Gold Hype

There have been recent articles by the “experts” encouraging gold as a positive investment. Here’s an example, you’ll need a Marketwatch account though, registration is free:

Marketwatch, Gold: Mega bull market underway

Remember these are the same people that helped fuel the creation and collapse of the .com bull run. When the majority of analysts and experts are in consensus, you can expect what they say to happen but then expect them to be the first to cash out as well. I continue to believe that the question of gold hitting 500 is not if, but when it will hit 500.

Gold hitting 500 will create the same kind of irrationality that caused the .com craze. Everyone will jump in to get a piece of the action.

I use a great site Kitco to track the daily prices of gold.

For the next 1-3 years I believe an economic slowdown is inevitable. A weakening real estate market and the U.S. dependence on foreign capital will result in a slight devaluation of the dollar, which will lead many individual investors to look at gold as an alternative currency investment. When these investors see the huge run up in gold, they’ll say wow and try to jump in. That’s exactly the same type of .com mentality that we must avoid at today’s already high levels. Articles like the ones above serve to fuel the burgeoning mania in gold.

My advice is don’t believe the hype. I’ll be preparing funds to short gold stocks if it breaks $500 in the next 6 months. As mentioned in an earlier posting, I’m watching BGO, IAG and GG to name a few.

Investing in a single company

What would you choose if you could only invest in one stock for one year? I’ll tell you what I would do. I’d pick between these two stocks, UPS, United Parcel Service Inc. or FDX, FedEx Corporation.

Here’s why:

Both companies perform vital services that almost every business uses.

Both companies have built solid businesses in no imminent or foreseeable danger of going out of business.

Both companies pass the high price of oil to their customers in the form of fuel surcharges.

Both companies are trading near their one year lows.

I would go so far as saying, if someone were to buy either UPS or FDX, they would likely make 10-15% a year from now. The risk comes from companies who will reduce shipments due to the high price of fuel. This really isn’t much of a risk though since I don’t see viable alternatives. It’s inevitable that oil will drop in price. On a quick glance, both stocks appear to be a clear value to me and one of them would be my sole pick to hold onto for a year.

RawGreed Market Recap and Forecast

Today:

DJ Indu 10,441.11 -94.37
Nasdaq Comp 2,139.36 -16.07
S&P 500 1,214.47 -12.23

Tomorrow’s forecast:

5 day forecast – What I’m watching out for:

Oil to rise, airlines to go down. Buy CAL under $10. Buy JBLU at low $16. Buy ATYT at low $12.

Watching SNDK, Sandisk

SNDK, SanDisk Corporation engages in the design, development, and market of flash storage card products used in various consumer electronics worldwide. Its products include flash cards, Universal Serial Bus, flash drives, and digital audio players.

I’m very bullish on SNDK. Its a great company with great timing. I use Sandisk memory products in a number of my electronics. Nearly every new electronic device requires, or is able to utilize, some sort of flash memory for storage.

Here’s the but.

While the business and timing are both perfect for now, I believe the stock price has risen a little too aggressively.

Sandisk reminds me of another company, MU Micron. Some years ago analysts were bullish on Micron for the very same reasons they’re bullish on Sandisk. They saw no drop in memory usage for PC’s and notebook computers and only increased consumption. What analysts failed to predict is that price margins on memory would erode so quickly. I see the same happening to flash memory. Sandisk already has to cut prices in order to maintain its market leading position. As flash memory becomes increasingly ubiquitous, the i’ll effect is that prices and margins will erode to a point where it will be difficult to squeeze a profit from Sandisk’s manufacturing costs.

I also see a lack of interest from consumers as flash memory storage space increases beyond the use of today’s applications. Since July shares in the company have doubled in price. Short term, if SNDK passes $65 by the end of this year, I would look into shorting shares of the company. Long term, I am very bullish on the company and would buy the stock at under $30.

Selling CAL

I bought 2000 shares of CAL at 9.55 on September 21st, 2005. I sold 2000 shares of CAL today at 10.51.

