Third-Quarter Bloodbath Offers Rare Buying Opportunity
By Rob Fannon, Editor, Phase 1 Investor | 9 October 2009
Vesivirus 2117 has turned this year into a nightmare for Genzyme. In June, the rogue virus attacked the Boston-based biotech, infecting its main manufacturing plant. Vesivirus 2117 isn't harmful to people. Rather, it disrupts the cells Genzyme uses to manufacture its drugs. The FDA forced the company to halt production at the facility, jeopardizing nearly 40% of its $4 billion in annual sales.
Genzyme's top-selling drug, Cerezyme, will likely lose $150 million to $200 million in sales. A second drug, Fabrazyme, will fall $50 million to $60 million behind its $500 million goal. The two drugs treat Gaucher and Fabry disease, respectively. These rare genetic disorders cause particular fats to build up in the body, severely damaging organs. They affect about 10,000 patients worldwide.
Right now, Cerezyme and Fabrazyme are the only FDA-approved drugs to treat these disorders. But since Genzyme will fail to meet demand, the FDA granted a British drug company and an Israeli biotech special licenses to sell their similar drugs— even though neither has won official approval. With those lost sales, Genzyme will come up well short of its previous 2009 revenue guidance. The biotech sector is up 15% year-to-date. But Genzyme shareholders are down 15%. And they're likely in for more pain. That's great news for the rest of us…
On October 22, Genzyme will be one of the first large-cap biotechs to kick off third-quarter earnings season. The company didn't get production up and running again until late last month. And its newly-issued guidance falls well below previous Wall Street estimates. So Genzyme's stock will suffer in the short term.
I expect shares to drop about 10% after the earnings announcement, to below $50. Risk-takers could buy cheap Genzyme puts with strike prices above $50. If the stock falls as much as I think it will, the puts could prove to be a lucrative speculation.
For more conservative investors, Genzyme's third-quarter earnings miss could turn out to be a rare buying opportunity… Despite its near-term struggles, the company remains a best-in-class large-cap biotech. Its protein-based therapies, manufacturing plants, and expertise are valuable assets. And its rich pipeline includes several late-stage drug candidates.
Before the Vesivirus 2117 infection, the company grew revenue at a healthy 20% a year. While this year will be flat, that growth will return next year and beyond. I expect Genzyme to resume its earnings expansion, as well. Bottom-line growth should reach the high-teens next year.
Long-term investors would be wise to load up if the stock falls below $48 (about 15% below today's levels). That would price shares around 16-17 times next year's earnings, a downright bargain for this biotech bellwether. Buying Genzyme after its coming earnings miss could be one of the easiest ways to earn 10%-20% a year for the next decade.
Good investing,
Rob Fannon
Thursday, October 15, 2009
The Credit Crunch Continues
The Credit Crunch Continues
Click here for a link to ORIGINAL article:
By Meredith Whitney, WSJ | 15 October 2009
Anyone counting on a meaningful economic recovery will be greatly disappointed. How do I know? I follow credit, and credit is contracting. Access to credit is being denied at an accelerating pace. Large, well-capitalized companies have no problem finding credit. Small businesses, on the other hand, have never had a harder time getting a loan.
Since the onset of the credit crisis over two years ago, available credit to small businesses and consumers has contracted by trillions of dollars, and that phenomenon is reflected in dismal consumer spending trends. Equally worrisome are the trends in small-business credit, which has contracted at one of the fastest paces of any lending category. Small business loans are hard to find, and credit-card lines (a critical funding source for small businesses) have been cut by 25% since last year.
Unfortunately for small businesses, credit-line cuts are only about half way through. Home equity loans, also historically a key funding source for start-up small businesses, are not a source of liquidity anymore because more than 32% of U.S. homes are worth less than their mortgages. Why do small businesses matter so much?
In the U.S., small businesses employ 50% of the country's workforce and contribute 38% of GDP. Without access to credit, small businesses can't grow, can't hire, and too often end up going out of business. What's more, small businesses are often the primary source of this country's innovation. Apple, Dell, McDonald's, Starbucks were all started as small businesses.
What's especially disturbing is how taxpayer dollars have supported "too big to fail" businesses yet left small businesses unassisted and at a significant disadvantage. Small businesses do not have the same access to government guarantees on their debt. After all, most of these small businesses don't issue public debt.
As is true in most recessions, banks' commercial lending portfolios shrink as creditworthy customers pay down their debts and the less-worthy borrowers are simply denied loans. Banks, in other words, want to lend only to those that don't want to borrow. Challenging as that may be, in the last cycle small businesses at least had access to their credit cards. [[And their homes, whose values were skyrocketing!: normxxx]]
Small businesses primarily fund themselves through credit cards and loans from local lenders. In the past two years, credit-card lines have been cut by over $1.25 trillion. During the same time, 10% of all credit-card accounts have been cancelled. According to the most recent Federal Reserve data, small business lending is down 3%, or $113 billion, from fourth-quarter 2008 peak levels— the first contraction since 1993.
Credit cards are the most common source of liquidity to small businesses, used by 82% as a vital portion of their overall funding. Thus, it is of merit when 79% of small businesses surveyed tell the Small Business Association that credit-card lending standards have tightened drastically and their access to credit lines has decreased materially. Incentives should be provided to smaller banks to step up small-business loans on a greater scale.
Smaller banks could not only bridge gaps created by the shut down in the securitization market but also gaps being created by a massive contraction in credit-card lines. Arguably credit would perform better with these types of loans as they would reintroduce and reinforce the most important rule in banking: "Know Your Customer". I believe that we are only in the early stages of the second half of this credit cycle.
I expect another $1.5 trillion of credit-card lines to be removed from the system by the end of 2010. This includes not only the large lenders reducing exposure but also the shuttering of several major subprime credit-card lenders. Beginning in the fourth quarter of 2007, lenders began reducing available credit by zip code.
During the past four quarters, lenders have cut "inactive" accounts (whether or not the customer viewed the account as a liquidity vehicle). The next phase will likely be credit-line cuts as lenders race to pre-emptively protect themselves from regulatory changes associated with the Credit Card Accountability, Responsibility and Disclosure Act, passed in May of this year, and the 2008 Unfair and Deceptive Acts and Practices Act. Regulators should be mindful that regulatory change during the midst of a credit crisis often ends with unintended consequences.
Those same consumers that regulators are trying to help are actually being hurt by a vast reduction in available credit. Main Street represents the foundation of this country. Reviving it should take priority over any regulatory reform or systemic overhaul.
— Ms. Whitney is CEO of Meredith Whitney Advisory Group, LLC.
Click here for a link to ORIGINAL article:
By Meredith Whitney, WSJ | 15 October 2009
Anyone counting on a meaningful economic recovery will be greatly disappointed. How do I know? I follow credit, and credit is contracting. Access to credit is being denied at an accelerating pace. Large, well-capitalized companies have no problem finding credit. Small businesses, on the other hand, have never had a harder time getting a loan.
Since the onset of the credit crisis over two years ago, available credit to small businesses and consumers has contracted by trillions of dollars, and that phenomenon is reflected in dismal consumer spending trends. Equally worrisome are the trends in small-business credit, which has contracted at one of the fastest paces of any lending category. Small business loans are hard to find, and credit-card lines (a critical funding source for small businesses) have been cut by 25% since last year.
Unfortunately for small businesses, credit-line cuts are only about half way through. Home equity loans, also historically a key funding source for start-up small businesses, are not a source of liquidity anymore because more than 32% of U.S. homes are worth less than their mortgages. Why do small businesses matter so much?
In the U.S., small businesses employ 50% of the country's workforce and contribute 38% of GDP. Without access to credit, small businesses can't grow, can't hire, and too often end up going out of business. What's more, small businesses are often the primary source of this country's innovation. Apple, Dell, McDonald's, Starbucks were all started as small businesses.
What's especially disturbing is how taxpayer dollars have supported "too big to fail" businesses yet left small businesses unassisted and at a significant disadvantage. Small businesses do not have the same access to government guarantees on their debt. After all, most of these small businesses don't issue public debt.
As is true in most recessions, banks' commercial lending portfolios shrink as creditworthy customers pay down their debts and the less-worthy borrowers are simply denied loans. Banks, in other words, want to lend only to those that don't want to borrow. Challenging as that may be, in the last cycle small businesses at least had access to their credit cards. [[And their homes, whose values were skyrocketing!: normxxx]]
Small businesses primarily fund themselves through credit cards and loans from local lenders. In the past two years, credit-card lines have been cut by over $1.25 trillion. During the same time, 10% of all credit-card accounts have been cancelled. According to the most recent Federal Reserve data, small business lending is down 3%, or $113 billion, from fourth-quarter 2008 peak levels— the first contraction since 1993.
Credit cards are the most common source of liquidity to small businesses, used by 82% as a vital portion of their overall funding. Thus, it is of merit when 79% of small businesses surveyed tell the Small Business Association that credit-card lending standards have tightened drastically and their access to credit lines has decreased materially. Incentives should be provided to smaller banks to step up small-business loans on a greater scale.
Smaller banks could not only bridge gaps created by the shut down in the securitization market but also gaps being created by a massive contraction in credit-card lines. Arguably credit would perform better with these types of loans as they would reintroduce and reinforce the most important rule in banking: "Know Your Customer". I believe that we are only in the early stages of the second half of this credit cycle.
I expect another $1.5 trillion of credit-card lines to be removed from the system by the end of 2010. This includes not only the large lenders reducing exposure but also the shuttering of several major subprime credit-card lenders. Beginning in the fourth quarter of 2007, lenders began reducing available credit by zip code.
During the past four quarters, lenders have cut "inactive" accounts (whether or not the customer viewed the account as a liquidity vehicle). The next phase will likely be credit-line cuts as lenders race to pre-emptively protect themselves from regulatory changes associated with the Credit Card Accountability, Responsibility and Disclosure Act, passed in May of this year, and the 2008 Unfair and Deceptive Acts and Practices Act. Regulators should be mindful that regulatory change during the midst of a credit crisis often ends with unintended consequences.
Those same consumers that regulators are trying to help are actually being hurt by a vast reduction in available credit. Main Street represents the foundation of this country. Reviving it should take priority over any regulatory reform or systemic overhaul.
— Ms. Whitney is CEO of Meredith Whitney Advisory Group, LLC.
Inflation Or Deflation?
Tech Ticker— Inflation Or Deflation?
Click here for a link to ORIGINAL article:
By Mike "Mish" Shedlock | 15 October 2009
Inflation or Deflation? "It's Definitely Deflation," Mish Says. Ask an economist about their biggest concern about the U.S. economy and you're likely to get one of two starkly different answers: America is either about to be swamped by a major bout of inflation or decimated by deflation. Count Mike "Mish" Shedlock of Sitka Pacific Capital among the deflationistas.
While some consumer prices are rising and the Fed is printing money like crazy, Shedlock says deflation is "definitely" a greater threat than inflation. "People looking [only] at [consumer] prices are completely missing the mark," says Shedlock. "Consumer credit is falling, banks aren't lending, and we've got bank failures at a massive rate. These are the same kind of conditions as in the Great Depression". [[Especially from about 1933 on, when FDR succeeded only in inflating the CPI and the stock averages.: normxxx]]
Indeed, bank lending has tumbled and the Fed reports consumer credit has shrunk for seven consecutive months and was down 5.8% on an annualized basis in August, the most recent month available.
…..
Tech Ticker— Ignore The Euphoria
Dow breaks 10,000: don't get caught up in "euphoria", Mish warns. The Dow Jones Industrial Average closed above 10,000 today for the first time in a year, and more than a decade after first breaking the mark. Since hitting lows in March, the Dow is up an astounding 50%, while the S&P 500 has gained 60%.
But before you get your broker on the phone or start trading that dormant online brokerage account, take heed of this warning from Mike "Mish" Shedlock, the blogger behind MISH'S Global Economic Trend Analysis: "Five years from now, I think its quite likely the Dow is not going to be much more than 10,000," he says.
Why so negative? "We've still not solved any of those structural problems" in the housing, banking and debt markets, that caused last year's crisis, he claims. Shedlock's advice: ignore the euphoria, and "take some chips off the table. Now's just not a good time to be invested". Shedlock, also an investment advisor representative for SitkaPacific Capital Management, thinks investors are better positioned in gold and cash.
Tech Ticker— Thoughts On Gold
Exploding Gold Prices have nothing to do with inflation. If there are two things that just about everyone agrees on these days it's that the dollar will continue to plummet and gold will continue to soar. The dollar will keep plunging, everyone agrees, because the Fed will keep printing so much new money that soaring inflation will eventually turn it into toilet paper. Gold, meanwhile, will go to the moon as investors rush to try to hedge against this impending monetary disaster.
