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,
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.