Personal Update

Taking a break from the Finance world I just wanted to update all the readers on what I am currently doing. Most recently I have decided that I am going to Double Major in both Finance and Supply Chain Management. Supply Chain Management was a spur of the moment thing, but I realized that it will teach me instrumental tools in my valuation of companies. Another bonus was ASU's Supply Chain Management Program is #3 in the nation. Recently I was one of the few Freshmen to get accepted into ASU's Investment Banking Industry Scholars program. To gain admittance I had to go through a hard recruiting process. The program was recently featured in Business Week and the goal is to prepare students for the extremely competitive Investment Banking Industry. In the program we focus on networking strategies, stress interviews, information interviews with alumni working on Wall Street, 'stock pitch' presentations, and developing stock analyst skills via technical training seminars. It is a tough program which utilizes the most of my Financial skills and has dramatically raised my Wall Street IQ. The goal is to still become an Emerging Markets Trader for Goldman Sachs so currently I am doing anything to better my resume.  Not related to Finance at all, but recently I became a Pledge at Sigma Nu Fraternity. I always felt I was destined for Greek Life and its a good break away from School, Homework, and the Falling Dow. Currently I am working on two new ventures. I am currently working on launching a Hedge Fund in either my Sophomore or Junior year of college. Some might see this as quite ambitious by my age, however I see age merely as a number not a limitation. In 2007, I raked in a one year return of 85.22% which would sit me nicely in the Top 10. This number would have beat out 99% of the Hedge Funds for annualized returns in 2007. Hedge Fund numbers were thrown off this year as Paulson & Co. had an annualized return of 589%. Anyways back to my point of starting up my own fund. This summer the majority of my research will be done and the construction of business plan, LLC license, etc. I have recently started an additional Brokerage account in which I am trading in based upon my newly acquired principles/rules of trading. These have been acquired from mentors, trial and error, my many failures in the past. I have strict rule in which I trade by now to reduce my risk. Name for the Fund is undecided, if you have any ideas please send them to me, I want it to Incorporate Hartje. As for StocksonWallStreet I have some big plans envisioned for the future. First I plan on switching out of Blogger to allow more access to readers and so I can offer more as well. No set time table on when this might happen but keep checking in everyday for new posts and market updates.

Chinese Market Plays

China was shocked this week by the 5% decline in the country's Consumer Price Index. As a result, they are on a full fledged mission to bring that number back in 2009. The start was the investment of $2 trillion dollars. Now we know where the majority of that money will be going it is a better market indicator and we know how to play China now. First, the Chinese have managed to stabilize the commodity market. We have seen this in the increases of Freeport, BHP, Vale, Rio Tinto, and various other commodity firms. Other plays we have seen in China are the large infrastructure projects for telecom. This makes CHL, the world's largest Telecom provider and the sole provider to China, a bullish play. They still have a large untapped market as many chinese people don't use cell phones the same way we do in America. Other Chinese plays are Petro China (PTR) which is a large petroleum producer who is receiving much love from the Chinese investors. If you want a way to play all these then check out these two Chinese based ETF's: PGJ & FXI. China is a bull market now so make sure you can ride the wave.

Freddie Mac Causing Trouble

What's new, another company needs money. This time it is the lending giant Freddie Mac who is asking for a $30 billion dollar loan after reporting that they lost $23.8 billion in the fourth quarter of last year. For all of 2008, the firm lost $50.1 billion. The problem is now what to do with this troubled firm. In one case, we desperately need both Freddie Mac and Fannie Mae to rebound to help the property market and the overall lending market. As of right now, the only option would be for the government to loan Freddie Mac the money. What's another $30 billion after all the money we have handed out so far? The effects such a loan would have on the market would be instrumental to ending the recession. Lending is the one part of the financial institutions which is lacking right now. It is the sole factor that runs the economy as without the distribution of capital, Companies can never prosper or grow, couples cannot buy homes, small business can't start up. These factors are the reasoning in why the Government will ultimately lend Freddie Mac the money. For Shareholders of Freddie Mac, another loan will end up not helping you share price. If Freddie Mac continues to accept more government subsided loans it will only bring the company closer and closer to nationalization. I expect shares to hover around .25-.50 cents for quite some time until we have a clear plan for what the companies long term goals will be.