Balderdash, says Mike "Mish" Shedlock, blogger and investment advisor with SitkaPacific Capital Management. The dollar's a buy here, in part because everyone is so darn certain that it's about to collapse. And gold?
Well, gold is indeed going higher, Shedlock argues, but not for the reason people think. Gold is actually a lousy inflation hedge, as evidenced by the period from the late 1980s to the early 2000s in which there was plenty of inflation but gold prices plummeted from $800 to $250.
But gold IS a good place to preserve value during a credit crunch, Shedlock says. And that's what we're still having here. So Shedlock is long gold, too, even though he thinks everyone else is buying it for the wrong reason.
Year-Over-Year CPI Negative 7th Consecutive Month; Rents Decline First Time In 17 Years
Bloomberg is reporting Consumer Prices in U.S. increased at slower pace. The cost of living in the U.S. rose at a slower pace in September, showing inflation will not be a threat as the economy emerges from the worst recession since the Great Depression. The 0.2 percent gain in the consumer-price index followed a 0.4 percent increase in August, as forecast, figures from the Labor Department showed today in Washington. Excluding food and energy costs, the so-called core index also climbed 0.2 percent, more than anticipated and pushed up by health care and a rebound in auto prices. Rents dropped for the first time in 17 years.
The number of Americans filing first-time claims for unemployment benefits dropped last week to the lowest level in nine months, indicating the 'improving' economy is leading to a slowdown in firings, another Labor Department report also showed. Applications fell by 10,000 to 514,000 [[that's only 2%, or well within the "noise" range: normxxx]]in the week ended Oct. 10, lower than forecast, from a revised 524,000 the week before. The total number of people collecting unemployment insurance also decreased. [[About half a million simply ceased to exist, since they 'hadn't looked for a job in the last month'.: normxxx]]
Compared with a year earlier, consumer prices were down 1.3 percent. For the core index, prices climbed 1.5 percent from September 2008 after a 1.4 percent increase in the 12 months ended in August. Food prices, which account for about a seventh of the CPI, decreased 0.1 percent in September, reflecting cheaper meats and produce. Lower food prices are dragging down revenue at some businesses. Spartan Stores Inc., which distributes groceries and runs supermarkets, said lower prices are hurting sales.
Dennis Eidson, the Grand Rapids, Michigan-based company’s chief executive officer, said yesterday in a statement that he expects weakness for the remainder of its fiscal year due to "product price deflation" as consumers "behave cautiously given the challenging economic environment." Rents, which make up almost 40 percent of the core CPI, fell. 'Owners-equivalent rent', one of the categories used to track rental prices, decreased 0.1 percent, the first drop since 1992.
Owners' Equivalent Rent Drops First Time Since 1992
Although new claims for unemployment are 'falling', they are still above 500,000 and businesses are still reluctant to hire. The combination certainly suggests higher unemployment numbers coming up. I do expect food prices to continue to decline; however, the most interesting thing in the report is that rents fell for the first time in 17 years. Let's take a look at just how realistic that is.
OER From Twilight Zone: Please consider a few snips from Bill Gross Bets On Deflation, written September 29, 2009.
Given that the official measure of CPI is based on rents NOT housing prices, please consider the following collection of links courtesy of Lanser on Real Estate:
Really? Rents Fall Almost Everywhere.
Click here for a link to ORIGINAL article:
By Mike "Mish" Shedlock | 15 October 2009
Inflation or Deflation? "It's Definitely Deflation," Mish Says. Ask an economist about their biggest concern about the U.S. economy and you're likely to get one of two starkly different answers: America is either about to be swamped by a major bout of inflation or decimated by deflation. Count Mike "Mish" Shedlock of Sitka Pacific Capital among the deflationistas.
While some consumer prices are rising and the Fed is printing money like crazy, Shedlock says deflation is "definitely" a greater threat than inflation. "People looking [only] at [consumer] prices are completely missing the mark," says Shedlock. "Consumer credit is falling, banks aren't lending, and we've got bank failures at a massive rate. These are the same kind of conditions as in the Great Depression". [[Especially from about 1933 on, when FDR succeeded only in inflating the CPI and the stock averages.: normxxx]]
Indeed, bank lending has tumbled and the Fed reports consumer credit has shrunk for seven consecutive months and was down 5.8% on an annualized basis in August, the most recent month available.
…..
Tech Ticker— Ignore The Euphoria
Dow breaks 10,000: don't get caught up in "euphoria", Mish warns. The Dow Jones Industrial Average closed above 10,000 today for the first time in a year, and more than a decade after first breaking the mark. Since hitting lows in March, the Dow is up an astounding 50%, while the S&P 500 has gained 60%.
But before you get your broker on the phone or start trading that dormant online brokerage account, take heed of this warning from Mike "Mish" Shedlock, the blogger behind MISH'S Global Economic Trend Analysis: "Five years from now, I think its quite likely the Dow is not going to be much more than 10,000," he says.
Why so negative? "We've still not solved any of those structural problems" in the housing, banking and debt markets, that caused last year's crisis, he claims. Shedlock's advice: ignore the euphoria, and "take some chips off the table. Now's just not a good time to be invested". Shedlock, also an investment advisor representative for SitkaPacific Capital Management, thinks investors are better positioned in gold and cash.
Tech Ticker— Thoughts On Gold
Exploding Gold Prices have nothing to do with inflation. If there are two things that just about everyone agrees on these days it's that the dollar will continue to plummet and gold will continue to soar. The dollar will keep plunging, everyone agrees, because the Fed will keep printing so much new money that soaring inflation will eventually turn it into toilet paper. Gold, meanwhile, will go to the moon as investors rush to try to hedge against this impending monetary disaster.
Balderdash, says Mike "Mish" Shedlock, blogger and investment advisor with SitkaPacific Capital Management. The dollar's a buy here, in part because everyone is so darn certain that it's about to collapse. And gold?
Well, gold is indeed going higher, Shedlock argues, but not for the reason people think. Gold is actually a lousy inflation hedge, as evidenced by the period from the late 1980s to the early 2000s in which there was plenty of inflation but gold prices plummeted from $800 to $250.
But gold IS a good place to preserve value during a credit crunch, Shedlock says. And that's what we're still having here. So Shedlock is long gold, too, even though he thinks everyone else is buying it for the wrong reason.
Year-Over-Year CPI Negative 7th Consecutive Month; Rents Decline First Time In 17 Years
Bloomberg is reporting Consumer Prices in U.S. increased at slower pace. The cost of living in the U.S. rose at a slower pace in September, showing inflation will not be a threat as the economy emerges from the worst recession since the Great Depression. The 0.2 percent gain in the consumer-price index followed a 0.4 percent increase in August, as forecast, figures from the Labor Department showed today in Washington. Excluding food and energy costs, the so-called core index also climbed 0.2 percent, more than anticipated and pushed up by health care and a rebound in auto prices. Rents dropped for the first time in 17 years.
The number of Americans filing first-time claims for unemployment benefits dropped last week to the lowest level in nine months, indicating the 'improving' economy is leading to a slowdown in firings, another Labor Department report also showed. Applications fell by 10,000 to 514,000 [[that's only 2%, or well within the "noise" range: normxxx]]in the week ended Oct. 10, lower than forecast, from a revised 524,000 the week before. The total number of people collecting unemployment insurance also decreased. [[About half a million simply ceased to exist, since they 'hadn't looked for a job in the last month'.: normxxx]]
Compared with a year earlier, consumer prices were down 1.3 percent. For the core index, prices climbed 1.5 percent from September 2008 after a 1.4 percent increase in the 12 months ended in August. Food prices, which account for about a seventh of the CPI, decreased 0.1 percent in September, reflecting cheaper meats and produce. Lower food prices are dragging down revenue at some businesses. Spartan Stores Inc., which distributes groceries and runs supermarkets, said lower prices are hurting sales.
Dennis Eidson, the Grand Rapids, Michigan-based company’s chief executive officer, said yesterday in a statement that he expects weakness for the remainder of its fiscal year due to "product price deflation" as consumers "behave cautiously given the challenging economic environment." Rents, which make up almost 40 percent of the core CPI, fell. 'Owners-equivalent rent', one of the categories used to track rental prices, decreased 0.1 percent, the first drop since 1992.
Owners' Equivalent Rent Drops First Time Since 1992
Although new claims for unemployment are 'falling', they are still above 500,000 and businesses are still reluctant to hire. The combination certainly suggests higher unemployment numbers coming up. I do expect food prices to continue to decline; however, the most interesting thing in the report is that rents fell for the first time in 17 years. Let's take a look at just how realistic that is.
OER From Twilight Zone: Please consider a few snips from Bill Gross Bets On Deflation, written September 29, 2009.
Given that the official measure of CPI is based on rents NOT housing prices, please consider the following collection of links courtesy of Lanser on Real Estate:
Really? Rents Fall Almost Everywhere.
- Manhattan: Apartment Rents Drop as Employers Cut Jobs
Houston: Renters are snagging deals in a slowing local market
Tuscon: On your mark, get set, go! Apartment firm makes game of it.
Nashville: Apartment rates squeezed by lower demand
Orange County: O.C. renters get twice the freebies
U.S. Nationwide: Renters look for thrifty comfort, not style
Tokyo: Apartment rents under pressure
Middle East: 17% fall in rents seen in Qatar this year
CTA Trader's Conference Call Notes
CTA Trader's Conference Call Notes:
Click here for a link to ORIGINAL article:
By Bill Cara | 15 October 2009
In the old days, high profile stocks gapping to new highs on news related announcements, and reversing lower, then finishing near their daily range lows, would be said to be under distribution. Smart investors (large enough to influence price) use the good news to unload their stock at a handsome profit, happy to lock in gains and look elsewhere for undervalued situations.
After reporting sharply higher quarterly earnings, Intel (INTC +1.66%) traded up almost +6% Tuesday evening in after-hour trading on peanut volume, opening in the morning +3.5% at yearly highs before selling off on large volume, settling near the lows. JP Morgan (JPM +3.29%) also reported better numbers, opened on its high, and closed lower even though the broad market spent the day powering high all day long (S&P +1.75%). Linear Technology (LLTC -2.18%) beat estimates, opened near its highs, and actually closed lower on the day.
This is distribution, pure and simple.
US bonds (TLT -1.48%) took it on the chin Wednesday, the Fed's Permanent Open Market Operations (POMO) nearing completion; other buyers will have to step forward to purchase huge volumes of these securities in order for the US to continue borrowing money at artificially low rates. Support for TLT stands just above 94, with its upwardly sloping 89-day Moving Average, an up-trend line off the June lows, and the 50% retracement of the recent rally all converging in that same general area. The last thing the US needs right now is higher oil (USO +1.55%) and higher interest rates, the combination— perhaps a lethal one-two punch to a wobbly economic recovery. We think the Chinese, Saudis, and Japanese have their fill of US debt and are not inclined to be buying the same quantity of bonds at these levels.
Goldman Sachs (GS +2.70%) and Citigroup (C +3.52%) are reporting before the opening today, and that should set the tone for early morning action. But, with the Dow over 10,000 and the S&P barreling in on 1100, what can the market do for an encore? Time will tell. Time will also tell how long the $USD can be pushed lower by HB&B in order to support higher market prices. Beware; these people will coordinate the reversal, and that's how they make $100 million a day trading against you and me.
*********************
In any case, you might find the following article of interest. It was published in the Portuguese language in a European publication today, and is not likely something that would be heralded by the players in Washington and New York. I ran the Portuguese through the Google Translator, which was surprisingly accurate. [[As well, I did some additional cleanup, where the intent seemed plain: normxxx]]
Have a great day.
Click here for a link to ORIGINAL article:
By Bill Cara | 15 October 2009
In the old days, high profile stocks gapping to new highs on news related announcements, and reversing lower, then finishing near their daily range lows, would be said to be under distribution. Smart investors (large enough to influence price) use the good news to unload their stock at a handsome profit, happy to lock in gains and look elsewhere for undervalued situations.
After reporting sharply higher quarterly earnings, Intel (INTC +1.66%) traded up almost +6% Tuesday evening in after-hour trading on peanut volume, opening in the morning +3.5% at yearly highs before selling off on large volume, settling near the lows. JP Morgan (JPM +3.29%) also reported better numbers, opened on its high, and closed lower even though the broad market spent the day powering high all day long (S&P +1.75%). Linear Technology (LLTC -2.18%) beat estimates, opened near its highs, and actually closed lower on the day.
