Looking at Key Statistics in Companies.

Today I will be going over a couple more stock trading strategies and how to interoperate statistics. First I will go over the remaining stock trading strategies. One way to try and predict what a stock is going to do in the near future is to look at where it is in relationship to it’s 50 and 25 day moving average. There are many ways to interoperate the same information. In general if a stock breaks through it’s 50 day moving average it can often mean that it is headed down. But on the flip side if a stock is already on the down side it can often find support (meaning stop it’s slide) by resting on the 50 or twenty day moving average. Another instance where it pays (literally) to pay attention to the moving averages is when a stock is on the up swing and extended way out over it’s moving average. Most times (but not all) when this happens the stock will pull back and rest on the moving average before breaking out or just flat lining for a little while. A good illustration of this property can be found in the chart below, which is a chart of Sandridge Energy. You can see that through lat December and just into the New Year this stock went way up. Then just as it entered the New Year it laid out a perfect pennant flag but then instead of breaking out it crashed down and took a bit of a plunge. The reason for this is because it was extended way out over its 13 (green line) and 50 day (purple line) moving averages. Between golden and death crosses and now this it very important to pay attention to moving averages. Now I am going to discuss key statistics like such as shares outstanding or return on equity. The first and most important step is to know your company, for instance, what are they producing and are they in a sector that you believe can make money and will continue to grow? After that you need to research some key statistics. You can access a company’s statistics by going to yahoo finance, looking up the companies symbol and then going to key statistics. Lets use the company UPS as an example. One of the first things I want to know about the company is how big are they? This is represented by the companies “Market Cap” which is the number of shares times the price of one share. Basically how much the company is worth. In the case of UPS the market cap is about $72 billion dollars, which is pretty big. After that I want to know things like how much cash they have on hand (Total Cash), how much debt they have (Total Debt), how much return they get on their investments (Return On Assets) and how much their shares are really worth (Book Value Per Share). The first three can tell me what kind of position they are in fiscally and how well managed the company is. The last one can tell me whether the stock is over have under traded (if it’s over traded maybe it will come down and if it’s under traded maybe there is room for growth). Some other key statistics to look at are Shares Outstanding (how many shares the company has out there), Short % of float (how many of the shares that are owned are short) and Net Income Avl To Common (how much money they made with over head). Short % of float is good for trying to see if people think the stock is headed down or not (high % of float means people think the stock is going down). If the Short % of Float is very high the stock might be about to take a turn for the worst. Shares Outstanding and Net Income are important because they let you see how much the company is making (during earnings net income usually expressed as amount of money per share so you need to know both the amount of shares and the net income to know how much money per share the company is making). Lastly it’s important to know when the company you’re investing in is going to report earnings. If a company reports bad earnings then the stock will almost always take a plunge, on the flip side if it reports good earnings then it will go up. Sometimes it’s not a good time to take a position in a stock that is about to report earnings because it’s a bit of a gamble to keep a stock through earnings.

 

Stock Trading Strategies.

Today I will be talking about stock trading strategies. Perhaps one of the most important investing strategies is the so-called “cup and handle”. The general idea here is to look for a stock that has made a dip much like a cup that is currently flat lining, hence the handle. After the handle is formed the stock will usually “break out” and shoot up. This property is well illustrated in the graph below where you can see that through December the stock formed a cup and then broke out in the beginning of the New Year when it got up near the beginning of the cup. Another property illustrated in the graph below is the “death cross” and the “golden cross”. The death cross and the golden cross are formed when the twenty or in this case thirteen day moving average crosses over or under the fifty day moving average. A golden cross is when it crosses over and a death cross is when it crosses under. When you get a golden cross the stock will usually grow and when you get a death cross the stock will usually go down. The golden cross is perfectly illustrated at the beginning of the New Year when the thirteen-day moving average crossed over the fifty-day moving average and shortly after the stock shot up. One last tool for stock trading is the pennant flag. A pennant flag occurs when a stock takes a big jump (if the jump is down then the flag will indicate downward movement and if the jump is up then the flag will indicate upward movement) and then flat lines. But the range gets smaller and smaller so that you could draw a line over the top and the bottom of the lines and make it look like a flag. This property is sort of illustrated in the break out just before the New Year, you notice the lines get smaller before the break out. Over the next couple of weeks I will be talking more about stock trading and next week in particular I will be going over moving day averages, and some other strategies.

 

Obama And The Fed: The First Two Years

Today I will be writing about what I think of President Obama and the Fed’s economic policy in the roughly two years since Obama took office back in 2008. Lately, Obama’s (and the Fed’s) economic policy has come into question, not only form the Republican Party, but by the general public as well. The main thing that has people mad is the multi trillion-dollar bailouts and the stimulus efforts since then. In my opinion a first initial bail out was a good idea, because it stabilizes the economy and takes the panic out of the financial system. It’s hard to say what would have happened with out an initial bail out but with out it I think things would be much worse. But I don’t think that Obama should have made it such a massive bail out, maybe he should have let the banks with the most debt go under or maybe he should have only saved the biggest banks. What I’m trying to say is that he should have let more banks fail to sort of cleanse the system and get rid of the bad apples.

