Opportunities do Present Themselves...

"No bastard ever won a war by dying for his country. He won it by making the other poor, dumb, bastard die for his country." _ General George S. Patton

The current situation in the municipal market may (or may not) present an excellent opportunity for a nimble trader. Certainly, the commodity market has been a trader's dream of late.

If you read that this or that might get "killed" in the market, there is no need to run away. It is time to take a closer look: Qui Bono? (who benefits?) Is there an opportunity to go long there? Who is harmed? Is there a way to play the short side?

Let's look at: Coal - Prices have soared recently. Of course, Natural Gas ("NG") has benefited from the price rise of Coal, but NG is trading at or near 18 month highs. WIll NG keep going? Maybe. A disciplined trader might be willing to go long, knowing he will hit the bid if the trade does not go his way. What else might benefit? Fertilizer prices are up big as a result of the rise of NG, which is up big as a result of Coal... Corn cannot be grown in the absence of fertilizer, and any decline in fertilizer usage will impact corn production... Isn't corn the primary ingredient for ethanol in the U.S.? And aren't there a lot of ethanol plants coming on line that are scheduled to use vast quantities of corn and a considerable percentage of the U.S. crop? Maybe corn is the play... Don't we use a great deal of NG, and coal in the form of electricity, in the process of producing ethanol? What about Uranium? That commodity has not performed very well lately. Will it? All of these dots are connected somehow. Connecting them correctly will make you rich, and even in an energy crisis it is better to be rich.

"I've been rich, and I've been poor. Rich is better." Joe Louis, Heavyweight Boxing Champion

I trade for a living, I write this blog to vent my spleen. There's a big difference. I may point out the idiotic BS that our media, politicians, policy makers, and regulators spew forth like the aftermath of a scat film gone awry, but I ALWAYS try to profit from it. I don't feel vindicated by winning a debate or an argument, only when I risk my capital based on the opinions I have formed and come out with a tidy (or an obscene) profit.

"The American Energy Crisis" is going to change the economic fortunes of ALL Americans, some for the better, most for the worse. I prefer to be in the former camp.

Over the next few years the winners will be those who recognized the problem, saw the opportunities, AND ACTED. The folks that believe "that "THEY" will figure something out" will be impoverished and intent on blaming someone for their misfortune.

But let us define winning: If you are in or approaching your retirement years, your agenda will be different from a 50 year exec at the peak of his earning years. Generally speaking, the older you are the more you have to concern your self with "return of your capital, not return ON your capital". Winning for you will be in not losing your assets to market dislocations, "Black Swan Events", and hyper-inflation. And because of the risk, commodities cannot be more than a 10% - 25% of your portfolio. You are stuck with income producing securities such as Treasuries and high dividend blue chips (think natural resources) and annuities from the big insurance companies. The blue chips could lose nominal value, but the nominal value of Treasuries and the Annuities are guaranteed. Of course, even governments and the most financially solvent insurer could conceivably default (after all, nothing is certain but death and taxes), but it ain't bloody likely. If you are over 65, it is better think in terms of an orderly liquidation of your assets over your life expectancy.

Say you are between 40 and 60 years of age, with a net worth between $2 and $20 million. Hard to believe, but this is the group that will be MOST IMPACTED BY THE ENERGY CRISIS. The folks with the 9 figure net worth's in this age group will likely remain wealthy enough for the rest of their lives (provided their wealth is not leveraged to something that goes "BOOM!" Diversification is an important concept, just ask any Worldcom or Enron stockholder). The folks in this age group with $500k in a 401k and some equity in their homes will be just as pressured as they always were - pretty much living paycheck to paycheck until that paycheck is taken away, at which point they do not have the resources to do anythings about it except to cut their lifestyle to a point they can afford... Its the 2 to 20 net worth crowd, the middle class millionaires, that have enough resources to protect but not enough to afford to lose it. So this is you - what do you do? I can't give specific advice but I can say that some assets hold value better than others. South Florida luxury homes are a poor store of value while productive farmland is likely a good store of value. Precious metals beat dollars stuffed in a mattress. Commodities beat financial assets for the most part, but you can't put all your money in commodities, so you are STUCK in that you will have to hold some financial assets in order to maintain liquidity to pay bills, etc... Can't help you with the specifics but I will say that if you choose poorly you could really, really, really get smoked. Some financial assets benefit from high commodity prices... you can figure that out. Oil services companies, Oil & Gas producers, gold and silver miners, etc... these companies hold more appeal to me than, say, airlines, or travel and leisure, or high P/E tech.

If you are between 30 and 40 and haven't had enough time to put together a significant portfolio I suggest having wealthy parents. For those under 30, you should revel in your youth - your generation is going to be significantly less wealthy than your parents. So be young, have fun, and take good care of your health.


Yours for a better world,


Mentatt (at) yahoo (d0t) com