Reasonably Thinking

I like Novartis (NVS) and have owned the stock for over two years.  During 2008, I decided to tactically move NVS from my taxable trading account to my Roth IRA.  Today’s sale, at $49.35, concluded this shift.  Though, I still have a relatively sizable stake in NVS.  From my personal notes, here a classic case of buy low and sell high with my NVS trades:

bought 7/18/07 (taxable account)
$53.10

bought 2/5/08 (taxable account)
$48.75

6/17/08 bought $49.90 (Roth IRA)

sold 8/4/08 (taxable account)
$60.65

11/20/08 bought $46.20 (Roth IRA)

1/29/09 bought $41.30 (Roth IRA)

sold 9/28/09 (taxable account)
$49.35

I still own the bold purchases, all of which are in my Roth IRA (tax free account).

Here is an alternate view:

I admit that there is a slight political tone in this piece, but it is well written and incredibly difficult to refute his arguments.

http://europac.net/externalframeset.asp?from=home&id=17297&type=schiff

 Interesting views on the US Dollar’s decline:

http://www.economist.com/businessfinance/displaystory.cfm?story_id=14513934

I sold my position in VIMC at $3.65, which is a stock I purchased (multiple times) well before 2009. The game plan is that I’m trying to limit my exposure to equities in general. I have also been working on a new economic outlook that I intend to publish before next week.

Here is one of The Economist’s lead stories this week.  The broader topic, international trade, seems so predictable, but somehow I always enjoy reading different versions of the same story:  free trade benefits the masses, yet politicians are strong-armed into protectionist policies, which hurt the consumer and are bad for the economy, but assists with their reelection efforts.  The ramifications that the author mentions below have the potential, though not yet immediate, to be scary.

The depths of the article explain the fallacies of the US’s recent protectionist policies on steel (G. W. Bush) and tires (Obama).  On economic principles, I generally support international free trade and oppose both policies.  I even wrote a paper in college expressing such an opinion back in 2002 (regarding the steel industry).

http://www.economist.com/opinion/displaystory.cfm?story_id=14450332

“…Evidence of a weak president being pushed leftward might cause investors to worry whether he will prove similarly feeble when it comes to reining in the vast deficits he is now racking up; and that might spook the buyers of bonds that finance all those deficits. Looming large among these, of course, are the Chinese. Deteriorating trade relations between the world’s number one debtor and its number one creditor are enough to keep any banker awake at night.”

I purchased 50 shares of SDS today at $40.90.  For those unfamiliar, SDS is an UltraShort ETF for the S&P 500.  So for every 1% that the market falls, SDS will rise twice as much (2%).  Contrarily, for every 1% the market rises, SDS will lose 2%.  By purchasing SDS, I believe the market will fall.

I currently believe that there are too many negative factors on the economy with a handful of catalysts that will occur before 2009 is over.  I intend on writing an economic page in the near future.  For now, most of my thoughts are echoed in both Hussman’s and Gross’s latest articles.

This purchase is part of the 2009 portfolio and will show up in the Performance page (along with other SDS related transactions) at the end of the quarter.

Here is PIMCOs September Investment Outlook.  Overall, a good piece.

Prepare to have sand kicked in your face

Schiff has a nice article this week on gold’s advance (or which can be contrarily viewed as the dollar’s fall).  Below is just a brief excerpt.
http://europac.net/externalframeset.asp?from=home&id=17199&type=schiff

“When governments act to prop up sagging markets, or bailout investors or depositors of failed institutions, they create inflation (print money) to pay for it. This, in effect, transfers capital from prudent investors to speculators. At the same time, it pulls the rug out from under the safest vehicles of traditional investment – bonds and cash. It becomes hard for investors to protect their principal, much less grow their wealth. Some turn to gold, with its historically guaranteed ‘floor’ against losses, and others start making ever riskier investments to try to ‘beat’ the inflation rate.”

I had an SDS put option assigned to me, which was immediately sold by the broker. This doesn’t really surprise me as the expiration is next week.  This option was a position that I opened back in May, and it resulted in about a thousand dollar loss, for now.  Last month I took a similar position as this investment fell taking advantage of a lower price.

Recently, I have been considering increasing my position in SDS, either outright or purchasing call options.  Granted, with a poor economic environment ahead of us, I still believe the market is overvalued.  So, SDS is still a sensible play, but I may hedge my position relative to US Dollars (perhaps using Australian Dollars or gold).

I wrote a covered call option on Cheasapeake Energy (CHK) today.  The expiration is January 2010 with a strike price of $28 (.HKWAB).  The contract price was $1.50.  Since I held shares in CHK prior to 2009, this trade will not appear in the Performance Page.

My thoughts are:

• I don’t intend on selling CHK in the near term (next four months)
• The market is overvalued and has gone up five days in a row (giving me an exit opportunity)
• I’d be happy to get called out at $28
• Besides, S&P has a 12 month price target at $28.  So, if it gets there before then, I’ll save myself eight months of time and keep the call premium
• Downside risk, I forgo upside potential
• Bottom line, I’m just trying to generate some income here