Television, radio, newspapers, blogs, Joe on the street, Owen Hunt at the hospital. Everyone everywhere is talking about it. Talking about what? Well, the economy of course. So, what else now does Julio have to offer about it? Hopefully, some interesting ideas and practical advice. You be the judge.
It is quite evident many have lost money in this mad financial crisis, but even in times as these, there is always money to be made. Take the story of a Chinese merchant thousands of years ago. An inevitable war was on the brink of breaking out, and everyone in fear began to buy something they thought was tangible wealth: gold. Rice, which there was plenty of at the time, was almost worthless. So, the merchant bought tons of rice. As the war dragged on, rice became extremely scarce and the merchant watched as many traded in their gold for his rice, which amounted to many times than what he paid for it. After the war, he sold back all the gold and instantly became the richest man in the land. Something as simple as this would now of course not be possible considering antitrust laws, but there can be much taken from this example. Profit is still tangible, in ways not as difficult as you think, especially when one is willing to take some risk.
I don’t know what type of person (maybe one more or less lazy) leaves some if any of their financial security up to television advice, but this month it was clearly evident for some that a new strategy was in order when Jim Cramer and his savvy idea of buying Bear Stearns stock cost a lot of people watching his show a lot of money when it crashed. This, in combination with captivation to my comfortable bed due to surgery over the break, led me to try and formulate my own silly financial strategy for making profit. Hey, I couldn’t do any worse than Cramer, right?
It begins with a call that is more political than financial, but one that, if correct, could solidify exceptionally strong returns. The question is a simple one: Will government let all or any of the big three automakers fail? None are in fine condition and the yields on their debts mirror that. Ford looks relatively healthiest, but even still it has 9.5 percent notes that mature in 2011, which are rated at only CCC (which by the Standard & Poor’s definition, means that a current identifiable vulnerability to default exists and is dependent upon favorable business to survive). The yields for GM, whose debt is debatably more risky, can be up to double Ford’s debt. Hence, if you have any sort of confidence the government will bail out the auto industry, you should definitely look into these bonds. I got my wager. What’s yours?
Nothing is concrete and not even experts can be completely confident in their predictions, especially in these times, but at least you can rest assured this type of investment is considerably less dangerous than purchasing the pure respective stocks. That is because if Ford or GM does go under, the creditors buying the debt typically recover at least some of their investment while stockholders often lose it all.
It took 42 presidents and 220 something odd years to rack up $1.1 trillion in foreign-held debt. George W. Bush tripled our foreign-held debt and racked up more than $2 trillion of his own in eight years in office. Now we have a president and a Federal Reserve printing money out of nowhere. Did we have a say in any of those things? Not really. But I’m not going to stress out about it, and neither should you.
I’m going to keep smiling and make the bet: Will President Barack Obama get re-elected or not? He’s not letting big American automakers fail. Not with all the money the union bosses gave to his campaign. The current administration is relatively pro-labor and pro-union compared to the previous administration, and sustaining the U.S. manufacturers is an attempt to ensure retirement and pension benefits and the like continue. Accordingly, I’m going to figure out how much money I can absolutely stand to lose, and then with that buy lots of Ford stock and not as much GM stock, since it is fairly more risky. Combine that with respective Ford and GM bonds, and I will be set! I can just sit back and diligently watch for signs of default, and I might even sell if there is a change in administration.
I am not buying into the fact, not yet at least, that our economy is going to completely crash and we are going to go into some crazy depression. That is why I think that eventually, a really long time from now, gold prices are going to correct themselves back down to the low hundreds of dollars per ounce once confidence returns to the now other volatile markets. Maybe that is when I should buy lots of gold (but no more than 25 percent of my portfolio) and wait for the next fear-driven gold spike and greed-induced financial crisis to come so I can resell it at a much higher value.
I’m pretty moderate/independent/apathetic when it comes to party lines. But doesn’t this make you ultra conservatives or my fellow columnist Ryan Rougeau or anyone for that matter feel better if Obama gets reelected? You could stand to make lots of money. Then again, these are just the written thoughts of a 20-year-old, and my goodness, I’m no Jim Cramer! Get rich or die tryin’, as they say! Seriously though — if you make money off this advice, give me some. Please.
Julio Cespedes is a junior majoring in biological engineering. He can be contacted at [email protected].