Michael Giltz: A Toast To Dudley Moore’s Arthur
August 31st, 2010 | Posted by Global InvestorsI’ve been wary of the remake of the classic comedy Arthur ever since it’s been announced. And now that I’ve read the comments of the artists involved in a New York Times feature, I’m even more worried. They don’t seem to have a clue as to what Arthur was about.
SPOILER: If you’ve never seen the 1981 gem about a drunken playboy who finds true love, by all means rent it now. It won an Oscar for the great John Gielgud, features Liza Minnelli in her best performance outside of Cabaret and boasts one of the smartest screenplays around. The following details the plot at length and will spoil the film if you aren’t familiar with it already.
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Gold and Silver Miners Setting Up for a Major Move to New Highs
August 31st, 2010 | Posted by Global Investors
The global debt crisis and the war on deflation by the Federal Reserve is causing precious metals to approach a key resistance level. Gold is nearing a 52 week high while silver is close to breaking $19. A break above these levels on high volume could be the beginning of a major move higher. Gold and silver have been safe haven assets. Many concerns were expressed if miners would collapse in a weak equity market. However, since the last Federal Reserve meeting, gold and silver has shown impressive relative strength compared to the overall market. The Federal Reserve discussed the increase of treasury purchases to keep interest rates artificially low. They also made it clear that every attempt will be made to prevent deflation. This low interest rate environment and weak economic outlook which may continue for some time has encouraged investors to move money out of equities into safe haven assets such as gold and silver. Gold and silver is also gaining interest as investors are realizing bond yields are too low and may be risky at these level. The Fed’s greatest fear is deflation, high unemployment and a move into new lows in equities before the election. If the S&P continues to deteriorate and unemployment data comes in negative, I expect an announcement of more central bank interventions to reflate the economy. This next round of quantitative easing could cause a massive rush into gold and silver. Many are concerned of the safety of fiat currencies during a global debt crisis. The global economy is built on spending and investing. Many investors were concerned if a downturn in the equity market would drag down junior miners. These past couple of weeks have proved that is not the case. Junior miners have made major moves higher. A break out to new 52-week highs in the miners is highly probable especially as the price of bullion breaks out. (Click to enlarge) The saucer (cup) and handle pattern is the chart reader’s favorite pattern. Great performing stocks tend to have a strong base before an extended move. Gold’s (GLD) pattern is very rare and this setup tends to be very profitable. Similarly to what we saw in September of 2009, I expect a major breakout. Is this pattern showing investors that a major event may be brewing? Time usually tells the tale as news or events are announced after the breakout. High quality gold and silver explorers are making major moves already. It is important to pay attention to the gold and silver junior miner sector as we may be setting up for peak gold and silver. High quality explorers with mineable assets should be followed as gold and silver discoveries are rare and producers are paying a premium for these properties. These miners tend to have great leverage to the price of bullion especially if we see more government interventions and quantitative easing. Yesterday, Fronteer Gold, a stock that I have recommended to my readers bought out Auex Ventures to control completely the Long Canyon Project. The Long Canyon discovery is high grade and open pit. Fronteer is consistently coming out with impressive results from this project. Long Canyon represents continued resource growth as it is expanding and open in all directions. A major move in bullion could cause these explorers to make large percentage gains. If you haven’t researched high quality junior miners yet, now is the time before a major move. Disclosure: Long Gold and Silver Miners
A Peek Into My Friend’s Portfolio
August 31st, 2010 | Posted by Global InvestorsIt is always fun to look at someone else’s portfolio of stocks. Some people read the Form N-Q of their favorite mutual fund and try to figure out which stocks to buy.
Today a friend of mine emailed me the list of stocks he is holding. He told me he reads Zacks regularly and gets his investment ideas from them. I decided to put his list of ten stocks into a stock screener and see if any of them interest me.
