Is it Soccer or Futbol??

The US advances to the round of 16 in an exciting victory over Algeria in the waning minutes of their match this morning. The World Cup is globally, the most watched event and the economic impact for for the host nation has statistically been better than that of hosting the Olympic games. The next quest for the Cup will be held in Brazil followed two years later by the Olympics in Brazil. Brazil has a strong economy and will need some major infastructure improvements for both of these games. Don't neglect them in your investment portfolios. I would love to hear some thoughts on this idea.

Oops... He Did it Again

On April 20^th President Obama and his administration placed a six month drilling moratorium on the Gulf of Mexico in light of the Deepwater Horizon tragedy. Today, that decision was blocked by a New Orleans federal circuit judge who ruled that the moratorium should be blocked in order to keep it from doing long-term economic damage to New Orleans’ businesses. If this moratorium were to continue as planned, it could cause the economic ruin of regional boaters and equipment providers during its short life span. This adds concern in light of the fact that the more than 60,000 barrels of oil spilling into the Gulf of Mexico every day will most likely lead to employment cuts if an end to the spill does not come soon.

On a somewhat positive note, BP has collected a record number of oil barrels from the spill today- 25,830. This is less than half the amount of the actual oil that’s spilling into the ocean per day, but twice as much as was originally estimated. This is not enough, however, to cushion the blow of the nearly $2 billion in costs which include response, containment, relief well drilling, Gulf state grants, insurance claims paid and federal costs. To date, more than 65,000 insurance claims have been made.

Thoughts?

Deep Water Horizon

The Deep Water Horizon oil spill tragedy in the Gulf of Mexico connects strongly to Northwest Indiana (NWI). As a long-term employer in the area, many NWI families have accumulated and owned BP stock (formerly Amoco) for generations and the healthy BP dividend provides income for retirees and widows, some with their entire retirement savings invested in BP stock.

While BP stock has ups and downs, it has been comfortable enough to own, leading many in NWI to ignore diversification rules and have 90% plus of their portfolio invested in BP stock. I and other advisors have, to no avail, cautioned against this. Reinforcing that important lesson, the Deep Water Horizon tragedy shows that single stock concentration is dangerous. Academically, portfolio construction limits concentration in any one stock to less than 5%. Realistically, this guideline is 15% to 20%. Investors who are employed by and dependent on a company for health and retirement benefits should stay at the lower end of these ranges. Logically, if your company gets in trouble, simultaneously losing your job, health benefits, and seeing your net worth greatly diminish could be catastrophic.

But I still own BP stock, so what now? First, note that while there’s serious damage, nothing’s over. On Wednesday, Wall Street traders put a 39% probability that BP could default on its bonds – which is catastrophic for its common stock holders. I believe the primary risk with BP stock is that the company goes bankrupt or is broken up. Investors must learn their options. In this case, I actually prefer a more sophisticated option which is to buy a put option allowing investors to sell a stock at a certain price in the future. Options can be complicated, seek good advice.

Oh... BP

Looks like Obama’s thirst for blood has been quenched. BP has just decided to suspend its dividend payments to its shareholders for most, if not all of this year. This news comes in light of the equally interesting fact that BP has agreed to put aside $20 billion to cover the costs of the damages claims from people living in the Gulf. This money will be distributed over the next 3 ½ years. Even though none of this is what BP wanted, it’s what Obama, who has already promised the American people scapegoats… oops, "punishment to those at fault,” had been asking for. Keep in mind BP takes in $30 billion a year, before dealing with anything else. And with the fines that BP faces for the spill (which at $1,000/barrel could equal up to $60 million/day) and the debt they already carried before the spill took place, questions about the life of BP are surfacing. Thoughts?

If You Can Believe This...

It may be hard to believe, but even with our multi-million dollar oil spill (Kevin Costner to the rescue!), government bailouts, poor municipal investing and rapidly rising Gross National Debt we, meaning the American dollar, are still the best game in town. The problems in Europe and Greece have made the Euro too shaky to count on, so countries like China, Japan, Venezuela, Iraq, Iran, Saudi Arabia (?) and a good part of Europe feel that buying (yes, buying) U.S. Debt is more stable. As it is now, the 10-year yield on the U.S. dollar is a mere 3.25%, which, when compared to the non-existent yield on the Euro, sounds like a pretty good chunk of change. This low yield is a response to the U.S. debt issue and there is no foreseeable rise in sight. So what does this mean? The naysayers of the Euro (the ones who claimed that creating a single currency was only a “quick” fix to a difficult solution) were right, and that with all of our problems, the U.S. dollar is continuing to hold its place as the world’s reserve currency.

Thoughts?

Are You Ready for Some Football?!?

How does an $830 million Super Bowl stadium sound? Well, if the New Jersey state government has their way, you'll soon find out in 2014. The problem is Meadowlands Sports Complex, a $306 million project which began over 40 years, and should have been paid off 15 years ago, has proved too enticing for the politicians of the state. Why would they worry about paying off their multi-million dollar loan when other, more tantalizing investment ventures (which eventually failed) were right at their fingertips? Unfortunately, this is all too common for city and state municipalities. Today’s Wall Street Journal notes that the “State and local borrowing as a share of U.S. GDP has risen to an all-time high of 22% in 2010.” Basically, this means that several counties and states in this country have borrowed large amounts of money that they can’t pay back. How does this happen? It’s easy. When certain loopholes don’t necessitate approval through the voting citizens, money can be thrown around while taxpayers have little to no knowledge of the long-term effects. Deferring payments to make other, less successful deals has also played a part. What can be done? Thoughts?

The Wizard of Oz Takes a Spill or The Wonderful Wizard of Empty Promises‏

It’s an interesting dichotomy: The government, who many Americans claim is all knowing and all doing, compared to the Wizard of Oz who, without merit, made similar claims to the people of the Land of Oz. Unfortunately for Dorothy and for the U.S., these “claims” are not all true and have come back to bite us. Let’s face it- there’s no easy way to stop gushing oil, especially when the source of the leak is a mile underground. What makes us believe the government can find a solution? And if there is a solution, are we prepared to pay? Should we pay? Also, BP’s stock is plummeting. Is this an indication of a lack of faith in BP or the U.S. government or both?

Thoughts?

Oil & Greece

With the world's eye on both the debt crisis in Greece and the oil spill in the Gulf of Mexico, very little attention is being paid to corporate growth. Growth numbers have been good and this correction has created some buying opportunities. Do your homework when selecting solid stocks with good earnings numbers and companies that are expanding into the cycle.