Archive for May, 2008

A friend updated me on some news regarding airlines miles.  Evidently there has been a recent devaluation of 20% to 200% of airline miles.   I don’t travel too frequently with miles so I don’t keep up to date on all the programs and plans and I also ditched using credit card airline reward miles about a decade ago because of the inflationary worthlessness of the miles and other issues related to them but here’s the scoop.

Airlines used to offer domestic ticket from city to city for about 25,000 miles but the new requirement seems to be 50,000 miles for point to point travel.  How’s that for 200% deflationary value!   International flights seems to have gone from 250,000 miles to 300,000 miles for a single ticket which translates to 20% devaluation.

I suspect that it won’t stop here and in 2009 we’ll see a new round of air mile inflation, that is of course if there is any airline left before they all merge into one giant airline much like AT&T bought up all the baby bells.

My advice is to dump your credit card airline mileage card and switch to cash rewards.  Oh yeah, spend all those frequent flier miles before they become truly worthless!

Here’s a link to some of the changes on Continental as an example.

Happy Memorial Day!   It looks like Asia stocks getting slaughtered over the holiday, sound familiar?    Remember that last holiday weekend when the Fed panicked?  Good time to be in cash 😉 .

Do you remember the glory days of the British Pound?   There was a time when Sterling was the ruling currency of the world (1800’s) and if you look closely at the US Constitution, Article I Sections 9 & 10 have the term “dollar” in them but the basis of that particular dollar was Spanish milled dollars so at one point in history (the 1700’s), the Spanish currency was the global standard.

So without a doubt, the US currency reigned supreme in the 1900’s and the big question now is what will be the dominating currency of the world in the 21st century?   Will it be Rupees?  Yuan?  I have strong doubts it will be the Euro so which one will take center stage?

Yup, it’s official.  All airlines will officially start selling all flights to ANY location for $0.99.   There are a couple of catches so here’s how it will work:

All tickets will be priced at $0.99

Customers must pay the following mandatory fees:

-First Checked Baggage Fee $25

-Second Checked Baggage Fee $125

-Fuel Surcharge $175  + $0.25/mile

-Security Fee $100

-TSA Fee $25

-Booking Fee $25

-Speak with Airline Employee Fee $20

-Meal Fee (No meal will actually be served) $10

-Drink Fee (One soft drink per person) $5

-Cover Fee (Fee to Enter Airport) $10

-Secondary Fuel Surcharge Fee $50

-Tertiary Fuel Surcharge Fee $25

-Overweight Fee (If you weigh more than 50 lbs) $0.99/lb

But don’t worry, it’s a great deal at $0.99 to fly anywhere in the world!

Nasdaq bubble – done.  Real Estate bubble – done.  Commodities bubble – in progress.  Next Bubble?   Everyone and their favorite pet is pouring into commodities and that’s usually the time to get out so what’s the next big bubble?   It’s important to get in at the EARLY stage of the bubble not the late phase.   Yes commodities will continue to climb higher but there’s a breaking point and then a huge snap back down.

My best guesses:

– Alternative energy bubble  (energy prices WILL continue to go up).  Wind/Solar/Green energy will be the buzz and stock bubble.

– International bubble.  Anything with BRIC (Brazil, Russia, India, China)/foreign will be red hot!

I’ve got one more that I’ll keep secret for now ;)  .

I got my paycheck stub this weekend and I was bewildered why my take home pay increased.  I knew I hadn’t received a raise so after comparing check stubs from my last paycheck I realized that I have reached the cap on social security taxes for the year!

Evidently during the last bonus I received a large chunk of the money went towards social security taxes so I’m done for the year but if the cap on SS is ever removed, I’ll be paying and paying and paying till the cows come home.   Oh well, hopefully I’ll have enough money to be able to cash out from the madness….

OIH is on fire! A while ago, Mrs. Micah asked, “Do You Have an Investing Exit Strategy” and I couldn’t help but associate that question with my ETF Covered Calls investing strategy. Let’s review a specific journey on a specific investment I recently made.