My profit was $1908.14 or 9.98%.

The stock is jumping up over speculation over the U.S. government releasing oil reserves. Oil is currently under $65 a barrel. I have a feeling the stock has gone up too fast and will dip again before firm news is released by the U.S. government.

Here was my analysis for CAL posted on September 28th.

Symbol: CAL, Continental Airlines, Inc.

Intelligent Investor Strength: 6
Chart Strength: 7
Speculation and Greed Strength: 10

RawGreed Strength Rating: 8.25

Target Buy Price: under $9
Target Sell price: $11-$12 within 3-6 months, $14-15 within 6 months-1 year.

Notes: CAL is heavily influenced by speculation and greed. Every little piece of news about oil has sent the stock tumbling or rising.

*Disclaimer: I own 2000 shares of CAL purchased at $9.55

China Stocks

So you hear China is the next big thing? Well I believe you’re half right. Proponents of China stocks will cite the enormous population of the country and the vast potential of the country’s economy. What the majority haven’t done is step into the country with their own feet. It’s one thing to read and hear about something and another to experience it. The .com crash is a perfect example. Wall Street is busy breeding another group of eager investment bankers and day traders who have no memory of the i’ll effects of the crash. They hear stories of the crash without actually having witnessed the fortunes of so many being decimated.

The eagerness of some people to invest in China has come at a premium. Proper due diligence is difficult to perform on Chinese companies due to tight government regulation and a proliferation of questionable local companies tied to international auditing company’s. Investors in America are used to scandals that have shaken up corporate record keeping and reporting policies. Investors in America have come to expect a proper dotting of the i’s and crossing of the t’s.

Imaging a country where the word relationship, “Guanxi”, pronounced “Guh wong she”, is on the forefront tip of the tongue of almost any businessman in China, before the word performance. It’s widely known among local businessmen that relationships can open doors to job’s, opportunities and cut through layers of governmental red tape. Losing these relationships means more to Chinese businessmen than to American businessmen. For Chinese businessmen without relationships, they often have little or next to nothing in the Communist run country. To a Chinese businessman, relationships can create rapid performance.

Ask any seasoned investors, far older than I, to describe the investment climate in the 1980 and you’ll often hear comparisons to the wild wild west. They describe a stock market and banking community riddled with hostile takeovers, backstabbing, corporate eavesdropping, and scandal. I believe that China is 20 years behind America and now experiencing their version of the 1980′s wild wild west. Everything is up for grabs and the Chinese sense it. America is simply fueling the rush by Chinese businessmen to capitalize on America’s fascination with the countries population. Take a good company and attach the word China and you suddenly have a great company. Analysts like Mary Meeker of Morgan Stanley fuel the rush by publishing bullish reports on small and mid-cap sized China companies. These same analysts lead the creation and the fall of the .com days.

To avoid another .com sized bust for long investors in China stocks, I suggest investing, in companies that enjoy the public spotlight like NTES Netease or large-cap companies like SNP, China Petroleum & Chemical Corp. and CHA, China Telecom Corp. Ltd. that would be difficult for the government to overly police.

There are a number of small speculative companies to be excited about, CMED, CNTF and SNDA are among a few that I watch. However, these companies represent an extraordinarily large risk for individual investors. Small Chinese run companies can be taken down with one swoop of a government official’s hand. The Chinese government can take away business as fast as they can grant it. It seems kind of odd that the same people ballyhooing the .com stocks are now doing the same to China stocks. I wonder if investors are oblivious to the 1980′s or the .com days. Do we simply forget the lessons we’ve learned so quickly?

CTI Industries Corporation RawGreed award winner of the day

Update : It doesn’t appear to be going up today.

