Archive for August, 2005

Oil not ready to decline

Wednesday, August 31st, 2005

Oil over 70.00 a barrel means higher gas prices. Some areas have seen 3.00/gallon and more are expected to, leaving the average consumer with less spending money. This is turn drives stocks down, particularly retailers. As you might imagine, airlines have also been hit as have insurance companies.

Bloomberg.com has a good article on the extent of the damage to US refineries. According to the AP, “Seventy dollar oil is the point where you start to get a bit more nervous,” said Ed Keon, chief investment strategist with Prudential Equity Group in New York. He said oil and refinery companies were likely to “invest like crazy” to increase supply, while consumers and companies started using less energy to reduce demand.

“My guess is eventually we’ll see prices start to come down again, but I don’t know that anyone knows when we’ll see that happen,” he said.

Oil prices

Thursday, August 25th, 2005

I’ve been consistently surprised by rising oil prices. When they were around 53.00 I said they have to come down some time, probably soon. I’ve rarely been more wrong. I’m still saying that prices ahve to come back down but no longer try to guess when. Anyway, prices did drop a bit thanks to some recent weather reports.

If prices don’t drop quite a bit though I have to believe that the world’s amjor economies will have to make a few adjustments. Americans may even have to stop buying SUVs…

Nanotech stocks

Monday, August 8th, 2005

Motley Fool has an interesting article on 3M and it’s research into nanotechnology. This is a company worth researching. It has a long history of rewarding stockholders, a reasonable PE around 18.69, a forward PE of 15.56 and a PEG of 1.50 (all this from Yahoo Finance).

Also mentioned are Rule Breakers recommendation Harris & Harris (Nasdaq: TINY) and Motley Fool Hidden Gems selection Flamel (Nasdaq: FLML). These are riskier plays than 3M, but of course could see large percentage increses IF they succeed. TINY for example has a forward PE of 98.42. People like me who don’t know much about nanotechnology probably want to stay away. Motley Fool has this to say:

I remain bullish on TINY’s long-term potential, but with the dilution of existing shares and in the absence of any exciting news coming from its core holdings, I think TINY will continue to float slightly lower in the weeks ahead. Therefore, I would encourage would-be investors to sit tight and watch to see at what price the company itself offers its 3 million new shares.

FLML is another stock I probably won’t invest in. With a current PE of 288.92 I don’t understand why analysts set a 1 year target of over 29.00 (FLML currently trades around 18.75). Perhaps if I understood the company I would understand the price target, then again, perhaps not.

What to do with home equity?

Saturday, August 6th, 2005

A Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania was asked if home equity is safer in a conservative side fund than buried in the house earning a 0 percent return. He answered that it’s more risky since assets that earn more than the mortgage interest rate are risky.

The major target of the new wisdom is the homeowner with significant equity, who is being persuaded to borrow against it in order to invest at a profit. The borrowing cost that the investment return must beat is the cost of a new mortgage, either a second mortgage or cash-out refinance. This is usually higher than the rate on the borrower’s existing mortgage, making it that much more difficult to find an investment that will yield a margin over the cost.

The recent boom in house prices has increased the size of the target market enormously. While few households have a business in which to invest, no problem, the loan officer/planner/financial advisor will advise them about investments.

The new wisdom is supported by an enormous amount of financial self-interest. There is money to be made on the new mortgage, and on the investment. The intermediaries in the process take theirs off the top. For the household to end up richer, however, the investment return must exceed the borrowing cost over a long period. Since investments that yield a return higher than the household’s borrowing cost carry risk, the household can also end up poorer.

Ameritrade special offer

Thursday, August 4th, 2005

I already use Ameritrade, but if any of you are unhappy with your current broker, you might consider switching. Now is a good time considering this special offer:

Ameritrade is having a summer celebration and we want you to be a part of it! Take a permanent vacation from managing your accounts with other brokers and we’ll give you 50 commission-free Internet equity trades. Plus, you’ll get $50 to help pay transfer fees. Just transfer your account to Ameritrade from another broker before August 19, 2005 (offer not valid for retirement accounts). The transfer has to be worth more than $ 15,000.00.

I don’t work for Ameritrade or have any affiliation (other than being a customer) so contact them for more details.