This is distribution, pure and simple.
US bonds (TLT -1.48%) took it on the chin Wednesday, the Fed's Permanent Open Market Operations (POMO) nearing completion; other buyers will have to step forward to purchase huge volumes of these securities in order for the US to continue borrowing money at artificially low rates. Support for TLT stands just above 94, with its upwardly sloping 89-day Moving Average, an up-trend line off the June lows, and the 50% retracement of the recent rally all converging in that same general area. The last thing the US needs right now is higher oil (USO +1.55%) and higher interest rates, the combination— perhaps a lethal one-two punch to a wobbly economic recovery. We think the Chinese, Saudis, and Japanese have their fill of US debt and are not inclined to be buying the same quantity of bonds at these levels.
Goldman Sachs (GS +2.70%) and Citigroup (C +3.52%) are reporting before the opening today, and that should set the tone for early morning action. But, with the Dow over 10,000 and the S&P barreling in on 1100, what can the market do for an encore? Time will tell. Time will also tell how long the $USD can be pushed lower by HB&B in order to support higher market prices. Beware; these people will coordinate the reversal, and that's how they make $100 million a day trading against you and me.
*********************
In any case, you might find the following article of interest. It was published in the Portuguese language in a European publication today, and is not likely something that would be heralded by the players in Washington and New York. I ran the Portuguese through the Google Translator, which was surprisingly accurate. [[As well, I did some additional cleanup, where the intent seemed plain: normxxx]]
|
Have a great day.
Monday, October 12, 2009
Commodity Stocks On The Brink Of Disaster?
These Commodity Stocks Are On The Brink Of Disaster
By Tom Dyson | 29 September 2009
Investors in natural gas stocks have lost their minds. They're about to lose their wallets, too… There's a major wipeout coming in the natural gas business. North America has too many natural gas producers. The industry needs a major cleaning out. The most inefficient, high-cost producers must fold. This will bring supply and demand back into balance.
Low prices are the market's mechanism for culling the weak players. Four weeks ago, natural gas prices hit a seven-year low of $2.50 per thousand cubic feet. But so far, nothing's happened. No player wants to cut production when they've invested so much money developing it [[and must continue to pay the interest on their loans: normxxx]]. "Getting $3 is better than nothing," they think. [[Where $3 mcf, m = 1000, is about break even. : normxxx]] "Better to pump out more now before it falls even farther."
In the last four weeks, the spot price for nat gas has jumped above $4 [[and the nearby futures contract is selling about $1 higher : normxxx]]and is [now hovering around there]. With higher prices, production is growing even more. According to industry researcher Baker Hughes, the number of rigs drilling for natural gas in the United States has gained in nine of the last 10 weeks. Meanwhile, the oversupply of gas is so great, we've almost run out of room to store it.
The Energy Information Administration says U.S. natural gas inventories rose again last week. They are now a just a chip shot from the record high hit in November 2007. Natural gas storage in producing regions— including Texas, Louisiana, and Oklahoma— already reached a record high last month.
Aubrey McClendon, CEO of Chesapeake Energy, the largest independent gas producer in America, figures America's natural gas industry will fill up all available storage by the end of the year. There'll be "involuntary curtailments," he says. This chart compares UNG, the exchange-traded fund (ETF) for natural gas (in black), with XNG, the AMEX index of natural gas producers (in blue). XNG is an index of natural gas producers like Chesapeake, Devon, Anadarko, and Apache.
In the last two years, the price of natural gas has fallen almost 70%, yet natural gas stocks are still trading at almost the same prices. In other words, investors in natural gas stocks have totally ignored the huge collapse in natural gas prices. And get this… This next chart shows the AMEX oil producer index (in black) cast against the AMEX natural gas producer index (in blue). The AMEX oil producer index contains names like ConocoPhillips, Chevron, and Hess.
Natural gas stocks have thrashed oil stocks over the last nine months, even though the price of oil gained 60% over this time, while the price of natural gas lost 13%. The guillotine is about to fall on natural gas production. And I can't see any reason for this strength in natural gas stocks. My only conclusion: Investors in natural gas stocks are living in la-la land The dream ends when storage runs out and gas prices plunge.
Aggressive traders should immediately short high-cost, speculative natural gas stocks. Conservative investors should wait for the storm to pass. They'll be able to pick up the highest-quality producers at bargain prices. I expect some of these companies will be paying 20%-30% dividend yields in the aftermath.
I'll let you know when the time comes…
Good investing,
.
We're Headed For A Huge Wipeout In Natural Gas
By Tom Dyson | 31 August 2009
Natural gas is plummeting… Last week, natural gas fell to a fresh seven-year low… trading as low as $2.70 per mcf (that's 1,000 cubic feet).
The big fall came on Thursday after a report by the Energy Information Administration (EIA) showed natural gas producers had put another 54 million mcf of gas in storage last week. There's now over 3 billion mcf of gas in storage in America. Here's the thing: I just read a transcript of the latest earnings conference call from Chesapeake Energy. Chesapeake is the largest independent natural gas producer in America.
One analyst asked Aubrey McClendon, Chesapeake's CEO, why he ramped up production recently even though gas prices had fallen so far. Normally, you'd expect the opposite. When you can't make a profit, you cut production to the bone.
McClendon said America's natural gas industry will have filled up all available storage by the end of the year. At this point, there'll be "involuntary curtailments". In a few months, the lack of storage will force gas companies to stop pumping gas.
In the meantime, McClendon needs to pump as much gas as he can before the storage caverns fill up. It's like a race to pick up pennies in front of a steamroller. "We didn't see any reason to take it on the chin for the team," he concluded.
Over the last few years, the gas industry has borrowed billions of dollars and used this money to develop new gas fields. Natural gas companies have built refineries, ports, pipelines, drilling rigs, platforms, and storage tanks. Even though the industry isn't making any money pumping natural gas at prices below $3 per mcf, it cannot cut production. These companies have to make interest payments and must earn whatever revenue they can get.
In other words, gas prices are falling because the industry keeps producing as much gas as it can, even though there isn't enough demand. For now, this hasn't been a showstopper. The U.S. has a huge capacity for storing natural gas. The trouble is, that storage is almost full…
When the storage fills to capacity, there's going to be a storm in the natural gas industry. Many companies will be forced to turn off the spigots. Can you imagine what will happen to earnings at these companies? They'll collapse. How will these companies pay the interest on their debts?
Gas is cheap, it's clean, and it's made in America. Gas has a great future. But until the storage runs out and half the producing companies go bankrupt, gas prices won't rise. There'll be too much supply. Shorting overleveraged, high-cost gas producers is the way to profit from this situation. Many of these companies are going bankrupt in the very near future.
Good investing,
Tom
P.S. The EIA is publishing a report on the amount of natural gas storage still left in America. This report comes out in the next few weeks. I'll let you know when they publish it… and what its implications are. Keep reading.
By Tom Dyson | 29 September 2009
Investors in natural gas stocks have lost their minds. They're about to lose their wallets, too… There's a major wipeout coming in the natural gas business. North America has too many natural gas producers. The industry needs a major cleaning out. The most inefficient, high-cost producers must fold. This will bring supply and demand back into balance.
Low prices are the market's mechanism for culling the weak players. Four weeks ago, natural gas prices hit a seven-year low of $2.50 per thousand cubic feet. But so far, nothing's happened. No player wants to cut production when they've invested so much money developing it [[and must continue to pay the interest on their loans: normxxx]]. "Getting $3 is better than nothing," they think. [[Where $3 mcf, m = 1000, is about break even. : normxxx]] "Better to pump out more now before it falls even farther."
In the last four weeks, the spot price for nat gas has jumped above $4 [[and the nearby futures contract is selling about $1 higher : normxxx]]and is [now hovering around there]. With higher prices, production is growing even more. According to industry researcher Baker Hughes, the number of rigs drilling for natural gas in the United States has gained in nine of the last 10 weeks. Meanwhile, the oversupply of gas is so great, we've almost run out of room to store it.
The Energy Information Administration says U.S. natural gas inventories rose again last week. They are now a just a chip shot from the record high hit in November 2007. Natural gas storage in producing regions— including Texas, Louisiana, and Oklahoma— already reached a record high last month.
Aubrey McClendon, CEO of Chesapeake Energy, the largest independent gas producer in America, figures America's natural gas industry will fill up all available storage by the end of the year. There'll be "involuntary curtailments," he says. This chart compares UNG, the exchange-traded fund (ETF) for natural gas (in black), with XNG, the AMEX index of natural gas producers (in blue). XNG is an index of natural gas producers like Chesapeake, Devon, Anadarko, and Apache.
In the last two years, the price of natural gas has fallen almost 70%, yet natural gas stocks are still trading at almost the same prices. In other words, investors in natural gas stocks have totally ignored the huge collapse in natural gas prices. And get this… This next chart shows the AMEX oil producer index (in black) cast against the AMEX natural gas producer index (in blue). The AMEX oil producer index contains names like ConocoPhillips, Chevron, and Hess.
Natural gas stocks have thrashed oil stocks over the last nine months, even though the price of oil gained 60% over this time, while the price of natural gas lost 13%. The guillotine is about to fall on natural gas production. And I can't see any reason for this strength in natural gas stocks. My only conclusion: Investors in natural gas stocks are living in la-la land The dream ends when storage runs out and gas prices plunge.
Aggressive traders should immediately short high-cost, speculative natural gas stocks. Conservative investors should wait for the storm to pass. They'll be able to pick up the highest-quality producers at bargain prices. I expect some of these companies will be paying 20%-30% dividend yields in the aftermath.
I'll let you know when the time comes…
Good investing,
.
We're Headed For A Huge Wipeout In Natural Gas
By Tom Dyson | 31 August 2009
Natural gas is plummeting… Last week, natural gas fell to a fresh seven-year low… trading as low as $2.70 per mcf (that's 1,000 cubic feet).
The big fall came on Thursday after a report by the Energy Information Administration (EIA) showed natural gas producers had put another 54 million mcf of gas in storage last week. There's now over 3 billion mcf of gas in storage in America. Here's the thing: I just read a transcript of the latest earnings conference call from Chesapeake Energy. Chesapeake is the largest independent natural gas producer in America.
One analyst asked Aubrey McClendon, Chesapeake's CEO, why he ramped up production recently even though gas prices had fallen so far. Normally, you'd expect the opposite. When you can't make a profit, you cut production to the bone.
McClendon said America's natural gas industry will have filled up all available storage by the end of the year. At this point, there'll be "involuntary curtailments". In a few months, the lack of storage will force gas companies to stop pumping gas.
In the meantime, McClendon needs to pump as much gas as he can before the storage caverns fill up. It's like a race to pick up pennies in front of a steamroller. "We didn't see any reason to take it on the chin for the team," he concluded.
Over the last few years, the gas industry has borrowed billions of dollars and used this money to develop new gas fields. Natural gas companies have built refineries, ports, pipelines, drilling rigs, platforms, and storage tanks. Even though the industry isn't making any money pumping natural gas at prices below $3 per mcf, it cannot cut production. These companies have to make interest payments and must earn whatever revenue they can get.
In other words, gas prices are falling because the industry keeps producing as much gas as it can, even though there isn't enough demand. For now, this hasn't been a showstopper. The U.S. has a huge capacity for storing natural gas. The trouble is, that storage is almost full…
When the storage fills to capacity, there's going to be a storm in the natural gas industry. Many companies will be forced to turn off the spigots. Can you imagine what will happen to earnings at these companies? They'll collapse. How will these companies pay the interest on their debts?
Gas is cheap, it's clean, and it's made in America. Gas has a great future. But until the storage runs out and half the producing companies go bankrupt, gas prices won't rise. There'll be too much supply. Shorting overleveraged, high-cost gas producers is the way to profit from this situation. Many of these companies are going bankrupt in the very near future.
Good investing,
Tom
P.S. The EIA is publishing a report on the amount of natural gas storage still left in America. This report comes out in the next few weeks. I'll let you know when they publish it… and what its implications are. Keep reading.
Meredith Whitney: Banks' Bounce Doubtful?
These Commodity Stocks Are On The Brink Of Disaster
By Tom Dyson | 29 September 2009
Investors in natural gas stocks have lost their minds. They're about to lose their wallets, too… There's a major wipeout coming in the natural gas business. North America has too many natural gas producers. The industry needs a major cleaning out. The most inefficient, high-cost producers must fold. This will bring supply and demand back into balance.
