Dow is high, so what?

Dow is high again. So are the wall street annalists. This is a reminder of the spring 2007 when both Dow and jobless claims went all time high. The fact is, US economy is not doing all that well. Individual stocks, some of them are doing very well indeed.

People consistently forget that DOW is only a few big companies. When Dow is high, only means rich are getting richer. In fact, the rich has so little confidence in economy that they put their money in big DOW companies. Not a good sign.

In the tradition of "buy low sell high", FatCat is betting her money in the real estate and sub prime mortgage. it takes a while to locate the real value but the value to price ratio makes the sub prime mortgage the most attractive investment right now. Exactly, which part of "buy low sell high" don't you understand? and yes, that means sell the DOW companies and buy the sub prime mortgage and real estate foreclosures.

FatCat also puts her money in the Chinese stocks. it has benefit of two fold. First, Chinese companies are growing at 12% compare to the single digits growth in the US and Europe. Second, the US dollar has dipped against all major currencies. It is expected the dollar to recover against Euro but it will continue to dip against Yuan.

Did you see that three months before?

I must admit, the FatCat did not see that Hurray! Holding Co., Ltd. (NASDAQ: HRAY) , a leader in artist development, music production, wireless music distribution, and other wireless value-added services in China, today announced that it has been awarded a contract by China Telecom to design, develop, sell and support an application software for China Telecom's future nation-wide 3G portal.

However, FatCat brought HRAY when it was close to 52wk low. Then it went lower. Why FatCat brought the stock when everybody is selling? Because FatCat knows buying a stock is not buying a piece of gaming paper that prices goes up and down at random. It is the intrinsic value of the company. As a company, Hurray! is a leader in artist development, music production and offline distribution in China and a leading online distributor of music and music-related products such as ring tones, ring-back-tones, and true-tones to mobile users in China through the full range of wireless value-added services platforms over mobile networks and through the Internet. China, the world's largest mobile market and its' still growing. Hary is its largest player in content delivery.

An other reason FatCat brought HARY is that the US currency is constantly depreciating against other currencies. However, unlike the dip against Euro or Canadian Dollars, the dip against Yuan is unlikely to bounce back. So invest in a good Chinese stock will make you a FatCat.

Fixed Cost in rental Properties

Invest in rental properties is the same as invest in anything else. In fact, it is like any other business. The profit is the net between the income and expense. Therefore, the business carries the goal of increase the income and reduce the expense.

In the case of rental properties, the income generate from a given property mostly determined by the market condition and does not vary much. The only thing an investor can do is to reduce the vacancy.

There are, however, many ways to reduce the cost.

First, the real estate tax associate with a given property, in Duval county, is associate with the transition price. So it makes sense to purchase a property and fix it instead of purchase a turn key property. The saving on tax remains true regardless the level of handiness of the landlord.

Second fixed cost is insurance, shop for a high-deductible, reasonable insurance company and receive a reasonable bulk discount is all that one can hope for. Some landlords try to under insure the property or only carry liability. FatCat disagrees. Under insure a property is worth than no insurance at all. Insurance is for disasters that hopefully not going to happen but count on it to happen. To not insure or self insure only if one owns sufficient amount of properties that serves the purpose of diversification in the case of unseen disaster.

The third cost is the cost of the property itself, which must be depreciate according to very specific rules. This will be discussed tomorrow.

to HUD or not to HUD

To HUD or not to HUD, this is a difficult question. FatCat dose not have an answer. The only logical way to look at the option of rental market is from the money view.

However, before we dive any further, let's take a look at what is HUD?

The department of Housing and Urban Development section 8, provides low income family with rent assistance through a voucher program. Landlords accepts voucher issued by HUD as part of the rent owed usually refers to as HUD.

Reasons to accept HUD voucher:

1. HUD is never late on the rent. No landlord has ever received a phone call from HUD, say "eh, we are having a budget problem, is it OK I mail you the check on the 10th instead of 1st?"
2. HUD tenants are usually reasonable because they are afraid of losing the assistance.
3. There is no need to worry about the tenant break the lease because the rent payment does not go through the tenant.
4. In the case of eviction or lost of tenant for other reason, HUD will continue to pay its portion of the rent until the property is rent again.


Reasons Not to accept HUD voucher:

1. Any government program means a lots of (annoying) paper work, and (unreasonable) detail requirement on the property.
2. Government inspections means delay in process. Delay leads to vacancy which leads to lose of profit.
3. Certain HUD client seems to know exactly how to abuse the system.
4. Because HUD assistance is income bases, it attracts people with insufficient funds for security/cleaning deposit.
5. The actual rent is set by the government housing inspector, not the landlord.

