Benefiting from the Oil Correction

Calvin Oh submits:

We advised caution in the oil markets on July 2nd, 2008. We are seeing the correction now. For targets I have $80-$100 as the low. The correction should continue through the end of this year.

When we originally wrote this article, my partner Sergey got a lot of negative commentary on some boards, which made us pretty confident about our analysis. The majority of the public is always wrong near the peaks and valleys. The public sentiment is probably one of the best trading indicators around.

Yahoo: The Best Defense Is a Strong Offensive Play

Badger The Lion submits:

Yahoo’s (YHOO) strength today is primarily in its display advertising, and secondarily in its search advertising and Asia investments.

Investors however have likely overlooked a potentially very significant Yahoo press release, due to headline news coverage of the Microsoft (MSFT) potential takeover of all or part of Yahoo assets. On July 10th, Yahoo announced its entry into the In-Game Advertising [IGA] market, by partnering with Double Fusion and NeoEdge. By leveraging Yahoo Games and its relationship with Activision Blizzard (ATVI) though Yahoo’s Board of Directors, Yahoo could potentially turn its IGA initiative into a strong offensive play, putting Google’s (GOOG) IGA initiative, with the acquisition of AdScape last year, at a significant disadvantage.

No Sympathy for Financials

Phillip Lyon submits:

There have been a lot of dramatic steps taken by the Fed and the SEC to prevent the deserved collapse of some banks. While I understand that they don’t want to see a run on the banking sector I don’t think that would be the case if the market were left to sort things out on its own. The banks that took excessive risk and leverage would be in trouble and the banks that managed their risk and leverage would be fine. In fact the actions taken by the Fed and the SEC are doing more harm than good.

First, the Fed and the SEC are sending the message that financial institutions can profit from excess risk when times are going good and not have to face the consequences of their actions when times turn bad. This is a terrible message to send and it is only going to lead to the same problems in the future. Banks will have no deterrent from taking the same risks in the future if they know that the government is going to bail them out with taxpayer money when the risks turn sour.

Reality Check for Japanese Commodity Price Estimates

The big debate about commodity prices is of course how much speculative/investment inflows have distorted current market prices. According to estimates by Japan's METI and Institute of Energy Economics, the speculative premium is between 30% and 40%.

Using what they call a structural vector price autoregressive model (whatever that is) to analyze the correlation between crude oil supply, demand and crude oil prices, Japan's Institute of Energy Economics and METI (Ministry of Economy, Trade and Industry) has estimated in their 2008 Energy White Paper that the price of crude oil based on the "fundamentals" (i.e., underlying supply-demand) in Q3, Q4 2007 was $50~$60/barrel, while the "speculative" premium was $30~$40/barrel. In othe words, at $125.5/barrel, supply-demand factors accounted for $74.7/barrel of the price, while non-demand factors (speculative premium) was $50.8/barrel, or some 40%.

Stock Markets Nearing Important Bottom

Kunal Vakil submits:

The stock market is nearing what I think to be a very important bottom. I believe that last week's options expiration-related short squeezing rally will lead into a pullback that will test or even break the recent lows at S&P 1200. If we get down there, I will be a heavy buyer from 1200 on SP all the way down to 1182 for an intermediate term (9 months to 18 months) hold. Some major buy signals are lining up here.

1182 represents the 50% retracement of the 5 year bull market run from the March 2003 lows to October 2008 top on the S&P 500. This market could run as low as 1165 but this move would be fast and most likely occur on an intra-day basis.

Highbury Financial: A Forgotten Money Manager

Derek Pilecki submits:

Highbury Financial (HBRF.OB) is an investment management holding company trading at a surprisingly inexpensive valuation. The stock has suffered significantly in the last six months as liquidity has dried up in micro-cap stocks. Highbury owns 2/3 of the Aston Funds, which is a $4.7 billion mutual fund family it bought with Aston’s management team from ABN AMRO in 2006. Aston’s management team owns the remaining 1/3 of Aston Funds. As a small mutual fund family, Aston is positioned for growth, which will benefit Highbury Financial’s shareholders.

Background and Recent Corporate History

Throwing in the Towel on SRA International

Glenn Rogers submits:

Originally recommended on Aug. 22/05 (IWB #2532) at $34.30. Closed Friday at $21.66 (prices in U.S. dollars).

Shares of SRA International (SRX) went into free-fall after the company announced third-quarter 2008 earnings that fell well short of analysts' estimates and cut its guidance for the rest of the year.

