PLAY: Buy the DBA January 2011 25 Calls (ZBV AY) at market, good for the day. Place a protective stop limit at $1.70 and implement our scaled-selling technique as your position achieves gains of 50% (and greater).
Dear Bottarelli Research Member,
In past LEAPS alerts, I’ve outlined why metals (such as gold, silver, and copper) will emerge as one of the most dominant market themes of 2010. But after hearing the 60 Minutes interview with President Obama last Sunday, I’d now like to officially broaden this bullish 2010 investing theme to include all commodities – oil, soft commodities (like corn, wheat, soybeans, etc.), and anything else that can help feed our global population.
To be honest with you, the implications of the president’s comments on 60 Minutes are better suited for discussion in our new Bottarelli Research Blasters service (where we explore ways to profit off market manipulation). If you’re a Blasters member, then you’ve already received a comprehensive breakdown of these comments in yesterday’s alert. But since I feel this is such an important point (especially as the market has already priced in a so-called “recovery” in 2010), I’d like to begin today’s LEAPS alert by highlighting the main contradictions of the president’s statement.
Here’s the rundown…
In a prime-time interview, President Obama expressed his exasperation with Wall Street bankers, saying that he didn’t seek the presidency to help these “fat cats.” But if you compare Obama’s words with his actions, you’ll see a grossly different story.
For instance, consider the hypocritical nature of Obama’s “fat cat” comment with his promotion of Robert (Bob) Rubin.
Like most Wall Street “fat cats,” Rubin began his career path at Goldman Sachs from 1990 to 1992. Then, he parlayed this position into a job working in Clinton’s White House from 1993 to 1999. During his tenure under Clinton, he was the main architect behind legislation that deregulated the derivatives market. He also helped introduce legislation that established mega-conglomerates, which quickly grew so big, they were deemed “too big to fail.” As you know, both of these developments were instrumental in triggering last year’s global financial crisis.
After botching that up, he left the White House to join Citigroup. During his tenure at Citigroup, he persuaded management to take on more risk in toxic investments that nearly destroyed the entire company. And get this: In return for his destructive efforts at Citigroup, he took in more than $126 million in compensation.
In all honesty, Bob Rubin is perhaps more responsible for the financial crisis than any other individual on earth. And that’s why Obama’s comments are so contradictory. If you looked up the definition of “Wall Street Fat Cat” in the dictionary, you’d see Bob Rubin’s picture. With this background of careless wealth destruction, don’t you find it ironic that President Obama hand-picked Rubin – his apparent enemy, according to last week’s 60 Minutes interview – to lead his financial turnaround team? I sure do!
You probably think I’m lying, but I assure you, I’m not making this up…
Bob Rubin, who could easily be credited with creating the global financial collapse, was hand-picked by Obama to lead the global financial turnaround. By picking the same leaders to reform the failed system that they designed, nothing will ever change. When predicting the outcome of these actions, Paul Volcker (who advised Obama while on the campaign trail) does not mince words. He says, “Ultimately, the possibility of a further crises – even greater crises – will increase.”
To summarize, allow me to quote Matt Taibbi, a journalist for Rolling Stone magazine (and in my opinion, the top financial writer in the country right now). He writes…
“There’s no other way to say it: Barack Obama, a once-in-a-generation political talent whose graceful conquest of America’s racial dragons en route to the White House inspired the entire world, has for some reason allowed his presidency to be hijacked by sniveling, low-rent shitheads. Instead of reining in Wall Street, Obama has allowed himself to be seduced by it, leaving even his erstwhile campaign advisor, Paul Volcker, concerned about a moral hazard creeping over his administration.”
When you break down this troubling situation, you’ll clearly understand why I’m so bullish on gold, silver, and commodities (especially soft commodities, which provide the world with its food supply). As our financial systems continue to stay afloat by manufacturing more and more paper currency out of thin air, the most valuable assets will soon be the raw commodities that are used on a global scale. To profit off this situation, I’d like to enter into a longer-dated call position on the PowerShares DB Agriculture (DBA – NYSE).