Here are the tickers: AIXG, AOD, ARCC, DPZ, GFRE, GIII, LUK, SINA, TMTF, TPX, WRLD
When screening stocks for Options Weekly, here is the criteria they must pass. Market Cap > $300 Mil. Price over $10. Optionable. Average Volume > 500K. Although I am not a mutual fund buying millions of shares at a time, I will only trade a stock that is liquid. If it is not optionable, then I have no way of hedging with options. I can not sell a covered call and I can not buy a put for downside protection. I feel that stocks with a small market cap, low volume and no options on them, are too easily manipulated and I prefer not to mess with them.
After the initial screen, we are left with AIXG, ARCC, DPZ, LUK, SINA & TPX.
| Ticker | Company | Performance (Month) | Performance (Quarter) | Performance (Half Year) |
| TPX | Tempur Pedic International Inc. | -13.69% | -18.89% | -8.12% |
| AIXG | Aixtron Aktiengesellschaft | -17.34% | -6.87% | -16.06% |
| LUK | Leucadia National Corp. | -3.63% | -3.19% | -12.93% |
| SPY | SPDR S&P 500 | -3.11% | -1.83% | -4.04% |
| DPZ | Domino’s Pizza, Inc. | -0.62% | -1.08% | 0.94% |
| ARCC | Ares Capital Corporation | 7.67% | 12.81% | 16.52% |
| SINA | Sina Corp. | 1.57% | 14.18% | 14.18% |
Without going into the valuations of the companies, let us take a quick look on their performance relative to the S&P 500. DPZ, ARCC, & SINA are the only ones that beat the market. Last time I checked, people invest in stocks because they want to earn a greater return than if they put the money into a mutual fund or a stock index fund. Right now, this basket of 6 stocks are on average under performing the overall market.
As a big proponent of following the trend, I would take this portfolio and sell everything except DPZ, ARCC & SINA.
Here are the three charts, what do they mean to you?
Domino’s Pizza (Ticker DPZ) – Last Trade $12.86
Domino’s chart looks like it had a nice run in the first half of the year and now it is trying to figure out where to go.
Ares Capital Corp (Ticker ARCC) – Last Trade $14.88
Ares looks like it is still in middle of climbing higher.
Sina Corp (Ticker SINA) – Last Trade $42.67
Not really sure what to make of this chart. Range bound? Trying to make a new high? You make the call!
In February of 2008, the performance on my 401K / IRA was down 8% for the year 2008. Having heard all my life that the stock market returns 8% a year, I thought to myself something is wrong. I decided to liquidate all my holdings. Half of the money I left as cash and the other half I used to buy the mutual funds which had the highest return last quarter. One was precious metals and the other was energy. Both Gold & Oil where hitting all time record highs at that point but it didn’t bother me, I still bought.
When it came May of 2008, the entire 401K was now back to only negative half of one percent! Two weeks later, it was back down 1.5% and I said to myself, enough of this, I am going straight 100% cash. I decided, I would be happy with a certain loss of 1.5% on the year as oppose to the uncertainty of being down 8% again.
Fast forward to December of 2008, my 401K was still down only 1.5% on the year. The S&P 500 returned a negative 38% in 2008. I must say I was pretty happy with my performance. I did not expect the market to crash 38% that year. The reason I pulled my money out of the market was because I lost 8% in the first two months of the year.
The valuable lesson I learned from that experience is to cut my losses before they reach 10% and only buy winners. Winners are stocks that are making new highs.
Lately there is a great deal of talk about the market being technically broken. People are expecting a crash to come in October. Trying to get a feeling of where the market is headed I did a screen of stocks that are positive on the year and stocks that are negative on the year. No matter which group I looked at, Small Cap, Mid Cap or Large Caps, it was all pretty much the same, half are positive and half are negative on the year to date time frame.
As Edwin Lefèvre says in his book, Reminiscences of a Stock Operator , You are either in a bull market, or a bear market. When we can not decide if this a bull or bear market, the best thing to do is wait on the sidelines.
Disclosure: No positions
Asia-Pacific ETFs: A Good Bet in a Down Market?
August 31st, 2010 | Posted by Global InvestorsAsian is home to the largest cluster of mega-global cities, with large international corporations enjoying the current economic prosperity. Though another global slowdown may threaten Asia’s markets and related ETFs, some believe that Asia will still be the first to bounce back.