This one’s not quite as bad as Baidu.com. CTIB, CTI Industries Corporation engages in the development, manufacture, sale, and distribution of novelty products, specialty and printed films, and flexible containers. On Friday CTIB enjoyed a huge run up. As this article points out, CTIB has a 600,000 share float. This past Friday, CTIB’s volume was over 8 Million shares or over 13 times the total number of tradeable shares in the company. I’ll be watching CTIB today. If the stock continues to climb, it looks like it will be forming the third wave in the Elliot Wave Pattern before following a downturn.

Symbol: CTIB, CTI Industries Corporation
Intelligent Investor Strength: 9
Chart Strength: 9
Speculation and Greed Strength: 10

RawGreed Strength Rating: 9.5

Target Short Price: over $7.50
Target Cover price: $4 within 1 week, $2-$3 within 1 month.

Notes: This is a stock full of greed and speculation. If CTIB breaks $7.50 today I will short 1000 shares, if shares are available to short.

Console Gaming Stocks

Everyone knows that we are ending one gaming cycle and entering another. The introductions of the Microsoft XBOX 360 and the Sony Playstation 3 are set to refresh the console industry. Along with the new consoles, comes a bevy of new technologies. Both consoles will support, by default settings, high resolution 16:9 gaming and wireless functionality, both never seen before features on any console. I remain bullish on electronic game stocks and game related companies. The electronic entertainment industry has grown year after year and shows no signs of stopping. I predict that at some point electronic gaming will over take the movie industry in annual revenues. The mainstream way of investing in the electronic gaming industry is to invest in Microsoft, Sony or the various game publishing companies. I believe that Microsoft and Sony will play a cat and mouse battle for supremacy. It remains unclear if Microsoft can unseat Sony as the leading console vendor. I doubt it, but it also remains unclear what degree of impact the new Microsoft console will have on Sony. Microsoft has enjoyed success for its original XBOX console in the US and Europe. The company has endured weak sales in Japan, a key market for attracting Japanese game publishers. For now I would wait till initial sales numbers are announced for the XBOX 360 in Japan before investing in the company as a console manufacturer and games publisher. I believe that the majority of mid-cap listed game publishers have enjoyed a healthy run up in stock prices and are fully valued. Two of the stocks that I watch in this category are ATVI, Activision Inc. and ERTS, Electronic Arts Inc.. Small and micro-cap game publishers are too subject to a single bad title dragging revenues down. Even with a solid franchise, there is no telling how an existing game title will translate onto the next generation consoles.

So how do you invest in gaming stocks with the new consoles around the corner? I would look at investing in companies that are experiencing sluggish growth due the console changeover period. Businesses such as accessories manufacturers enjoy strong demand during a consoles introduction and slow growth during a consoles wind down phase. I would also look at game distribution companies that are experiencing inactivity due to the lack of available software titles as publishers prepare new software lineups for the new consoles.

One company I am watching in the accessories field is MCZ, MAD CATZ INTERACTIVE. Mad Catz has a strong recognizable brand name in the accessories market. The company is a long time player and manufacturer of controllers, steering wheels and other console add-ons. The company has also leveraged successful licensing contracts with Marvel to produce accessories based on their library of characters. I believe the company has been shorted due to lack of news and financial difficulties as the company prepares for the next console launches. MCZ is definitely a speculative play with tremendous upside potential. One concern I see is this News.com article that cites Microsoft will charge manufacturers a fee to produce third party accessories.

For distribution I am watching NAVR, Navarre Corp. Navarre Corporation engages in the publication and distribution of various home entertainment and multimedia products, including personal computer software, audio and video titles, and interactive games. NAVR has a strong distribution business. The company’s stock has recently taken a dip in price due to its efforts to diversify into other fields and rising concerns over an inventory buildup of its home entertainment products.

The XBOX 360 is set to launch on November 22nd, 2005. It would be prudent for investors to look for opportunities in accessories manufacturers or distribution companies before the launch of the console to reap the largest rewards. For now those are the only two stocks I’ve been following outside of the game publishers and console manufacturers. Does anyone else have any gaming stocks they’ve been watching? E-mail me.

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