Low prices are the market's mechanism for culling the weak players. Four weeks ago, natural gas prices hit a seven-year low of $2.50 per thousand cubic feet. But so far, nothing's happened. No player wants to cut production when they've invested so much money developing it [[and must continue to pay the interest on their loans: normxxx]]. "Getting $3 is better than nothing," they think. [[Where $3 mcf, m = 1000, is about break even. : normxxx]] "Better to pump out more now before it falls even farther."
In the last four weeks, the spot price for nat gas has jumped above $4 [[and the nearby futures contract is selling about $1 higher : normxxx]]and is [now hovering around there]. With higher prices, production is growing even more. According to industry researcher Baker Hughes, the number of rigs drilling for natural gas in the United States has gained in nine of the last 10 weeks. Meanwhile, the oversupply of gas is so great, we've almost run out of room to store it.
The Energy Information Administration says U.S. natural gas inventories rose again last week. They are now a just a chip shot from the record high hit in November 2007. Natural gas storage in producing regions— including Texas, Louisiana, and Oklahoma— already reached a record high last month.
Aubrey McClendon, CEO of Chesapeake Energy, the largest independent gas producer in America, figures America's natural gas industry will fill up all available storage by the end of the year. There'll be "involuntary curtailments," he says. This chart compares UNG, the exchange-traded fund (ETF) for natural gas (in black), with XNG, the AMEX index of natural gas producers (in blue). XNG is an index of natural gas producers like Chesapeake, Devon, Anadarko, and Apache.
In the last two years, the price of natural gas has fallen almost 70%, yet natural gas stocks are still trading at almost the same prices. In other words, investors in natural gas stocks have totally ignored the huge collapse in natural gas prices. And get this… This next chart shows the AMEX oil producer index (in black) cast against the AMEX natural gas producer index (in blue). The AMEX oil producer index contains names like ConocoPhillips, Chevron, and Hess.
Natural gas stocks have thrashed oil stocks over the last nine months, even though the price of oil gained 60% over this time, while the price of natural gas lost 13%. The guillotine is about to fall on natural gas production. And I can't see any reason for this strength in natural gas stocks. My only conclusion: Investors in natural gas stocks are living in la-la land The dream ends when storage runs out and gas prices plunge.
Aggressive traders should immediately short high-cost, speculative natural gas stocks. Conservative investors should wait for the storm to pass. They'll be able to pick up the highest-quality producers at bargain prices. I expect some of these companies will be paying 20%-30% dividend yields in the aftermath.
I'll let you know when the time comes…
Good investing,
.
We're Headed For A Huge Wipeout In Natural Gas
By Tom Dyson | 31 August 2009
Natural gas is plummeting… Last week, natural gas fell to a fresh seven-year low… trading as low as $2.70 per mcf (that's 1,000 cubic feet).
The big fall came on Thursday after a report by the Energy Information Administration (EIA) showed natural gas producers had put another 54 million mcf of gas in storage last week. There's now over 3 billion mcf of gas in storage in America. Here's the thing: I just read a transcript of the latest earnings conference call from Chesapeake Energy. Chesapeake is the largest independent natural gas producer in America.
One analyst asked Aubrey McClendon, Chesapeake's CEO, why he ramped up production recently even though gas prices had fallen so far. Normally, you'd expect the opposite. When you can't make a profit, you cut production to the bone.
McClendon said America's natural gas industry will have filled up all available storage by the end of the year. At this point, there'll be "involuntary curtailments". In a few months, the lack of storage will force gas companies to stop pumping gas.
In the meantime, McClendon needs to pump as much gas as he can before the storage caverns fill up. It's like a race to pick up pennies in front of a steamroller. "We didn't see any reason to take it on the chin for the team," he concluded.
Over the last few years, the gas industry has borrowed billions of dollars and used this money to develop new gas fields. Natural gas companies have built refineries, ports, pipelines, drilling rigs, platforms, and storage tanks. Even though the industry isn't making any money pumping natural gas at prices below $3 per mcf, it cannot cut production. These companies have to make interest payments and must earn whatever revenue they can get.
In other words, gas prices are falling because the industry keeps producing as much gas as it can, even though there isn't enough demand. For now, this hasn't been a showstopper. The U.S. has a huge capacity for storing natural gas. The trouble is, that storage is almost full…
When the storage fills to capacity, there's going to be a storm in the natural gas industry. Many companies will be forced to turn off the spigots. Can you imagine what will happen to earnings at these companies? They'll collapse. How will these companies pay the interest on their debts?
Gas is cheap, it's clean, and it's made in America. Gas has a great future. But until the storage runs out and half the producing companies go bankrupt, gas prices won't rise. There'll be too much supply. Shorting overleveraged, high-cost gas producers is the way to profit from this situation. Many of these companies are going bankrupt in the very near future.
Good investing,
Tom
P.S. The EIA is publishing a report on the amount of natural gas storage still left in America. This report comes out in the next few weeks. I'll let you know when they publish it… and what its implications are. Keep reading.
By Tom Dyson | 29 September 2009
Investors in natural gas stocks have lost their minds. They're about to lose their wallets, too… There's a major wipeout coming in the natural gas business. North America has too many natural gas producers. The industry needs a major cleaning out. The most inefficient, high-cost producers must fold. This will bring supply and demand back into balance.
Low prices are the market's mechanism for culling the weak players. Four weeks ago, natural gas prices hit a seven-year low of $2.50 per thousand cubic feet. But so far, nothing's happened. No player wants to cut production when they've invested so much money developing it [[and must continue to pay the interest on their loans: normxxx]]. "Getting $3 is better than nothing," they think. [[Where $3 mcf, m = 1000, is about break even. : normxxx]] "Better to pump out more now before it falls even farther."
In the last four weeks, the spot price for nat gas has jumped above $4 [[and the nearby futures contract is selling about $1 higher : normxxx]]and is [now hovering around there]. With higher prices, production is growing even more. According to industry researcher Baker Hughes, the number of rigs drilling for natural gas in the United States has gained in nine of the last 10 weeks. Meanwhile, the oversupply of gas is so great, we've almost run out of room to store it.
The Energy Information Administration says U.S. natural gas inventories rose again last week. They are now a just a chip shot from the record high hit in November 2007. Natural gas storage in producing regions— including Texas, Louisiana, and Oklahoma— already reached a record high last month.
Aubrey McClendon, CEO of Chesapeake Energy, the largest independent gas producer in America, figures America's natural gas industry will fill up all available storage by the end of the year. There'll be "involuntary curtailments," he says. This chart compares UNG, the exchange-traded fund (ETF) for natural gas (in black), with XNG, the AMEX index of natural gas producers (in blue). XNG is an index of natural gas producers like Chesapeake, Devon, Anadarko, and Apache.
In the last two years, the price of natural gas has fallen almost 70%, yet natural gas stocks are still trading at almost the same prices. In other words, investors in natural gas stocks have totally ignored the huge collapse in natural gas prices. And get this… This next chart shows the AMEX oil producer index (in black) cast against the AMEX natural gas producer index (in blue). The AMEX oil producer index contains names like ConocoPhillips, Chevron, and Hess.
Natural gas stocks have thrashed oil stocks over the last nine months, even though the price of oil gained 60% over this time, while the price of natural gas lost 13%. The guillotine is about to fall on natural gas production. And I can't see any reason for this strength in natural gas stocks. My only conclusion: Investors in natural gas stocks are living in la-la land The dream ends when storage runs out and gas prices plunge.
Aggressive traders should immediately short high-cost, speculative natural gas stocks. Conservative investors should wait for the storm to pass. They'll be able to pick up the highest-quality producers at bargain prices. I expect some of these companies will be paying 20%-30% dividend yields in the aftermath.
I'll let you know when the time comes…
Good investing,
.
We're Headed For A Huge Wipeout In Natural Gas
By Tom Dyson | 31 August 2009
Natural gas is plummeting… Last week, natural gas fell to a fresh seven-year low… trading as low as $2.70 per mcf (that's 1,000 cubic feet).
The big fall came on Thursday after a report by the Energy Information Administration (EIA) showed natural gas producers had put another 54 million mcf of gas in storage last week. There's now over 3 billion mcf of gas in storage in America. Here's the thing: I just read a transcript of the latest earnings conference call from Chesapeake Energy. Chesapeake is the largest independent natural gas producer in America.
One analyst asked Aubrey McClendon, Chesapeake's CEO, why he ramped up production recently even though gas prices had fallen so far. Normally, you'd expect the opposite. When you can't make a profit, you cut production to the bone.
McClendon said America's natural gas industry will have filled up all available storage by the end of the year. At this point, there'll be "involuntary curtailments". In a few months, the lack of storage will force gas companies to stop pumping gas.
In the meantime, McClendon needs to pump as much gas as he can before the storage caverns fill up. It's like a race to pick up pennies in front of a steamroller. "We didn't see any reason to take it on the chin for the team," he concluded.
Over the last few years, the gas industry has borrowed billions of dollars and used this money to develop new gas fields. Natural gas companies have built refineries, ports, pipelines, drilling rigs, platforms, and storage tanks. Even though the industry isn't making any money pumping natural gas at prices below $3 per mcf, it cannot cut production. These companies have to make interest payments and must earn whatever revenue they can get.
In other words, gas prices are falling because the industry keeps producing as much gas as it can, even though there isn't enough demand. For now, this hasn't been a showstopper. The U.S. has a huge capacity for storing natural gas. The trouble is, that storage is almost full…
When the storage fills to capacity, there's going to be a storm in the natural gas industry. Many companies will be forced to turn off the spigots. Can you imagine what will happen to earnings at these companies? They'll collapse. How will these companies pay the interest on their debts?
Gas is cheap, it's clean, and it's made in America. Gas has a great future. But until the storage runs out and half the producing companies go bankrupt, gas prices won't rise. There'll be too much supply. Shorting overleveraged, high-cost gas producers is the way to profit from this situation. Many of these companies are going bankrupt in the very near future.
Good investing,
Tom
P.S. The EIA is publishing a report on the amount of natural gas storage still left in America. This report comes out in the next few weeks. I'll let you know when they publish it… and what its implications are. Keep reading.
Sunday, October 11, 2009
Consumers In Trouble
Consumers In Trouble: Loan Delinquencies Hit Record Highs In Second Quarter
By Jennifer Waters, Marketwatch | 1 October 2009
CHICAGO (MarketWatch)— The economy's chokehold tightened in the second quarter as consumers fell behind on their debt payments in record numbers, the American Banker's Association said Thursday. Delinquency rates hit record highs on home-equity loans, home-equity lines of credit and bank cards for the quarter that ended July 31, the latest numbers available. Everyone but government is deleveraging.
First it was Wall Street. Now it's households that are paying down their debts and starting to save a little [[mostly NOT through choice! : normxxx]] In the meantime, the government is still borrowing like there's no tomorrow, hoping to ease credit-contraction pains. WSJ's David Wessel discusses.
The composite ratio, which tracks eight closed-end installment loan categories, also hit a high at 3.35% of all outstanding accounts, seasonally adjusted, compared with the first quarter's 3.23%. This is the sixth straight quarter that delinquencies have risen. The culprit is the snowballing result of the longest and deepest recession since the Great Depression, according to ABA Chief Economist James Chessen.
"The problems now are the cumulative effect of the economy and job losses," he said. "Every single month there are jobs being lost and when income falls it makes it very difficult for consumers to meet debt obligations". Unemployment is at 9.7% , the highest since June 1983. [[now at 9.8% and still rising— the government released September employment numbers subsequent to this being written: normxxx]]
"Six consecutive quarters of job losses have taken their toll," Chessen added. "It's stunning what's happened. There's a lot of pain out there as people try to make ends meet… The picture won't change until the labor market improves and the economy picks up steam… That's going to take time."
Credit Cards Cause Most Trouble
Credit-card debts were hardest hit. Delinquencies jumped to 5.01%, up more than one-quarter percentage point over the first quarter to an all-time high. Among the closed-end loans, home-equity loan delinquencies rose to a record 4.01% from 3.52% in the first quarter. Home-equity lines of credit, which up until the first quarter of 2008, had never reached 1% of all loans, rose 0.3 percentage point to a high of 1.92%.
Personal-loan failures were at 3.90% of all loans compared with the prior quarter's 3.47%. Consumers skipped boat and other marine-related loan payments on 2.28% of all loans compared with 2.04% the quarter before while RV loans delinquencies were up to 1.72% from 1.52%. Property improvement loans delinquencies also grew, to 1.79% of all loans from 1.46% the prior quarter.
