Oil prices for the August contract closed just shy of $75/bbl, while the September and October contracts closed above $76/bbl.
These are good times in Houston with oil prices trading near their high's. And to pay their respects to one of their own, several oilmen attended the funeral of former Enron CEO, Ken Lay. Among the oil related guests were Former President George Bush, and former Secretary of State James Baker.
With gas prices around $3.00/ gallon, I still get irritated when I drive by an Exxon station. I can't help but think of the $400 million dollar pay package that its former CEO, Lee Raymond is receiving which includes his "pension, stock options, a $1 million consulting deal, two years of home security, personal security, a car and driver, and use of a corporate jet for professional purposes".
It seems to never end. The haves keep getting rich on the backs of the have nots, and the Wall Street system is rigged to ensure that corporate insiders profit at the expense of ordinary investors.
For now, be glad you own some energy stocks. It makes life a lot easier when you are silently standing by the gas pump thinking about how badly youć± e getting screwed.
Oh, well, life goes on. While we may have one more rally (odds are lessoning) to the upside (after the August fed meeting?), we have to prepare ourselves for the eventual bear market.
At this point, the only thing you need to ask yourself is this: Am I prepared for the upcoming recession?
Its really pretty easy to do. The first thing we suggest is to ignore the media. Can you do it? Sure. Will you do it? That's the million dollar question.
If we could go back in time to the late 1970's-early 1980's- See Chart , you'll see that the 20 year Treasury Bond was yielding around 13%. Also during that time inflation was running at the same pace. Investors were told that they needed investments that would outpace inflation, and during that period in time, the 20 year T-Bond was keeping pace with but not exceeding the inflation rate.
So what did investors do? They listened to the media, bought 1-3 year cds and bonds instead of locking in 13% for 20 years.
I am not suggesting that interest rates will return to double digits anytime soon. In fact, I would not buy a 20 year bond until interest rates reached 8% or higher. My point is that investors that ignored the media, and did buy a 20 or 30 year T-Bond yield 12-15% were richly rewarded for 2 to 3 decades while others emotionally struggled to gain the markets historical returns of 10% per year.
In the current market environment, investors need to consider the following;
1) Own a Market Hedge. Since buying puts on the major market indexes involves an erosion of time premium, you timing has to be right. I don't like to worry about the erosion of my money, so I like to own investments such as the Rydex Inverse Dynamic Funds- Go To Website
2) Keep a large percentage of cash (50% or more) in a Money Market account.
3) Don't buy into the argument that dividend paying blue chips will save your portfolio. In a major market decline, some stocks will go down less than others, but most everything goes down.
4) Sell stocks with high P/E ratios, or are the heavily touted favorites of the Wall Street investment banks.
5) Since we continue to believe we are in a long term bull market for commodities and metals, build positions in related companies or indexes (BHP, GLD, Energy Stocks, CX, MON, CCJ, CNQ, PD, SLV)