1. Asia is Massive. Christina Larson, contributing editor at Foreign Policy, says that of the top 10 cities in the world, five of the biggest global cities are located in Asia, reports Steve Chiotakis for MarketPlace. In places like India and China, more and more people are being drawn to cities where innovation, change and jobs can be readily found. The Orient is beginning to see the formation of new political axes, trade networks, cultural norms, experience and technology, and sustainable living, remarks Larson.
2. Corporations Solid; Exports Aren’t. Top Asian corporations have enjoyed a nice ride after economies in the region stoked demand with copious infusions of government cash, writes Kelly Olsen for The Associated Press. However, rising interest rates, decreases in global government spending, a weak U.S. recovery and lingering debt problems in the eurozone are all casting a shadow over the sustainability of Asia’s export industry.
Bill Belchere, global chief economist for Mirae Asset Securities in Hong Kong, believes that Asia is moving toward a slower period. The major driver affecting Asia will bee “how deep and how intense is the global slowdown.”
3. There’s Still Optimism. Nevertheless, Asian companies, for the most part, look optimistic, expecting demand for high-end parts to remain solid. Rob Subbaraman, chief economist for non-Japan Asia at Nomura International in Hong Kong, comments that emerging Asia is best situated to bounce back if another global slowdown occurs, noting the region’s large foreign exchange reserves, current account surpluses, low external and public debt, healthy banks and wiggle room to cut rates.
There are a number of ways to get exposure to the Asia-Pacific region, including through all-country ETFs and more narrowly focused single-country ETFs. According to the ETF Analyzer, most Asia ETFs have been mixed in recent months; in the last three months, they’re up about 4%. In the last six months, they’ve looked a little more flat.
Max Chen contributed to this article.
Disclosure: None
Thomas Gladysz: The Secret Historian and the Silent Film Star: One Was Gay
August 31st, 2010 | Posted by Global Investors Did Samuel Steward, a secret historian of 20th century gay life, and Rudolph Valentino, the legendary silent film star, have a sexual encounter?
Read More…
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Samantha Ronson Apologizes For Her Dog’s Fatal Attack
August 31st, 2010 | Posted by Global InvestorsSamantha Ronson’s bulldog Cadillac killed another dog on Monday, and she has taken to Twitter to express her sadness.
“There is absolutely nothing I can say that will alter one minute of today, nothing,” she wrote. “I feel incredibly sad and wish I could offer more than condolences, unfortunately there are no words to describe how sorry I am.”
The fatal attack happened Monday morning, TMZ reports. Sam was reportedly home sleeping when one of her friends let Cadillac out into her apartment building’s hallway and the bulldog attacked a neighbor’s 3-pound Maltese who was roaming the hall without a leash.
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Chuck Schwab Uses ETFs Too: Interview With Schwab SVP Peter Crawford
August 31st, 2010 | Posted by Global InvestorsCharles Schwab (SCHW) is the largest custodian in the world, with $1.4 trillion under management. The discount broker made a splash when it launched a set of ETFs less than a year ago. Those funds have already gathered $1.5 billion in assets.
We recently caught up with Schwab’s Senior Vice President, Peter Crawford, to talk about Schwab’s business and where it stands in the larger ETF industry.
Are you seeing more investors and advisors shifting out of mutual funds to ETFs, or do ETFs complement your current offerings?
Both. I think we’re seeing a couple things. Advisors and investors have an increasing preference for passive strategies, and ETFs are a beneficiary of that. When people choose passive strategies, they choose ETFs.
At the same time, ETFs are $800 billion industry-wide and mutual funds are $7-$8 trillion, so ETFs are a piece of the overall picture.
I think [mutual funds and ETFs] are going to coexist. ETFs will have the lion’s share of passive assets and mutual funds will be the preferred vehicle for people who want active strategies. Passive strategies will continue to creep up as part of the share of the overall pie, but people will want to have active management.
Does that mean you don’t think actively managed ETFs will catch on?
