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Retirement and the ICE Age

By Jeff Clark
Tuesday, October 3, 2006

I officially retired yesterday.
 
Sure, it’s not a fulltime retirement. I’m still involved in several businesses, and writing several investment advisories. But today, for the first time in 23 years, yours truly is officially retired from the field of active money management.
 
So this morning, I did the same thing every other trader does on his/her first day of retirement... I woke up, turned on CNBC, turned on my computer, grabbed a cup of coffee, and settled in for the trading day.
 
You see, old traders never really retire... they just lose their regulators.
 
There’s really only one difference between today and yesterday... I no longer need to meet with my firm’s compliance and administrative officers to discuss my trading activities and to make sure the proper forms are filed with the regulatory authorities.
 
I don’t have to pay their salaries anymore either.
 
The cost of complying with an ever-increasing regulatory environment takes a good chunk out of the bottom line of even the most efficient brokerage firms.
 
And now, if a handful of Senators get their way, then a good chunk will be coming off the bottom line of the Intercontinental Exchange (ICE).
 
The ICE is the leading electronic exchange for energy trading. Up until now, it’s been exempt from the burden of regulatory oversight. Give the credit to a few well-placed campaign contributions from the folks at Enron. A small loophole in the securities laws exempts energy traded on electronic exchanges from regulatory oversight.
 
The Oil and Gas Traders Oversight Act of 2006 will close that loophole.
 
This bill was about to die on the vine in Congress until Amaranth Advisors imploded and lost about $6 billion in natural gas. You see, Amaranth purchased most of their natural gas contracts on the Intercontinental Exchange. Apparently, the pendulum swinging folks in the government believe they could have prevented this disaster if they had the ability to regulate trading on ICE.
 
We’ll never know for sure.
 
But one thing is certain... if the Oil and Gas Traders Oversight Act of 2006 becomes law, then complying with the new regulations will greatly increase the operating costs for the Intercontinental Exchange. That could create a meltdown for ICE shares... which are currently trading over 160 times trailing 12 month earnings.
 
I’m not short selling ICE shares just yet. I’ll wait to see how the bill progresses in Washington.
 
But it doesn’t make much sense to own the shares at this level either – especially for someone on a fixed income...
 
Best Regards & Good Trading,
 
Jeff Clark




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Market Notes
Huge day for big pharma yesterday… Pfizer, Bayer, Schering Plough, Novartis, and Johnson & Johnson hit new highs. Pharmaceutical HOLDRs Trust now up 10% from its summer breakout.
 
Defense spending gusher still open… defense giants Lockheed Martin, General Dynamics, and Raytheon at new highs.
 
In The News: U.S. economic growth slows to sub-2%.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1223.75 +0.1% +10.9%
Oil 37.80 -1.1% +0.8%
Gold 136.50 -1.9% +20.7%
Silver 28.08 -4.9% +57.6%
US-Dollar 79.65 +0.6% +5.2%
Euro 1.33 -0.3% -10.5%
Volatility 17.99 -0.2% -18.6%
Gold Stocks 576.48 -2.5% +25.0%
10-Year Yield 3.16 +7.5% -8.4%

World ETFs
Symbol Price
Change
52-Wk
USA 122.83 +0.1% +10.8%
Canada 30.41 -0.5% +17.1%
Russia 22.00 +0.1% +18.9%
India 38.15 +0.6% +22.5%
Israel 16.92 +1.0% +11.2%
Japan 10.56 -1.2% +6.6%
Singapore 13.66 -0.4% +18.6%
Taiwan 14.87 -0.3% +19.0%
S. Korea 57.35 +0.3% +21.8%
S. Africa 71.15 -1.5% +28.2%
China 43.99 +0.3% -1.5%
Lat.America 52.69 -1.0% +8.5%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 134.90 -2.1% +18.0%
Big Pharma 64.04 +0.1% -2.8%
Internet 72.89 +0.4% +27.4%
Semis 16.25 +0.4% +26.6%
Utilities 30.98 -0.7% +0.2%
Defense 18.55 +0.4% +8.7%
Nanotech 10.16 +0.8% +1.6%
Alt. Energy 10.20 -0.4% -4.6%
Water 18.77 +0.8% +14.5%
Insurance 16.14 +0.4% +19.6%
Biotech 20.65 +0.4% +27.3%
Retail 19.65 +0.3% +27.0%
Software 24.83 +0.7% +24.3%
Big Tech 53.88 +0.1% +22.7%
Construction 13.30 +0.8% +16.2%
Media 13.75 +0.2% +23.7%
Consumer Svcs 67.43 +0.1% +23.1%
Financials 54.95 -0.1% +7.0%
Health Care 63.89 0.0% +1.3%
Industrials 63.79 +0.4% +19.8%
Basic Mat 74.54 -0.1% +27.5%
Real Estate 55.53 +0.3% +24.4%
Transportation 91.65 +0.3% +25.1%
Telecom 22.69 +0.2% +14.6%