The DBA is the very best way to play the soft-commodities market while avoiding trading futures contracts. After all, nobody wants to run the risk of forgetting about an expiration date and getting a delivery of soybeans dumped on their front lawn. But at the same time, loads of investors still want exposure to the commodities market. That’s why the DBA was created.
The DBA tracks the price performance of the Deutsche Bank Liquid Commodity Index (which is composed of a collection of futures contracts on agricultural commodities such as corn, wheat, soy beans, and sugar), all using one simple-to-follow and liquid asset. As of this week, a breakdown of this basket of commodities looked like this:
- COCOA FUTURES, December 2009
- COFFEE “C” FUTURES, December 2009
- CORN FUTURES, March 2010
- CORN FUTURES, December 2009
- LEAN HOGS FUTURES, December 2009
- LIVE CATTLE FUTURES, December 2009
- SOYBEAN FUTURES, January 2010
- SOYBEAN FUTURES, November 2010
- SUGAR FUTURES, July 2010
- WHEAT FUTURES, July 2010
As you can see, this one position, which trades just like a stock, offers you exposure to all of the top soft commodities. And best of all, the weekly chart looks primed and ready for a pop going into 2010. As you can see below, the stock has quietly poked its head above the 50-day moving average. This sets a positive tone going into 2010. To be honest, a move back up into the low $40s by Q2 2010 is a distinct possibility.
Based on this setup, let’s establish a long-standing upside position in DBA now. Here’s the play…
PLAY: Buy the DBA January 2011 25 Calls (ZBV AY) at market, good for the day. Place a protective stop limit at $1.70 and implement our scaled-selling technique as your position achieves gains of 50% (and greater).
UPDATES
PROFITS TAKEN – AA January 2011 10 Calls (OKH AB) & BEXP April 7.5 Calls (QBJ DU): We used strength in both AA and BEXP to lock in gains of 87.10% and 45.12%. Considering the subsequent selling pressure, this move was spot on the money. Congratulations on two well-timed exit points! Sold.
AMZN January 140 Calls (QZN AH): The aftermath from the Barron’s article has lasted all week. But make no mistake, AMZN is stronger than ever. I urge you to maintain this position going into the new year. Hold.
MWW June 15 Calls (MWW FC): On December 13th, ABC News Chief Washington Correspondent George Stephanopoulos interviewed the president’s top economic advisor, Larry Summers, who predicted that the unemployment rate has bottomed and that “by spring employment growth will start turning positive.” Although many private economists predict unemployment will climb through the third quarter of next year to 10.6%, this interview proves that Obama’s economic team will continue creating statistics that show job creation and growth. With these tailwinds, MWW should continue to do well. Hold.
BBY March 42 Calls (BYY CP): This past Tuesday, Best Buy said that their fiscal third-quarter profit more than quadrupled, as Q3 net income increased to $227 million ($0.53 per share), which was up from $52 million ($0.13 per share) one year ago. In this market environment, these numbers are stellar, and it allowed them to raise their forecast for the year. But unfortunately, BBY also reported that sales from their laptop computers and flat-panel televisions lead to lower-than-expected fourth-quarter gross margins (which measures percentage of sales minus of the cost of goods sold). Because of this one blip on an otherwise fantastic earnings report, shares of Best Buy traded down by 5%. As a result, we “rolled” our January position into March. In other words, we sold our BBY January 40 Calls (BYY AH) for $2.70 and then simultaneously bought the BBY March 42 Calls (BYY CP) for the exact same price. If BBY finds support at the 50-day moving average, as I expect, we’ll be positioned to profit as the shares recover from this week’s downside move. Hold.
TV April 20 Calls (TV DD): Another test of the 50-day moving average should hold strong. Maintain positioned for a bounce. Hold.