As for the auto industry bailout I have a similar opinion there as well. It was necessary to bail them out but maybe it should have been a bit smaller. That said, the car company bail out’s are going better than I expected, Chrysler has already paid off it’s loans and I think that Ford and GM aren’t that far behind. Also, just last week GM had it’s second IPO. So things are going pretty well with the auto bailouts, although in the beginning it was a little iffy. One mistake I think Obama made is that he didn’t pass enough laws to ensure that a melt down of this size won’t happen again. Although he did pass some credit and debit card laws that protect the user of those cards, it just wasn’t enough. The government’s lack proper regulations really showed through with the story of the alleged fraudulent fore closer proceedings. Although I think an initial bail out was necessary I don’t really agree with the somewhat failed stimulus efforts instituted by the fed since then, the most recent of which was QE2. According to history when a bubble goes way up and then pops it takes as long as it took to go up to bottom out. With that knowledge in hand we can say that the housing market probably won’t bottom out until some time between 2014 to 2016. America and the world markets have had massive growth in the last 10 to 15 years so it’s only natural that the economy will shrink a little bit eventually and the Fed’s efforts to stimulate the economy are stopping that natural shrinking motion. What comes up must come down.

In conclusion I think that the first bank bail out effort instituted was good but should have been smaller so that at least you can get rid of some of the bad apples in the system. Although I agree with the first bail out I don’t think that the trillions of dollars spent by the fed since then has been good (what comes up must come down). The auto industry bail out was necessary because the auto industry employs so many people that it would have been disastrous to let it fail. But just like the bank bail out’s I think it should have been much smaller and there should have been more conditions attached to the agreement. Conditions like they have to build more fuel-efficient cars, they have to research solar or hydrogen fuel cell cars and they have to partially offset the carbon emissions from their factories (and perhaps some other financial conditions as well). I also think Obama should have been harsher when passing laws to prevent something like this from happening again. Sadly, this ends my series on large-scale economics though I will come back occasionally and write a blog or two. From here I will be moving into stock trading and investing strategies.

Quantitative Easing Round Two (QE2).

Today I will be writing about the second round of quantitative easing (QE2) instituted by the Federal Reserve. While QE2 might sound very daunting and complicated at first it’s really quite simple when explained correctly. I’ll start at the beginning, when the congress wants to raise money it tells the US Treasury Department, which sells US Treasury bonds to raise the money. Lets remember that the Federal Reserve is in charge of raising and lowering the interest rate and as a result stimulating the economy. Simply put, the Federal Reserve is in charge of regulating the economy. So over the last couple of years the fed has lowered interest rates almost as low as they possibly can but still want to get them lower. Lets also remember that the fed is also in charge of how much money is printed up each year. So with those factors established lets move on to what QE2 actually is.

Stated simply, QE2 is the Federal Reserve buying US Treasury bonds (the fed will be buying six billion dollars of bonds over seven months). Although that may seem strange, remember that when the fed doesn’t have any money on hand to but those bonds so they print up money instead and but the treasury bonds with the printed money. Although the US Treasury Department will eventually have to pay them back that won’t be for quite a while and that’s not the point of QE2 anyhow. The main point of QE2 is to print up money with out actually calling it the printing up of money because the printing of money is a pretty desperate economic last resort, even if you are a world super power. One even stranger thing about QE2 is that instead of buying the treasury bonds from the US Treasury Department, the fed is buying them from Goldman Sachs. If that seems strange to you then your not alone, if the government is going to print money it might as well put it in the hands of the US citizens that need it. Or at least buy the bonds from the US treasury department, not from Goldman Sachs where they will probably not get a very fair price.

The reason they are instituting the second round of QE2 in the first place is to drive interest rates lower in the long term and try to get healthy levels of inflation, instead of the deflation that we’re stuck in currently. This just doesn’t make any sense at all, it seems like every thing is higher this year than it was last year. The only place there is deflation is in luxury items like computers and jewelry. In my opinion the fed is going to far with this second round of QE2 and they might very well end up causing to much inflation. In my next blog post I will talk about what I think of Obama’s economic policy since he has taken office. Until then this has been Ian Mundy signing out.

My Plan For The Economy.

Today I will talk about what Obama can do to boost the economy in both the long term and the short term. In the last two blog posts I have made I have outlined a very happy economic scenario and a very grim economic scenario. I think it’s worth pointing out that both scenarios were very extreme and while the economy may end up being close to one of those scenarios it will probably be over a much longer time frame. Something like two years instead of six months. So in this post I will be talking about what Obama should do and shouldn’t do to prevent the bad scenario from being out our future.

            Some key things Obama could do tax wise is raise taxes on the super rich, raise taxes on companies that ship jobs over seas, cut taxes for the middle and lower class and raise taxes on gasoline and cigarettes. He should also institute a new tax on things like fast food and soda. Obama should also invest in a green future for our country (see last blog post). He could do this in a variety of ways both on the large scale and the small scale. Some large scale ways he could invest in a green future for our country is by increasing federal funding for green research, build more green power plants, which would include wind mills, hydroelectric power plants, geothermal power plants, and perhaps most importantly solar power plants. Some small scale things he could do is give cash incentives to people who buy green technology and give tax breaks and stimulus to companies who make and sell green technology. But that alone will not save our economy from a double dip recession, not even close.

