What $96 oil, $800 gold, a 100% foreclosure spike, and a $2.08 British pound mean to you

Posted Nov 1st 2007 10:10AM by Peter Cohan
Filed under: NovaStar Financial (NFI), Commodities, Oil, Housing

What a fantastic time to own oil, gold, or any currency other than the dollar! And what a wonderful world it must be for foreclosure lawyers! How can you profit? Buy non-dollar currencies, lock in your heating oil price, and consider shorting mortgage insurers.

The statistics are mind-numbingly awful. The price of oil hit a record $96 a barrel, up 300% from $24 in January 2001. Gold is near a record high at $800, the dollar is at record lows -- for instance it takes $2.08 to buy a British pound. Housing, which has been tumbling from its peak in August 2006, is hurting too -- with foreclosures up 100% in the last year. And the mortgage meltdown has led to big layoffs -- my firm counts 70,087 finance layoffs by 42 companies so far this year.

There are three ways you can profit from this trend. First, you can buy currencies -- like the pound and the Euro -- which are getting stronger as the dollar weakens. Second, if you heat your house with oil, you can consider locking in a fixed price -- because oil is clearly going to keep going up.

Finally, to capitalize on the collapsing mortgage and housing markets, I've already provided a short idea -- NovaStar Financial (NYSE: NFI) -- which offered a 2,097% return -- having declined from $116 to $5.28 since December 2006. I'd take a closer look at shorting mortgage insurers, one of which -- MGIC Investment Corp. (NYSE: MTG) -- has already tumbled 67% -- from $58.91 to $19.36 -- since I talked about it on March 12.

Do you have other ideas on how to profit from these trends? If so, please comment below.

Peter Cohan is President of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter He has no financial interest in the securities mentioned.

Tags: commodities, currency, dollar, featured, gold, mgic investment, MgicInvestment, mtg, nfi, novastar financial, NovastarFinancial, oil

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Reader Comments (Page 1 of 1)

11-01-2007 @ 2:10PM

Harvey said...

Telling that there are no comments for this post. I think those of us who bought Canadian dollar or Gold three and four years ago, are in good shape, but had to put up with four years of attacks and derision as the housing bulls accused us of negativity and subversive thinking.

Now it's kinda late to be scrambling for safe ground, but there's still time to diversify into yen, which may benefit from the end of the carry trade as Japan interest rates rise, and the Indian Rupee which is gaining so fast that the Indian central bank is trying to tame it's run.

People have got to stop listening to the experts and analysts on CNBC, WSJ and the other politically influenced news sites. Try getting your news from the FT, IHT, Asian Times and other less biased sources...if you had, you would have seen clear predictions of the current debacle playing out before our eyes.

Try and diversify out of US assets, and stop drinking the koolaid being pumped into the US water supplies

11-01-2007 @ 4:40PM

brian said...

Thanks politicians, from the top down you are incompetant at best, or just plain criminals at worse. Im betting on the latter.
My children and grand children say a big "thank you!" for selling their future