There were some decreases in delinquency rates on auto loans. Direct auto loans, those arranged by banks, fell to 2.46% from 3.01%. Indirect loans, put in place through a third party such as an auto dealer, were at 3.26% of all loans compared with 3.42% the quarter before. And mobile-home failures were at 3.53% versus 3.7% in the first quarter.
Chessen figures that the drop in auto-loan delinquencies is tied to the 'quick' decisions that are [being] made on 'bad' loans. "There are more aggressive efforts to recover car loans," he said. "Repossession rates are fairly rapid and banks charge off the loans quickly."
Jennifer Waters is a MarketWatch reporter, based in Chicago.
By Jennifer Waters, Marketwatch | 1 October 2009
CHICAGO (MarketWatch)— The economy's chokehold tightened in the second quarter as consumers fell behind on their debt payments in record numbers, the American Banker's Association said Thursday. Delinquency rates hit record highs on home-equity loans, home-equity lines of credit and bank cards for the quarter that ended July 31, the latest numbers available. Everyone but government is deleveraging.
First it was Wall Street. Now it's households that are paying down their debts and starting to save a little [[mostly NOT through choice! : normxxx]] In the meantime, the government is still borrowing like there's no tomorrow, hoping to ease credit-contraction pains. WSJ's David Wessel discusses.
The composite ratio, which tracks eight closed-end installment loan categories, also hit a high at 3.35% of all outstanding accounts, seasonally adjusted, compared with the first quarter's 3.23%. This is the sixth straight quarter that delinquencies have risen. The culprit is the snowballing result of the longest and deepest recession since the Great Depression, according to ABA Chief Economist James Chessen.
"The problems now are the cumulative effect of the economy and job losses," he said. "Every single month there are jobs being lost and when income falls it makes it very difficult for consumers to meet debt obligations". Unemployment is at 9.7% , the highest since June 1983. [[now at 9.8% and still rising— the government released September employment numbers subsequent to this being written: normxxx]]
"Six consecutive quarters of job losses have taken their toll," Chessen added. "It's stunning what's happened. There's a lot of pain out there as people try to make ends meet… The picture won't change until the labor market improves and the economy picks up steam… That's going to take time."
Credit Cards Cause Most Trouble
Credit-card debts were hardest hit. Delinquencies jumped to 5.01%, up more than one-quarter percentage point over the first quarter to an all-time high. Among the closed-end loans, home-equity loan delinquencies rose to a record 4.01% from 3.52% in the first quarter. Home-equity lines of credit, which up until the first quarter of 2008, had never reached 1% of all loans, rose 0.3 percentage point to a high of 1.92%.
Personal-loan failures were at 3.90% of all loans compared with the prior quarter's 3.47%. Consumers skipped boat and other marine-related loan payments on 2.28% of all loans compared with 2.04% the quarter before while RV loans delinquencies were up to 1.72% from 1.52%. Property improvement loans delinquencies also grew, to 1.79% of all loans from 1.46% the prior quarter.
There were some decreases in delinquency rates on auto loans. Direct auto loans, those arranged by banks, fell to 2.46% from 3.01%. Indirect loans, put in place through a third party such as an auto dealer, were at 3.26% of all loans compared with 3.42% the quarter before. And mobile-home failures were at 3.53% versus 3.7% in the first quarter.
Chessen figures that the drop in auto-loan delinquencies is tied to the 'quick' decisions that are [being] made on 'bad' loans. "There are more aggressive efforts to recover car loans," he said. "Repossession rates are fairly rapid and banks charge off the loans quickly."
Jennifer Waters is a MarketWatch reporter, based in Chicago.
Saturday, October 10, 2009
It's Never ALL Gloom And Doom: Energy Crisis Postponed
It's Never ALL Gloom And Doom: Energy Crisis Is Postponed [Once Again] As New Gas 'Rescues' The World
Engineers Have Performed Their Magic Once Again. The World Is Not Going To Run Short Of Energy As Soon As Feared.
By Ambrose Evans-Pritchard | 11 October 2009
America is not going to bleed its wealth importing fuel. Russia's grip on Europe's gas will weaken. Improvident Britain may avoid paralysing blackouts by mid-decade after all. The World Gas Conference in Buenos Aires last week was one of those events that shatter assumptions. Advances in technology for extracting gas from shale and methane beds have quickened dramatically, altering the global balance of energy faster than almost anybody expected.
Tony Hayward, BP's chief executive, said proven natural gas reserves around the world have risen to 1.2 trillion barrels per day of oil equivalent, enough for 60 years' supply— and rising fast. "There has been a revolution in the gas fields of North America. Reserve estimates are rising sharply as technology unlocks unconventional resources," he said. This is almost unknown to the public, despite the efforts of Nick Grealy at "No Hot Air" who has been arguing for some time that Britain's shale reserves could replace declining North Sea output.
Rune Bjornson from Norway's StatoilHydro said exploitable reserves are much greater than supposed just three years ago and may meet global gas needs for generations. "The common wisdom was that unconventional gas was too difficult, too expensive and too demanding," he said, according to Petroleum Economist. "This has changed. If we ever doubted that gas was the fuel of the future— in many ways there's the answer."
The breakthrough has been to combine 3-D seismic imaging with new technologies to free "tight gas" by smashing rocks, known as hydro-fracturing or "fracking" in the trade. The US is leading the charge. Operations in Pennsylvania and Texas have already been sufficient to cut US imports of liquefied natural gas (LGN) from Trinidad and Qatar to almost nil, with knock-on effects for the global gas market— and crude oil.
It is one reason why spot prices for some LNG deliveries have dropped to 50% of pipeline contracts. Energy 'bulls' gambling that the world economy will soon resume its bubble trajectory need to remember two facts: one: industrial production over the last year is still down 19% in Japan, 18% in Italy, 17% in Germany, 15% in Canada, 13% in France and Russia, 11% in the US and the UK, and 10% in Brazil. A 12% rise in China does not offset this.
And, two: OPEC states are cheating on quota cuts. Compliance has fallen to 62% from 82% in March. Iran, Nigeria, Venezuela et al face a budget crunch. Why comply when non-OPEC Russia is pumping at breakneck speed?
The US Energy Department expects shale to meet half of US gas demand within 20 years, if not earlier. Projects are cranking up in eastern France and Poland. Exploration is under way in Australia, India and China.
Texas A&M University said US methods could increase global gas reserves by nine times to 16,000 TCF (trillion cubic feet). Almost a quarter is in China but it may lack the water resources to harness the technology given the depletion of the North China water basin. Needless to say, the Kremlin is irked. "There's a lot of myths about shale production," said Gazprom's Alexander Medvedev.
If the new forecasts are accurate, Gazprom is not going to be the perennial cash cow funding Russia's great power resurgence. Russia's budget may be in structural deficit. As for the US, we may soon be looking at an era when gas, wind and solar power, combined with a smarter grid and a switch to electric cars returns the country to near energy self-sufficiency. This has currency implications.
If you strip out the energy deficit, America's vaulting savings rate may soon bring the current account back into surplus— and that is going to come at somebody else's expense, chiefly Japan, Germany and, up to a point, China. Shale gas is undoubtedly messy. Millions of gallons of water mixed with sand, hydrochloric acid and toxic chemicals are blasted at rocks. This is supposed to happen below the water basins but accidents have been common.
Pennsylvania's eco-police have shut down a Cabot Oil & Gas operation after 8,000 gallons of chemicals spilled into a stream. Nor is it exactly 'green'. But natural gas has much lower CO2 emissions than coal, even from shale— which is why the Sierra Club is backing it as the lesser of evils against "clean coal" (not yet a reality). The US Federal Energy Regulatory Commission said America may not need any new coal or nuclear plants "ever" again.
I am not qualified to judge where gas excitement crosses into hyperbole. I pass on the story because the claims of BP and Statoil are so extraordinary that we may need to rewrite the geo-strategy textbooks for the next half century.
Engineers Have Performed Their Magic Once Again. The World Is Not Going To Run Short Of Energy As Soon As Feared.
By Ambrose Evans-Pritchard | 11 October 2009
America is not going to bleed its wealth importing fuel. Russia's grip on Europe's gas will weaken. Improvident Britain may avoid paralysing blackouts by mid-decade after all. The World Gas Conference in Buenos Aires last week was one of those events that shatter assumptions. Advances in technology for extracting gas from shale and methane beds have quickened dramatically, altering the global balance of energy faster than almost anybody expected.
Tony Hayward, BP's chief executive, said proven natural gas reserves around the world have risen to 1.2 trillion barrels per day of oil equivalent, enough for 60 years' supply— and rising fast. "There has been a revolution in the gas fields of North America. Reserve estimates are rising sharply as technology unlocks unconventional resources," he said. This is almost unknown to the public, despite the efforts of Nick Grealy at "No Hot Air" who has been arguing for some time that Britain's shale reserves could replace declining North Sea output.
Rune Bjornson from Norway's StatoilHydro said exploitable reserves are much greater than supposed just three years ago and may meet global gas needs for generations. "The common wisdom was that unconventional gas was too difficult, too expensive and too demanding," he said, according to Petroleum Economist. "This has changed. If we ever doubted that gas was the fuel of the future— in many ways there's the answer."
The breakthrough has been to combine 3-D seismic imaging with new technologies to free "tight gas" by smashing rocks, known as hydro-fracturing or "fracking" in the trade. The US is leading the charge. Operations in Pennsylvania and Texas have already been sufficient to cut US imports of liquefied natural gas (LGN) from Trinidad and Qatar to almost nil, with knock-on effects for the global gas market— and crude oil.
It is one reason why spot prices for some LNG deliveries have dropped to 50% of pipeline contracts. Energy 'bulls' gambling that the world economy will soon resume its bubble trajectory need to remember two facts: one: industrial production over the last year is still down 19% in Japan, 18% in Italy, 17% in Germany, 15% in Canada, 13% in France and Russia, 11% in the US and the UK, and 10% in Brazil. A 12% rise in China does not offset this.
And, two: OPEC states are cheating on quota cuts. Compliance has fallen to 62% from 82% in March. Iran, Nigeria, Venezuela et al face a budget crunch. Why comply when non-OPEC Russia is pumping at breakneck speed?
The US Energy Department expects shale to meet half of US gas demand within 20 years, if not earlier. Projects are cranking up in eastern France and Poland. Exploration is under way in Australia, India and China.
Texas A&M University said US methods could increase global gas reserves by nine times to 16,000 TCF (trillion cubic feet). Almost a quarter is in China but it may lack the water resources to harness the technology given the depletion of the North China water basin. Needless to say, the Kremlin is irked. "There's a lot of myths about shale production," said Gazprom's Alexander Medvedev.
If the new forecasts are accurate, Gazprom is not going to be the perennial cash cow funding Russia's great power resurgence. Russia's budget may be in structural deficit. As for the US, we may soon be looking at an era when gas, wind and solar power, combined with a smarter grid and a switch to electric cars returns the country to near energy self-sufficiency. This has currency implications.
If you strip out the energy deficit, America's vaulting savings rate may soon bring the current account back into surplus— and that is going to come at somebody else's expense, chiefly Japan, Germany and, up to a point, China. Shale gas is undoubtedly messy. Millions of gallons of water mixed with sand, hydrochloric acid and toxic chemicals are blasted at rocks. This is supposed to happen below the water basins but accidents have been common.
Pennsylvania's eco-police have shut down a Cabot Oil & Gas operation after 8,000 gallons of chemicals spilled into a stream. Nor is it exactly 'green'. But natural gas has much lower CO2 emissions than coal, even from shale— which is why the Sierra Club is backing it as the lesser of evils against "clean coal" (not yet a reality). The US Federal Energy Regulatory Commission said America may not need any new coal or nuclear plants "ever" again.
I am not qualified to judge where gas excitement crosses into hyperbole. I pass on the story because the claims of BP and Statoil are so extraordinary that we may need to rewrite the geo-strategy textbooks for the next half century.
Thursday, October 8, 2009
A Simple, Incredible System
A Simple, Incredible System That's Beaten The Market By 10% A Year
By Dr. Steve Sjuggerud, Daily Wealth | 9 October 2009
"Using a form filed with the government that's available to everyone, we've found ways to beat the market by as much as 10% a year." Investment analyst Mebane Faber told me that recently (in so many words), over dinner with my good friend and mentor Van Simmons. Mebane ("Meb" for short) is a relatively unknown young analyst, but he's doing fantastic work…
Last week [[see below: normxxx]], I told you about his simple investing system that didn't lose money for 35 years. (It's from his book, The Ivy Portfolio: How to Invest Like the Top Endowments and Avoid Bear Markets.) What's more, it beat the market with less risk. And astoundingly, you only have to look at your portfolio once a month— 12 days a year. It's simple, but incredible… the mark of a great idea.
