LIVING OFF DIVIDENDS & PASSIVE INCOME

A couple of days ago, legendary investor, commodity bull and one-time partner of George Soros, Jim Rogers, was interviewed by Betty Liu of Bloomberg’s Singapore office. It seems that Jim Rogers is also of the opinion that Fannie Mae is going to lose a lot of money along with other investment banks.

He’s still bullish on commodities like oil and food grain and he’s bearish on the US Dollar. Surprizingly, he’s also bullish on Arline stocks.

Here’s an excerpt of the relevant portions of the interview:

Financial Sector

Regular readers know I’ve been pretty pessimistic on the outlook of the US economy and bearish on the US dollar as well. However, since it seems like everyone is echoing the same sentiment, could it be that we’re due for a short (or medium) term spike in the US Dollar?

According to Lou Basenese, editor of the The Alpha Intelligence Alert, think it’s time to go long the USD.
Here are some of the reasons he cites:

1. Bernanke & Paulson Rediscover “Verbal Intervention.” Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke finally got off their duffs to defend the dollar. Paulson got things started in Qatar on Sunday. Speaking to the leaders of the Gulf oil states, he urged the countries to think twice about abandoning their dollar peg, as “ending the peg is not the solution to the inflation problem.” And Bernanke stepped up today. Speaking, via satellite, to an international monetary conference in Spain he insisted Fed policy will be a key factor, “ensuring that the dollar remains a strong, stable currency.” After such a long silence, this week’s tag team approach is nothing but a positive development.

Oil just broke through $115 per barrel today. While this may come as a shock to many , I’ve been preparing for it for the past 2 years. All the signs of an oil shortage have been visible in the media, but most people have either been ignoring it, been in denial or been too focused on what Paris Hilton or Brittany Spears have been up to!

China and India together have  a third of the world’s 6.66 billion people. If 10% of these 2.2 Billion people start buying cars, that’s 220 million new cars on the planet ready to start guzzling more gasoline. I think thats the current number of cars in the US, so effectively the demand on oil is set to double over the next few years. And along with Tata Motors new $2,500 car, you can be sure that eventually atleast 20% or more of India’s and China’s population will be driving cars instead of cycles or mopeds that give 247 miles/gallon. That 247 number is  not an exaggeration. Owners of Suburbans should refrain from crying right now.

Based on continuing weakness in the dollar, gold briefly breeched the $1000 level yesterday along with oil hitting an all time high of $111 per barrel. I had a really strong suspicion that we’d see $1000 gold by mid-March.

Despite what Bernanke and Paulson said last summer, the housing bubble has spread to other parts of the economy and subprime mess has not been contained. In a last ditch effort to prevent banks from collapsing, the Federal Reserve announced a bailout of Fannie Mae, Freddie Mac and other banks, promising to exchange bogus mortgages for Treasuries during a 28 day window. They named this Term Securities Lending Facility (TSLF) but it’s just a good old bail-out.

Kevin Kerr, editor of Global Resource Trader, thinks that natural gas prices are set to spike heading into winter. If you look at the charts of natural gas prices, it typically heads higher in the last few months of the year.

Kevin also thinks we’ll see oil at $100/barrel early next year. Check out his interesting video.

Popularity: 3% [?]

As I’ve been saying for a while, the US Dollar is headed for a slump. Peter Schiff thinks the dollar could lose 50% of its value.

He’s very pessimistic on the state of the economy and the housing market and recommends buying Gold, which he thinks could hit $2,500/Oz.

He also suggests buying foreign dividend-paying stocks, foreign commercial property stocks, foreign government & corporate bonds and investing in commodities.

Check out this short informative video:

Here’s an interesting link on how to profit from dollar devaluation and inflation.

Popularity: 4% [?]

Jim Rogers, co-founder of Quantum Fund along with George Soros, achieved 4,000% returns in the 80’s. He’s famous for being bearish on the US economy and the US Dollar. However, he’s currently bullish on the Dollar, saying that everyone is negative on it.

In his opinion, when too many people take one side of a trade, the opposite is likely to happen. The Dollar has been in a bear market since 2002, but it turned bullish during 2005. He thinks its over-sold and in the short-term at least, due for a correction.

While I’m not buying any Dollars, I could definitely use a spike in the USD for my entry point into Australian Dollars.

