In this special segment, the masters of Wall Street go face to face with some of the best business school students in the country. Students from Harvard, Yale, Columbia and Wharton are bringing their A-game via the webcam. They will be given a scenario and will have 30 seconds to tell the guys what they would buy and sell in the given situation. The student with the best grade will get a chance to come to the Nasdaq Marketsite in Times Square and go behind the scenes with the Fast Money Five.
The first contestant is Arun Palakurthy, a first-year student at Harvard Business School.
The question: Assume inflation persists and economic growth becomes stagnant, creating stagflation, what are you buying and what are you selling?
Arun’s answer: “I’m selling auto stocks such as General Motors (GM) and consumer durables such as Whirlpool WHR. Instead, I like asset-light businesses … with stable consumption patterns. I would be buying household consumer products like General Mills (GIS) and healthcare products like Medtronic (MDT). Energy producers should also benefit from inflation, and I consider Exxon Mobil (XOM) to be a good pick. I want to reduce the duration of my fixed-income portfolio and consider moving into … other inflation-protected securities.”
Guy is grading Arun’s trade. He loves that Arun’s selling GM and buying Medtronic. "I'm giving him an A."
The next contestant is Nick Kafes from the Yale School of Management.
The question: The U.S. government expands its plan to charge Chinese companies tariffs. The Chinese government says it will take retaliatory action. What are you buying and what are you selling?
Nick’s answer: “Clearly a policy of full-blown protectionism would be bad for all parties involved in this worst case scenario. I would short the iShares China ETF (FXI). Since China is an export-driven economy, these tariffs would lead to contraction in commodity demand by Chinese manufacturers, so I would short base metal companies like U.S. Steel (X) and Southern Copper (PCU). U.S. retailers would likely feel the pain of increased textile prices, so I would short Wal-Mart (WMT) and Target (TGT).
Tim is grading the trade, and say Nick is actually right: “if we saw this level of protectionism I think you would see that kind of follow-through which is why it’ll never happen,” Tim says. While it was a very good trade, Tim doesn’t think Nick was specific enough. He’s giving this one a B+.
Next up is Chakana Fowler, a student in the Columbia Business School.
The question: There is terrorist activity in Nigeria and an increased conflict in the Persian gulf causing oil prices to surge to $85 in a week. What are you buying and what are you selling?
Chakana’s answer: “I’m definitely liking oil companies so I’m a buyer there. I’m looking at Exxon Mobil (XOM) and looking at ethanol producers as well. I think there’s going to be a big push away from oil into ethanol. I also like the hybrid auto manufacturers so I want to look at Honda (HMC) and Toyota (TM). On the sell side, I want to get out of U.S. autos, airlines and cyclicals like restaurants.”
Eric Bolling grades Chakana’s trade. “You had an A until you started talking about ethanol,” he says. “Ethanol is not economically viable. It is 30% more energy required to produce that same gallon.”
The final contestant is Felix Wang, the youngest of the bunch, from the Wharton School of the University of Pennsylvania.
The question: The digital revolution is progressing at an increasing rate. Assume that in five years the DVD and CD are extinct, and all content is exclusively clickable. What are you buying and what are you selling?
Felix’s answer: “First I would sell Viacom (VIA) and Blockbuster (BBI). Viacom profit margins would decline as YouTube and other video-sharing networks get more popular. And Blockbuster, even though it now offers online rental service, will be hurt by advances in technology that allow people to watch movies online. I would buy Google (GOOG) because of YouTube, and Cisco (CSCO), because of their acquisition of Linksys and Scientific Atlanta, will be well positioned to connect entertainment options to viewers at home.”
Jeff Macke grades the trade and completely agrees with Felix’s Viacom and Blockbuster shorts. He says he’s on the right track with Google and he would just add a little bit of EMC (EMC) so Felix has a footing in infrastructure. Felix gets an A and a “Lone Wolf thumbs-up” from the Lone Wolf himself.
Dylan can’t pick a winner this field. It’s a four-way tie! Each of the traders have their own protégé when they come visit the show. Maybe Eric can even give them a little tutorial on ethanol when they get there.
On APR 6, 2007, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders:
Bolling Owns (DIS), Gold, Silver
Strazzini Owns (VZ), (YHOO)