XM Announces Agreement With Noteholders in Good Move for Merger

Tyler Savery submits:

Oil’s Double-Digit Slide Signals “Sell!” to Some

Money Morning submits:

By Jennifer Yousfi

Oil’s recent wild ride has some market experts questioning which way black gold is headed in the weeks, months, and even years ahead.

Apple Investors Nervous as Earnings Call Approaches

Zach Bass submits:

Individual investors have been conditioned by Wall Street big money to be extremely guarded going into Apple (AAPL) earnings calls. They have no idea what to expect. If the pattern of the last earnings calls is any indicator of what this one may portend, then they are rightfully nervous and perhaps dismayed. They are fearful that the stock will plummet 10 points, or swing violently, shaking many off the stock with big losses.

It doesn’t seem to matter to Wall Street that Apple, quarter after quarter, blows away its own conservative guidance and pumped up analysts estimates. Big money seemingly throws a blind eye to fundamental indicators like customers that crowd Apple Stores day and night, product launches that produce lines out the door, around the corner, extending several city blocks. These market mavens don’t want to hear it. Instead, they will be deftly tuned to that seemingly innocuous statement by Tim Cook or Peter Oppenheimer, that they can twist into a storm cloud, to justify bludgeoning the Apple faithful investor.

Corn Products Arbitrage Too Risky to Justify

Glenn Rogers submits:

Originally recommended on April 30/07 (IWB #2717) at $38.75. Closed Friday at $45.90 (prices in U.S. dollars).

Last month, fertilizer producer and food processor Bunge Ltd. (BG) announced it has reached an agreement to buy Corn Products (CPO) for $4.4 billion, the equivalent of $56 a share. However, the payment won't be made in cash but rather in Bunge shares. If Bunge trades between $108.90 and $133.10, CPO shareholders will get the equivalent of $56 in Bunge stock. But if it is outside that range at the closing, they'll receive a minimum of 0.4207 and a maximum of 0.5142 of a Bunge share. Bunge, which trades on the NYSE as BG, closed on Friday at $98.79. This explains why CPO stock is trading well below the takeover price at present.

VIX Confirmation, Or Is It About Oil?

David Enke submits:

There has been a lot of anticipation recently as to when the VIX would finally spike back into the 30s. Recent moves above 30 in November, January, and March have produced temporary bottoms, although the November and January relief rallies were short lived, and the March rally rolled over 2 months later.

The VIX briefly touched into the 30s last week, but quickly corrected back into the mid-20s. Some are arguing that not only was the recent move into the 30s too short, but a confirmation spike probably needs to now be in the mid-30s (if the old rules-of-thumb don't work, try another).

Aggresive Investors Should Ante Up with ProShares Ultra Financial ETF

Glenn Rogers submits:

If you agree with me that the battered U.S. financial market is at or near the bottom, the ProShares Ultra Financial ETF (AMEX: UYG) offers the dual advantages of one-stop shopping and leverage. It's not an investment for the faint-of-heart, but there is potential for a big capital gain for those who can deal with risk.

The objective of this ETF is to earn returns before expenses and fees that correspond to twice the daily performance of the Dow Jones U.S. Financials Index. As you might expect, this fund has been absolutely hammered as a result of the subprime crisis, the credit crunch, the U.S. housing slump, and now bank failures. The price tumbled from a high of $72.13 in February 2007 to a low of $14.75 earlier this month. (Figures in U.S. dollars.) That's a gut-wrenching drop of almost 80%! But we may have seen the bottom. The shares started to rally last week, finishing on Friday at $20.40.

Is the Texas Ratio a Predictor of Bank Failure?

Rob K. Blake submits:

I noticed the Texas Ratio that everyone is using to speculate on the health of the nation's banks has a problem. The calculation belies a different conclusion in many cases and does not necessarily mean a bank is weak.

Texas Ratio Defined

Gerald Cassiday of the RBC Capital Markets, coined the name for his calculation which grew out of the Texas S & L meltdown of the 1980's. The Texas ratio calculation Cassiday developed is calculated by dividing a bank's non-performing loans, including those 90 days delinquent, by the company's tangible equity capital plus money set aside for future loan losses. ABC News did a story that is getting a lot of traction especially when they published a list of potential weak banks using the Texas ratio (see list below).

Microsoft: Consider Making a Free Console