Underworld Prince

There is a short and simple article at
Wall Street Journal Online
outlining where to be to benefit from the anticipated Federal Reserve rate cut. It also outlines a few basic fundamentals behind rate cut reactions in the market.

*This post originally appeared at underworldprince.com

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The New Orleans real estate market has not been what it used to be prior to Hurricane Katrina. Volatilty in the staock market may create a lucrative trading environment, but real estate’s lack of liquidity calls for a steadier market.

I started investing in real estate in the Big Easy in 1996. From that time until Katrina the market steadily rose and was a very pleasant investment environment. Of course the irresponsible subprime lending certainly contributed to this. I have had personal experiences with mortgage brokers who used appraisers who conveniently valued property at however much the lender would require for 100% financing and second mortgages. This was only part of the picture though. Interest rates were favorable and legitimate improvements were being made to suit out of town buyers who brought new money into town. That was my perception anyway as an active investor in the market.

Since Katrina the New Orleans real estate market has been plagued with a set of problems different than the rest of the country. Properties here really weren’t overvalued before the storm like other markets such as California. But now the people who are really struggling in the underpaopulated city are the propeerty owners who have stuck it out. Insurance premiums have skyrocketed due to lack of supply, and the property taxes have moved higher every year. The city assessors have raised assessed values haphazardly and unjustifiably. Taxpayers were sleepling outside city hall in august to dispute their bills. I stood online for hours on two seperate days with hundreds if not thousands of others and we all had the same problem-our tax bills were unjustified and unaffordable.

At the same time rents have edged higher, but as new properties come available every month as owners repair flooded houses, that market has been choppy. Is there opportunity in this market? I think so. It’s the uncertainty that is difficult. One thing is for sure though. If more people don’t move back, federal money that is still “on its way” finances more repairs generating housing supply, insurance rates don’t stop increasing AND we enter a recession-we’re in trouble. So as the owner of eight investment properties in the Crescent City, I am paying close attention.

*This post originally appeared at underworldprince.com

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I had been watching a REIT(Real Estate Investment Trust) calles RAIT Financial Trust(RAS) for a few months prior to the subprime meltdown that caused the late July/August market correction. Boy I am glad I hadn’t bought it then! It had been trading a little under $30 per share, coming down from a 52 week hugh of $38 and change. As REITs typically due, RAS paid a nice dividend. After it became known that they had some exposure to American Home Mortgage the stock tanked to under $10.

I believe in a little risk taking with funds allocated for such, and my inner gambler started itching. The trailing dividend payments, at a price of $10, yielded a whopping 30%! But the question was how much subprime exposure did they have? I started looking deeper into the buiness. American Home had already defaulted on the July 31st payment. RAIT’s exposure to AHM was $95 million, and there was some homebuilder exposure as well.

Being the hobbyist I am, I can’t always understand every fine point of a balance sheet or financial statement. But I can do math, and my math told me that even writing off the the $95 million from AHM, and some of the other homebuilder and mortgage exposures, this company would not go under. They have other businesses that generate property management fees, and the commercial real estate side of their portfolio should do well. My calculations, whatever they are worth, showed that the company should be worth at least $18 per share at a conservative price per book value.

So I bought 600 shares at $10, knowing that a REIT is required to pay 90% of income to shareholders in the form of a dividend. My philosophy was that even half the trailing dividend would yield plenty of incentive to hold the stock for a while, looking for an eventual rise to at least $18 per share. I watched the stock price decline to under $7 days thereafter. Then there was tremendous insider buying, always a good sign. On September 10th the company announced a quarterly dividend of $.46 per share, a yield of over 20%. This morning I bought 2,000 shares and watched the stock close up 9% for the day. The ex-dividend date is September 19th for shareholders of record on September 21st. Although there will likely be selling after the divedend date, I can always hold on to the 22% yield that I believe they will continue to pay.

The beauty of fear in the market is that it creates opportunity. Panic selling would have got me nowhere. If you are interested in clocking in this dividend yield, listen to the last earnings call. RAIR Financial is not going bankrupt, and they can afford to pay a healthy dividend which can be reinvested through the companies reinvestment program. Check back to see how this position is treating me.

*This post originally appeared at underwolrdprince.com
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Google(GOOG) broke above a recent double top of of $530 per share in late morning trading today. I have been waiting for this as I bought a December $550 call option right before the July/August market correction. Now we watch and see if the stock rockets to what I believe to be a fair price for the stock of $600+. If the stock continues higher and creates a support level at $530, we could see google break its 52-week high of $558.94 before the end of the year.

Chart courtesy of StockCharts.com

Why would I think $600 is a fair price for Google? One might argue that the company’s earnings growth is slowing as the behemoth continues to expand. With that said, the PEG is still right around 1, which makes it cheaper than other companies in its industry, such as Yahoo(YHOO) who has a PEG in excess of 2.3.

