Put up or shut up

OK so every investment advisor says they can help you make money in any market, up, down or sideways. Right? Well come on bring it.
What's that sound?
Sounds like nuthin'
Nothing is working in this market right? Nobody is making money right?
Of course you know what's coming.
Yes there are ways to make money in this market and I'm going to tell you how I'm doing it. It's not for everyone but it does work. If you decide to use any of these strategies, do your homework, and learn everything you can before trying these.
Here's the key; don't get cocky. Cause there will come the day when it stops working. But let us start at the beginning.
There are three good tools that I am using right now. Here is the first.
Until the trend is broken; I am buying puts and calls on the diamonds and spiders. When the Dow rallies like it did yesterday, I will move in and buy puts on DIA and SPY. These are ETFs that follow the moves of the Dow Jones industrial average and Standard and Poors.
Puts are options contracts that bet on a downward move in the underlying security(I am betting the Dow and S and P are gonna fall).
When they do fall, which has been the trend, I wait until the drop exceeds the rebound, which again has been the trend, I sell my puts and buy calls. The call side is the tough side and where you can get caught. Listen carefully here. TAKE PROFITS. Any profits and get out, Then start over again with the puts.
Here is what is going to happen. One day the rally is going to be real, and you will lose on the put side. It is going to happen. Whether it's today, tomorrow or five years from now I don't know and I don't care. The trick is to NEVER get cocky and increase the amount of money you commit to this trade. Let's say you put a thousand into this strategy. Then stick with it. I know this sounds superstitious but as soon as you say to yourself "This works so well I'm going to put 5 thousand into this and really make a killing" That's when the market is going to turn around and punch you right in the freakin' nose. Mark my words.
This is known as channel trading and it involves the use of charting techniques. Do your education thing on this one, it's worth it.
Strategy two. This is a variation on the same strategy above. It is a much more conservative strategy and you will have to do some more studying on your own to understand it. But here it is in a nutshell. It's a Bear credit spread. This is a nuts and bolts trade that is designed to bring in consistent revenue. It is simple really, but it sounds complicated. If you think a stock is NOT going up, You write(sell) an "at or near the money" call option and buy a further out of the money call for protection in case it does go up. The result is a net credit because the call you sell is worth more than the one you buy. Expect about 50 to 200 bucks per spread after commissions. The nice part about this trade is that you have two directions on your side. If the stock moves down you win, if the stock moves sideways you win, however if the stock goes up you will have to unwind the trade quickly(buy back the call and sell the further out of the money call), so it does require your time and attention. Again do your own research and understand this trade fully before you try it. Your on-line broker will have tutorials to teach you all about this trade but it is safe if you pay attention.
The third and last trade is simply covered call writing and since I have already written about that (See Covered calls dated 9/7/08), I will only say that down markets are perfect markets for this trade. Even if you do get caught and are forced to sell, you will most likely be given an opportunity to get back into your stock on the cheap.
You can use these strategies and make some income or you can sit on the sidelines and wait out this screwy market. It is, as always, up to you. Good luck and Godspeed.

JT

Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor. Which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.

Veterans Day

I know it's tomorrow but many, particularly civil servants, are observing Vets Day today.
Just a quick note to say thanks.
No agenda.
Just thank you for your service to this great country.

JT

Of Oyster Jacuzzis, Music, Smokers, Dogs and Butter

When I began this blog, my intention was to write about whatever I was interested in at any given moment. In this crazy market that we are in, dealing with investing has been like baby sitting a spoiled child.
We are doing what we have to do to get through the temper tantrums that the markets have been throwing, waiting desperately for the parents to come home and take this brat off our hands.
So naturally most of my thoughts and energies have been directed toward navigating these tough financial markets
In so doing, it is easy to forget some of the fun things that make life such a wonderful journey and I thought I'd take a minute or two and jot down some of those things. So for those that only want to read about investing, you can skip to the bottom, I'll throw in some incoherent thoughts that I had the other day, toward the end of this post.

