Archive for the ‘finance.’

Iranian Hostage Crisis, Part 2?

Back in 1980, 52 U.S. diplomats were taken hostage in Iran. This incident, during the Iranian revolution, was a major blow to foreign policy and intelligence in the Middle East. After a botched extraction attempt (I personally know people who flew on that mission… disaster), the Algiers Accords were signed.

The incident was a major blow for the reelection campaign for Jimmy Carter. The very second after Regan was elected, the hostages were released. It also helped strengthen the Islamic revolution under Khomeni and showed vulnerabilities of one of the major superpowers at the time.

Is Iran doing the same thing with oil?

Persian Gulf
As of this writing, there were Iranian supertankers in the persioan gulf that hold about 5 months worth of extra crude oil. Why the stockpiling? Of course, you can use it as economic leverage against any attack on their coun

try, but what if the oil is being held hostage until a new president takes office?

The cost of oil, among many other reasons, have dropped the president’s rating to unprecedented levels. Bringing that sort of supply onto the market would create some serious turbulence in the commodities markets, possibly causing a correction in prices.
There are some hidden paralells that come to mind when comparing the two events. The major underlying theme may be that the Iranian government is trying to garner political and economic influence in the West, albeit indirectly.

Buy and Hold is a Myth.

So you’ve set up your Roth IRA and are ready to start plowing money into the market. What’s your plan? If you’re like most people, you don’t have one. You think that you should just buy and hold certain stocks or etfs and wait until retirement.

You’re wrong.

From: Bespoke Investment Group

Case in point: the banks. If you have been averaging in the bank etf $BKX for the past ten years, without taking profits, you would be losing money. The etf doubled from it’s lows five years ago and in the past year has taken back all of these gains. Do you see why having a strategy is important?

Of course there is a difference with trading and investing, but there’s one thing that the two have in common: risk management. If you’re investing for the long haul, you still need to have stops in place and contingincies written out. Your set of rules should tell you when to take profits, move your stop, add on more of a position, and when to pull off when you need cash in more valuable places. You also might want to consider option strategies (selling some stock and buying protective puts, or selling calls).

Even if you’re rules are based off strict asset allocation, it still requires you to take profits. Say for you to have a properly diversified portfolio, you want to allocate 5% of your investment account to the banks. If the etf doubles like it did (and all things being equal), your allocation is now up to 10% and too much for your portfolio. So you have to take some profits in order to keep your portfolio in balance. You would still give back some gains, but not as much if you didn’t look at it.

Wealth management is not an easy job. If you stay disciplined in your investing approach, however, then you will have a distinct edge over 80% of the people in the market.

Oil is Tanking… but not for what you think.

This past Thursday, Oil inventories came in with an 8.8 M bbd draw. You could see that crude spiked and then started to drop all of a sudden… did something change in the fundamental picture?


This is where the discrepancy between what oil is fundamentally worth and what a contract is worth to a trader comes into play. This past week, NYMEX increased the margins you need to trade crude oil contracts, both regular and miNY contracts.

Margins for the crude oil, crude oil calendar swap, and crude oil financial futures contracts will go up to $7,250 from $6,500 for clearing members, to $7,975 from $7,150 for members and to $9,788 from $8,775 for customers, NYMEX said in a release.

Margins for the NYMEX miNY crude oil futures contract will rise to $3,625 from $3,250 for clearing members, to $3,988 from $3,575 for members and to $4,894 from $4,388 for customers. Margins for the NYMEX MACI index futures contract will increase to $1,450 from $1,300 for clearing members, to $1,595 from $1,430 for members and to $1,958 from $1,755 for customers.

This decreases the ability for some players to use as many contracts as they used to, as well as some players who can’t trade at all. This has reduced the demand of these contracts significantly, which explains the drop in price.

Hopefully this drop in the price of the contract will keep going as some speculators will have the fear of Vishnu put in them, which will cause a significant correction down to more fundamentally sound levels.

Thanks to Barry for reminding me of this.