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Could You Pass This Test?

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On "Grade the Trade" we test the trading prowess of some of the most promising business students in the nation. This week they’re from University of Maryland, University of Richmond and Villanova.

Get ready – school’s in session.

Our business school students have been given the questions in advance, and have 30 seconds to answer.

Grad #1: Bill from the Robert H. Smith School of Business at the University of Maryland

Here’s the scenario: After a pause today, surging food prices and a too-hot China economy reignite inflation fears and the 10-year Treasury Yield jumps to 6%. What are you buying, what are you selling as this scenario unfolds?

Bill says he would short the REITs – in particular, Vornado (VNO) and Boston Properties (BXP) because they have had such big runs and would be vulnerable. He’d put his money in large-cap high-dividend paying stocks like Altria (MO), Citigroup (C) and General Electric (GE) to play it safe. And finally, he would stay long hedge funds and financials like Fortress (FIG) and Goldman Sachs (GS).

Tim Seymour likes the idea of getting rid of the real estate holdings. He’s giving Bill an “A.”

Symbol
Price
 
Change
%Change
SC0Y
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FIG
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GS
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MO
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Grad #2: Elizabeth from the Robins School of Business at the University of Richmond

Here’s the scenario: Moktada Al-Sadr galvanizes support in the Iraqi Parliament and ousts the Nuri-Al Maliki government, seizing control of Iraq. What are you buying, what are you selling as this scenario unfolds?

Liz would get out of Halliburton (HAL) and its spin-off KBR (KBR) because of their exposure in iraq. There would initially be a downturn in the U.S. market so she would short the S&P ETF and the U.S. dollar and go long oil futures. She’d also buy Chevron (CVX), ExxonMobil (XOM) and gold. In the long term, she would buy military contractors like General Dynamics (GD), Northrop Grumman (NOC) and Lockheed Martin (LMT).

It would have been the easy answer to go with oil and gold, Pete Najarian says. But he agrees with Liz about getting exposure to the military contractors, which would likely take off in the scenario. He gives her an “A.”

Symbol
Price
 
Change
%Change
CVX
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O066
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HAL
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KBR
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LMT
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NOC
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XOM
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Grad #3: Kevin from the Villanova School of Business

Here’s the scenario: Intel buys Nvidia. What are you buying, what are you selling as this scenario unfolds?

Kevin says short Intel (INTC) and get long Nvidia (NVDA), but down the road go long both names and sell AMD (AMD). Intel will benefit in the long run from acquiring Nvidia’s graphics processing and it will close the gap from lost market share to AMD.

Guy Adami was ready to give Kevin a “B+” but he has to knock it down a peg because Kevin is from Villanova (Guy is a proud Georgetown alum, along with Tim). He will agree with Kevin’s initial short of Intel because the premium INTC will pay for NVDA will surely knock the stock down for a bit, he says.

Symbol
Price
 
Change
%Change
SUPREMETEX
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INTC
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NVDA
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Trader disclosure: On June 15, 2007, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders: Seymour Owns (TIE), (AAPL), (CCJ), (EEM), (INTC), (SXR:TN), (TWX), (USU), Gazprom, (MBT), (MTL), (GLD), (VIP); Red Star Asset Management Is Short (EEM), (MBT), Gazprom; Bolling Owns (ICE), (NMX), (MPEL), (T), Sugar; Najarian Owns (CHL), (EMC), (MS), (.VIX)
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