A week ago we had a little BBQ.
Assembled for our considerable enjoyment, were wonderful friends, 8 dozen oysters, three smoking BBQs, tri tip, pork ribs, tasty side dishes, ice chests full of beer, a classic car show parading by and a rain threatening sky which respected our fun and frivolity and waited until we were done with our day, to let loose with a beautiful early winter rain.
Oyster Jacuzzis, Here's how I did them;
Oysters
Butter
Lots of minced garlic (always fresh, never jarred)
Chicken stock
Chopped green onion
Red pepper flake
Cholula or Tapitio brand hot sauce
Combine all but the oysters and hot sauce over low heat and make a nice broth. Put oysters on the grill and let them cook. Eventually they will start to open, using one gloved hand take them off and with a knife separate the meat from the top shell, peel the shell back and remove it. It can be tricky on some shells to find the top, but whichever side gives you a deeper bowl, is the bottom. Loosen the meat from the bottom so it will be easy to eat. Return them to the grill and cover them with your broth. Very soon they will start to bubble in their little tub, all happy, covered in bubbly, buttery, garlicky, goodness.
Remove from heat, slap away eager hands to allow them to cool slightly, add hot sauce to taste and enjoy!
Once you try them you'll be forever addicted.
It made for a beautiful day. Indeed the only thing that was missing, due to technical difficulties beyond our control, was some good music. But that will be remedied before our next get together.
Thanks to all who showed up and thanks to Ray for finding those awesome oysters!
Speaking of music, that takes us to my next topic.
As soon as I can figure it out I am going to post a link to my favorite artist, Martin Sexton.
Martin is a bit of an acquired taste for some, for others like myself, it was instantly obvious that I had found something extraordinary. I will leave it to you to discover whether or not his music is your style. For a sample of his stuff, you can check out his "My space" website. It's got a great jukebox on it. Just Google, Martin Sexton and it'll pop up for you.
There is no smooth way to move into my next topic so I will just hit you with it.

Smokers.
I'm currently in deep discussion with my girlfriend Lynn, my buddy Ray(of the supplier of oyster fame) and many others, on the design and construction of a trailer mounted combination, Santa Maria style Grill and BBQ smoker. If anyone has any good tips or links email me at Torocreekinvest@aol.com. Thanks.

Dogs.
Still looking for a new dog. I'll know it when the right one comes along. When I get one they become part of the family, so I want to be sure it's a good fit for all concerned. I've been checking the shelters regularly, so we will see what happens.

And finally
Butter.
(believe it or not, this is the investment part)
I was checking the sales paper for our local supermarket, and like always, I found some stuff we needed that was on sale. I also found plenty of stuff we didn't need that was on sale. But while I was looking at the butter (2 for $5, lately it's been goin' for 4 bucks a pop) I started a chain of thought that I still haven't completely worked through.
It went something like this;
We don't need any butter I still have plenty left over from the oyster jacuzzi party.
But it's cheap.
Can you freeze butter?
Probably, but will it taste funny?
I don't know.
Naw I'll just pay the usual price next time we need more.
It's worth it for good tasting butter.
What else is on sale?
Beer.
Now that I can store without it going bad. My shop stays nice and cool especially this time of year.
What else is on sale?
Gasoline
I can't store enough of that to make it worth the hassle.
What else is cheap right now?
Hey stocks are on sale too, aren't they? and you don't have to store them, but they do go bad sometimes, not all of them go bad, but that's the hard part about stock picking, but that's what I do, so I better keep buying stocks, I just gotta keep buying good companies, and what about gold? naw, silvers better, yeah I know
and, , , one time, , , at band camp.....

Did someone say beer was on sale?


JT

Election Ramifications

I am on record as not wanting either of the candidates elected. Having worked for the Government for 20 years, I am painfully aware that there are only a few things that the Government does well. Despite the best intentions of even the brightest, most ethical and competent people in civil service, one saying always stands out as accurate, "We are the Government, if it ain't broke, we'll fix it till it is". And neither politician, convinced me that they would be any different than most of the others that have preceded them.
Having said that, I won't go into a political rant for or against the current Electee. I'll leave that to the political pundits.
Indeed this has always befuddled me when it comes to the Hollywood and music types as they spout off about political issues. Why would a performer take a political position that by it's very nature is going to alienate, in most cases, at least half of their customers.
As harsh as this sounds my only concern is to help you make money, despite the Governments' best efforts to prevent it.
If you are upset about the current choice for president you have my condolences or if you are happy about it, you have my congratulations. But here's the thing; it needs to be compartmentalized in order for you to be a superior investor.
Obama may or may not save the country from real or imagined dangers and he may make things worse, who knows. But to go out and buy or sell investments because he has been elected or because George W is leaving office is a sure recipe for disaster. Keep your eyes on the big picture and see what IS happening, not what people say is going to happen.
Remember the admonition I shared with you a couple of posts ago. Don't be dogmatic, develop reasons. Politics are dripping with dogma and it's easy to translate passion into action, but passion very rarely yields logical investment action.

