Oil's Collapse and Bad Calls

The recent 10% drop in oil prices now trading about $65 a barrel it means that all the big oil companies took a hit in stock price. Exxon itself took a 4% hit on Friday. This would be bad in the short-term for anyone who followed my advice to buy Exxon a few weeks back. I still think Exxon will recover and might even make more money on cheaper oil. It just hurts to look and see that drop in stock price in a day. This is why we as investors need a well-diversified portfolio. The drop would be bad but it would not hurt the entire portfolio. Just a small drop on a small percentage. Bad but not catastrophic. We try to avoid those when handling money. Also, another reason to diversify in industry and across the globe.

Exxon could still easily recover and I think they will buy back more shares at this cheaper price. They might make more too because consumers are used to high gas prices so there would be less downward pressure to lower gas prices as much as the drop in oil prices. Exxon will also make plenty of money from its large holding of natural gas. Those prices are up and it looks to be a cold winter which will be good for Exxon. It might be several years or it could be in a few months when it recovers. Still la great long term-play.

OPEC is trying to hurt the United States Oil production that is competing with it. I think some of the OPEC members though will not be able to handle this squeeze and will lower production to raise prices. They depend on that money and have gotten used to the high price. It must be maintained in the long run.

Housing Next Year

Home sales in October were so great. It looks to be that the economy has done really well and is still recovering nicely. Home sales of 5.26 million the most since last year in September and October is not normally a great time for home sales. It shows the huge strength in the consumer and that people feel more comfortable in moving and making large purchases. Next year I think it will continue to improve and that rental property will have its bubble burst. People will want to own homes again and they will have more money and more secure jobs allowing them to buy houses.

Not sure if they will want to buy new houses though or will want to buy the glutted amount of existing homes for sale. We will see and I am going to invest accordingly that the home sales will continue to increase.

A Break from Business: Talking About Darren Wilson's Grand Jury Case

A Grand Jury has the responsibility to discuss the prosecutors evidence in a possible case and decide if the evidence presented is enough to proceed to a formal trial. It's an integral part in some states legal systems to screen cases to make sure there is enough there and there is probable cause. I'm going to say that there was not enough evidence in the case against Darren Wilson. It is so easy to indict from a Grand Jury. The jury does not have to be in total agreement. Normally just 3/4 quarters have to agree to indict. They also only have to have probable cause not the beyond the reasonable doubt standard in a normal trial. As fivethirtyeight blog says here it is extremely rare for a grand jury not to indict because the prosecutor can decide which cases to bring. I think we must be convinced that there was not evidence to convince the jurors that police misconduct occurred.

They still examine all the evidence  and can bring in any person to testify before them. It is a tough job to decide the fate of a person. We must be convinced that they did the best of their ability to try and shift through everything to get the just outcome. The jurors have a real person's life in their hands let's believe that they took the case seriously.

The best thing we can do is work to change the system if we think it is faulty. We should also respect the decision of our fellow citizens on the jury and believe that Darren Wilson had no police misconduct in his handling of Michael Brown. What is bad is looting businesses because a grand jury decision should not be an excuse to rob people of their livelihood.

Apple is a Huge Company

I saw a tweet earlier today that said that said you could add Exxon and Wal-Mart's market cap together and you would get to the size of Apple's market cap. That is crazy big! Apple got to be worth 700 billion dollars today and I can see with just a few more years and a few good products could be worth 1 trillion. There is also just a huge gap between the largest and the second largest company. I think it means that other companies will grow in size too.

I think it will also mean that Apple will be put into the DOW there is just no way they can ignore such a large company. And the reservations in previous years about the stock price has been fixed. Since the DOW is averaged from price last year when Apple would get put in at $600 it would add several hundred points to the DOW. It was too much of a shift. Now taking away a smaller company and adding Apple would probably increase the DOW's price but not in such a huge way.

If the DOW does not add Apple they are ignoring the goal which is to include the largest companies in the country. Apple will get added and then the price will go up again because more people will need to hold Apple to follow the DOW. Maybe Cisco or Coca-Cola will get bumped. Those are possibilities. We will know soon though.

We Got Two Central Bank Movements Today

China and the euro zone both announced things that should increase inflation and help out economies supposedly. The euro zone will work hard to raise inflation and china cut interest rates. Both of these policy changes were cheered by media and the actual traders today. Sending stocks around the world higher. Who doesn't like free money. Well in the long term we won't like it and we need to get people away from depending on inflation and easy money. It will be unsustainable in the long run and will hurt our economy. The euro went down today on the news which will probably bring in more tourists but savers in the country will be hurt. There are always unseen consequences good and bad. The bad will show one day. But today and probably for the next few years the good consequences will show.

New Book I Started

I just started "Millennial Money" by O'Shaughnessy and am really liking the first two chapters. It's a good description so far of why young people need to invest early and often. It almost feels like an update and reimagining of "The Richest Man in Babylon." He has several of the same themes like pay yourself first but less stories and more hard facts on why it is critical for the future. 

Can't wait to read the next chapters and learn even more. I think this would be a great book for recent high school and college graduates. Our generation needs to get over the holding cash in savings accounts and buy actual investments that will grow and return over time. 

Immigration and the Lawmakers

The President has announced a new executive order for the nation tonight involving immigration policy. The President claims that he has waited too long for the House of Representatives to act. It has been a long time to have reform on immigration but we have had problems with it before. Legislation is slow on purpose because we do not want hasty decisions and bad policy made. It is a long process. We should respect that it is long and we do not want tyrannical actions.