IFC: sub prime mortgage, credit cards, car loans

It is no surprise that subprime financial market is leading the down slop to abysimal. Is this much different from the last industry wide correction of airline, auto, or hi-tech? How much is correction and how much is panic? Should I enter? double-down or pull out? There are many times, FatCat just want to cover her eyes and ears and hide under the bed. Unfortunately, the thunder dose not disappear just because you cannot see or hear it. This world is so full of that!

Still, FatCat believes that the investment is fundamentals of the company. Not the hype or anti-hype of the media.

An excellent example is IFC. It just hand out a handsome dividend. If you have bought the stock at its 52wk low a few weeks ago, you would have scored a more than 10% gain in less than a month. Again, investment is not gambling. It is not about score 10% in a month. It is about double or triple your money in a much longer period of time like 3 to 5 years. With its heavy load on consumer real estate and current political condition in the US, FatCat anticipates IFC to out perform the index after the next Clinton get into office. Not because she thinks Clinton has anything to do with the specific stock but FatCat anticipates the new Clinton administration will benefit the severely plighted low in come --thus the sub prime mortgage, credit cards and car loans and other consumer credits that focus on the low income.

Where do we go from here

More than once, someone has asked FatCat if he or she should dump the ABC or XYZ stock. Why? Because the stock you hold has lost 20% or 30% or even 50% of its face value? The obvious but often ignored fact is that when stock is bought or sold, it is the ownership of a corporation that is bought or sold. If the fundamentals of the corporation is not changed, why should the value of the stock? If a piece of property was great buy at $5 why would it become a hot potato at $2? Should it be a better bargain? Of course, things could change in the fundamentals of a company and cause it to become a hot potato. In this case, it should be sold regardless of the market price.

FatCat believes that investment is not gambling. She buys a stock when it is worthy of purchase and sells it when it is over valued. In plain English, buy low sell high. Unfortunately, many people do the opposite. Hope you are not one of them.

If you ask me

FatCat is back! She took a little vacation which she won from iwon.com; she brought her luggage through HSN; wearing her outfit from Travel Smith, went to a couple of concerts she booked on Ticketmaster, ate at couple of sea food restaurants she located from city search and saved money using coupons from entertainment book. While she is away on her dream vacation, a plumber fixed the toilet mess in the house, a maid cleaned dog poo and a pet trainer gave the dog a complete obedience training………all matched by service magic. The FatCat starts to dream about……. Peter Lynch, read my lips, It is IACI.

The internet has been and is and will continue to be the most profitable venture in FatCat’s life span. Of course, just like any other new animal and media related product, there are much hypes, many risks and infinitive unknowns. FatCat touches the subject with great caution and search for solid value and profit.

Consider IAC/InterActiveCorp, a name seldom recognized due to its diverse brands.
Before focus on the unimpressive 5% market share of ask.com in search engine (which is about the same as apple’s share in computers) ask yourself if you have ever:

• Brought a ticket through Ticketmaster?
• Been tempted by the products and sells pitch from Home Shopping Net Work?
• Wondered if you have a better chance on Match.com, Udate.com or chemistry.com than the single’s ads or the bar?
• Flipped through the catalog of front gate catalog when you are bored on the airplane?
• Found a plumber, house painter or handyman through service magic?
• Tried a mortgage quote though leading tree or home loan center?
• Searched or re-searched house on domania.com, realestate.com?
• Clipped a coupon from entertainment book?
• Been eVited to a party or event?
• Found a place to go in citysearch.com?
• And if you are young at heart, ever tried collegehumor.com or shoebuy.com?

In addition to the individual success brands, IAC benefits from its diversified brand collection in marketing efficiency and ability to weather the economical cycle.

IACI is a good buy. If you do not believe the FatCat, try to write down the ads that temps you in next three days. Do not ask. Make your own decision.

Follow the Insiders (WHI)

W Holding Company, Inc. is a financial holding company offering a range of financial services in Puerto Rico. It is not an exciting business in any aspect. In the mist of large bank mergers and acquisitions, this little thing exists at all is a mere miracle.

Maybe they have done something right?

It is conservatively managed, good reputation locally, increasing market share and trading below book value. The insiders, multiple insiders, have shown their confidence in the stock and brought above current market price.

This is the company Peter Lynch would buy if the Fidelity Magellan found is not too big. This is also the company FatCat has just added to her portfolio.

TGX Still Great and Low Price

So how much has TGX appreciated since FatCat bought it?

