Incredible Opportunities

This speculation goes up 2-times as fast as the Deutsche Bank Crude Oil Optimum Yield™ Index, a part of the bank’s Liquid Commodity Index.

The symbol is DXO. It trades on the NYSE and has averaged 7.2 million shares each day over the last 3 months. It closed Friday 12/26 at $2.01.

What’s the profit potential here? Well, just look at the 7 month high – about $30. When will it get there again? I’d be happy with $5 in one year, how about you?

DXO is an Exchange Traded Note issued by Deutsche Bank expected to mature on June 1st, 2038. Specific commodity Exchange Traded Notes make for very low investor costs . But Deutsche Bank has to be trusted. In this case, you could want to do that because this note is rated S&P AA- and Moody’s Aa1. I believe it’ll work out well, but remember the note and DXO can drop 2-times as fast as the price of oil.

Recession or no, oil remains a very essential component of every economy. And there have been huge new discoveries in Brazil. But it takes about $76/barrel to make extraction worthwhile. Canada has putatively more oil in tar sands than all the oil fields in Saudi Arabia. But it takes about $60/barrel to make it worthwhile. My numbers could be off depending on which expert you consult. But reviewing today’s oil price reveals that there’s another serious fight going on in the Middle East between Israel and Hamas. Oil is up about $2/barrel! I believe there will be no depression and the demand for oil will likely stabilize from here. DXO at $2 is a good bet to double in less than one year. Dollar cost average your buys below $2 up to the amount you want to put at risk.

TAX-EXEMPT INCOME

This ETF (exchange-traded fund) is the next best thing to a national tax-free money market. It’s current 30 day SEC Yield is 1.71% and for investors in the 28% federal tax bracket that represents a tax-equivalent yield of 2.38%. The symbol is PVI. The fund invests in AAA average quality Variable Rate Demand Obligations (VDROs). These are based on the Thomson index and can fluctuate more than other issues such as money market funds. However, the issues are purchased and put back at par and yields are generally reset on a weekly basis. As you can see from the chart, its value has been relatively stable during the past year. And PVI’s yield is more than four times that of National Tax-Free Money Market Funds which are generally in the 0.35% to 0.40% range.

The current yield on 10-year U.S. Treasury bonds is 2.32% as of 01/16/2009, according to Bloomberg News. Let’s compare that to the Nuveen Insured Tax-Free ETF, identified by symbol NEA. It has a current distribution rate of 6.02%, and that, if you pay 28% in federal taxes, equates to a tax-equivalent yield of 8.36%. The 8.36% is about 3.5 times the yield on the 10 year U.S. Treasury! Of course there is more credit risk. NEA’s average credit quality is AA+ and it uses some leverage so that you get that 8.36% tax-equivalent yield. And yes, you would pay a small percentage in state taxes. But it’s not subject to the Alternative Minimum Tax. And then we come to market price risk. NEA is likely to increase in price whereas U.S. Treasuries are likely to go down, a lot. This is because there’s been a virtual “gold rush” mentality to buy U.S. Treasuries, in my opinion. This seems to have created a bubble. Some reliable researchers think the 10 year U.S. Treasury should sell to yield 3.50%. That’s more than a 50% increase in yield. Its price would have to drop by a lot for it to yield 3.50%. Maybe 22%.

Past performance is no guarantee of future results.