Truly Extraordinary Times

Maintain TSO and KMB

By Bryan Bottarelli
Wednesday, September 17, 2008 9:59 AM EDT
Wed, 17 Sep 2008 13:59:00 GMT

Dear Bottarelli Research Member,

We have more volatility to begin the trading session, as an $85 billion loan by the Fed has now bailed out AIG.

With all of these bailouts, I fear that our U.S. government is on the fast track to bankruptcy. After all, the FDIC fund (which guarantees deposits up to $100,000 at any FDIC insured bank) currently has about $50 billion in its coffers. The problem is, the total amount of money that they’re guaranteeing currently stands at a whopping $1 trillion.

In other words, the FDIC is guaranteeing the country $100 while having only $5.00 in their bank account! In my view, that’s a major concern, especially when these corporate bailouts are costing us more money by the way. Unless Congress recapitalizes the FDIC, continued bank failures will wipe them out.

I tell you, we’re really seeing unprecedented events right now — and that’s why I’ll continue to keep the trading ledger as light as possible. Right now, we’re holding the KMB October 65 Calls (KMB JM) and the TSO October 20 Calls (TSO JD), and each position is moving in our direction today. So for now, let’s sit tight with each of these plays and let them continue moving our way. If and when it’s time to take some profits, you’ll be the first to know. And if another strong trading opportunity arises, I’ll certainly issue that as well. But in the meantime, I’d like to quickly address two important topics that I’ve been meaning to share with you.

PERSONAL NOTE #1: These are truly extraordinary times — ones which will be talked about for decades to come. And throughout this financial crisis, I wanted to take a quick moment to thank you for being part of Bottarelli Research. You see, I’m honored that you’re part of our elite trading group, and I’m fully dedicated to helping you survive and prosper during these difficult market conditions. In fact, the one lesson I’ve learned from this financial mess is that “buy and hold” investing simply does not work. Just ask shareholders of Fannie and Freddie. Or Lehman. Or AIG. Or any number of other companies that have seen their valued get chopped in half over the last month. This truly is a “trader’s market,” which means that the only way to make any money in times like this is to execute quick and nimble trades. That’s exactly what we’ve been doing, and that’s exactly what we’ll continue to do going forward. And please don’t get me wrong — I’m not saying this because I happen to run a trading service, and this opinion conveniently fits into my business operation. Making trades (especially our Ultra-short plays on the DXD, SDS, and DUG) have resulted in profits that 99.99% of investors are not achieving, and this is what separates us from everyone else. And in that spirit, I simply wanted to express my appreciation that you’re part of our group. I’m glad you’re with me.

PERSONAL NOTE #2: I also want to stress the importance of protecting and preserving your wealth in times like this. First and foremost, that means not maintaining any bank accounts over the FDIC insured limit of $100,000. If you have excess monies, the safest place to put them right now is in cash in your brokerage account. Schwab is paying 2.5% interest in cash holdings right now, and I’m sure other brokers are offering the same rates. For amounts over $100,000, this is now safer than having it parked at any bank. It’s amazing, when you think about it. But in my view, no bank is safe.

Secondly, if you maintain multiple accounts over $100,000 at any single bank, it’s imperative that you have these accounts structured in a way that has every single cent fully insured by the FDIC. The FDIC pamphlet states that “deposits maintained in different categories of legal ownership at the same bank can be separately insured. Therefore, it is possible to have deposits of more than $100,000 at one insured bank and still be fully insured.” I spent a great deal of time over the last few weeks studying how you can properly structure accounts to have all of your money fully guaranteed. And here’s the one single resource that I found infinitely useful: The “edie” calculator on the FDIC Web site.

Simply plug your accounts into this calculator, and it’ll show you exactly what is FDIC insured and what is not FDIC insured. Then, you can easily correct any un-insured monies in a way that protects everything that you have deposited (by adding beneficiaries, re-structuring account “language,” and things like that). It’s truly a wonderful tool, and I urge you to use it if you fear that any of your money is exposed. Financial planners will charge you tens of thousands of dollars for this information (trust me, I’ve seen them do it!), but I’m showing you how to do it yourself for free. Please check it out. Here is the link:

http://www.fdic.gov/edie/calculator.html

And on that note, I’ll sign off. I’m sure there will be further trading alerts ad the day progresses. But until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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