In this short time period, if you have invested $10,000 in TGX, you would have more than $15,655. If you invested the same amount in S&P 500 index fund or equivalent, you would have $10,154. So was FatCat just lucky? Yes. FatCat admits the 56.55% gain in two weeks has some luck but the significant appreciation over S&P 500 is expected. FatCat further predicts that TGX will continue to out perform S&P 500 in the upcoming quarters. Take a closer look at the money:

In last 5 quarters the revenue grows at a steady pace and the earning doubles every quarter. Therefore, it is natural to expect the next quarter’s EPS will be around 0.2 with flowing quarters to be 0.4, 0.8 and 1.0 result of annual EPS of 2.4 which is 10 times of the year just ended. Therefore, FatCat predicts the price of $60/share using health sector P/E of 25.

Bottom line: FatCat anticipates TGX share price to double every quarter and reach $60 at year end.

A Gold Mine (NXG)

Northgate Minerals Corporation (Northgate) is a gold and copper concentrate producer in Canada. Northgate owns and acquires properties, explores for precious and base metals. FatCat is happy to find that it is currently trading at a good discount.

There is intrinsic risk of buying a foreign company, even when it is trading on an American stock exchange. There are more unknown because of the distance and difference in regulation. There is also the fluctuation of exchange rate. Should US dollar appreciates, the stock just drop value without anything actually change in the company itself.

FatCat takes very cause kitten step towards this mining company. The book speaks loader than any pundit.

1. The value: NXG is trading at P/E of 6.59, comparing to industry P/E of 24.18, sector P/E of 20.16 and P/E of S&P 20.69
2. The cash: FatCat pays more attention to cash than any other ratio. NXG's Price to Free Cash Flow is merger 7.47 compare to industry of 55.88 sector 37.05 and S&P31.85
3. Last but not least, efficiency Net Income/Employee (TTM) 346,692 compare to industry106,518 sector 64,138 S&P114,032

Bottom line: FatCat added NXG to her portfolio.

Will we have more sunny Sky?

Suntech Power Holdings Co., Ltd. (STP) is a leading solar energy company in the world as measured by both production output and capacity of solar cells and modules and one of the top-ranked companies in the building-integrated photovoltaic (BIPV)

The stock is trading at a discount because some how the American investors are obsessed with oil. However, the future of the oil is limited. For most commodities, when the supply drops, the price raise. It is true too for oil in a short term. For long term, one must look at the entire energy spectrum. Oil is mostly used as energy. The other energy resources exist thus the oil will actually become less valuable when it gets scares.

The FatCat has recommended a solar energy company in the US whose market is mostly in Europe. Suntech Power Holdings Co., Ltd. (STP) is Asia oriented. Its production and market is mostly in Japan and China.

Bottom line: FatCat adds Suntech Power Holdings Co., Ltd. (STP) to her portfolio.

Are you my sunshine?

FatCat loves the energy sector. Everything needs energy. Unless you are a tree, you have to get your energy somewhere. The problem with investing in energy sector is the volatility link to politics of foreign countries. Is the oil price going up or going down? A couple of years ago, oil price were less than $30/barel and everybody was complaining how expensive it is. Now it is over 50, the same people are saying oil price is low! FatCat smells fish in the oil! Stay away from Oil! What are the other options for energy? The sun, wind and nuclear are the obvious choices.

Solar energy is now considered a mature product. The benefit of solar power is that it fits very well into American individualism. Put solar energy on the roof and stop relying on foreign oil. Now that is patriotism!

Specifically, why Evergreen Solar (ESLR)?

1. viable product already in the market that out performs the industry
2. Still trading at a good discount
3. Excellent R&D and next generation product that will sustain growth
4. The best of all: FatCat likes the new management.

Bottom line: FatCat buys Evergreen Solar (ESLR)

Theragenics (TGX)

The speculation of small Health sector stocks is always fun. You never know what is going to happen next. The FatCat does not give health sector any special treatment. When she looks at a company as a potential target; FatCat asks:

1. Is this an affordable needed Product on the market? Product is on the Market. Compare to radiation and surgery, seed implant is less expensive and lower risk of incontinence and impotence.
2. Positive feedback from the physicians, insurance companies and patients? Product is covered by medicare and major insurance providers. It seems to be well liked by patients but FatCat has not talked to enough physicians to get there opinion.
3. Does the company have a positive cash flow?
   
   With all three questions answers “YES”, FatCat takes closer look at the company, its management, employees, R&D, and distribution channels. It is kind of simple.
   
   Bottom line: FatCat bought TGX.

Is Marvel the New Disney?

