Toxic Asset Plan...Today's moves

Today was the announcement of Treasury Secretary Geithner's plan to buy some $1 Trillion in toxic mortgages off bank balance sheets. This purchase will come from the $700 billion bailout program, private investment sources, and FDIC insured funds. With the tax payer taking a majority of the risk if the investments go sour which is a possibility. A typical transaction will go like this: private investor puts in $7, another $7 comes from the bailout funds, and the left over $86 would be covered by a government loan. This is one good step in the right direction and could work out how ever some issues still need to be addressed:

1. How do we price the toxic assets? This was one issue with Republican Whip Eric Cantor that raises some questions. Will the toxic assets be market priced or come at the original price when these assets were taken out.

2. What happens if the funds go sour? Well, Armageddon, this will definately bankrupt the US and could lead to a definite depression.

3. Can the move be profitable for the American taxpayer? Yes, and in the end Obama will become a national hero and we can look beyond this horrid time in our economy.

With all this in mind it seems investors liked the move but I myself am still optimistic on what's going on here. It's a scary thought if this doesn't work but if history repeats itself I believe this will be good for the economy. If you take into consideration the Swedish Banking crisis of 1991-92 we saw a "bad bank" established that bought toxic assets at a discounted price and also had government stakes taken into these insolvent institutions. This did wipe out shareholders how ever but in the end the assets were sold at a profit and eventually helped the Swedish banking system. So what stocks or sectors do you put your money in now?

Commodities- Anything in regards to Copper, oil, steel is a good play right now especially if you are in fear of inflation.

Tech- Tech has been leading the way since this whole thing began and I like the big names: Apple, HPQ, Microsoft, Cisco, and Oracle.

Retail-Big pricey retail is where you want to go because it's investors with big consumption that will lead us out of the recession: Tiffany, Nordstrom, Best Buy to name a few.

Cheap stocks? To invest or not to invest?

Cheap stocks, the real question here to know when to put your money in on a company or once great company that has come crashing down (much like this graph you see before you). Well, it's hard to say, there are so many companies that are incredibly "cheap". But is this true or not? What exactly is a "cheap" stock versus an expensive stock. Just because CitiGroup, once a 300 billion dollar company is trading at $1 a share does that mean I invest in it? Yes, but only if you see healthy balance sheets, growth opportunities, a strong board, and if you can stomach volatility. It's hard to know when or when not to put faith in a stock that you view as a great bargain just because the price is so low. Take Las Vegas Sands for example, this casino Company once traded at $130/share in early 2007. Now it stands at around $2.00 a share or so, so do I buy it? Well, I'd say not now, Las Vegas Sands has a huge amount of debt and slowing growth in all their industries. The Board is well...a crapshot and there's no real guidance of where the company is headed. How about say...DryShips...company traded near $112 a year ago but now it trades at a horrid $3.90/share. Again, could be good in a year or so but balance sheet is questionable. I have no idea who's on their board and they have a lot of debt obligations.

Now if you take a company like, Navistar International. A great buy...it's trading at half of its 52 week high right now and it's just because the stock was inflated in my opinion. It pays a dividend and has little short-term debt, the company is making moves and deals (just thwarted off their Ford relationship) and I predict that industrials are going to be the 2nd leader out of this bear market.

Nordstrom, another great company that could be a steal right now. The last bear market saw Nordstrom hit $8/share but it bounced back in the last bull market to touch around $45. Nordstrom has great leadership in the company and they are still expanding. A loyal customer base and they own their own debt through Nordstrom banking. The stock is trading above the $6 low and is standing at $15. Of the big retail luxury giants Nordstrom is a safe bet and I think you can ride it for some time. Don't expect big returns but know that it's far from bankruptcy.

So if you're ever going to invest in a "cheap stock", don't. Cheap is what you buy at the grocery store for lunch. Inexpensive is what you buy when you see a bargain in something with value.