August 2005 Archives

I find watching oil prices somewhat interesting because of the volatility. When prices bump either up or down, all the pundits come out of the woodwork to extrapolate further on the latest tangent. I think the truth is, no one really knows what the future holds, not even OPEC members themselves know. What will the demand in China and India look like in several months is anyone's guess. Will Russia receive significant foreign investment and start producing more? Will a worldwide recession hit and decrease demand? Will there be a cold winter in the northern hemisphere? How much has fear and uncertainty added to oil prices? Have the hedge funds driven prices to extremes? Will there be political games that move the price considerably up or down? The answers to these questions and many more are simply unknowable. But I do find it interesting watching people try to rationalize and explain oil prices.

I am sometimes reminded of people who predict a cold winter because they have observed animals with thick coats of fur. Thus, according to their logic, a cold winter must be coming. In reality, all that a thick shiny coat of fur indicates is that the animal enjoyed a good summer with plenty of food. Similarly, when I see pundits commenting on oil prices, I often wonder if the facts on which they are anchoring their arguments will have any substantial bearing on the outcome. Or are they simply telling us that a thick shiny coat of fur is indicative a coming cold winter.

Nymex crude is $63.25. Just as a point of interest, the futures price for December 2010 is $57.94. The futures market is presently exhibiting backwardation. I am curious to see how energy prices do play out. In 2010, will prices be above or below $57.94? My guess is that prices will be higher, but I am only guessing. I am basing my guess on that prices have stayed persistently high for a long time now. Normally, spikes are just that—spikes. I am not anchored to my guess and will readily change if the world begins to indicate a different outcome.

In a Financial Times article Computer virus turf war hits media (I believe the article is available to the public) Kate Mackenzie and Jonathan Loades-Carter in London and Chris Nuttall in San Francisco write that a new slew of viruses have been unleashed.

Affected companies include CNN, ABC News, the New York Times and the FT. Computers at DaimlerChrysler, Kraft and UPS were also reportedly infected by the worms.

...

"We have grouped them into four main families," Mr Hyppönen said. "They're even fighting with each other - some versions are removing earlier versions. It seems like some fighting is going on within rival virus writing gangs."

The worms have all been released since Sunday, with four being released on Wednesday alone. Mr Hyppönen said the "houseofdabus" code was released last Wednesday and was not a virus in itself, but demonstrated how to take advantage of a vulnerability which Microsoft had warned about the previous day.

According to the article, only Windows 2000 machines were hit, while Windows XP computers were not. Nonetheless, I encourage you, regardless of whether you use Windows 2000 or Windows XP, to refresh your anti-virus definitions.

Today was certainly a challenging day in the markets. Inflation came in on the high side at 0.5 for the month of July. The retail sector did poorly Wal-Mark (WMT) missing the mark. Abercrombie & Fitch Co. (ANF) fell $2.32 to 61.23 for a loss of 3.65 percent. In after hours trading, it fell another $4.73 to $56.50 for a loss of 7.72 percent. This is not a bumper day for ANF holders. Deere missed its mark, causing both Deere and Co. (DE) and Caterpillar Inc. (CAT) to fall. Gateway Inc. (GTW) lowered its forward guidance and the stock fell $0.78 to $3.11 for slightly over a 20 percent drop. Crude was up $0.21 to $66.29 for a rise of 0.32 percent.

My thoughts have not changed from last Friday, when I expressed concern about oil prices, housing, interest rates, and a weak technology sector. As Doug Kass often says, the markets have no memory from day to day. So who knows what tomorrow will bring. The markets could very well reverse direction and erase today's losses. For now, I am inclined to sit on my hands.

On Sunday, the Canadian Broadcasting Corporation (CBC) runs a series called Sunday Passionate Eye, which features documentaries that typically last for two hours. This past Sunday's documentary was The Kidnapping of Ingrid Betancourt.

I am drawn to people who are passionate and principled, and Ingrid Betancourt is both. She is an extremely courageous woman who set out to change Colombia's political landscape. As she was campaigning for presidency on February 23, 2002, FARC (Revolutionary Armed Force of Colombia) kidnapped her and Clara Rojas, her campaign manager. Both are still being held.

This documentary saddened me on a few different levels. First, as a mother and wife, her family needs her. Her children have not seen their mother for nearly four years. Second, she is a revolutionary who is willing to stand against corruption. Had she been elected President of Colombia she may have accomplished remarkable changes. Instead, we will never know her true potential and how it may have helped Colombia. Third, she might have led a path for change in the region. Often models for change start in the most unlikeliest of places and then spread outward. And fourth, she is a person who gave much of herself, perhaps too much so, and it has cost her and her family. She placed herself in harm's way to create a better Colombia. I like to see good triumph over evil, but so far evil is doing a remarkable job. I hope that good triumphs before too much longer.

Here are a few websites you might wish to visit to learn more:

• Mother of two, long time corruption fighter, kidnapped;
  • Latest News;
• Wikipedia: Ingrid Betancourt;
• The kidnapping of Ingrid Betancourt; and,
• Official Site of Ingrid Betancourt (French and Spanish).

I hope the world does not forget her, Clara, and three thousand others that are held by FARC. And I hope that she and Clara are released soon.

I had been meaning to send Adam Warner an e-mail this weekend to ask him how you could play the Overstock.com (OSTK) situation using options. If you want to go long, you can certainly do so by either purchasing the stock or call options. But if you are bearish and wanting to profit from a decline in the stock price, then you must either short the stock or use some combination of options. There is no stock available for shorting, so that leaves options. Not needing any prompting from me, Adam Warner discussed how to use options in his article Overstock over the edge?. I like Adam's article because he provided a solid discussion of your options (pun intended).

I note that the stock is down $1.80 today to $45.07 for a 3.84 percent loss on heavy volume of slightly over one million shares. I have no position, either in stock or options.