In December of 2007, I bought 200 shares of OIH at $189.45 and sold 2 contracts for January $190 strikes for $5.00/each to rake in about $1000.00. In January OIH dropped to around $170 and stayed near there through April when it started climbing back into the $180’s.

In April 2008, I sold 2 contracts for May $190 strikes for $5.55/each to rake in about $1100.00. So the total profit for the trades were about $2100 or 5.5% from December through May expiry.

OIH is now hovering around $210 but is now the time to sell? Has OIH had it’s run and will it slide back down or is it just catching its second wind and about to climb to $250?

Look at the graphical diagram (click for larger image).

OIH_Profits.png

As you can see from the image, OIH hit a “dry well” for a brief period from January thru April so should you have cut and run or stayed in it for the long haul? This is why I love ETF Covered Calls because you’re partially quasi-long and you’re profiting by selling calls (short). It’s the best of both worlds.  As obvious as it sounds, you make money selling not buying and I’ve sold calls and soon I’ll sell my shares to bank the profits.

As for my current investment, if OIH closes above $190 today (which looks like it will), I’ll be forced to sell my shares at $190 and revert to being in cash in my account. Once in cash, it’ll be time to look for more opportunities and I’m glad. I’m getting the feeling that OIH might have run its course and I’m not willing to re-buy OIH at these levels. Perhaps if OIH drops back down to $170’s I’ll pick it up again. If you find this interesting, check out www.ETFCoveredCalls.com to learn more.

Amazing…Logged on to my brokerage account as tomorrow is options expiry and was greeted with the following message:

Options Expiration
The last day to trade equity option contracts expiring on Saturday, May 17th is Friday, May 16th. If you do not have sufficient funds/buying power to cover potential exercises or assignments, please deposit funds or close out your position before close of market on Friday, May 16th. Please be aware that TD AMERITRADE reserves the right to close out any option positions at any time on the final trading day prior to expiration that would pose risk if exercised or assigned. Any equity option that is in-the-money by $0.05 or more at expiration will be automatically exercised. Please note that effective June 21st, this threshold will be lowered to $0.01.

I remember the good old days when options in-the-money by $0.75 would be exercised and now it’s dwindled down to a penny!

I guess this is progress!

I’ve written about hoarding food and I decided that I’d might as well reveal that I’ve been hoarding medicine too.   It’s primarily antibiotics which can be obtained overseas fairly easily but I’m also given a set of antis every time I travel internationally in the event of sudden illness.

So why medicine?   There’s no particular shortage of medicine as far as I know and I’m not concerned about the production of pharmaceuticals but I am concerned about the distribution and delivery model of medicines in our current gas guzzling trucker infrastructure.

Like I wrote about before, it’s not too implausible for a hurricane or two to barrel through the gulf of Mexico hitting the US gulf coast and damaging or wiping out a refinery or two which in turn would cause the price of oil/gas to spike into the stratosphere.  It’s during disasters that a peak demand for medicines and other necessities (e.g. food/water)  hit the hardest.

As Murhpy’s law suggests, I’d end up needing medicine when disaster strikes the most and I want to be well prepared.

Food for thought…..

Well it happened again, I stopped by the mall and couldn’t help but notice how packed the parking lot was yet few people inside actually shopping.   Too many people hanging around the food court eating ice cream or pretzels.   I could see many of the food shop owners hungry for customers as people were just milling about.

It occurred to me that shopping malls should start charging admittance fees.  I’d honestly prefer this to the shops inside the mall tacking on an “energy fee” to my purchases in the very near future.   Don’t laugh, if energy prices keep climbing, you can expect retail outlets to start squeezing the consumers some how to make up for their additional expenses.

If airlines can tack on a fuel surcharge then why can’t retail outlets tack on an energy fee surcharge on the stuff they sell?   Perhaps the energy fee can be refunded with a purchase of $100 or more at the shops.   Just food for thought….