A Tool of the Trade

Show Me the Money

In astonishing news, Google has reportedly agreed to buy DoubleClick.com for $3.1 billion. The news comes as the Dow rebounds on reports of a $25 billion buyout of Sallie Mae and strength in the blue-chip sector. The news is quite wary due to the valuation of DoubleClick.com and the amount of risk Google is assuming. The report is broken down by John Shinal, a tech analyst, in an article on marketwatch.com titled "Google Founders Veer Wildly From Buffet Playbook." The title comes from the interesting standpoint that Google's founders run their company the way Warren Buffet has run Berkshire Hathaway. Buffet is known for buying companies and assets that are undervalued to create value once the true value is known. In the purchase of DoubleClick.com, the Google founders have not shown they are purchasing on the cheaper side. When looking at estimated earnings report, DoubleClick.com is predicted to earn about $150 million this year. So, Google is paying a 20x earnings to acquire this advertising firm. The only reasonable explanation would be if they expect DoubleClick.com to growth at an exponential rate. On the other hand, Google also is expected to pay entirely in cash which is close to their entire 2006 operations. If Google was to pay for the company with stock, then if investors felt Doubleclick.com wasn't going to pan out then the stock would decline therefore decreasing the value given to DoubleClick.com owners. Since it is in cash no matter what occurs the risk is entirely on Google's owners since the payment is all cash. Though we should never judge to early since Google has a proven track record and obviously did not make this bid for no reason.

American Bulls

A good investor always has put in some research before they invest in a company. An investor should never just put their money in a company without knowing historical trends, company news, earning reports and any other useful information that could provide the investor with an edge. It is only luck if a person puts their money in a company without researching and they create a return. So, if an investor should do research what is the best place to find relevant information? The truth is there is no one place to find all the information an investor needs. Every investor should look at a variety of sources and use additional tools and strategies to get the best idea of what a company has been doing and what it will do in the future. The first place to start is any general finance website such as MarketWatch or Google Finance. These sites will show all the stock information is that available to the public and often times have articles and ratings for any stock an investor may look up. There are other tools that are useful for investors that must be paid for through such brokerages as TD Ameritrade or Scottrader. In addition, there are other useful sites that help with researching. One site known as Americanbulls.com uses a system of candlestick charting to analyze buying and selling pressures that can add to an investor's research arsenal.

The system of candlestick charting has been around since the 1600s. It was developed in Japan to understand rice prices in the marketplace. It was very simple to read and understand the graphical charts. The charts gave somewhat reliable information with regard to future demand and price fluctuations. The system is used for trading and has become popular within the stock market. Steve Nison wrote a book in 1991 entitled Japanese Candlestick Charting Techniques that has helped the spread of this analysis form in today's markets.

The fundamental element of the system is the candlestick. The candlestick is composed of a body (black if the price went down for the day or white if the price went up) and an upper and lower wick. The wick shows the highest and lowest trading points of the day while the body shows the opening and closing prices of the day. Several of these candlesticks form a pattern that is interpreted by the candlestick charting system. It takes several positive or negative candlestick forms to have a reliable pattern, but they are still never that reliable. The market could have news and speculation that could be causing certain formations that do not resemble the correct pattern. So with the use of this system an investor should also look at other research information to find out if the pattern will be upheld and if the stock is a good buy or sell.

The Power of Oil

Besides the housing market, another major occurrence in the past week was the price of crude oil in our economy. The price of crude oil, which is used to make liquefied petroleum gas, naphtha, kerosene, gas oil, fuel oil, lubricants and asphalt, has been on the rise over the past couple of months due to tensions in Iran and forecasts of a bad storm season coming into play. The story out of Iran began with 15 British marines and sailors being captured on their boat while in the Shatt al-Arab. The capture of the marines brought high tensions between the UK and Iran. The potential for aggressive actions heightened throughout the conversations between these two nations. The United Nations Council got involved to help alleviate the tension and rescue the captives. Today, Iran released news stating they would release the prisoners which has solved the conflict for the meantime. In a news piece by Myra P Saefong entitled "Crude Falls as Iran Says It'll Release U.K. Sailors" on MarketWatch.com, it states that the positive news between these two nations helped lower the recent high crude oil prices had achieved, but the price remained relatively high due to Iranian nuclear problems still escalating along with rising gas future prices. The speculation on crude prices is not positive for the US economy. Many experts feel that issues in the Middle East will raise crude prices therefore increasing the cost of gas futures. The price of gas futures increases because the US reserve of gasoline is declining to alleviate the increase in price in crude oil. When gas prices go up it is a strain on the US economy due to our necessity for gas. Therefore, the problems that could escalate out of high crude oil prices is substantial for the US economy, much more than even the concerns within the housing sector.

Is the Bubble about to Burst?

The housing market has seen better days. In the article "New-home Sales Fall to Seven-Year Low" on MarketWatch.com, it appears the economic report has shed some light on the current housing bubble – it has still not leveled out. On March 26^th 2007, the home sales for February were released and disappointment swept the economy. The number of unsold homes rose 1.5% to 546,000 which is an 8.1 month supply – the largest surplus since January of 1991, which was at the end of a recession. The news only adds to the current housing issues that are under major debate. The number of unsold homes unsold shocked the market and caused the overall stock market to end on a down note. Many economists feel that since February numbers were bad there needs to be a strong rebound in March due to the historical heavy spring buying season. If February and March are both down months than the housing sector will probably not rebound this year. Though there was a cold February as Stephen Stanley, chief economist for RBS Greenwhich Capital states "it is dangerous to overinterpret the February numbers given the weather, so it is probably best to wait until March and see what a more normal weather month brings." So, the numbers in March will most likely rebound holding off the down spiral that has been common place in the housing industry for several months now. Once the new homes sold numbers climb the economy will once again see a boost from the housing sector within the market. Furthermore, a positive effect on the economy from housing will still take some time despite the results of March due to the market being very fragile and tight right now.