I’m a bit of a contrarian on that. Everything we do here starts from client needs, and I don’t have any clients asking for actively managed versions of T. Rowe or the Janus 20 fund. I think they’re happy with actively managed mutual funds. If you look at the ETFs’ ability to trade intraday, that’s not really relevant for active funds. I do think that where I see it is more in intelligent indexing, fixed-income, places where transparency is an advantage, where people want to know what their funds are holding. But in active equities, I don’t see it as a huge opportunity.
As the largest custodian of ETF assets in the United States, where do you see the ETF industry going?
It’s continuing to grow. We need to demystify them; to most investors, it’s another three-letter acronym. We’re trying to explain to them how they should be used, their advantages, pitfalls and so on. We have an ETF Center on Schwab that people can go to and find very approachable pieces on how to trade and use ETFs.
In Schwab ETFs, we had $1.5 billion in assets in roughly eight months – that’s been great. We had high expectations for client demand, and it exceeded those. It’s really come from three segments: RIAs, more active traders and more mainstream buy-and-hold retail investors. There’s been a nice pickup across all three segments.
More broadly, we have $90 billion in assets at Schwab across all ETFs – that’s grown 38% year-over-year. The investments we’ve made to position Schwab as ETF HQ, we’ve seen that pay off, as well.
Are you seeing attention outside of Schwab clients for your ETFs?
We’ve seen some, but it hasn’t really been our focus. Our focus has been serving the needs of clients and the relationships we have with them. Over time, more clients will take an interest, but we’ve put very little effort toward drawing that interest because we have such a huge opportunity with the RIAs and individual investors that we work with today.
What does Chuck Schwab think about ETFs? Does he use them, too?
He loves them, and he uses them for his own portfolio, without a doubt. He is one of the strongest advocates of ETFs at Schwab. It goes back to his roots: Chuck has always stood for asset allocation, low-cost investing, tax-efficiency and ETFs. He was an early adopter and has been a very strong ally and advocate.
Michael J.W. Stickings: Get Yer Act Together, Dems!
August 31st, 2010 | Posted by Global InvestorsI really don’t take much stock in Gallup’s “generic ballot” polls, not least over the summer (when people aren’t paying attention to the news (not that they really do at other times either, but it’s worse over the summer), but I can’t help but be a little worried by the latest numbers showing Republicans with a 10-point lead, 51 to 41:
There’s no discernible trend here. It’s been up-and-down all year, with Democrats occasionally taking the lead, and the real concern would be if the gap fails to narrow again and, once the election season begins in earnest after Labor Day, Republicans maintain or expand upon what is a fairly solid lead at present.
Read More…
More on Barack Obama
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What Stocks Are Buffett, Soros and Druckenmiller Buying?
August 31st, 2010 | Posted by Global InvestorsInvestor sentiment for stocks is at a very low level, but some well-known investors are taking positions in stocks. According to the video below, Warren Buffett and Berkshire Hathaway (BRK.A / BRK.B) just added significantly to Berkshire’s already large stake in Johnson & Johnson (JNJ). In addition, Buffett is buying other healthcare related stocks such as Becton Dickinson (BDX).
Stanley Druckenmiller, who just closed his very successful hedge fund, bought Wells Fargo (WFC). And, Druckenmiller and George Soros both bought Internet technology firm Akamai (AKAM).
Here is a short piece from MarketWatch.com/Dow Jones on what these billionaire investors are buying:
Source: Marketwatch.com
Click on the embedded video to watch. If you have trouble getting the volume to work, here is another link to the piece.