If we want to have a good and prosperous future than we are going to have to find some way to repay our mountain of government debt. The most logical first step is to stop spending in the first place. Now, I am not proposing an across the board freeze on spending but rather a slow waning of spending in some areas and some minor increases spending in other areas (such as green technology). For the most part I like how Obama has run the country so far but there are some areas that I don’t see eye to eye with him on. One of them is the war in Afghanistan. Though only history will be able to tell us whether the war in Afghanistan was a good thing or not, my opinion is that in the short term it is a waste of political resources and more importantly, in bad economy, money. The big problem is that I don’t see the middle east being a peaceful and prosperous region for at least another ten or fifteen years and in the mean time we’re putting money into something that we really won’t see much return on in the short term and only minor return in the long term. Normally I might agree with the president’s view on the war in Afghanistan but in tough economic times we simply can’t afford to be waging a war that’s costing us trillions of dollars.

            In conclusion I mostly agree with Obamas economic policy but there are some areas I think he could be doing a little bit better. Areas like renewable resources, green technology and the war on Afghanistan. He also needs to start a national initiative to go green (maybe starting town and city composting sites or spreading the word about bringing your own canvas bags to go shopping). In my next couple of blog posts I will be talking about the 600 billion dollar second round of quantitative easing recently instituted by the fed and what I think about Obama’s economic policy in his first two years in office.

A New Age Of Economic Prosperity.

Economics Episode 2

Today I will painting an economic picture much different from the one I outlined earlier, one of new hope and economic prosperity, one where a major break through will kick-start the economy and benefit the world. I think that the most likely kick-start will come from green technology. What makes me say this is that green technology already exists but it’s too expensive and too hard to manufacture for the masses. So in order for there to be a green technology boom green technology would have to be both cheap, so that the lower and middle class can buy it, and also easy to manufacture so that it can be cheap in the first place. If the U.S. could pioneer green technologies it would open up a world of possibilities, while some sectors of the economy would be hurt, mainly oil comes to mind, most sectors would stand to gain tremendously. Due to people wanting new green houses than it’s possible that the housing market could stabilize and maybe even start to gain back some of the ground it lost when the housing bubble popped.

With the housing market picking up people would have to start taking out more mortgages and as long as the banks give them out correctly the banks to could stand to gain as well. Car companies would get a major boost and depending on what type of green revolution this is so would battery makers. All this building and revolutionizing would result in unemployment being cut in half by 2020 and as long as the green revolution is sustained unemployment could be at record lows by 2025 to 2030. The tax revenue generated by this green boom could also help the US get back to normal debt levels by 2045. Another good thing that can come out of green technology is a clean environmental future, which can benefit not just the U.S. but also the entire world. But none of this will ever happen unless Obama invests in green technology today so that the US can pioneer green technology tomorrow. That’s one of the things I’ll be talking about next time when I discuss what the Obama administration can to do get us out of this economic slump. Until then this is Ian Mundy signing out.

A Rather Grim Scenario For The U.S. Economy In The Coming Years

Economy Episode 1

In the coming year to two years I think there is a very good chance we could see major inflation mainly due to the Feds printing too much money. In the coming six months I think that luxury items like computers, cars, phones and jewelry will continue to stay deflated as bad Christmas and black Friday numbers put a damper on the so called economic recovery. I predict commodities like wheat oil and almost all kinds of food to rise in price and become somewhat inflated. While that happens the fed will still be trying to prop up the economy with quantitative easing and other stimulus, which will result in more potential for inflation. The main question is when if we do get high inflation when will we get it? My guess is some in the coming two to three years possibly as soon as summer 2011.

 Another key question is what would cause the potential for inflation to turn into real inflation? If the scenario I outlined plays out I think the federal stimulus effort will work and the economy will rise and become healthily inflated again. But the Feds will get caught behind the times and continue to try and stimulate the economy. With all that money being printed up inflation is almost inevitable and as I said before would probably set in some time in the next two to three years with hyper inflation as soon as spring or summer 2012 I predict the housing market will bottom out some time in 2014 so we still have a long ways to go in that sector. Another question is how is the Fed going to react to this sudden rise in inflation? they will probably raise interest rates which will further deter investors from the market. In this scenario unemployment will flat line but when inflation sets in it will rise putting further blame on Obamas economic policy. It is my opinion that if the U.S. continues on its current path of major government Debt and economic instability the scenario I just outlined could be reality and might (under extreme circumstances result in the collapse of the dollar and economic woes far worse that a double dip recession.

Now it’s very possible that what I just said won't be the scenario that plays for the U.S. economy at all but the path we are currently on is unsustainable and if we want to jump start the economy in a big way we are going to need a big breakthrough which I will talk about next time. Until then this is Ian Mundy signing out.