I do want immigration reform and let more people in the country. I believe we should really increase the HB 1 Visas for smart people who want to come. They can help solve our problems. What we do not need though is executive action that ignores the system that works. It will take long but waiting letting the elected people decide is better.

The House also delayed action because the Administration will veto or let it flounder in the Senate unless it was exactly what he wanted. Let the house have discussion and amendments. Even though they do not agree with the President they are still elected and should have their voice heard.

Busy Christmas Ahead Still

I was out shopping early this week and I have seen traffic and the stores busier than I can remember. Certainly busier than the previous six years or so. The stores do not have the big sales out yet but they certainly have people shopping. I think this is from several things. Cheaper gas prices have Americans in better spirits. They see more money in their bank accounts from slightly higher wages and more work hours. They also have lower credit balances which mean lower payments and they see that they can spend more. Americans still are not good in investing and thinking about saving. So more money earned means more money spent especially around Christmas.

As smart investors we should see this busy Christmas season and make moves into big retailers. They will have great earnings in January and February. Let's choose the good ones and take advantage before the price goes up in the future.

Japan's Depression and its meaning

Japan announced early this week that they were in a recession again. Their policies supposedly did not work and the economy shrunk. Sometimes though policy takes many years to take its full effect and to see all the consequences that arise out of it. Many media outlets proclaimed that since Japan was doing poorly that the rest of the economy will soon follow. I doubt it. Japan is a big economy but their shrinking is not really a surprise. They have not grown significantly for thirty years and they have a older population. The unemployment rate is really low and maybe with the economic factors currently in Japan they are stuck until another great development.

Here is a good discussion of Japan's announcement from Tyler Cowen. I think his analysis is spot on and really shows we have nothing to really fear from this announcement and can keep living our lives. It does not mean we will have a contraction. But then again it is hard to tell and maybe we are in a time now where growth can not always occur.

BB&T and Banks Getting Bigger

BB&T has been on a tear in buying more banks and expanding their reach. It looks like they are moving from a large regional bank like Regions into a national bank with branches in almost every state. It will take time to expand that far but it looks like it could be sooner rather than later. They just purchased branches in Texas, Northern Kentucky, and now today banks in Pennsylvania, Maryland, West Virginia, and New Jersey. Will other banks also try to expand into new areas is a good question. Does this mean that more banks are ready to grow. BB&T's Kelly King is always talking about changing and growing is the one thing that will make BB&T better. He has certainly promoted this idea and shown how well it works with expanding into new regions. It's the largest acquisition in the banking sector since the financial crisis. Buying other banks and branches is the best way for banks to expand into new areas.

I'm going to bet that other banks will also try to expand. Could be a good sign for banks and financial institutions if more M&A occurs. Might be a time to get in and they are undervalued and underperforming because of government regulation and suits against them.

Disclosure: I work for BB&T

Jobs, Jobs, Jobs

The American Economy again created plenty of jobs last month and decreased the unemployment rate. The wages of workers were slightly up. Everything was good news and the market meet it with a whimper. It seems that the market wants more and expects more. The growth while strong and healthy is not spectacular. The market always demurs when expectations are met. Only beats and misses matter. Otherwise it just shows that it is pretty fairly priced and followed. Maybe we should just set lower sights for the growth of our economy.

It is better though to stick with high expectations. We would nit want to revert to the mean and take mediocre results as strong gains. Our economy can do better, should do better, and we should push for policies that allow wider growth and less hassle for businesses. Open up trade, remove barriers, and free movement would be a great start. Let's help everyone in the world with higher expectations and then let us beat those expectations.

Links Worthy of Attention

With the recent switch in governmental power the ever weighty words of Hayek. Always good to remember.

Urban Onshoring: The idea of bringing back tech jobs. This focuses on one company in the South Bronx and one aspect of a possibly bigger movement.

My babysitter extraordinaire when I was younger has a wonderful blog and this post about remembering the real part of people's lives is more important than the online parts. 

The Economist reviewed The Cambridge History of Capitalism is a comprehensive study of the thought of Capitalism. Probably going to buy this soon. I can't stop myself from getting a good book.

A look at WeWork. It's fast rise and its take on coworking.

And finally Netflix is adding new programing. Consistently and regularly. Still think it is a bubble though.

Election Consequences and Investing

As with any election as people and power shifts consequences occur and change the shape of the economy and the country as a whole. It might take years to fully realize the shift or just a matter of days after the formal change occurs. Tonight was a big shift in power in the Senate and it could still be bigger as a runoff is left and not all votes are counted. The electorate wanted change tonight and they will get it. As investors though we might like the change or hate the change we have to see what companies could win or lose from the change. Will corporate taxes be lowered, its a strong possibility and so that will mean higher earnings for all companies boosting stock prices and values. What other things will get the go ahead from the government or receive government subsidies. I'm not sure yet and it is hard to tell until the law comes into effect but we can make guesses of what will occur.

I'm excited to see the new changes will be and it is sure to open up new investment potential.

The Best Day of the Year

Today is so important. We go and get rid of that scoundrel in office and replace him with someone way more palatable. It's the day we support the people who have done a great job in office and reward them with another term. It's also the day we show our support and make our voices heard. It shows that we support our government and system we have and want it to continue as we actively participate in a meaningful way.

Even if the person you support has no chance of winning you should still vote because you might embolden him to run again. There is always the next election to have your candidate win. It shows a smooth transition between those in power. 

No excuses just vote.