Many claim the dollar’s weakness is helping offset a dropoff in U.S. economic demand that’s come from a recession in the housing market. Goods priced in dollars are cheaper in Europe or Australia, and manufacturing in the U.S. becomes more attractive for companies that export goods. That helps preserve jobs in the U.S.

Today gold hit $750, the highest its been in 28 years. It looks like we might break the previous intra-day high of $850 within the next few months.

There was a slew of bad news today related to the housing industry and inflation worries and both oil and gold reacted by going up. I bought into GDX today which is the gold mining index. I had bought it last year, but I sold it to buy actual gold coins.

 I’m still heavily bullish on gold and I think we’re still in the beginning stages of a rally.  Why do I think so? Because almost everyone I know ridicules my idea of gold being a good investment!!!!

As previously mentioned, I entered a synthetic long stock position using options in Seabridge Gold.

As a recap, a synthetic long stock position is buying the calls and selling the puts to offset the cost the of calls. (If you don’t know what calls and puts are, I suggest you read up on option trading. Options Made Easy: Your Guide to Profitable Trading is a good book).

With $60 I was controlling $1650 worth of stocks, or about 100 shares. On Friday, or about a week later, the stock was up just over a dollar, so I sold 2/3s of the call contracts and all of the puts. On the call side, I netted a profit of $0.40 or $40/contract and on the put side I netted an additional $0.35 or $35/contract. I actually closed out all the puts and kept only 1/3rd of the calls.

According to an article in the Wall Street Journal, the rush to produce ethanol has resulted in sharply higher prices for corn. Corn is used to feed cattle and pigs and as a result of the price increase, farmers are feeding their pigs trail mix, candy and Top Ramen noodles!

Besides trail mix, pigs and cattle are downing cookies, licorice, cheese curls, candy bars, french fries, frosted wheat cereal and peanut-butter cups. Some farmers mix chocolate powder with cereal and feed it to baby pigs. “It’s kind of like getting Cocoa Puffs,” says David Funderburke, a livestock nutritionist at Cape Fear Consulting in Warsaw, N.C., who helps Mr. Smith and other farmers formulate healthy diets for livestock.

California farmers are feeding farm animals grape-skins from vineyards and lemon-pulp from citrus groves. Cattle ranchers in spud-rich Idaho are buying truckloads of uncooked french fries, Tater Tots and hash browns.

BHP bought 1.5 million shares today. They report this on their website. Pretty amazing how much stock they’ve bought back. The stock buy backs along with their regular dividends and diversified commodity base makes them one of my favorite stocks. Plus the fact that everyone I know isn’t harping on about them (like Qualcomm in 1999) makes it even more attractive.

Along with Anglo American (AAUK), these two are great commodity plays. Plus they’re both down over 5% this week makes it a good time to jump in. I plan on holding both for a long long time.

As usual, do your own Due Diligence. If you don’t know what that means or how to do it, put your money in ING Direct instead!

I came across this article last night, 32 Reasons Why The Stock Market Will Jump This Year.

While its written as a serious prediction, I personally feel its more like a christmas wish list or a list of finalist answers at the Miss World Beauty Pagent!. Here are some of the gems

#1. Housing and Auto-manufacturing weakness will subside
Based on what? Major layoffs in both industries?

#5. Unemployment with stay at record lows.
Hmm…with the massive layoffs in Housing and Auto-manufacturing, you really think so?

#7. Inflation will continue to decelerate, with CPI averaging around 2.0%.
Hmm…ever since the minimum wage was jacked up, small business around where I live jacked up the price of everything along with it. That doesn’t sound like low inflation to me. Anyone who thinks that CPI is an accurate measure of inflation makes way too much money to begin with. Once you take out all the factors that cause inflation, of course you’ll be left with 2%. What a doofus.

I own a few shares in a company called Freeport-McMoRan Copper & Gold Inc. (FCX). Monday they announced a bid to buy copper producer Phelps Dodge Corp. (PD) for $25.9 Billion. [yeah thats Billion]. Interestingly enough, as part of the bid FCX will pay $500 million if it backs out while PD will pay $750 million if it bails.

As if that wasn’t exciting enough, yesterday an analyst floated a rumor that BHP Billiton Ltd. (BHP) would shortly announce a bid for FCX!!! Apparently the market liked that idea because prices for FCX and BHP did well. I also own shares of BHP. BHP is involved with oil, gas, copper, silver, zinc, lead, uranium, and copper by-products, including gold, aluminum, coking coal, iron ore, manganese, diamonds and fertilizers.