TBT June 49 Calls (TBT FW): As we approach the close of the 2009 trading year, it’s clear that we have a huge Treasury bubble, sparked by U.S. borrowing to support our record budget deficit (more on this below). And I’m not the only one who feels this way. Both Warren Buffett and Chinese Premier Wen Jiabao agree. So mark my words, this cannot continue – which is why we’re holding TBT. The second the Treasury bubble bursts, the TBT will soar. And if you look closely, the burst could occur sooner rather than later. For example, rates on short-term bills have fallen to negative levels (after inflation), which means that investors are paying the government to hold onto their money. This is not a good sign whatsoever. TBT remains a hold. Hold.
SQM April 40 Calls (SQM DH): I remain very bullish on lithium going into 2010. Case in point, SQM hit a new 52-week high on Wednesday before falling back down to support at the 50-day moving average. Therefore, the bullish setup remains in place. Hold.
METALS RELOAD PLAYS – NG March 5 Calls (NG CA), AUY April 12 Calls (AUY DG), SLW March 14 Calls (SLW CT), PCU June 35 Calls (PCU FG) & CDE March 20 Calls (CDE CD): As I mentioned before, the metals plays have all dipped on strength of the U.S. dollar. But consider this: The U.S. debt limit has been raised about a hundred times since 1940, when it was $49 billion. As it stands today, five day’s worth of federal spending hits the $59 billion mark, which was our total yearly debt in 1940. This is spiraling out of control. And now, the White House projects a record $1.5 trillion deficit this year alone. The 5-year deficit totals $4.97 trillion, which exceeds the statutory debt limit approved by Congress last February (which came in part of the Recovery Act stimulus bill). According to this bill, the debt ceiling was set at $12.104 trillion. Right now, the Treasury reports debt of $12.135 trillion. In response to this, Congress just passed a measure to increase the debt limit by $290 billion. That might seem like a lot, but in reality, that’ll cover just six weeks of routine borrowing for the federal government. The point is, the strength in the U.S. dollar is only temporary. The excessive debt that has sparked the downside move is not stopping – but rather getting worse. This does not make a case for extended strength in the U.S. dollar. When it reverses, gold will begin the next major upside move. I want to maintain all metals positions to participate in the next up-swing. Hold.
VIP April 20 Calls (VIQ DD): Another emerging trend of 2010 should be the continued growth of international telecom stocks, such as VIP. The fact that shares pushed above the 50-day moving average in the midst of a weak market environment supports the case for maintaining an upside bias. Hold.
EDITOR’S NOTE: As we quickly approach the final two trading weeks of the 2009 calendar year, I wanted to outline our upcoming LEAPS alert schedule. As you’ll see below, the next two Fridays are occupied by Christmas and New Year’s Day. As a result, there will be no new LEAPS alerts issued on Saturday, December 26th or Saturday, January 2nd. Of course, if any new action alerts need to be issued throughout the week, you’ll certainly receive those. But in terms of your next full-blown LEAPS alert, it will hit your inbox on Saturday, January 9th, 2010. The remaining market holiday schedule for 2009 is shown below:
MARKET HOLIDAY SCHEDULE
- Thursday, December 24th: Christmas Eve
- Friday, December 25th: Christmas Day (Markets Closed)
- Thursday, December 31st: New Year’s Eve
- Friday, January 1st: New Year’s Day (Markets Closed)
HOLIDAY WISHES FROM BOTTARELLI RESEARCH! As we close the books on the 2009 investing year, I would like to wish you a sincere “thank you” for being part of our elite group of Bottarelli Research investors. It’s my absolute honor and privilege to write to you each week, and going forward, I will continue offering you the best investment advice on the planet. In that spirit, let me be the first to wish you continued health, wealth, and prosperity in 2010. From my family to yours, have a wonderful holiday season. Here’s to continued success in 2010!
Sincerely,
