Cash Is King...

I know people always ask the question what are you doing right now?!? And that is a difficult question because many of us out there are so confused. So I always tell everyone to remember one of the most important rules that we have here at Urbanomics and that is "keep your ear to da streets". Read, read, and when you're tired read some more. Find out what smart people with big money are doing. For example, let's take our friends over in the hedge fund industry who many wonder what they are doing with their cash during these tumultuous times. I began to do my research looking to hear how these kings of cash are managing their money. Thanks to the Wall Street Journal we got an insight into the management of 3 of the industries best, Steven Cohen, Israel Englander and John Paulson. The reason why we are off on this search is to either confirm my initial sprint to cash and short term bonds or to rethink where I may have gone wrong.

To make a long story short, The Wall Street Journal reported the hedge fund managers have come to a similar conclusion we made here and Urbanomics by deciding to take a TV timeout and MOVE their funds to "money-market funds and other short-term securities". There recent reallocation is summed up here in the following points:

• Steve Cohen’s SAC Capital Advisors will leave 1/2 of their $14 billion money markets until year-end.
• John Paulson's Paulson & Company’s is moving a large chunk of their $35 billion into cash.

The reason why this story peaks my interest is because it's good to see that some of the smartest guys in the business agree that these are very unusual times. With so many things not clearly understood such as the bailout program, mortgage crisis, liquidity issues, and rise in unemployment its best not to be to heavily exposed. That is why my earlier recommendation for your 401K program is to take a similar approach and move to the sidelines. I have been following closely and do believe that I have seen a support level that will eventually allow us to get back into the markets at the end of the year or sometime next year. However, I do believe the turbulent times are providing an EXCELLENT opportunity to find and own individual stocks.

Everyone should tread very carefully and wait for extreme undersold levels in some of the best companies in their industries or stocks trading at irrational levels. I often like to analyze historical price patterns to determine where support levels exist. A few names that have come to mind at this point are:

National City (NCC) - After reviewing the historical price and charts, I loved this stock at $1.25 and 1.75 with the first target being the 52 week low. Three weeks ago I picked up NCC when it approached the 1.75 and from that point on it has been a thing of beauty. I sold a majority of my stake when it crossed $3 and the rest last week after the announcement of the merger with PNC Bank.

Visa (V) and Mastercard (MA) - Now you may question why I would mention these names when I took a moment in previous posting to blast Capital One (COF). Well V and MA are a little different in they just process transactions and have limited exposure to the credit risks of having actual bank customers. They may and are projecting a decrease in the number of transactions they will process but the trends are in their favor. We live in a world that is moving away from cash and onto plastic. And what's even more dynamic is they continue to see a dramatic increase in debit transactions. These transactions are essentially cash like transactions because the customer swipes their debit card, which takes money out of their bank account, to pay for goods.
I have seen support at the price level of 47 for V, but the initial public offering (IPO) price of around 44 would allow you to own this stock as if you were an initial owner a year ago!!!
MA is a little more difficult and looking at charts, I would expect to see support at the price level 145.

Discover Financial (DFS) should also benefit from its ownership of the PULSE network which handles debit card transactions, however like other pure credit card companies like COF a slowdown in the economy will like affect this industry. DFS also see brighter days after the recent settlement with V and MA for antitrust practices. I would expect to see initial support and levels near the 52 week low of 7.50.

Disclosure: I own or am actively looking to add shares of the firms mentioned above at the recommended price points. As noted above, NCC has been sold last week.