How To Make Money From Bad News!
Friday, May 16, 2008 | Ethan RobertsRating:
I was in a parking lot the other day, when I saw an attractive bumper sticker on the car in front of me. It said: "Money Talks,
Mine Says Goodbye!"
That reminded me of another bumper sticker that I see every so often, a spoof on Disney's Snow White Lyric of "Hi Ho, Hi Ho", that bemoans:
"I owe, I owe, so off to work I go!"
Granted, these are humorous sayings and the humor offers a sense of comfort to the people who display the stickers on their car, as well as to others who read them. But I think there is a real psychological pain that people are feeling these days about their money. It's too often a helpless feeling, as you watch one entity after another picking your pockets, not even sure what you can do to stop the agony.
The mainstream media reports that even affluent Baby Boomers are spending less right now. People are turning down the heat, turning off their land line phones, and no longer shopping for frivolous items. This is typical of most periods of economic slow down (notice I didn't use the "R" word, as I don't want 'ol George Bush to get upset). Even worse, an AP business article out today states that one in ten middle-aged and older Americans are now borrowing money from family or friends for everyday living expenses. Many have completely stopped funding 401(k) or retirement accounts. That will not bode well for the future.
Personally, I have grown weary of reading those penny pinching articles in the mainstream press that boldly proclaim "12 Ways to Save 43 Cents on your next Electric Bill", or the ever popular "15 Ways to Cook Ramen Noodles", or the wildly exhilarating "How to Stretch Those Dollars For Any Budget!" Listen up mainstream press, if I stretch my dollar any more than it is now, George Washington's face is going to look like Popeye's!
before
after
Twice in the past week, I myself have felt the helpless sting of costs running amok. The first time was when my wife and I were at the local mall, and I ordered two slices of pizza and a small drink for each of us. The bill came to $18. Now I don't live in New York City, or Boston, or some other city where the costs are generally exorbitant. A year ago that modest lunch would have been at most $12 or $13.
The second rude awakening was when I received a bill for liability insurance renewal for my small business, and it was almost 60% higher than last year. We have never made any claims, nor done anything to warrant this kind of increase. When I called my agent, she simply said that this insurance company was raising their fees, and she would call around and see if she could find the same coverage for less. The next day she informed me that she couldn't find anyone who was less expensive. I am now calling other companies on my own.
I know that I don't have to tell you that prices are going up all around us. There is probably nobody reading this right now who hasn't been victimized by similar increases in recent months. Your gasoline, your food, your insurance, your utilities ... every time you get a new bill or go to the store, you probably want to go ballistic.
Do you remember the classic Peter Finch speech from the 1976 movie, "Network", where the beleaguered news anchor looks right into the camera and says:
"I don't have to tell you things are bad. Everybody knows things are bad. It's a depression. Everybody is out of work, or scared of losing their job. The dollar buys a nickel's worth... Banks are going bust...and there's no end to it...
Well I'm not going to leave you alone. I want you to get mad......... So, I want you to get up now, I want all of you to get up out of your chairs. I want you to get up right now and go to the window, open it and stick your head out and yell, I"m as mad as hell and I'm not going to take this anymore"!
This was 32 years ago. But doesn't it all sound just like 2008? Job losses? The dollar losing value? Banks going under?
Well, don't go to the window to start yelling just yet. Instead, here's another idea: Let's discuss how to actually make money from bad news, such as rising food prices and gasoline.
Today I want to make some recommendations for investments that are available to counter the extra money that you are being forced to spend on every day necessity items. Teeka Tiwari already set the groundwork for this with his recent article, How To Profit From Inflation.
I would like to expand on his fine article.
The investment world has changed dramatically within the last few years with the creation of sector specific Exchange Traded Funds (ETFs). Do you hate paying more every week for gasoline? Why not buy United States Gasoline Fund (UGA), the exchange traded fund that goes up when gasoline prices rise? Imagine making 7, 8, or 10 times the money back that you are paying for gasoline! UGA has risen from $46 a share in March, to a current price near $59. Just owning 100 shares would have yielded nearly $1300 pre-tax profit in that time. Sure makes it more palatable when you have to swallow that disgraceful $3.67 a gallon price at your local Exxon Mobil!
How about the ever rising cost of food? In some foreign countries the people are now rioting over high food costs and scarcity. Don't think for a moment it can't happen here. But don't take it out on the poor cashier at the Winn-Dixie checkout. Instead, buy food related ETFs, such as the Market Vectors-Agribusiness ETF (MOO), or PowerShares DB Agriculture Fund (DBA). Moo is up from the low 40's to the mid 60's since last September, and DBA rose from $26 to $43 in six months, before retracing back to its current price near $37.
The idea is to stop being a passive victim of the corporations and the economic forces that are combining to squeeze your every last dollar (or as one of our readers loves to say, the "fiat currency of the tribute slaves"), and to start figuring out how to make these abominations work for you, rather than against you. Then if the price of milk goes way up, instead of raging against the moon, you calmly run a Google search to find a list of ETFs that are dairy related. Do the research, and choose the ETF that works best for you.
There is really nothing new, nor complex about these ideas. Peter Lynch advocated similar ideas two decades ago in "One Up On Wall Street", when he advised us to count the cars in the parking lot of our favorite store as a way to predict future earnings. Lynch said "Take advantage of what you already know."
To Lynch, investment success was associated with keeping one's eyes and ears open, always looking for opportunities to profit from what is happening all around us. Lynch would question why people buy stocks of companies whose products they can't pronounce, nor even understand, when they could just as easily buy stocks of companies whose products they use every day.
The chart below provides some investment suggestions for how to profit from the price increases of various commodities/sectors. As always, do your own research, and resist the temptation to buy these ETFs or stocks after excessive run ups in price. By patiently waiting for pull backs, you can build your positions at better prices. Here is one example of an ETF in need of a pull back, as of this Wednesday (5/14):
UNG seems a bit overextended here on the daily chart. Notice the weakening RSI and stochastic, even as the price has moved up. A safer entry point would be on a pullback to 50 or 51.
Here is a list of some popular investments that correspond to several sectors which have been rising in price for some time:
These are the basics which are rising in price today. But tomorrow it may be other industries and a new list. The idea is to stay on top of that which is rising, and then look for stocks or ETFs you can buy that will become profitable investments for you.
In fact, I may just buy some stock in that darn insurance company that is trying to raise my business liability insurance. And by the way, I have now found another pizza place where the pizza is better and several dollars cheaper. But if I keep eating so much pizza, my face is going to look like Popeye!
So what are Tycoon readers peeved about? Which rising prices make you want to open the window, stick your head out and yell:
"I'm mad as hell and I'm not going to take this anymore... I'm buying Moo!"
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Ethan Roberts
Contributing Editor
The Tycoon Report