Also, in addition to being cash rich, debt free, and the leader in its field, there are two other points of interest. One is that the company appears to be ramping up to sink its teeth into the mobile market with its own gPhone. In addition to that the company is partnered with NASA and has arranged to share the owners private jet with them for research in return for allowing them to park their plane at Moffet Airforce Base for their own convenience. Is it possible that there is profit potenetial for the company to come out of this friendly relationship?

Who knows. In the meantime I believe in google’s ability to remain a leader and look forward to interesting exciting developments as a shareholder and customer. (In addition to the December $550 call option I purchased and held through the August downturn, I hold common shares for the long term and intend to add to my position when my available cash coincides with good entry points in the stock price.)

*This post originally appeared at underworldprince.com
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Stockcharts.com is a great website I’ve been using to expand my ability to interpret stock charts as well as different tools that chartists use to identify buy and sell signals in stocks. The website is free for the most part, and they even have a chartschool that will take you from a complete beginner to a very advanced look at charting. Also there are many great articles going back to the early concepts that have laid the foundation for technical analysis.

I’ve only scratched the surface and I am looking forward to getting through all the material. One thing that I want to point out for beginners is the point and figure charts. These types of charts don’t include alot of the busy data that can be confusing or send false signals. Instead they really outline support and resistance levels, as well as the up and down trends which are the most basic fundamentals of interpreting charts, very important for beginners. And don’t let the simplicity fool you either. These point and figure charts will also signal trend reversals as well as breakouts and price objectives. Take a look for yourself.

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Investing in stocks is no doubt a great way to plan for the future if done correctly. As a real estate investor, I have learned the hard way that owning property is a lot of work where in the stock market, I can apply as much money as I want to investing activities without assuming more responsibility. But how does one know what stocks to buy? The two most common approaches to researching stocks and deciding where to invest are fundamental analysis and technical analysis.

When I was initially exposed to technical analysis, I didn’t beleive in it. I thought it was silly to think that just by looking at a chart I could tell what a stock was going to do next. I wasn’t concerned with where the stock had been, just where it was going, as Jim Cramer of CNBC’s Mad Money would say. What I have found is that coupling the two types of analysis is what makes me comfortable. I don’t believe in putting good money behind bad companies, so I use fundamental analysis when looking for new opportunities. But just because a company has great earnings growth,little debt, low P/E and great management does not mean that the time is right. That is where I default to technical analysis. By studying the charts and other indicators I can get an idea of whether the stock is is traqding within a current range, trending higher or trending lower. This can help me find entry points as well as time my investment so that I don’t have to ride a stock down before it starts to go up. So, to recap, when looking for where to allocate new money or to rotate into a different sector, I spend my time looking at the underlying fundamentals of a company such as earnings, growth, P/E, balance sheet, management to name a few. Once I have identified companies with good valuations, I will use technical analysis to find entry points and exit points.

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Recently we discovered our toddler had a serious medical condition in need of specialized attention. After a quick yet diligent search, we set off to Memphis, TN to meet with the doctor we chose.

Upon registering at St. Jude Children’s Research Hospital, I learned that parents whose children are being treated there are never presented with a bill regardless of their insurance or financial status. It is the policy of the hospital that upon learning of their child’s tragic illness, whatever it may be, the parents should not have to shoulder the burden of paying for the care they receive. Also, patients and parents are provided with accommodations as well at no charge, and the facilities are desireable.

All of this is made possible because of the massive fundraising arm of the organization. There are alot of great charities out there, and this is among the most worthy. Small, regular donations are what make it possible to finance the wonderful medical care provided at St. Jude to children from all over the world. If you are compelled, I urge you to donate whatever you can by clicking here.

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When I leased a new car in November of 2006, it came with Sirius Satellite radio already installed. I had friends who had XM Satellite radio and I thought it was great, but I had not been a subscriber to either company myself.

When I started driving my new car, I only found a few stations I liked enough to program on the console for easy access. Among them were CNBC to keep up to date on the stock market, the bluegrass station which I default to when in the mood for that high lonesome sound, and the jamband channel. I found myself listening to the jamband station to catch the Grateful Dead as much as possible, and because I am not a big fan of alot of “jambands” I would turn it down to a whisper and monitor for that somewhat frequent treat of a good Grateful Dead track. I would fantasize about how great a channel dedicated exclusively to the Grateful Dead would be, never imagining it would actually happen. So when Sirius announced the September 2007 opening of just that, I got very excited and very thankful I didn’t have XM.

Since the release I have experienced much joy throughout the day having the band in the car with me at all times. So far the highlight for me has been a studio outtake from the Go To Heaven recording sessions of a reggaeish Jack-A-Roe I didn’t even know existed! What a great channel! I’ll be listening….

*This post originally appeared at underworldprince.com

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