Last night, he explained another simple but incredible idea…
"Big investors— those with over $100 million— have to disclose their investment holdings in government filings called 13Fs," Meb explained. "The information is backward looking… But I've studied it, and it turns out it can be extremely valuable". One thing Meb does is "clone" the big hedge-fund managers, like George Soros, David Einhorn, and Seth Klarman. Through these government filings, he can use these gurus' expertise without paying them big fees.
Meb explained that "mining" these government forms to copy the best portfolios works best with investment managers who hold stocks for a long period of time… investors like the world's second-richest man, Warren Buffett. Let's take a closer look at how you could use Meb's ideas to "clone" Warren Buffett's portfolio out of the government filings…
The 13F filings are quarterly. To keep it simple, Meb takes Buffett's top-10 holdings and equally weights them in his portfolio. Three months later, when the new 13F filings come out, he changes the portfolio.
Meb said, "It turns out that a simple portfolio that invests in Buffett's top 10 stock holdings, equal-weighted and rebalanced quarterly, beat the market by 10% a year from 2000 through 2008". (A recent academic paper, called Imitation is the Sincerest Form of Flattery, corroborates Meb's research. It used a similar strategy from 1976 to 2008, and it beat the market by 11% per year.)
"Mining" these 13F forms turned out to be so valuable, Meb created a way to backtest these ideas automatically. He and his partner Maz Jadallah founded AlphaClone and made his program available to the public… for way too cheap (with a free 14-day trial and a "Guest Pass"). Now, you can easily backtest the performance of a portfolio that simply follows the stock ideas of the biggest and best money managers as soon as their portfolios are available through government filings.
If you're interested in picking your own stocks, or you'd like to see how you could have performed if you'd followed the best hedge-fund managers in the business, give AlphaClone a try. And keep an eye out for Mebane Faber. This young analyst keeps delivering original, simple ideas.
Good investing,
Steve
P.S. Follow Meb at this site and try his AlphaClone program.
.
This System Works So Well, I'm Not Sure I Should Tell You About It
By Dr. Steve Sjuggerud | 2 October 2009
If I weren't working on the same research myself, I wouldn't have believed it's possible… The results of this system are so powerful, I hesitate to share them with a large audience. But I get paid to share the best investment ideas I find. So I feel compelled to tell you about this one…
In short, investment analyst Mebane Faber came up with an incredibly "dumb" system that beats the market. It crushes it actually… Meb's system delivers the investment "Holy Grail"— higher returns with lower risk. It's hard to believe, but the system really is incredibly simple. And it's totally legit. While the traditional disclaimer "past performance doesn't equal future performance" applies, the fact is:
From 1973 (the start date for his data) through 2007, Meb's simple system never had a losing year. (Think about that!) In 2008, when everyone lost money, Meb's simple system beat everything and was barely down. (I'm not sure what the exact figure was, but I assure you, it was only slightly negative.)
I remembered Meb's story when I opened up the most recent issue of Fortune… It turns out, Harvard and Yale's college endowments are down 27% and 25%, respectively, in the 12 months ending June 30. I tell you this because I first learned of Meb's system in a book he wrote, called The Ivy Portfolio: How to Invest Like the Top Endowments and Avoid Bear Markets.
The book is interesting… He shows you how Harvard and Yale have beaten typical money managers over the long run, among other investment ideas. It's worth owning just for that section.
But what interested me most wasn't Harvard's famous system in the front half… it was Meb's unknown system later in the book. Way in the back, after all the stuff about the endowments, I found Meb's little timing system.
He wrote the book before the Great Recession. How has his system performed since? It's hitting new highs:
But that's the way it's always been… I think the worst performing 12-month period (out of all possible intra-year 12-month periods) was a loss of less than 10%. Great stuff.
In the simple version of Meb's system, you only look at the markets 12 days of the year. And there are only five funds to own: U.S. stocks, foreign stocks, bonds, commodities, and real estate stocks. In Meb's system, you have 20% of your portfolio in each of these five asset classes… and you are either in or out of each of them every month. So you might be only 40% invested one month, then 80% invested another month, depending on the system.
Look, Mebane Faber came up with this system… and he deserves credit for it… So I'm going to ask you to get it from him. Go to this site and get his book. Read his blog. If you want to know the "science" behind it, click on the "Timing Updates" tab and download his academic paper.
It's worth learning…
It's had only one down year since starting in 1973. [[2008, as noted.: normxxx]] And it's delivered the investment "Holy Grail" of higher returns with lower volatility… all in a portfolio of just five things that you only have to look at a dozen times a year.
What more could you want? Check it out.
Good investing,
By Dr. Steve Sjuggerud, Daily Wealth | 9 October 2009
"Using a form filed with the government that's available to everyone, we've found ways to beat the market by as much as 10% a year." Investment analyst Mebane Faber told me that recently (in so many words), over dinner with my good friend and mentor Van Simmons. Mebane ("Meb" for short) is a relatively unknown young analyst, but he's doing fantastic work…
Last week [[see below: normxxx]], I told you about his simple investing system that didn't lose money for 35 years. (It's from his book, The Ivy Portfolio: How to Invest Like the Top Endowments and Avoid Bear Markets.) What's more, it beat the market with less risk. And astoundingly, you only have to look at your portfolio once a month— 12 days a year. It's simple, but incredible… the mark of a great idea.
Last night, he explained another simple but incredible idea…
"Big investors— those with over $100 million— have to disclose their investment holdings in government filings called 13Fs," Meb explained. "The information is backward looking… But I've studied it, and it turns out it can be extremely valuable". One thing Meb does is "clone" the big hedge-fund managers, like George Soros, David Einhorn, and Seth Klarman. Through these government filings, he can use these gurus' expertise without paying them big fees.
Meb explained that "mining" these government forms to copy the best portfolios works best with investment managers who hold stocks for a long period of time… investors like the world's second-richest man, Warren Buffett. Let's take a closer look at how you could use Meb's ideas to "clone" Warren Buffett's portfolio out of the government filings…
The 13F filings are quarterly. To keep it simple, Meb takes Buffett's top-10 holdings and equally weights them in his portfolio. Three months later, when the new 13F filings come out, he changes the portfolio.
Meb said, "It turns out that a simple portfolio that invests in Buffett's top 10 stock holdings, equal-weighted and rebalanced quarterly, beat the market by 10% a year from 2000 through 2008". (A recent academic paper, called Imitation is the Sincerest Form of Flattery, corroborates Meb's research. It used a similar strategy from 1976 to 2008, and it beat the market by 11% per year.)
"Mining" these 13F forms turned out to be so valuable, Meb created a way to backtest these ideas automatically. He and his partner Maz Jadallah founded AlphaClone and made his program available to the public… for way too cheap (with a free 14-day trial and a "Guest Pass"). Now, you can easily backtest the performance of a portfolio that simply follows the stock ideas of the biggest and best money managers as soon as their portfolios are available through government filings.
If you're interested in picking your own stocks, or you'd like to see how you could have performed if you'd followed the best hedge-fund managers in the business, give AlphaClone a try. And keep an eye out for Mebane Faber. This young analyst keeps delivering original, simple ideas.
Good investing,
Steve
P.S. Follow Meb at this site and try his AlphaClone program.
.
This System Works So Well, I'm Not Sure I Should Tell You About It
By Dr. Steve Sjuggerud | 2 October 2009
If I weren't working on the same research myself, I wouldn't have believed it's possible… The results of this system are so powerful, I hesitate to share them with a large audience. But I get paid to share the best investment ideas I find. So I feel compelled to tell you about this one…
In short, investment analyst Mebane Faber came up with an incredibly "dumb" system that beats the market. It crushes it actually… Meb's system delivers the investment "Holy Grail"— higher returns with lower risk. It's hard to believe, but the system really is incredibly simple. And it's totally legit. While the traditional disclaimer "past performance doesn't equal future performance" applies, the fact is:
From 1973 (the start date for his data) through 2007, Meb's simple system never had a losing year. (Think about that!) In 2008, when everyone lost money, Meb's simple system beat everything and was barely down. (I'm not sure what the exact figure was, but I assure you, it was only slightly negative.)
I remembered Meb's story when I opened up the most recent issue of Fortune… It turns out, Harvard and Yale's college endowments are down 27% and 25%, respectively, in the 12 months ending June 30. I tell you this because I first learned of Meb's system in a book he wrote, called The Ivy Portfolio: How to Invest Like the Top Endowments and Avoid Bear Markets.
The book is interesting… He shows you how Harvard and Yale have beaten typical money managers over the long run, among other investment ideas. It's worth owning just for that section.
But what interested me most wasn't Harvard's famous system in the front half… it was Meb's unknown system later in the book. Way in the back, after all the stuff about the endowments, I found Meb's little timing system.
He wrote the book before the Great Recession. How has his system performed since? It's hitting new highs:
But that's the way it's always been… I think the worst performing 12-month period (out of all possible intra-year 12-month periods) was a loss of less than 10%. Great stuff.
In the simple version of Meb's system, you only look at the markets 12 days of the year. And there are only five funds to own: U.S. stocks, foreign stocks, bonds, commodities, and real estate stocks. In Meb's system, you have 20% of your portfolio in each of these five asset classes… and you are either in or out of each of them every month. So you might be only 40% invested one month, then 80% invested another month, depending on the system.
Look, Mebane Faber came up with this system… and he deserves credit for it… So I'm going to ask you to get it from him. Go to this site and get his book. Read his blog. If you want to know the "science" behind it, click on the "Timing Updates" tab and download his academic paper.
It's worth learning…
It's had only one down year since starting in 1973. [[2008, as noted.: normxxx]] And it's delivered the investment "Holy Grail" of higher returns with lower volatility… all in a portfolio of just five things that you only have to look at a dozen times a year.
What more could you want? Check it out.
Good investing,
Loan Delinquencies Hit Record Highs
Consumers In Trouble: Loan Delinquencies Hit Record Highs In Second Quarter
By Jennifer Waters, Marketwatch | 1 October 2009
CHICAGO (MarketWatch)— The economy's chokehold tightened in the second quarter as consumers fell behind on their debt payments in record numbers, the American Banker's Association said Thursday. Delinquency rates hit record highs on home-equity loans, home-equity lines of credit and bank cards for the quarter that ended July 31, the latest numbers available. Everyone but government is deleveraging.
First it was Wall Street. Now it's households that are paying down their debts and starting to save a little [[mostly NOT through choice! : normxxx]] In the meantime, the government is still borrowing like there's no tomorrow, hoping to ease credit-contraction pains. WSJ's David Wessel discusses.
The composite ratio, which tracks eight closed-end installment loan categories, also hit a high at 3.35% of all outstanding accounts, seasonally adjusted, compared with the first quarter's 3.23%. This is the sixth straight quarter that delinquencies have risen. The culprit is the snowballing result of the longest and deepest recession since the Great Depression, according to ABA Chief Economist James Chessen.
"The problems now are the cumulative effect of the economy and job losses," he said. "Every single month there are jobs being lost and when income falls it makes it very difficult for consumers to meet debt obligations". Unemployment is at 9.7% , the highest since June 1983. [[now at 9.8% and still rising— the government released September employment numbers subsequent to this being written: normxxx]]
"Six consecutive quarters of job losses have taken their toll," Chessen added. "It's stunning what's happened. There's a lot of pain out there as people try to make ends meet… The picture won't change until the labor market improves and the economy picks up steam… That's going to take time."
Credit Cards Cause Most Trouble
Credit-card debts were hardest hit. Delinquencies jumped to 5.01%, up more than one-quarter percentage point over the first quarter to an all-time high. Among the closed-end loans, home-equity loan delinquencies rose to a record 4.01% from 3.52% in the first quarter. Home-equity lines of credit, which up until the first quarter of 2008, had never reached 1% of all loans, rose 0.3 percentage point to a high of 1.92%.
Personal-loan failures were at 3.90% of all loans compared with the prior quarter's 3.47%. Consumers skipped boat and other marine-related loan payments on 2.28% of all loans compared with 2.04% the quarter before while RV loans delinquencies were up to 1.72% from 1.52%. Property improvement loans delinquencies also grew, to 1.79% of all loans from 1.46% the prior quarter.
