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Saturday, September 27, 2008

Time to Buy the Distressed Auto Industry

Which car would you buy today? A GM Sierra Pickup Truck? A Ford Explorer SUV? Or a Toyota Prius Hybrid?

For the past few years US auto-industry put their focus on making higher margin Trucks and SUVs. The Japanese auto-maker who always emphasize on small and fuel-efficient cars, foresee the climbing oil price started making the ultra-fuel efficient hybrid cars. The Detroit giants just didn't see it coming.

Turn the clock to early 2008 as the oil price stay above $100 and fuel-efficiency became the only thing matters when buying the cars, sales on SUV plunged. So the stock price of GM and Ford? They plunged too. GM(GM) is now trading at $9.76, 77% off its 52 weeks high while Ford(F) is trading at $4.81, about half of its 52 weeks high and both are at multi-year lows. What's worse is the crumbling of the two giants may even be possible.

Good new is - Help is on the way. Today a huge spending bill that is about to pass in the Senate would allow U.S. automakers to access $25 billion worth low-interest loans to help them develop more fuel-efficient cars. This bill would definitely benefit both GM and Ford and GM is in need of cash to boost spending on fuel efficient car while Ford, whoes small size fuel efficient cars are popular in Europe, is planning to re-model the factories to make similar car models in US.

So this may finally be the bottom of the two hard hitting stocks.

Tuesday, September 23, 2008

The Worst Time Ever To Invest?

People are just afraid to invest. After a turbulent week in which Dow dropped 500 points in one day - the most in 8 years due to bankruptcy of Leman Brothers and swift take over of Merill Lynch and another mega bailout of insurance giant AIG, the investor confidences on stock market on financial companies were in free fall.

So was it time to pull the money away from the stock market and put the money in save heaven like bond before the next big bank fall?

At the worst day which is Wednsday the day after the AIG bail out, I tried very hard to set aside my fear and worry and bought 5000 shares of FANNIE MAE(FNM) for 45 cents and 6000 shares of FREDDIE MAC(FRE) for 28 cents. Total cost? $4,100. Quite a dumb idea you think especially those two stocks should probably be worthless because they were under control by the government.

Want to know how much the portfolio is worth now? Not 0. It's worth $14,460 now - a 252.68% gain in just four days. Can you get any investment better than that?

Smart investor like Buffet says to be fearful when everybody is greedy and be greedy when everybody is in panic. So if you did exactly what Buffet says and bought these problem financial stocks on Wednesday - Wachovia Corporation (WB), Washington Mutual Inc. (WM), American International Group, Inc. (AIG). You would enjoy the most dramatic gains this year in just two days as WB gained 105%, WM gained 110% and AIG gained 87.8% thanks to SEC's radical measure of banning short sale on all financial companies and created the best two trading sessions so far - 800 points gain of Dow in two days.

So still thinking this is a bad time to invest?