Short Lived Rally

Don't get hyped by the surge in the Stock Market. This is what is known as a "Bear Trap." I base this after hearing the news that Wall Street announced that credit is tightening again. Unless we see a reversal in the credit lending this will be a short-lived equity rally. Whenever credit tightens that usually is a Red Flag indicator that tougher times are still to come. Banks are reluctant to lend as they have a lack of confidence in Obama's administration policies, combined with unabated declines in the economy. This might come as a surprise after Stocks surged after CitiGroup's CEO announced that the bank was profitable in the first two months of the new year and that its capital positioning was strong. News that the SEC might put the Uptick Rule into place also boosted morale. The Uptick rule requires a move higher in the stock before it's shorted. So how to play these markets if the banks continue to tighten credit. First and foremost, don't invest in any companies with serious amounts of debt or companies in need of capital. In current times cash based companies are king. Currently many Tech companies such as Google, Apple, Microsoft, and Ebay are cash kings. It is simple to research, just check any companies balance sheet and compare Cash on Hand to Debt. Obviously you want Cash to be higher than Debt. Constantly read about the credit market and check the Treasury bonds as they can be indicators of which way the market will swing. Once we see Capital Markets rebound then it will be a opportune time to buy companies waiting in line for capital to expand business operations. 

If you would like to further discuss this topic check out the link below which will direct you to a discussion board. Click Here

Rules of Trading

At current times with Brokerage, 401K's, and IRA Accounts being cut in half many people are wondering where or not their fundamentals for stock picking are right. Some might say Stock picking is blind luck using examples of the monkey experiment tested at Stanford and other occurrences. This would be a naive statement as in the long run unless you have a list of Rules in which you Trade by you will never be a winner. So the following are my own Rules of Trading in which I have complied from trial and error and both success and failure. The first rule and most important is Buy Damaged Stocks, Not Damaged Companies. Do your homework, research the company. Invest in best of breed companies and note that there is always a Bull Market somewhere.  Right now that would have to be among Day Trading and Chinese Based Companies. Always leave 5-10% of your portfolio value in cash so your prepared if stocks drop to buy. When valuing a company always check the P/S. If the P/S is above 10 then the stock is momentum priced. Only buy Momentum stocks in a strong market, so in current times avoid it. Its okay to buy below 10, but a P/S between 3-5 is best. Below 2 reflects value priced stocks. Next indicator to check is the 50 Day moving average. Stocks are on a downtrend if it is below while they are on an uptrend if the value if above. Check the PEG Ratio and EPS to makes sure the company is making money. Look at the Balance Sheet to check for company debt and quarterly earnings. Its a good quota usually to not buy companies in debt unless they have reported major investment projects within their own company. For Daily Volume of a Stock make sure it is at minimum above 100,000. Above 1 million is the best. Makes sure the company is at least 30% institutionally owned. Also make sure there are at least 4 analysts following the stock as sufficient analyst coverage is necessary to create investor interest. Finally when researching stock you need to ask yourself a series of questions. First on the fundamentals you need to ask: What is the Companies Business? Is it sound? Is it growing? Price History: How much have other investor been willing to pay for the stock? Price Target: How much are investors likely to pay for the stock in the future? Catalysts: What catalysts will change investor perceptions of the stock in the future? Comparison: How does the stock compare to others in its industry? If you follow these simple steps and make sure that your company fits the quota then you will always find a winner.

If you would like to further discuss this topic check out the link below which will direct you to a discussion board. Click Here

Barron's Top 10 Picks

This week, Barron's came out with the list of the Top 10 companies/stocks for the next decade. Topping the list was Google (GOOG), a company that has dropped half its value since 2007, who was liked because of their large Growth opportunity in Online Advertising and lack of Debt.  I to love Google and am a shareholder as they have a strong upper management that has been making strategic acquisition and cuts to better position the company for the future.  The company has also shown resilience after putting up strong revenue numbers and gross profit in 2008.  Other companies topping the list included Microsoft (MSFT) and EBay (EBAY).  These two companies I am not as wild about but are boosted by Long-Term Growth Opportunities and Large Cash Holding. Other companies on the list included: Cerner Corp (CERN) Database Builder, Wynn Resorts LTD (WYNN) the Las Vegas and Macau Resort Giant, CVS Caremark Corp (CVS) the rapidly growing Pharmaceutical Retailer, Ace LTD (ACE) the Insurance Company, and Fernsa Latin America's largest Bottler and Brewer.  The most intriguing company on the list and one that I have full confidence in for the future is the Security Company EMC (EMC).  EMC currently has a great PEG, P/E, and EPS which is supported by strong Long-term outlook.  The company has continued to put up great revenue numbers and the balance sheet is looking great especially in current harsh times.  Its supported by a high analyst ranking and is a steal at current times. Let it fall to $9 and then grab it.

