Take notes: This week’s trading strategy
Today's Financial News - Posted February 2, 2009
We can pray for hope and change all we want, but unless we fire our elected officials we are never going to get it. The only way to expect profits from this economic mess is to bet against our leaders. It has worked flawlessly in the past.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): It has never been more obvious that Washington is concentrating more on votes than fixing the spiraling American economy. President Obama has pushed the notion of creating a “bad bank” into at least next week and the Senate is likely to vote down the House’s stimulus package, but…
… the administration has found more than enough time and reasons to limit executive pay.
This is just unbelievable. A report hits the headlines that says some $18 billion was paid out in Wall Street bonuses last year and the jaws of the uninformed drop. The New York Times loves it. Instead of telling its readers that the money went to thousands of dedicated employees from traders to secretaries and that it was contractually obligated and made up a large portion of their annual pay, the left-leaning media immediately made it sound like a handful of fat-cats fleeced taxpayers out of billions.
Obama jumped on the opportunity to look like a savior for the little guy and is now wasting time creating legislation that limits a CEOs pay.
Meanwhile, Wall Street is in a tizzy. Last week, the equities market was up on the news a “bad bank” was on its way. This week, with word that the Senate may shoot down the stimulus bill and the bad bank is delayed, valuations are falling just as fast as the nation’s hopes of getting out of this mess alive.
So many options
There are all sorts of companies worth watching this week, but with Washington virtually running Wall Street, Ford (NYSE:F) and General Motors (NYSE:GM) will be highly volatile. So far this week, the news is not good.
GM is looking for some $7 billion in tax cuts, a roundabout way of asking for a larger handout from Uncle Sam. And Ford is getting slashed by analysts.
Barclays reports the strongest of the Big Three may need federal assistance by the end of this year, especially if we do not see an economic turnaround. The analyst cut his Ford share price valuation from $4 to just a buck. Shares of the company are currently trading for about $1.85.
GM desperately needs tax assistance as it moves towards long-term viability. The company is using equity to pay for just about everything these days from getting out of debt to healthcare costs. It does not have cash, it cannot create more debt and its production operations lose money, so the only thing it can do is hand out whatever equity it has left.
The action is creating quite a tax liability. But that’s okay. If any company knows how to get something out of Washington, it is GM. If half of Obama’s cabinet does not pay taxes, we surely cannot expect GM to have to write a check.
Really, it is the same old stuff in Washington and on Wall Street. That means we can continue to use the trading tactics that have paid off recently. Managing the volatility remains the key. The best way to do it is SPDR (AMEX:SPY) options. The ETF tracks the action of the S&P 500, so the options give us an easy way to play the up and down movements of the broad market.
Last week, I recommended short-term put contracts. They paid off big time and will do the same this week. Now that we have broken through the 8,000 mark on the Dow once again, 7,000 will be the next stop.
Unless Congress gets its act together, it will not be pretty. That is unless you hold SPDR puts. Then the action will be downright handsome.
Later this week, I will tell Hot Stock Confidential subscribers my latest trading play. Because volatility is high and the markets are unpredictable, hedging all positions is vital. You can bet, SPDR options will be a part of the strategy.
Unfortunately, the free markets are not in charge. Washington is. It is not going to be a joyride, but that does not mean it will not be a profitable one.
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