There were some decreases in delinquency rates on auto loans. Direct auto loans, those arranged by banks, fell to 2.46% from 3.01%. Indirect loans, put in place through a third party such as an auto dealer, were at 3.26% of all loans compared with 3.42% the quarter before. And mobile-home failures were at 3.53% versus 3.7% in the first quarter.
Chessen figures that the drop in auto-loan delinquencies is tied to the 'quick' decisions that are [being] made on 'bad' loans. "There are more aggressive efforts to recover car loans," he said. "Repossession rates are fairly rapid and banks charge off the loans quickly."
Jennifer Waters is a MarketWatch reporter, based in Chicago.
By Jennifer Waters, Marketwatch | 1 October 2009
CHICAGO (MarketWatch)— The economy's chokehold tightened in the second quarter as consumers fell behind on their debt payments in record numbers, the American Banker's Association said Thursday. Delinquency rates hit record highs on home-equity loans, home-equity lines of credit and bank cards for the quarter that ended July 31, the latest numbers available. Everyone but government is deleveraging.
First it was Wall Street. Now it's households that are paying down their debts and starting to save a little [[mostly NOT through choice! : normxxx]] In the meantime, the government is still borrowing like there's no tomorrow, hoping to ease credit-contraction pains. WSJ's David Wessel discusses.
The composite ratio, which tracks eight closed-end installment loan categories, also hit a high at 3.35% of all outstanding accounts, seasonally adjusted, compared with the first quarter's 3.23%. This is the sixth straight quarter that delinquencies have risen. The culprit is the snowballing result of the longest and deepest recession since the Great Depression, according to ABA Chief Economist James Chessen.
"The problems now are the cumulative effect of the economy and job losses," he said. "Every single month there are jobs being lost and when income falls it makes it very difficult for consumers to meet debt obligations". Unemployment is at 9.7% , the highest since June 1983. [[now at 9.8% and still rising— the government released September employment numbers subsequent to this being written: normxxx]]
"Six consecutive quarters of job losses have taken their toll," Chessen added. "It's stunning what's happened. There's a lot of pain out there as people try to make ends meet… The picture won't change until the labor market improves and the economy picks up steam… That's going to take time."
Credit Cards Cause Most Trouble
Credit-card debts were hardest hit. Delinquencies jumped to 5.01%, up more than one-quarter percentage point over the first quarter to an all-time high. Among the closed-end loans, home-equity loan delinquencies rose to a record 4.01% from 3.52% in the first quarter. Home-equity lines of credit, which up until the first quarter of 2008, had never reached 1% of all loans, rose 0.3 percentage point to a high of 1.92%.
Personal-loan failures were at 3.90% of all loans compared with the prior quarter's 3.47%. Consumers skipped boat and other marine-related loan payments on 2.28% of all loans compared with 2.04% the quarter before while RV loans delinquencies were up to 1.72% from 1.52%. Property improvement loans delinquencies also grew, to 1.79% of all loans from 1.46% the prior quarter.
There were some decreases in delinquency rates on auto loans. Direct auto loans, those arranged by banks, fell to 2.46% from 3.01%. Indirect loans, put in place through a third party such as an auto dealer, were at 3.26% of all loans compared with 3.42% the quarter before. And mobile-home failures were at 3.53% versus 3.7% in the first quarter.
Chessen figures that the drop in auto-loan delinquencies is tied to the 'quick' decisions that are [being] made on 'bad' loans. "There are more aggressive efforts to recover car loans," he said. "Repossession rates are fairly rapid and banks charge off the loans quickly."
Jennifer Waters is a MarketWatch reporter, based in Chicago.
Editor Steve's note: Investors are bombarded daily with warnings that inflation (rising prices) is a big threat to their wealth. Problem is, investors are also bombarded with warnings that deflation (falling prices) is a big threat to their wealth. To guide folks to the right "defense," there's no one more knowledgeable than multimillionaire investor Chris Weber. Here's his current take on the situation: An Answer To The Biggest Question Investors Face Right Now
By Chris Weber | 8 October 2009
One year ago, in the October 1, 2008 issue of the Weber Global Opportunities Report, I used as a title "The Immediate Danger is Deflation". My view was, to put it briefly, that the world's Central Banks can try to inflate as much as they can, by 'creating' money and supplying it to banks. But if banks are afraid to lend it out, or are rebuilding their capital base, and if businesses and consumers are afraid to borrow— and rebuilding their own balance sheets, meaning saving more and spending less— then there is not much that central banks can do. [[Like trying to push the proverbial wet noodle up a hill! : normxxx]]
One year later, I am sorry to see no real evidence that things have changed. If anything, consumers are even more afraid to borrow and spend now than they were a year ago. The heightened threat of becoming jobless may have a lot to do with this. Those who borrowed madly in the past are now in a kind of hangover. They are now trying to save more. [[Even those not forced to do so by their lenders! : normxxx]]
The markets themselves are bearing witness to this. If they feared inflation, interest rates would be much higher than they were a year ago. Instead, they are lower. A year ago, the US 10 year T-note yielded almost 4%. Today it yields just 3.17%.
The Commodities Index, CRB, has fallen from 325 to 259 in the same year. Though the Dow Jones has risen sharply since last March, remember that last October 1 it was close to 11,000, not the 9,700 area it is now. London's FTSE is up a bit: from 5,000 to 5,100. But that's just 2%. Japan has fallen from over 11,000 to 9,800.
Nearly every piece of real estate can be purchased for less money today than was the case one year ago. In other words, cash has been king this past year. And that is another way of saying that deflation dangers have still not gone away.
But one area has done better than the rest. Let's turn to precious metals. One year ago, gold was $860. Now it is $1,042. Silver was $12.30 last September 30. Today it is $17.43. For my readers who have been with me for years, I know I have been repeating the same mantra for all that time: Have the core of your net worth in a mix of cash and precious metals.
For my new readers, I repeat this, and point out that this approach has saved a lot of money that would otherwise have been lost. Both cash and precious metals buy more than they did one year ago, two years ago, and even farther back. I meant it as a cautious method to conserve money in perilous times, but it has turned out to be pretty much the best approach one could have.
There are those who are absolutely certain that the future will be high and even hyperinflation. There are others equally certain that deflation will be our eventual outcome. To me, it seems like nothing has changed in the 35-plus years I've been in this business. Back when I started out, there were the same arguments, the same certainty on both sides. Only the names of the combatants have changed.
For me, let's just say I'm not smart enough to know what the outcome will be. The only thing on earth that I am absolutely certain of is that I will die; that indeed everyone alive today will one day die. Speaking only for myself, I may die tonight or I may live 50 more years.
Beyond that, I am reasonably certain that history shows that paper money not backed by gold or silver loses value over time. One million dollars 50 years ago was a lot of money. It was even more money 100 years ago. Today, well, it's not chicken feed, but let's say it doesn't buy what it did 50 years ago, or even 20 years ago. [[Or even 10 years ago!: normxxx]] But in terms of assets like stock and property, one million dollars (or euros, etc.) buys more than it did one year ago.
This may just be a temporary development; it may be the start of a new trend. I am not going to bet everything I have on either one or the other. Instead, I've been protecting myself from both. And that's why I have been owning and building cash right along with the precious metals I own.
I have cash in case I am wrong about inflation vaulting the price of gold and silver higher. I have gold and silver in case I am wrong about the value of holding cash. I have tried to protect myself against both inflation and deflation. I own some real estate in case that goes up. It would make sense for me to own some general stocks that would do well if the world economy does well too.
In other words, my watchword has been to protect yourself in case you are wrong: to protect yourself against being hurt by any eventuality. This was my view one year ago, and it remains my view today. To me, the future is unclear right now.
We stand on a kind of knife edge. On one side lies deflation, and on the other inflation. I have tried to hedge myself against both, and yet not be hurt if either happens. The recommended combination of cash and precious metals has not only done well in the past year. It has done well since 2000.
And while I am watching developments every day, I see no reason to change my approach, which has worked so well. Of course, it has worked in the sense that it has given me more money in my net worth than a decade ago. But more important, it has enabled me to sleep well during all that time— a decade which has been very turbulent and disappointing for many if not most. And to me, this gift is priceless.
Good investing,
Chris Weber
Editor Steve's Note: Chris Weber is, by far, one of the best investors we know. He started investing at age 16… and was so good at it, he became a millionaire by the time he was 20. Today, Chris has grown his fortune many times over, and he writes exactly what he's doing with his money. If you're interested in finding out about Chris' personal favorite recommendations for both cash and gold, click here to learn more.
Wednesday, October 7, 2009
Banks Brace For Latvia's Collapse
Banks Brace For Latvia's Collapse
By Ambrose Evans-Pritchard, Telegraph.Co.Uk | 5 October 2009
Latvia's currency peg is back on the agenda
The Baltic states are once again in the eye of the storm after leaked reports that Sweden is bracing for a full-blown economic and political "breakdown" in Latvia. The Svenska Dagbladet newspaper said Sweden's finance minister Anders Borg had told banks 'secretly' that Latvia's political order was unravelling, advising them to prepare for the collapse of Latvia's rescue talks.
Latvia has failed to deliver draconian spending cuts agreed to secure the next tranche of its €7.5bn (£6.85bn) bail-out from the EU, the International Monetary Fund, and Sweden, balking at 20% cuts in pensions and a further 15% cut in public wages. The People's Party, the largest group in the coalition, voted against austerity measures last month, raising concerns that the country is ungovernable. Mr Borg said the 'world's' patience is running out. "It will be very hard to continue with these international programmes if they don't fulfill the spirit and the content in the agreements they have signed."
Latvia's economy contracted by 18.2% in the twelve months to June, trumped only by Lithuania at 20.4%. "Latvia's currency peg is back on the agenda," said Hans Redeker from BNP Paribas. "The government has to relax policy for social reasons. The hardship this winter is going to be unbelievable".
Youth unemployment in Latvia is already 31%, and concentrated among ethnic Russians. Premier Valdis Dombrovskis said his chief task is to "preserve social peace". Neil Shearing from Capital Economics said the appetite for austerity has been exhausted. Latvia is "more likely than not" to devalue, toppling pegs in Estonia and Lithuania. "Financial markets elsewhere in the region are likely to be hit by contagion, with Hungary, Romania, and Ukraine most vulnerable."
The area is better able to cope with shocks than during the panic this Spring. The G20 tripled the IMF's fire-fighting fund to $750bn in April, chiefly as an insurance for Eastern Europe. This has greatly reduced risk of a liquidity crisis. It does not alter the slow-burn damage of rising defaults.
The Baltic trio financed property booms in euros (and swiss francs) because rates were 'lower'. It was taken for granted that eventual euro entry had eliminated the exchange risk. This has become a trap. They need to devalue to break the cycle of depression, but cannot do so because of euro mortgages. Instead they hope to claw back lost competitiveness through wage deflation. This takes years, and discipline. [[Or, a totalitarian government! : normxxx]]
Mr Shearing said Latvia's economy would shrink by 30% whether it devalues or not. The peg merely draws out the agony, and slows the pace of inevitable defaults. Washington's Center for Economic and Policy Research said the IMF is enforcing a "pro-cyclical contractionary policy" in Latvia. Foreign banks (mostly Swedish) are being rescued at the cost of local taxpayers.
The IMF deal equals 34% of GDP. Latvia is piling up debt to defend its peg. The policy may backfire in any case. Fiscal contraction is causing tax revenues to implode, feeding a vicious circle.
Lars Christensen from Danske Bank said Latvia's political class is chiefly responsible for clinging to the peg. "It's their choice, but if they want the bail-out money, they must do what they promised. They don't seem to understand that the IMF and EU are willing to walk away now that the global economy has improved and spill-over risks have been reduced," he said.
Prospects are grim whatever happens "There is absolutely no sign of stabilisation. The economy is still contracting. It's paralysis," he added.
By Ambrose Evans-Pritchard, Telegraph.Co.Uk | 5 October 2009
Latvia's currency peg is back on the agenda
The Baltic states are once again in the eye of the storm after leaked reports that Sweden is bracing for a full-blown economic and political "breakdown" in Latvia. The Svenska Dagbladet newspaper said Sweden's finance minister Anders Borg had told banks 'secretly' that Latvia's political order was unravelling, advising them to prepare for the collapse of Latvia's rescue talks.
Latvia has failed to deliver draconian spending cuts agreed to secure the next tranche of its €7.5bn (£6.85bn) bail-out from the EU, the International Monetary Fund, and Sweden, balking at 20% cuts in pensions and a further 15% cut in public wages. The People's Party, the largest group in the coalition, voted against austerity measures last month, raising concerns that the country is ungovernable. Mr Borg said the 'world's' patience is running out. "It will be very hard to continue with these international programmes if they don't fulfill the spirit and the content in the agreements they have signed."