How to Handle the Falling Dow

The Dow is reaching decade long lows as we dropped below 6,600 in the past week.  So the question is, how low can it go?  Well there is no clear answer to this question. Michael Bloomberg believes we still have a far way to go and that markets could still decline up to 25%. Jim Cramer believes similar thoughts and that you need to focus on individual stock analysis rather than a market summary.  So how should you act in these current volatile markets?  First step is buy damaged stocks not damaged companies.  Avoid the Auto Industry, Government controlled Banks, and any high priced consumer product.  Know your limit and expectations for a company. For instance, if you are a Long-Term investor don't check your stocks everyday as you'll drive yourself crazy with the ups and downs we are experiencing in these markets. Once a week is all you should be doing and make sure you check on Mondays not Fridays so money isn't on your mind all weekend.  On the other hand, if you are trying to Day Trade these volatile markets or be a short-term investor, good luck.  Just kidding, actually there is lots of money to be made as of right now with smart, strategic day trading.  With such volatile levels the risk to reward ratio is at unquestioned levels. Make sure that you don't get ahead of yourself and let the losses accumulate.  Set a tight, strategic amount of money that you are willing to lose and play with it in the markets.  In current market conditions, I believe the real gains will come from Day Trading and Short-Term Investments.  Long-Term your money will be safe buying solid companies, however some of these results will not be realized until three to five years down the road.  

Democrats to Blame

The other day I was forwarded an article dated from September 30, 1999.  The article was on Fannie Mae's policy change to make it easier for lower income families to get admitted for a loan. A prominent figure in this article was how the company was receiving pressure by the Clinton Administration to make such a change.  Researching this topic i have also found out that the Clinton's even threatened to take away tax benefits to the Loaning Giant if such an initiative was not put in place.  Ultimately, the Fannie Mae had to take on the risk as the tax benefits alone would have crucial effects on the companies profits which at the time were very strong and it was a popular stock among investors.  So now going back in time was Clinton even that great of a President or did he just sway the media with his words of wisdom and charisma? Those of you claim that Clinton was the main contributer to economic growth during the times. In this case i disagree and would give more credit to the Republican controlled Congress who ruled for six out of the eight years.  Congress lowered the capital gains rates which spurred economic growth.  Congress helped fund the boom among Internet companies.  Many of Clinton's detractors have a selective memory on what he actually did.  For example, many blame Clinton for not killing/capturing Osama Bin Laden as he pretended to order cruise missiles to attack Afghanistan with the purpose of distracting people from his sex scandal. Another claim to fame that Bill takes credit for is making America a safer place and reducing crime as a whole.  Well for anyone who has read Freakonomics, they know that this is untrue as the biggest factor in reducing crime within America was Roe vs Wade which allowed many crack babies to become unborn along with children of teens.  As time goes on we slowly see more and more faults within Clinton.  Clinton benefited from being in office during a time of peace and economic prosperity.  He didn't screw that up to much yet his lack of principled leadership left many people disappointed.  As i dug more within my research i read more and more about how the Democrat's deal with Economic affairs and the results.  They are shocking, if you go back in time you can see the disparity in economic growth when there is a Democratic controlled Congress versus a Republican controlled Congress.  First example is the current Housing Crisis and Credit Crunch in which was started by a Democratic President Clinton and contributed to by the Democratic Congress the past eight years.  In 1990 we had a mini-recession caused by an increase in production costs and again at that time there was a Democratic controlled Congress.  Furthermore 1979 the Iranian Revolution caused a sharp increase in Oil Prices which led to a WorldWide Energy Crisis.  Tight monetary policy by the U.S. led to inflation and the end of the Jimmy Carter era.  Keep going back we have 1973-75 the Oil Crisis and the Crash of the Stock Market as a result of OPEC quadrupling Oil Prices. Again at such times the Democrats controlled Congress.  Back in 1960-1961 another recession took place during the Kennedy administration when again there was a Democratic Controlled Congress.  Finally in both 1957 and 1953 we had various recession where again the Democrats controlled the Government.  So see the correlation?  Ever since the 1950s ever recession has come at the hand of a Democratic controlled government.  On the contrary during times of a Republican controlled Government is when we have seen the largest increaser in GDP Growth.  For example, the prosperous times from 1994-1999.  The growth from 1978-1981. The problem is currently we have a Democratic Controlled government with the liberalist senator ever, Barack Obama in charge.  It is my guess that any resilient form of economic growth will not be stimulated in the next four years. For one, we are failing to effectively distribute the Stimulus package to have long term economic benefits.  Too many handouts are being made which is nice but not practical during harsh times.  When you have money in the bank is when you become generous but currently we don't as we have a $1.75 trillion dollar debt.  The Bush Administration tarnished the Republicans image when in reality it was the Democratic controlled Congress that supported and initiated many of the failures.  It will not be until the next election where we truly see the benefits Republicans provide to the Economy and i hope that time around the U.S. votes accordingly.  

