Where To Invest in 2008?

How can we make money in 2008? Actually, the question should be: how can we not lose money this year. With a recession looming, credit debacle, and the unwinding of the housing market, there is simply no long term investment opportunities in equities in 2008.

Let's go through some industries for long ideas:

Retail? No. Consumers are broke.

Banks and brokers? I don't think so. People who are broke can't pay back their loans.

Homebuilders and REITs? You kidding? People who are broke that can't pay back their loans can't buy a house.

Railroads and Transportation? No, economy is slowing. UPS and cargo trains have been hauling less goods around the nation for awhile now. Just take a look at the Dow Jones Transportation Average.

Healthcare, Biotech, Pharmaceuticals? Maybe, since people still need drugs and medical equipment in a recession.

Chinese stocks? These stocks are insane. It's obvious that the Chinese stocks are already in bubble territory, but with the Chinese economy still growing at a break-neck pace, it's conceivable that these stocks can go a lot higher. However, keep in mind that the Chinese economy still depends a lot on U.S. consumption. So as the saying goes, "if the U.S sneezes, China will catch the cold."

Why not tech stocks, you ask? They are not related to the housing market and banks, right? Not really. If you look at the customer base of high-tech companies, banks and financial institutions account for 30% of their revenue. At this point, I think it's safe to say that banks are not thinking about investing in network infrastructure or upgrading their storage gear. Most banks and financial institutions are in trouble and may already be insolvent. So when banks are not spending on tech gear, we will see a dramatic reduction of revenue and earnings for most tech companies. Guess what happens to the tech stocks if there are no sales and earnings growth. Doh!

How about commodities like oil and gold? Oil and gold may be tricky this year because not only have they performed very well for the last few years, but also, we have a rebounding dollar which is not good for commodities. However, it could be good short term trade if oil breaks out at $100/barrel and gold breaks out at $840/oz.

In summary, I don't want to have anything to do with U.S. equities (except for short selling). With this said, Cash and Short-Term Treasuries would be a good place to park your money at least for the first half of 2008.

Related Post: Is It Time to Buy Stocks Now?

Beware of Outlet Store Bargains

Since everyone is in a shopping mood these days. Let's talk about outlet stores like the ones at the Great Mall, Gilroy and NutTree in the Bay Area. Everybody loves a bargain right? Think again. This is the time where I like to say "You get what you pay for!" Because if I were the CEO of a company, would I want to cannibalize my sales by selling the exact same clothes in an outlet store but at a cheaper price? Of course not. So what are they selling at the outlet store? Some clothing manufacturers like Gap, Eddie Bauer, and Ralph Lauren make clothes specifically for their outlet stores, but with cheaper material with standard fit and design.

For example, Ralph Lauren has outlet stores, and people are backing up the truck in there because they think they are buying authentic Polo merchandise at 30-50% off the retail price. Ok, I think Ralph is smarting than that. In fact, most Polo merchandise in the outlet store is specifically made for the outlet with cheaper material, standard fit, and even the logo has a different color that you will never see in the retail store. Also, the sizes may not be up to retail specification. In fact, some clothes at the outlet actually have shorter sleeves when compared to the retail model, I kid you not. And when you buy pants, just make sure both legs don't have different lengths!

Not convinced? Run a quick experiment and purchase the "same" classic-styled Polo short sleeve shirt from both the retail and the outlet stores and put it side-by-side. Measure both shirts and you will see that the sleeve from the outlet is at least one inch shorter. And, you will find that the texture of the cotton is different. Check it out for yourself!

But there is one exception. If you walk to the back of the store usually by the bathroom, you might find one "Clearance" rack that in fact has authentic retail merchandise that couldn't sell at the retail stores. This is where you should look for bargains.

If you truly appreciate material and design but want a bargain, don't go to the outlet stores. Just wait for the big sales at the retail store or website. You'll be surprised at what kind of deals you can find especially after Christmas.

But in all fairness, there are some true outlet stores where they only sell items shipped from their retail stores like Coach and various shoe stores. Usually, it would be the older and less popular models and if you can wait a few months, by all means, go to the outlet store for the bargains.

Sure, most people can't tell the difference between outlet and retail store merchandise and it's really not a big deal in the big scheme of things. But to me, it's fraud because the stores don't tell you that you are buying a lesser quality merchandise. The fact that they want you to think you are buying a retail store item at a bargain is wrong. Just make sure you know exactly what you are buying when you are in an outlet store.

Financial Funnies: The Year in Cartoons

Just some light-hearted funnies regarding a very serious situation we have here in the U.S Economy - housing bubble, subprime and credit crisis, recession, high oil prices, Chinese toys, bear market, devaluation of dollar, and more.


To launch the slideshow, click on the picture below.

Presidential Candidates For and Against a Mortgage Bailout

Please think twice before voting for your next president. The U.S. government is getting more absurd everyday by coming up with all these ridiculous proposals to help bailout homeowners. Who do you think will pay for it? We will! Taxes will be raised to support these programs and I'm sure most of us don't want to pay any more taxes than we have to. The bottom line is affordability. Throwing money at these homeowners and fixing the interest rates will not make any bit of difference. It actually makes things worst!

Say NO to government intervention.

The following link is a list of Presidential Candidates For and Against a Mortgage Bailout for your reference.

http://efinancedire ctory.com/ articles/ Presidential_ Candidates_ For_and_Against_ a_Mortgage_ Bailout.html

Short Candidate: Washington Mutual (WM) Pt. 2

Washington Mutual (WM) is still a problem and I think it's going to 0. There is no way this company can recover unless they put all their SIVs back on to their balance sheet just like what Citigroup (C) did today. Citigroup did the right thing, and I applaud them for doing so. As for WM, there is too much uncertainty surrounding this company and that's why the stock seems like it's falling everyday. I missed the opportunity to short again. :( As of today, I see upside at $18.50 (strong overhead chart resistance) and downside to 0.

Related Posts:
Short Candidate: Washington Mutual Pt 1

Apple (AAPL) Defies Gravity

Apple (AAPL) stock is a tricky one and it continues to go up defying gravity even when consumers are facing high gas prices, high number of credit defaults, and a likely deflationary economic environment! Who is buying this stuff?? Apple is driven by consumer demand. So, when the economy goes into a severe recession (very likely), consumer demand for goods will likely fall. That means Apple is going to take a beating which I think is very soon. You already see consumer demand falling for housing related goods like Home Depot (HD), William Sonoma (WSM), and Sears (S). Even Circuit City (CC) and General Motors (GM) are in trouble. It's just a matter of time for Apple to crack in my opinion. Apple will no doubt release cool new products in the near term, but the problem is that no one has anymore money or credit (i.e., home equity loans, maxed-out credit cards).

I see upside of $192 (double top scenario) and downside of $170 (50 DMA) in the short term. I would be very surprised if it hits $200. Personally, I would not short nor go long on this one as you can get burned if you're on the wrong side of the trade.

Short Candidate: Washington Mutual (WM)

Here is some info regarding Washington Mutual. This guy has a "Sell" rating on it and I totally agree with him. There is not too much to like about this stock. And I missed my chance to short these guys. :(

In my opinion, with rising defaults and additional write-downs (huge number), I don't see much upside to this stock except for short covering (when shorts take their profits). Just by looking at the chart, I see a short term upside of $27 (50 DMA, highly doubt it) and downside target of $0 (bankruptcy) which I think is the likely scenario. If it does hit $27, it would be gift for me, and I'll be all over this one (short)!!

http://biz.yahoo.com/zacks/071126/10374.html?.v=1