Housing and Oil Slam Financial’s, Dow Down 240
No major news here, but it is good to keep an eye on the biggest factors driving the stock market. Obviously the two biggest factors right now are the credit crisis in housing, and the price of commodities, particularly oil.
Without looking at a single chart, I honestly doubt we are anywhere near ironing out these issues, which is why in my stock market update last Friday, I recommended to my readers to start shorting stocks / buying puts in order to make money in this market. The economy is stuck in that I like to call a circular problem:
- Oil and commodities are expensive because the dollar is weak
- The dollar is weak because interest rates are too low
- Interest rates are too low because housing, Americas primary investment, is in an enormous slump
- The housing slump isn’t about to end soon because the financials are tightening monetary policy for lending, and dealing with record foreclosures, and the FDIC is having to come in and insure / bail out these banks.
- All of these federal costs have to land somehwere, and that means we the tax payers are going to take a hit.
All of this means that your dollar is worth less (not quite worthless), the things people need are more expensive, and stocks will continue to tank!
Protecting Yourself From The Continued Onslaught
If you have been following the portfolio, you’d notice that while we’ve still managed about a 3% gain, I’ve actually been doing damage control behind the scenes using stock options strategies, namely protective puts. If you are not familiar with options and protective puts, I highly recommend clicking on the previous links and learning about them.
In essence, a protective put is an insurance policy on your stocks. You pay a small premium for this policy, and, if the stock price does tank you have protected your value. The great thing about this strategy is that now you have taken at least a good portion of the profit you would have made if you sold your stock, AND you still own the stock. Assuming that the company whose stock you own is solid, when the economy does rebound, you’ll have made cash, and still have a profitable investment working in your portfolio.
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