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Obama's Tax Rate Slipup

Anyone with aspirations of making a good living in America please pay up? This is the straight forward statement that Obama delivered when addressing the nation on the current Fiscal deficit and his plan to cut the $1.75 trillion dollar debt.  As it will go any couple making over $250,000 a year can expect to have substantially increased tax rates to help cover pay for the lower income families tax cuts. Now my dream of being a Goldman Sachs Trader will cost more than i thought with Federal tax rates rising from 35% to 39.6% for High-Income families.  Plus my other goal of starting a Hedge Fund is shot as well as now all Hedge Funds will have to pay Income Tax Rates not Capital Gains Tax Rates on profits.  That is a substainal number and the Obama Administration expects $28 billion tax revenue from just the Hedge Funds alone.  Don't be surprised if we see the outsourcing of Hedge Funds with many located outside the U.S. to save the tax breaks.  For normal investors, expect to see your Capital Gains Rates rise from 15% to 20%.  This i believe is an awful proposition.  The increase in Capital Gains hurts no one more than the Middle Class.  The High-Income are not affected as they have the capital to allocate resources outside of the U.S. to save on tax breaks.  The Middle Class however, does not have this option.  Another option they do not have is to stop investing.  The Middle Class thrives of the Markets as it is their opportunity to grow their 401k's to a level which will offer retirement and the chance to send their children to college.  Obama clearly didn't educate himself on this situation and should have a sit down with Mitt Romney and be explained why he should cut the rates.  Mitt Romney was the one who proposed the plan of Zero Capital Gains Rates for the Middle Class during the election.  In this case he classified the Middle Class as families earning less than $200,000 annually.  This would apply to 95% of American citizens.  The simple fact is nothing would stimulate the economy and markets more than reducing capital gains rates and this is why.  Capital Gains play a unique role in fostering economic activity, especially by entrepreneurs in high-technology areas.  Many economists even believe that the optimal tax rate is 0 percent.  So why not lower them temporally? Temporary capital gains cuts would to nothing than induce investors to sell assets not stimulate new investors.  However, a permeant cut would provide incentives for people to sell long-held unproductive assets and reinvest in prospering industries. Many government officials are also scared of the possibility that Markets would fall if we cut the tax rate.  This is false as cutting capital gains rates will cause asset values and the stock market to rise.  Lowring capital gains rates increases the price of stock and other assets and the stock markets reflect the collective action of people looking forward.  For example, in 1997 the Fed cut the top Capital Gains tax rate from 28% to 20% and markets responded with an 8% increase.  Currently companies are also being screwed over as many receive double taxation on both Capital Gains and Income Taxes.  For example, say McDonalds earned $100, the Fed takes $35 in corporate taxes leaving $65 which is distributed to investors and then taxed at 20%.  That takes another $13 leaving $52 to investors and $48 to the Government.  These companies are still exposed to a tax on dividends.  Capital Gains taxes are structured so poorly that it is no wonder the economy would rise without them.  They are not even adjusted for inflation which in current times could cause some problems for most investors.  So the last complaint that everyone has is that the Government cannot afford large and permeant capital gains taxes.  This is untrue as improving economic growth increases federal tax revenue from many sources (Property Taxes, Income Taxes, Corporate Taxes, etc)  The government's goal is to not act like a business trying to maximize tax revenue.  The goal should be to enhance economic growth and raise only as much tax revenue as needed.  

GE cuts Dividend 10 Cents

General Electric (GE) announced today that they will cut their dividend 10 cents down to 31 cents a share. This is due to the companies lack of revenue and lack of cash on hand. Compared to other companies GE is still in quite a favorable decision.  They are endorsed by Warren Buffet who bought a large amount which is always a good sign. Despite having a terrible 2008 Fiscal year they are in a position to improve dramatically in the next coming years. With Obama's support they could be the catalyst company to lead the new wave of the reformation in the Energy Sector.  Obama loves American companies and would be more than happy to give GE such an opportunity. With the stock price currently at $8.95 i would take the time in watching this stock. If it slips in the upcoming weeks pull the trigger as it is at such a discount (52 WK High $38.52) yet has such potential to improve in the coming future.  Watch it and if you are like me and think Energy is a new up and coming American industry then pull the trigger.