free to write me anytime at ianwyatt@wyattresearch.com
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