JT

Myopathy

I tend to be rather myopic in my investment philosophy and that can be a blessing and a curse. Since this is often the case, I have to force myself to step back and consider the contrary point of view quite often, just to check myself.
As those who know me can attest, I have been a proponent of silver for several years. The question is, has this become an obsession for me?
I think not.

As the prices for commodities and commodity related stocks have been hammered lately, the urge to take your lumps and sell out is almost overwhelming and questioning your reasons for investing in this sector becomes constant.
This is the danger that is ever present in the investing world. It is insidious and expensive. It is what causes the average investor to buy high and sell low. It is that nervous pit in the bottom of your stomach that keeps reminding you of how much money you've lost and it doesn't care that the losses are not yet realised until you sell and that voice has been obeyed.

If I were one of the unfortunate people who had to ride the housing market and the financials down into oblivion, I wouldn't have much credibility but I have been warning against those investments for years. Long before the words "sub-prime" became part of our national lexicon.

Everything that has been happening has been predicted. But for every accurate prediction there are infinite inaccurate predictions. So much so that it is easy to be swept up and carried away by someones "story". And as their story fails to pan out, that someone, justifies, rationalises and flat out invents their way out of their theory. I see that happening now. Everyone is pointing at the latest pull back in commodities and saying commodities are dead and the dollar reigns supreme.
Well that remains to be seen. I would much rather look at the macro-picture and remember why I buy precious metals, energy and agri-business. And here is the macro as I see it and how I have seen it for years;

Let's start at the Internet bubble. As that mania deflated and 9-11 played itself out, interest rates were cut to stop a major recession. Rather than let the free markets self correct, the government stepped in to artificially prop up the markets. The creation of essentially free money, through artificially low interest rates, inflated the housing sector. At the same time our financial institutions discovered that they could use this housing boom to make a ton of money by manipulating their books and abandoning traditional reserve requirements (lending money they didn't have). This was allowed by changes in government policy. Seeing the trillions of dollars in the derivatives market and the runaway inflation that they were causing, Uncle Sam, got scared and tried to tap the brakes by successive interest rate increases. Just like a car flying down an icy road, tapping the breaks caused the inevitable spin out. Housing collapsed. All that money that the banks created out of thin air went POP! And disappeared.

Now our government, which caused the problem to start with, is going to fix it by replacing the phony money that the banks created and subsequently lost, with "real" money.
Casey Research reports that in just the last 2 months alone, monetary supply has increased 38%
And they are just getting started.
Now back to the macro-picture.
Bull markets are defined as too many dollars chasing too few goods.
Despite an imminent global economic slowdown, people still have to eat and last I checked world population is increasing faster than our food supply.
It takes energy to grow food and support those people. We are years behind in the development of new energy resources and sources.
Gold and silver are monetary metals and by the very nature of their scarcity, will rise in price as monetary supply is increased. Monetary supply is growing world wide at alarming rates.
Commodity bull markets last for years, typically 15 years. We are currently in year 8.
The only two things that end a bull cycle is when the supply increases to meet demand, or when demand is reduced to relieve the strain on supply. Neither of these has happened in commodities and in the case of the food supply, demand destruction is truly a frightening thought.
There are many arguments and scenarios that people will offer to debate the positive case for commodities, but it is just noise. A lame attempt to invent their way out of a bad theory.
With this pull back in prices, comes what I believe to be a rare opportunity to add high quality resource stocks to your portfolio at discount prices. This will give you and your families safety and security in what are, unarguably, tough times ahead.

It is not that I think I am smarter than anyone else, it's that I have "been there, done that" before. I know what those voices sound like and I know that once you hear them it is crucial to understand their nature, step back and logically re-evaluate, then either listen to them and act or tell them to shut up and stick to your guns.
You can do what you want, but I'm, not only sticking to my guns, I am reloading, taking aim and emptying the magazine.

JT

Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor. Which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.

New View

Invest in Dow Chemical?

Johnson and Johnson?

Boring.

What, Dow chemical pays a 7% dividend?

It's P/E ratio is what? 8?

Are you kidding me?

That's amazing but it's still a boring stock, it never moves very much. Wait a minute. Right now that's not really a bad thing. Besides it has moved quite a bit. Moved down.

Hey I get it now!

It's on sale!

But it's still trending down.

That's right and if there is any hint that it is basing or even breaking that down trend line, I'm jumping in with both feet. In the mean time I am going to be developing a list of blue chips that are deeply discounted.

