Chingo De Dinero

If you have looked at the currency markets lately, it looks like the Dollar and Yen are really kicking butt.  In all honesty, the actions the US Government are taking to help the economy is nothing more than printing money, and putting it in business’s pockets.  That being said, why is the dollar not getting slammed.  I guess it all comes down to relativity.  Although the US is in the dumps, Europe is worse off.  You do not know how happy I am to see this after the last few years of an appreciating Euro.

All that being said, who is doing even better is the Yen.  For years, the government has been keeping it artificially low, which reduces consumption and helps increase production (imports cost more exports are cheaper).  It is almost as if the company has been saving in some roundabout way.  If the government lets the Yen keep appreciating, it will be interesting to see how strong it gets.  Once that happens, there could be some major purchases coming for foreign companies.

Additionally, I keep wondering where China is in all of this.  The Yuan has been pretty steady for a while, after appreciating after the government let it float (somewhat float).  We hear so much about the dollar reserves and the government messing around in the markets…I wonder if they truely let it float, what it would do.  My guess is appreciate like crazy.  Even if they don’t let it appreciate vs the dollar, we are bound to see it stay the same.

All this being said, if you can figure out how to play it you could make a lot of money.  For me, I am looking for cash heavy businesses, trading at low valuations, which will not be majorly impacts if the world economy gets hurt.  This may seem like difficult criteria, but from what I see Chinese online gaming stocks fit this.

After today, I am wondering how bad it can be in the future.  Really, if you look at valuations, it is crazy.  Even if the economy slows by a little, you can make a killing.  Based on prices now, the economy is going to come to an halt.

If you watch the news you will probably come up with the same idea, but if you take a step back, really how bad is it.  Go to the mall or a fancy resteraunt and surprise they still have people making purchases.  If you are looking for a home to purchase, you can still get a loan, with a relatively low rate.  It just doesn’t make sense to me, but we will see.  Watch Q3, if it comes in okay and the forecast isn’t too bad, we will see some big jumps.

I run into the confusion all of the time between 401ks and Mutual Funds.  Many people think they are one in the same, or at least something similar.  I hear the statements:

“I rather invest in a 401k then stocks”

“My 401k has less fees then mutual funds”

“There is less risk in a 401k then mutual funds”

Once I hear these statements, I quickly know something is wrong.  401k is not an investment, it is a tax code.  It relates to pretax investments made by workers, and many times matched by employers.  Once you put money into a 401k, it must be invested, which is usually some different choices of mutual funds, determined by your employer.  So really, then people are trying to pick between 401k and a mutual fund, they are talking apples and oranges, and usually will end up with both.

Another very similar statement I hear is about IRAs vs mutual funds, or vs stocks.  Same story, IRA (individual retirement account) is more about tax treatment, not investment type.  Inside of the IRA, you invest in mutual funds, stocks, CDs, or whatever your preference is.

Finally, I stopped screening the hard way. If you have read some of the other information I have written, I think Enterprise value is not valued as much as it should. You hear PE all of the time, but miss the cash position, either positive or negative.

I used to screen for PE and price to book, then look at individual stocks and pick out those with a ton of cash and little debt. I just noticed today, a great measure, not perfect, but good, Enterprise Value / EBITDA. If you didn’t know EBITDA, is Earnings Before Interest Tax Depreciation and Amortization. My way to interpret this, how many year will it take for the company to buy itself. For example, NCTY or The9. They have an Enterprise Value / EBITDA of roughly 3.588. To break this down, the Market Cap is 630 MUSD, they have 316 MUSD cash, 0 debt and have EBITDA of 88.18 MUSD. This means, if they did a full buyback with their cash, then used their profit to buy back shares, they could purchase the whole company in 3.588 years. Of course, this will not happen, and you need working capital, and to reinvest in the business, but man, this is a great way to tell price. Also, this is a stat Yahoo keeps, so you can run screeners off of it….so much time to be saved. Of course, you have to factor in growth, but that isn’t too hard, just look at the analyst estimates, not totally accurate, but will give a flavor.