Marvel Entertainment, Inc. (MVL) has so many characters FatCat have lost track. Recent years, even a non-comic fan, FatCat cannot escape from knowing so many trivial about Spider-Man, X-Men, Hulk, Blade, Daredevil, the Punisher, the Fantastic Four, and more. Even her catnip comes packaged in X-men varieties.

Entertainment business is not like other. The customer’s taste can change in a whim. Marvel seems to have captured a generation with its superhero in action figures, toys, comics and movies. This is more significant because the teens actually have true purchasing power.

FatCat thinks Marvel will out perform S&P because:

1. Strong presence of characters in Movies, many with sequels. With the shortage of creativity in Hollywood, adapt an existing super hero means lower risk. Thus the success of Spiderman and X-men.
2. More focused, more influncial group of characters--Imagine Disney as "mouse anf friends" without boring news on "ABC".
3. No obvious competition. At least right now. And the balance sheets look good.

Conclusion: FatCat would like to buy all Marvel that is available.

Is This Apple (AAPL) Going To Rot?

Apple (AAPL) has been the BMW for the couch potato geeks. Maybe you run with your ipod but most of Apple’s money come from those who never left the house, or chair. There is a long list of great things about Apple (AAPL). However, has all the great things part of the price already?

FatCat believes it is very unlikely, although not completely impossible. Apple will not maintain its current growing momentum. That is not to say you should drop apple as if it is rotten to the core. FatCat point out if you intent to beat the market, you must own stock that is certain to beat the market not the stocks that might beat the market.

Technology stocks can be an emotional decision. Let's face it, most of us who own apple computer or apple stock like the cool feeling of technology. However, numbers do not lie.

Drop the apple (AAPL) is a painful decision but the correct decision.

Best Thing About Vanguard Global Equity (VHGEX )

There is a simple way to categorize the cats in investment philosophy. The cats that believe it is possible to beat market average and such fund can be found. The other type does not believe it is possible to beat the market. The cats that do not believe it is possible to beat the market can still do pretty well with index funds but they never get fat.

FatCat loves to beat the market and has great fun doing it too. Before got into diy mutual fund building, she picks the mutual funds for her investment. The one fund she loves most is Vanguard Global Equity (VHGEX ).

1. It has consistently beaten the market in last 3, 5 10 and more years. FatCat thinks it is likely this baby will continue to grow.
2. It has morning star 5-star rating anyway you look.
3. It is Forbes Best Buy, over and over again.
4. It is no load fund and comes with Vanguard low expense ratio.

The best of all character is the long list of fund managers it has. FatCat know very well that the only way to predict the future performance base on past is to have consistent fund management. When a mutual fund changes fund manager, it is going to change. Some will change for better. The benefit of long list of fund manager is to ensure the consistency of the fund. So When Peter Lynch 2nd retires, or hit by a taxi, the fund will remain the same.
FatCat loves Vanguard Global Equity (VHGEX ).

Walmart Slips away from FatCat's portfolio

FatCat has great respect towards Wal-Mart (WMT). It is without doubt, capitalism at its finest. The company is very efficiently managed. The inventory is always moving. The cash flow is good. The cost on wage is reduced to absolute minimum. It market its self as lowest price and make the profit on the good cash turnover.

However, time has changed. If you compare the stock performance of Wal-mart (WMT) against Costco (COST), BJ (BJ) and Target (TGT) you will notice that Wal-mart (WMT) has been slipping away for at least a year.

The problem? Hubris management thinks they can get away with anything and placed their own ego at top of the priority list.

1. Business plan: Wal-Mart try to promote itself in "fashion" is only the result the management realize the success of Target (TGT). The real problem is Wal-Mart's rapid expansion into China and Europe without proper market research.
2. Employee relations: Wal-Mart's ongoing trouble with union and never ending law suit and countless scandal in the employee relations area is an other giant hairball in FatCat's stomach. The cost of legal battle is only the tip of iceberg how much of poor employee relations has eaten away shareholder's profit. The raising minimu wage and walmart's new gimmick of flexible employee scheduling will undoubtedly make things worse.
3. Customer Satisfaction: if you shop atWal-Mart (WMT) and Target (TGT) and take a look at face of the customers, you will see the customers at Target (TGT) is a lot happier. You can see the same by compare SAM's club against BJ (BJ) and Costco (COST) on the whole sale stores.
   

The conclusion, FatCat drops Wal-Mart from her portfolio.

Start A Real Estate Investment Trust (REIT)

The investment strategy of FatCat is to buy stocks and mutual funds and wait for them to go up. After buying and praying thousands of human decision, FatCat decided it is time to take her own money into her own paws.