This billionaire buying binge should not necessarily be taken as a vote of confidence on the stock market overall, but rather that these brilliant investors believe there is real value in these stocks. Incidentally, Wells Fargo was just purchased by Druckenmiller, but it is also one of Buffett’s top holdings. Here are the top five Berkshire holdings:
Coca-Cola (KO)
Wells Fargo (WFC)
American Express (AXP)
Kraft (KFT)
Johnson & Johnson (JNJ)
Hat tip for the Berkshire to five holdings: iStockAnalyst
Disclosure: No positions
PIMCO Short Term Municipal Bond Fund ETF in the Spotlight
August 31st, 2010 | Posted by Global InvestorsPIMCO’s Short Term Municipal Bond Fund (SMMU) was launched in late January, 2010 and has since managed to accumulate approximately $18 million in assets, as of the end of July. SMMU is one of 3 actively-managed ETFs that PIMCO has brought to the market. The fund is managed by John Cummings, who is an Executive Vice President and also the head of the municipal bond desk at PIMCO. He also runs PIMCO’s Intermediate Municipal Bond Fund (MUNI) which focuses on longer maturity municipals.
The Short Term Municipal Bond Fund has gradually gained some traction with investors over the months, with its asset based increasing from just $8 million back in March, to about $13 million at the end of May, ramping up to the $18 million mark at the end of July. The fund should attract investors in higher tax brackets who are looking for tax-exempt sources of return. The municipal bond market though is by no means a sure bet, with many issuers and municipalities under severe budgetary pressures which can affect their ability to fulfill their obligations significantly. As such, SMMU provides investors who are looking for exposure to the municipal bond market, with access to PIMCO’s established management expertise in the fixed-income space. Unlike index funds which rely solely on rating agencies for credit analysis, the fund utilizes issuer-specific credit analysis from PIMCO. The fund charges investors an expense ratio of 0.35%, which is much lower than comparable mutual fund offerings.
Investment Mandate
The Short Term Municipal Bond Fund seeks attractive tax-exempt income while preserving capital by investing at least 80% of its assets into municipal bonds whose interest payments are exempt from federal income tax. The fund invests only in securities that are not subject to the federal alternative minimum tax (ie. AMT-free securities). The duration of the portfolio is expected to be less than 3 years and consist primarily of short duration, high quality bonds. The fund managers also do not utilize any derivatives to implement the investment strategies. The portfolio managers also look to manage capital gains and losses in order to minimize taxes on capital gains and harvesting losses.
Portfolio Composition
SMMU consisted of 69 individual securities as of August 28th, whose average effective maturity was about 2.5 years. 71% of the fund was invested in securities with maturities between 1 and 3 years, with none of the securities exceeding 10 years in maturity. The fund’s composition does not differ much from its benchmark, the Barclays Capital 1-3 Year Municipal Bond Index. In terms of maturity buckets, where the index does not hold any securities exceeding 5 years in maturity, SMMU invested 5% of the funds in the 5-10 year maturity bucket. As a result, the average maturity of the fund is slightly higher that of the index.
Performance
Given that the fund has only been in existence for about 7 months, it would be unfair to judge the active manager’s performance on that time period. However, looking at the numbers can shed light on the fund’s track record so far. Since inception, SMMU has returned 1.40% till the end of July while the fund’s benchmark, the Barclays Capital 1-3 Year Municipal Bond Index, has returned 1.60% over the same period. That implies an underperformance of 0.20%. The returns of the fund after taxes would have been even lower, standing at 1.18%. The chart below compares the fund’s price performance to that of two comparable index ETFs – the iShares S&P Short-Term National AMT-Free Municipal Bond (SUB) and the SPDR Nuveen Barclays Capital Short-Term Municipal Bond (SHM): (Click to enlarge)
The fund performed quite well in July, as the municipal bond market gained from an increase in investor’s risk appetite. With many states, such as California and New York, and municipalities failing to balance their budgets, credit selection remained important – as pointed out by PIMCO’s monthly commentaries. However, because supply and new issues in the municipal bond market have been limited, money is continuing to flow into this segment of the fixed-income market.
Premium/Discount History
Looking at the premium/discount history for Q2 2010, SMMU has a relatively clean record and has been able to keep the disparity between the ETF price and the fund’s NAV in a tight band. The fund was able to keep the premium/discount to within +/- 50bps on each of the 63 trading days in the quarter, though more time was spent by the fund trading at a discount than at a premium. That should give investors some confidence that they are not trading very far off the fund’s true value when investing or selling SMMU.
Disclosure: No positions in above-mentioned names.
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