Bubble's gonna burst

Signs are being put up all over the places for the biggest bubble of the century to burst now....yes, I'm talking about China. The clearest sign came in Monday, when the multiples of Chinese stocks are going ever higher, while a batch of H shares are revising down their estimates for next year. When P/E ratios is going higher, while companies are putting up lower numbers, that is a classic sign of a bubble. The market is flushed with liquidity, and high hopes, instead of reason and educated investing.

Today, a simple discussion of combining S shares and H shares, sent Chinese stocks down and Hong Kong stocks up. These HK stocks, are really the same companies as the S shares, but available to everyone. So in reality, the same company's stock is down inside mainland exchange, and up in HK exchange. If you think that makes no sense, you are absolutely right. It is not unwise to sell your Chinese stocks and ETFs now...rather than be caught when the biggest bubble of the century bursts.

Some argues that the authoritarian government will not allow the stocks to go down prior to the summer Olympics. While true to a certain degree, I am not sure how much they are willing to do, given their market has gone up more than 10 times in 4 years. Unless you bought into China 4 years ago, there are a lot of room for the stocks to "correct". But, hey, one can always keep their fingers crossed.

Investing in GE

GE is just about the only stock you can buy, that emcompasses the Dow component. This company is large enough, and owns enough subsidiaries in each segment of the market, that when you buy GE, you are pretty much buying the Dow index. In times of volatility, and yet you are betting the economy to stablize and recover, GE would be a very safe bet.

After sliding back into the mid-thirties in March, shares in General Electric have gained nearly 12% this year as market participants focus on the company's strategic position in a healthy global marketplace. With three quarters under its belt now, 2007 has proven to be a strong year for General Electric.

In terms of its capital structure, the company has sold off slower growth and profit businesses, utilizing the monies to strengthen its portfolio by investing in higher growth areas including energy and infrastructure. It has also reduced its cost footprint and has returned cash to shareholders. Today, shares are trading lower after GE reported earnings of $0.50 per share, in line with expectations. The results included six cents in restructuring in continuing operations and another penny as result of the credit turmoil. Revenues grew 12.3% from the prior year period to $42.53 billion versus the consensus estimates of $42.4 billion.The ongoing bullish themes were organic revenue growth of 8% and strong order growth of 20%, which bodes well for the medium-term growth outlook and visibility.

The company's fourth quarter guidance of $0.67 to $0.69 cents per share brackets the consensus estimate of $0.68.The disappointment, which is likely weighing on the stock, is the fact that GE wasn't always able to convert growth into profitability. Within the infrastructure segment, order and topline growth remained robust, but earnings failed to keep up with the pace as margins fell 70 basis points. The reason is that equipment orders continue to outpace services which in turn dampens margins. Commercial finance was also a bit lighter than expected at $1.4 billion (up 12% vs. 15% guidance); Industrial $513 million in earnings before interest and taxes (up 6% vs. 10-15% guidance); Health Care $692 million in earnings before interest and taxes (-1% vs. flat guidance). On the upside, NBC continues to gain momentum.

The unit achieved $589 million in earning,s up 9% for the quarter as the network gains strength with its fall line up helping to boost advertising rates.

Overall, while the quarter was a bit mixed, Ithink investors should continue to focus on GE's strong long-term growth prospects, global footprint, diversified portfolio of higher-growth businesses, strong financial position, and emphasis on bolstering shareholder value.

For the full year, GE expects to reach $2.19 to $2.22 per share, excluding items. That is in line with the consensus estimate of $2.21.

Buy that damn ETF. Do it!!!

Crude oil futures held above $80 a barrel Wednesday in Asia after falling three straight days from last week's near-record levels. If this is not a bubble, I don't know what is...

Light, sweet crude for November delivery rose 16 cents to $80.24 a barrel in Asian electronic trading on the New York Mercantile Exchange by midday in Singapore. The Nymex crude contract fell 19 cents to $80.05 a barrel Tuesday.
Many analysts say investors taking advantage of the weak dollar drove oil prices to record levels above $83 a barrel in September. The supply and demand fundamentals of the oil market simply don't support such high prices, these analysts argue.

The dollar has been rebounding against several currencies, though, and dollar-denominated commodities have become less of a bargain.

Investors have also begun betting that oil prices have hit their highs for the year. Oil prices typically fall off between the peak demand of summer driving season and before winter demand for heating oil kicks in.

Still, prices could jump to new records on news of a hurricane or a bullish government petroleum inventory report. So, while keeping one eye on the dollar, futures traders are also anticipating Wednesday's inventory report from the Energy Department's Energy Information Administration.

Analysts surveyed by Dow Jones Newswires expect, on average, that crude inventories fell 400,000 barrels in the week ended Sept. 28, while gasoline inventories grew 400,000 barrels.

Refinery use likely rose by 0.4 percentage point to 87.3 percent of capacity, the analysts said, while inventories of distillates, which include heating oil and diesel fuel, likely grew 700,000 barrels.

November Brent crude rose 6 cents to $77.44 a barrel on the ICE futures exchange in London.

This is the best time to invest in ETFs, namely DUG. DUG is a fund that shorts securities in oil and natural gas. Knowing this is a bubble that is likely to extend to only early next year, this is a good time to put in that "buy" instruction. So, the higher the price of oil and gas goes, the lower DUG would be. Therefore, the inverse is true. If oil/gas prices drop in the future, DUG (trading at 52 week low) would rebound. You can email me if you need more clarification on how shorting works, or ETFs in general.

Here's the deal with Natural gas, that too, is building a bubble. Nymex heating oil futures rose 0.52 cent to $2.1675 a gallon, while gasoline prices added 0.30 cent to $1.9858 a gallon. November natural gas futures, meanwhile, rose 4.5 cent to $7.472 per 1,000 cubic feet.

Natural gas futures bucked the rest of the complex Tuesday in the U.S., rising 37.7 cents to settle at $7.427 per 1,000 cubic feet. Some analysts think investors are reacting to a storm system in the southeastern Gulf of Mexico that they believe could threaten critical gas and oil infrastructure.
Other analysts said natural gas investors are only looking ahead to winter demand and betting the Northern Hemisphere winter will be colder than the last.