I have never seen myself as someone who would trade Blue Chips but somewhere in my brain is the thought that I would love to have a portfolio with Blue Chips as core holdings. So if I don't add these positions at a deeply discounted price, when will I have another opportunity like this? Maybe never.
But when should I buy them?

The trick is in knowing when the bottom is in. Since my crystal ball is currently at the shop being repaired from the last time I threw it at the wall, I'm going to be buying with insurance.



Protective puts;

Puts are option contracts that bet on a downward move in a stocks price. Why would you make a bet that a stock that you own is going to drop? The same reason that you buy auto insurance. You are not wishing for an auto accident, but IF it happens, you are covered.

The same applies with protective Puts. If the stock drops, your option contract gains value, thus off setting the loss in stock value.

At that point you can then decide to sell your stock and the option contract, just the option contract or just the stock. you can also sell the option at a profit and buy one dated further out for continued protection. If the stock rises or stays the same your contract will expire worthless and you may or may not decide to buy another(renew your policy).



This is one of the intended purposes of options, it is a strategy that most serious traders employ and it will serve you well when you can't see the bottom through your busted crystal ball.





JT

Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor. Which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.

Re-evaluate

It looks like it is decision time again.

For the silver;
Silver is still taking it on the chin, on paper. Physical silver, however is traded at a premium that has never before been seen. The spot price is quoted around 9-10 bucks. If you wanted to buy physical bullion, you would be paying as much as 50% over that price for most forms, ie. Silver Eagles, 100 oz bars, 10oz bars and even 90% halves, quarters and dimes. That is, if you can find any.
Physical silver is near sold out levels everywhere throughout the world, with the exception of 1000 oz bars and jewelry items. There is some supply of Eagles and Maples, intermittently, but they don't stay on the shelves very long. Indeed one of the scenarios that I subscribe to is that once the shortage gets serious enough, people will resort to purchasing the 1000oz bars because that is all that is left. And it looks as if this is happening.
Once that comes to pass, there is the fear that the COMEX could default. It is a fact that there is a significant gap between the physical(1000oz COMEX deliverable bars) silver that is actually in the COMEX warehouses, and the amount of silver paper contracts that are traded on the futures markets.
What this means is that, when the industrial users buy silver, this is often the form and method they choose to obtain it. 1000oz bars are big, ugly and unwieldy and in order to sell them the average investor would have to have them assayed. In other words they are not as liquid as the easily recognized and universally accepted Silver Eagles. So, they are naturally the last choice for most investors. But when you can't get what you want, you'll get what you can. Once investors take the supply away from the industrial users, look out ABOVE, the price will soar because the quantities used by industry is so small per unit, that they will buy silver at any price.
At least that's the theory, but I believe it has merit
I still believe that silver will rally and break out to new highs. I think this will happen soon but there is no way I can know for sure. The price activity has shocked every expert that I have researched and everyone including myself is scratching their heads. With the whole financial world turned on it's head, The US printing money like never before, the physical demand sky rocketing, the cost of production exceeding the spot price and the worst supply shortage ever seen, the prices should be going through the roof. Go figure.
But my recommendation is to hang on and enjoy having the insurance against the worst case scenario. And if you have the stomach for it, Buy more.
SLV, because it follows the spot price, is by far the cheapest and easiest way to own silver. And since we are exploring theories lets look at one that I don't necessarily subscribe to. This one goes as follows.
There is the fear that unless you hold it in your hand, "you aint' got no silver"
Why is this view so widely accepted? Because it is pretty much the truth.
If the proverbial crap hits the oscillating wind generator, how will you get your money? if you can, will your money be worth anything?
I don't know the answer, but the real question is, do you think things will get "that bad"?
While I believe that the price of Silver will explode I don't think that the end of the world as we know it, will have to be part of that scenario. My speculation is purely fundamentally driven and I have faith that this country can and will deal with any problems that we are faced with.
Has our government done the right things up to this point?
Not even remotely, in fact I believe that the Government is what caused the mess that we are in. And I mean all the Government! Both parties, both houses and the administrations past and present. I also believe that things will have to get worse before they get better, but they will eventually get better.
Here is a major key to investing and it is crucial to your financial success; Don't be Dogmatic, don't listen to hype. Develop reasons behind your investment decisions and stick with them but stay flexible.
I learned that statement years ago and I regret that I can't remember who to credit it to, but I have lamented that I have forgotten it at certain times in my investing career.

Next time; new strategies.

JT

Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor. Which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.