It is no accident FatCat starts her first mutual fund with REIT. Like average Americans, FatCat started her investment with a small savings account then a small house which she allows her human companion live there rent free. FatCat also owns mutual fund from her 401(k) and stocks from Employee Stock purchasing program. REIT is simply a combination of investment of real estate and mutual fund.

REIT usually has an average earning of 10%. A good fund appreciates about 8% every year. On the other hand, FatCat' house equity more than doubled in last 5 years and the earning if calculate as the difference between would be rent and actual mortgage payment is more than 15%. That is before tax! So what is the point of invest in REIT when you get more earning and capital appreciation do-it-yourself?

Where to live?

There is always complains about the federal income tax. For starters, there is always too much tax. Unfortunately, unless you decide to move to an other country, there is not much you can do about it.

State and local tax, on the other hand, is a quite different matter.

The biggest portion of state and local tax consists of income tax, property tax and sales tax.

There are seven states have no personal income tax at all: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming.

There are two states tax dividend and interest income only: New Hampshire and Tennessee

If you do not have the fortune to live in one of the nine states, then consider the combination of sales, property and income tax:

The lowest property tax are from: Arkansas, New Jersey, Alabama, Connecticut, Kentucky. It is obvious that Arkansas, Alabama and Kentucky are the lowest in property tax is because no one wants to live there. New Jersey and Connecticut have attractive property taxes. They are obviously alternative to NYC apartments. One thing be aware is that the property cost is very high in these states and a smaller percentage is still a lots of money.
Fatcat would like to point out New Jersey gas stations are full service only. It is good for the lazy cats but can be annoying for independent cats.

What about Sales tax? Shop on online does not mean no sales tax. States require you report your sales tax if it is not collected by the on line retailer. Most sates have about 5% to 7% sales tax. There are five states do not have sales tax: Alaska, Delaware, New Hampshire, Oregon and Montana. No it is not a typo! Alaska and New Hampshire are the only two states tax neither income or sales. Alaska has further advantage over New Hampshire by not taxing dividend or savings interest. Of course, the disadvantage of Alaska is lack of sunlight in the winter, which is sort of made up by excessive sunlight in the summer. But that is off the topic.

Rage of Minimum Wage

The FatCat is opposing the increasing federal minimum wage to $7/hr. This is outrages. The acceptable minimum wage according to FatCat is $12-$15/hr. Which translates into the yearly income of $20-$30k. This will allow the people on the minimum wage afford to buy a house from FatCat or rent it after she foreclose on them. $7/hr! Can someone tell me how much are you willing to loan to someone making 14k/yr to buy a house?

Assume impossiblly low interest rate of 8% apr and 30 year fixed:

1. Minimum wage $7/hr---> Maximum mortgage $50k
2. Minimum wage $12/hr---> Maximum mortgage $90k
3. Minimum wage $15/hr---> Maximum mortgage $120k

You should realize the minimum wagers are more likely have 10% APR than 8%. Besides, the above calculation does not include the cost of PMI, tax, insurance and allowed 1/3 of income goes to mortgage payment.

FatCat does not apologize that she wants to make more money by selling houses to the minimum wage earner then foreclose on them. She also hates the fact all fees and lawyer costs are fixed regardless the value of the house. Therefore, it is simply more efficient to foreclose on a 120k house than 50k house.

FatCat says: raise the minimum wage to at least $12/hr or we will fire Nancy the pussy!

Happy National Debt Month

1. After we have finished recovering from international hang-over day, we wake up to the reality of National Debt Month. Is it a superstition or statistics that January has the largest bankruptcy during the year? Is it true that January also has the largest foreclosure LP? It is also rumored that January has the highest number of divorce proceedings initiated....... What is wrong with this month? Maybe it should be shorten to 28 days, well, OK, 30 days for starters?
   
   January can be a tough month for many people but not for the FatCat. The FatCat is out and about making money as FatCat's always done.
   
   1. Research of LP can be found on the court clerk's web site. Most of them are free to search but paid services are usually more specific.
   2. The property information can be found at the collector's office. Maybe on line also.
   3. While you are on line, do not forget about find the phone number of the owner so you can call them to make an appointment.
   4. Buy the house and put a for sell by owner sign on the lawn or just have FatCat's cute cat the realtor handle it.
   5. Count the money
   6. repeat from Step 1 above
   
   Now, that is only one of the many secrets how FatCat get fatter all the time. Come back tomorrow, she might tell you why the riches don't pay taxes. FatCat has never paid a penny to IRS since she was born.