Time for another edition of risk your money with Tan.
This week is a crazy week as usual. Ahead of the Fed decision I honestly can't say a whole lot. It could really go either way. One thing is for sure, if the Fed DOESN'T cut rates tomorrow will be a VERY interesting day. Read more about the cut here: http://www.mercurynews.com/traffic/ci_7320718 . Keep in mind though that even if the Fed cuts rate the language they use to do it with makes a big difference. For instance, if they say something to the effect that this is the final rate cut before we see inflationary pressure, then the market will have a very bad allergic reaction.
On to other news. The crooks over at Countrywide Financial (CFC) reported earnings last Friday and showed a ridiculous amount of loss but the stock jumped $4 (almost 35%). Why did that happen you ask? Well, there was really two reasons. One was because they came out swinging with their write-downs. They basically claimed a ton of losses which put them in a good position as they won't have to do it again next quarter. Secondly, to top off the lies, Mozilo (The CEO) has been telling us for over a year, he promised that the company would be profitable next quarter. So people bought in droves. But as the other financials would tell you, that sector is still in a LOT of trouble. As I am sure Stanley O'Neal of Merrill Lynch (MER) would tell you today, CFC is full of hot air. Merrill ousted CEO O'Neal today (Tuesday) after reporting the biggest quarterly loss in the company's history, making him the highest-ranking casualty in the U.S. subprime mortgage crisis. CFC is now under heavy scrutiny from the SEC and Mozilo is being sued and investigated more than the folks at Enron, if he makes an illegal turn on a deserted street they will catch him doing it.
Countrywide has already started losing the $4 gain to the tune of 5% or so per day and if you ask me there is a long way to go down (back to $12 or even to $11)
Now onto China. As I said before in a previous post, Alibaba is going to IPO on Nov 6th on the Hong Kong market 1688.HK . Even though I now have my international trading account open I won't really be able to trade this stock at this point on the Hong Kong market especially since the SEC now requires a 40 day holding period on foreign traded stocks (ridiculous) Annnnd the IPO is already 250 times over-subscribed (Also ridiculous). Anyway, unfortunately there are no ADRs available for Alibaba in the US. An ADR is an American Depositary Receipt which is basically a security issued by a U.S. bank in place of the foreign shares held in trust by that bank, thereby facilitating the trading of foreign shares in U.S. markets. But alas, like I said there won't be one for Alibaba for whatever reason. So how the heck do you play this one? Well it just so happens that Yahoo owns a 40% stake in Alibaba. Keep in mind only 17% of Alibaba is up for sale through the IPO and that 17% is expected to raise $1.5B. Well when it's 250 times over subscribed that tells me that it could easily raise twice that much. So lets say $3B. Okay fine, $2B. Now that's only 17% of the company being worth $2B. Which means 40% of is is worth more than twice that, more than $4B. Considering Yahoo's market cap is only $41B as of today that translates roughly to 10% of Yahoo's market cap. That's a lot. Now Yahoo has been up big over the past few weeks in anticipation of this IPO and the past couple of days have already seen some profit taking but I'm betting there is AT LEAST 5-10% left in this to cash in on the 6th when the IPO actually happens. Remember, most US investors cannot buy Alibaba for a while so Yahoo is really their only way to invest in this. Look to buy Yahoo if it dips any further but I wouldn't buy above $32 considering the 200 day moving average.
Another thing to consider is that a rising tide lifts all boats. I am betting on a very strong day for all Chinese stocks on the 6th simply because.
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