“The Happy Noodler”
November 21, 2006
Week Four
Keep in mind these are model portfolios and not investment advice. If they do well and you decide to implement any part of them please understand you do so at you own risk.
Security Shares Origin Price Cost Current Price Current value Gain or
FXI 300 85.12 25543.00 93.85 28155.00 2612.00
ICF 300 96.20 28860.00 102.66 30798.00 1938.00
BHP 400 41.96 16791.00 40.20 16080.00 <711.00>
NEM 400 43.63 17459.00 45.11 18044.00 585.00
PREMX 726.2164 13.77 10000.00 13.98 10152.41 152.41
Options
.IKILF 3 4.00 1188.00 10.20 -3060.00 <1872.00>
.ICVLN 3 3.10 -930.00 10.50 -3150.00 <2220.00>
.BHPLV 4 .60 -229.00 .55 -220.00 9.00
New purchases
We bought back four contracts of BHP to close our November position.
.BHPKH 4 .10 51.00
New sales
We sold 4 December contracts of BHP for $60.00 each as seen above to open our new position. While it may look like we are down in our BHP position by looking on the chart above, we sold our original options for a total of $1068.00 and bought them back for $51 total. That means our options not only totally offset the fall in price of the stock but also made us $306 beyond the fall in price. If you look back you will see we sold our original options for $270 per contract but those were in the money options with a strike price of $40. The new ones we sold were only for $60.00 but are out of the money and have a strike price of $42.50 this gives us less downside protection but more upside potential while still generating cash at a rate greater than 20% on an annual basis. If you only look at our portfolio gain or loss it looks like it is down for this past week, but it doesn’t reflect the two options that are no longer in our portfolio that increased our account value as they went off the books. If you look at the portfolio account value you see we are up for week four.
Cash position 5242.07
Portfolio Gain or
Portfolio Value $102,041.48
401K PORTFOLIO Originated on 11/22/06
We are starting our 401k model portfolio with $10,000.00 but it could be modeled with any amount in a 401k because they allow you to spread dollars between funds and allow you to buy partial shares. Although MXI is a fund that is traded like a stock, we will treat it like a mutual fund for the purposes of this model portfolio and trade it in dollar amounts that yield partial shares. You will notice our major position is in money market funds. We believe we are at or very near a market top so the portion of our portfolio that would track the market in general is currently in money market funds. In our 401k portfolio we will contribute $100 per month and spread it proportionately between our funds. All distributions will be reinvested. As of this week the average money market fund has a yield of 4.82% but we will use a return of 4.5% for our fund. Returns on money market funds will be calculated in the first of the month letter.
Security Shares Origin Price Cost Current Price Current value Gain or
30% natural resources fund (global fund perfered)
MXI 55.0155 $54.53 3000.00
70% money market funds
Money market fund 7000.00
Total Value $10,000.00
Commentary
The U.S. oil majors have reduced production and OPEC has reduced production and plan further cuts. Japan has not only cut their purchases of U.S. bonds they have reduced their total holdings of U.S. bonds according to the latest current account report. That will pressure the dollar and make U.S imports more expensive. The dollar is at a two month low versus the Yen and Euro. We believe oil and gold prices have bottomed and will start back up from here. Gold prices respond to four things, actual demand, value of the dollar, inflation (rising oil prices are viewed as very inflationary) and war. All four look like they will move gold up from here. Our gold stock NEM closed below our option strike price so those options disappeared from our portfolio. We will not sell new options for NEM because that would limit what we now feel is a considerable upside potential. We bought back our BHP strike price $40 options Friday for $10 per contract while the stock price was below $40.00 and sold Dec BHP options at a strike of $42.50 for $60 per contract. We expect BHP as a diversified mining company to go up from here but not to the same degree as our gold stock. Money Market deposits increased 38 billion dollars this past week. This is another indicator of a hot market about to change directions. When we rolled our market sensitive stock options down, we rolled them into December options, because of that we have decided to postpone any action on them for now.
War
The U.S. is finally starting to take a tough position with the Iraqi government to fix their problems which has been the major hindrance to an acceptable solution there. But Iran is ratcheting up their support knowing that the worse it gets now after the election, the more likely the U.S. is to pull out. If the U.S. pulls out that opens the way geographically for the Iranian/Israeli war discussed below.
The winds of war between Iran and Israel are starting to blow harder. Iran is determined to build a nuclear weapon and Israel is determined to prevent it. If Iran gets nukes they could be launched from Lebanon by Hezbollah and the Iranian military. Hezbollah takes orders from Iran and they have proved they don’t care what happens to the country of Lebanon. As long as the U.S military is in Iraq the political geography would not support much of a conventional confrontation between the two with out dragging the U.S. into it. Russia will continue to block any U.N. action that would actually deter Iran even as they continue to sell them modern conventional arms. Russia is either the largest producer of oil and natural gas or the second largest depending on Saudi Arabia’s production levels. They have renationalized most of their oil and natural gas industry. Any war in the Middle East would dramatically raise oil and natural gas prices again. Europe is heavily dependant on Russian natural gas. The resulting prices in oil and gas would strengthen the Russian economy while weakening the U.S. and European economies and their ability to dominate the world stage economically. It has not been lost on Russian President Putin that they lost the cold war on economic strength not military strength. The corresponding weakness in Asian economies would just be considered a side benefit.
The Lebanon government is on the brink of collapse. If one third of their cabinet resigns or is unable to fulfill their duties they must call for new elections. The Hezbollah and Syrian faction has resigned and one anti-Syrian cabinet member has been assassinated. If one more dies or is killed in any way their government must be dissolved and call for new elections. Talk about having a target on your back. After the short war with Israel, Hezbollah is much more popular and would gain the 1/3 of the seats necessary to veto any actions of the government without being in control of the government and bringing the sanctions that the Palestinian’s are facing with Hamas in charge of that government.
Fishing
This is the first blue cat Josh noodled. It probably weighed between 25 and 30 pounds. It is not legal to keep noodled blues so that is why this picture was taken while still in the water. Josh released this fish right after I took pictures. Notice the gloves and scuba gear we typically use. This fish was just lying in the hole very calmly and Josh was running his hand down the side of the fish to get to its mouth when the fish suddenly bit him repeatedly. He screamed like a girl under the water, it was great. But as you can see Josh won in the end and got bit a few more times before he could grab his bottom lip. If you look closely you can see some red scuff marks on his left arm. These are typical Noodling marks although sometimes they are much bigger and bleed. As I have said before, blues bite much harder than flatheads. The water is only waist deep at this location. We noodle fish from about 12 inches deep to about 7 feet deep. We have looked deeper but very rarely find catfish deeper than that when they are spawning.
Well these are the best of times right now; I am feeling good, eating well and gaining weight. Next week I start radiation and chemo again. The worst of times comes the week following chemo. My chemo is timed to occur after Thanksgiving and after Christmas. I get to enjoy my holidays feeling my best, for which I am thankful, before getting whacked again. Who can tell me what novel starts “It was the best of times it was the worst of times”?
This is a picture of little Josh lying in the blanket Yvonne made. He had to stay in the hospital one extra day because of low blood sugar. But they got him up to par and he got to go home and is doing fine.
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