Latvia's economy contracted by 18.2% in the twelve months to June, trumped only by Lithuania at 20.4%. "Latvia's currency peg is back on the agenda," said Hans Redeker from BNP Paribas. "The government has to relax policy for social reasons. The hardship this winter is going to be unbelievable".
Youth unemployment in Latvia is already 31%, and concentrated among ethnic Russians. Premier Valdis Dombrovskis said his chief task is to "preserve social peace". Neil Shearing from Capital Economics said the appetite for austerity has been exhausted. Latvia is "more likely than not" to devalue, toppling pegs in Estonia and Lithuania. "Financial markets elsewhere in the region are likely to be hit by contagion, with Hungary, Romania, and Ukraine most vulnerable."
The area is better able to cope with shocks than during the panic this Spring. The G20 tripled the IMF's fire-fighting fund to $750bn in April, chiefly as an insurance for Eastern Europe. This has greatly reduced risk of a liquidity crisis. It does not alter the slow-burn damage of rising defaults.
The Baltic trio financed property booms in euros (and swiss francs) because rates were 'lower'. It was taken for granted that eventual euro entry had eliminated the exchange risk. This has become a trap. They need to devalue to break the cycle of depression, but cannot do so because of euro mortgages. Instead they hope to claw back lost competitiveness through wage deflation. This takes years, and discipline. [[Or, a totalitarian government! : normxxx]]
Mr Shearing said Latvia's economy would shrink by 30% whether it devalues or not. The peg merely draws out the agony, and slows the pace of inevitable defaults. Washington's Center for Economic and Policy Research said the IMF is enforcing a "pro-cyclical contractionary policy" in Latvia. Foreign banks (mostly Swedish) are being rescued at the cost of local taxpayers.
The IMF deal equals 34% of GDP. Latvia is piling up debt to defend its peg. The policy may backfire in any case. Fiscal contraction is causing tax revenues to implode, feeding a vicious circle.
Lars Christensen from Danske Bank said Latvia's political class is chiefly responsible for clinging to the peg. "It's their choice, but if they want the bail-out money, they must do what they promised. They don't seem to understand that the IMF and EU are willing to walk away now that the global economy has improved and spill-over risks have been reduced," he said.
Prospects are grim whatever happens "There is absolutely no sign of stabilisation. The economy is still contracting. It's paralysis," he added.
Office Rents Dive
Commercial Real Estate: Office Rents Dive As Vacancies Rise
By Christina S.N. Lewis | 7 October 2009
Rent for office space is falling at the fastest pace in more than a decade as vacancies create a glut and landlords slash prices to attract tenants. Nationwide, effective office rents fell 8.5% in the third quarter compared with the same period a year ago, the steepest year-over-year decline since 1995, according to Reis Inc., a New York real-estate research firm. The decline came as companies returned a net 19.6 million square feet of space to landlords in the third quarter, slightly more than in the second quarter.
For the first three quarters of this year, the net decline in occupied space totaled a record 64.2 million square feet, the highest so-called 'negative absorption' recorded since Reis began tracking the data in 1980. (That doesn't count space that left the market as a result of the 2001 terrorist attacks.) The vacancy rate, meanwhile, hit 16.5%, a five-year high, according to Reis.
Declining rents and rising vacancies in the office sector signal more woes for the commercial-real-estate market, which already faces a lack of credit and plummeting property values. With landlords more likely to default, financial institutions, which hold trillions of dollars in commercial-real-estate debt also face more pain. "It means more losses for the banks, because they will have to write off more bad debt," said Victor Calanog, director of research for Reis.
For tenants, however, falling rents represent opportunities to save. Landlords are offering concessions, in the form of free rent and build-out costs. "There's a recognition [from some companies] that this is probably a bottom, let me lock in long term," said Mary Ann Tighe, a New York-based leasing broker with CB Richard Ellis, who has negotiated corporate relocations for tenants including advertising firm Ogilvy & Mather and retailer Limited Brands.
Click Here, or on the image, to see a larger, undistorted image.
As bad as the current environment is for landlords, analysts say it will worsen as unemployment continues to rise. "Even though the technical recession may be over, the labor market typically takes anywhere from 18 to 24 months to bounce back in a consistent way," said Mr. Calanog, who predicts vacancy will rise through 2010 and may not peak until 2011. "If employers are still shedding jobs, they are also going to shed space."
Vacancies are highest in areas with poor housing markets and industrial cities. They are approaching historic highs in Southern California; Las Vegas; Phoenix; southwest Florida; Detroit; Dayton, Ohio; and Hartford, Conn. Other cities, including Dallas and other parts of Texas, and Atlanta, are seeing high vacancy rates largely as a result of overbuilding.
Rent declines were steepest in big cities with large financial sectors, which saw the greatest run-up in rents in 2006 and 2007. They include Seattle, which has been slammed by the failure of Washington Mutual Inc., New York and San Francisco. But the office market deteriorated broadly across virtually all regions: Of the 79 metro areas that Reis tracks, office vacancies rose in 72 of them and effective rents declined in 68 of them.
In Boston, intellectual-property law firm Fish & Richardson PC recently signed a lease for 124,000 square feet of space in a new development under construction on the South Boston waterfront, paying about $48 a foot with about $85 a foot in tenant improvements from the landlord, according to a person familiar with the deal— compared with the roughly $55 a foot the firm is paying now to landlord Equity Office. In its attempt to persuade the tenant to stay, Equity Office, which is owned by private-equity firm The Blackstone Group, initially offered the firm $84.50 a foot in December 2007, but dropped the price over time to stay competitive and sent wine and champagne gift baskets to all of the firm's 45 principals, according to Tim French, Fish & Richardson's Boston managing principal.
"We were like the belle of the ball," said Mr. French.
By Christina S.N. Lewis | 7 October 2009
Rent for office space is falling at the fastest pace in more than a decade as vacancies create a glut and landlords slash prices to attract tenants. Nationwide, effective office rents fell 8.5% in the third quarter compared with the same period a year ago, the steepest year-over-year decline since 1995, according to Reis Inc., a New York real-estate research firm. The decline came as companies returned a net 19.6 million square feet of space to landlords in the third quarter, slightly more than in the second quarter.
For the first three quarters of this year, the net decline in occupied space totaled a record 64.2 million square feet, the highest so-called 'negative absorption' recorded since Reis began tracking the data in 1980. (That doesn't count space that left the market as a result of the 2001 terrorist attacks.) The vacancy rate, meanwhile, hit 16.5%, a five-year high, according to Reis.
Declining rents and rising vacancies in the office sector signal more woes for the commercial-real-estate market, which already faces a lack of credit and plummeting property values. With landlords more likely to default, financial institutions, which hold trillions of dollars in commercial-real-estate debt also face more pain. "It means more losses for the banks, because they will have to write off more bad debt," said Victor Calanog, director of research for Reis.
For tenants, however, falling rents represent opportunities to save. Landlords are offering concessions, in the form of free rent and build-out costs. "There's a recognition [from some companies] that this is probably a bottom, let me lock in long term," said Mary Ann Tighe, a New York-based leasing broker with CB Richard Ellis, who has negotiated corporate relocations for tenants including advertising firm Ogilvy & Mather and retailer Limited Brands.
Click Here, or on the image, to see a larger, undistorted image.
As bad as the current environment is for landlords, analysts say it will worsen as unemployment continues to rise. "Even though the technical recession may be over, the labor market typically takes anywhere from 18 to 24 months to bounce back in a consistent way," said Mr. Calanog, who predicts vacancy will rise through 2010 and may not peak until 2011. "If employers are still shedding jobs, they are also going to shed space."
Vacancies are highest in areas with poor housing markets and industrial cities. They are approaching historic highs in Southern California; Las Vegas; Phoenix; southwest Florida; Detroit; Dayton, Ohio; and Hartford, Conn. Other cities, including Dallas and other parts of Texas, and Atlanta, are seeing high vacancy rates largely as a result of overbuilding.
Rent declines were steepest in big cities with large financial sectors, which saw the greatest run-up in rents in 2006 and 2007. They include Seattle, which has been slammed by the failure of Washington Mutual Inc., New York and San Francisco. But the office market deteriorated broadly across virtually all regions: Of the 79 metro areas that Reis tracks, office vacancies rose in 72 of them and effective rents declined in 68 of them.
In Boston, intellectual-property law firm Fish & Richardson PC recently signed a lease for 124,000 square feet of space in a new development under construction on the South Boston waterfront, paying about $48 a foot with about $85 a foot in tenant improvements from the landlord, according to a person familiar with the deal— compared with the roughly $55 a foot the firm is paying now to landlord Equity Office. In its attempt to persuade the tenant to stay, Equity Office, which is owned by private-equity firm The Blackstone Group, initially offered the firm $84.50 a foot in December 2007, but dropped the price over time to stay competitive and sent wine and champagne gift baskets to all of the firm's 45 principals, according to Tim French, Fish & Richardson's Boston managing principal.
"We were like the belle of the ball," said Mr. French.
Tuesday, October 6, 2009
What To Do If Q3 Earnings Fail To Deliver
Frost Warnings For October: What To Do If Third-Quarter Earnings Fail To Deliver
By Jim Lowell, Marketwatch | 1 October 2009
NEWTON, Mass. (MarketWatch)— Thoughts of cycles and seasons, turnings from growth toward annual decay and perennial conservation in the real world and its mirror image found on Wall Street, are migrating in and out of my market musings. Talk of a big chill is circulating in the real world marketplace, and on Wall Street. It certainly feels as if the overall cycle on both fronts is overdue for a frost of some magnitude.
But I think the long-term bullish trend remains inexorably intact, whether you think that some one or group had a hand in the cycle or not is not as relevant as the fact that the cycle persists. We know that around this column's corner, we'll get an important earnings season but it won't be as significant as the prior one. Second-quarter earnings not only pulled the herd back from the cliff, they created a stampede of gains whose dust-up was the best since the Great Depression. But third-quarter earnings will be essential to supporting or supplanting this remarkable rebound.
We also know that even before we get to those earnings, we're going to continue to build a case for an economic floor on which we can stand. The production pace has been cut so dramatically below even the anemic pace of sales that a positive outcome is all but a foregone conclusion. Loosely conjectured, this could mean that we're on the road to something like a surprising 5% growth inside the third and fourth quarters. But, if third-quarter earnings fail to deliver broad-based evidence of top line sales growth and not just bottom line management via cost cutting or production efficiencies, then we could be in store for a growing economy and falling market.
So, this month's trading opportunities are biased toward risk management. Last month, we went further out on selective branches of the global market tree in order to grab a few more fruitful gains. Our best pick, iShares Comex Gold Trust (IAU 101.89, +2.06, +2.07%) , returned 5.8%. Our worst pick gained 1.6%, while the S&P 500 (SPX 1,052, +11.47, +1.10%) delivered 4.8%.
Against this year's backdrop, our weekly ETF Trader service here on MarketWatch continues to do what it's designed to do: capitalize on growth trends in the marketplace. Through Sept. 20— and against the solid 20.5% gain for the S&P 500— the service's ETF Aggressive Trader model portfolio is up 72.6%, ETF Total Market gained 39.8%, ETF Sector climbed 34.3% and ETF Seasonality Portfolio added 17.1%. To learn more about ETF Trader, and to sign up for a free 30-day trial, click here.
Here and now, my picks have us returning closer to the stocks/bonds/cash trunk to withstand better the likely near-term blows of a market that is ahead of the near-term fundamentals. My picks for managing the risk and return potential of October's landscape:
Stocks: Fidelity Select Health Care (FSPHX 98.65, +0.96, +0.98%) — Buy. Up 25.3% year to date. Manager Eddie Yoon invests in the gamut of healthcare options: pharmaceuticals, biotechnology, medical equipment and HMOs. The trumped up political crisis that has engendered a rush to 'cure' our healthcare system has done little to dent the fundamental reasons— earnings growth, demographics, and innovation— for keeping a core holding in healthcare now.
I also like Vanguard Healthcare (VGHCX 113.43, +0.72, +0.64%) by virtue of its stellar manager, Ed Owens, and its complementary Hartford Global Health (HGHAX 13.49, +0.05, +0.37%), run by Owens' team. There's also a stealth global market dose here: foreign stocks make up 13% of the holdings, but the companies that aren't listed as foreign stocks derive increasingly greater amounts of revenue form the burgeoning global marketplace.
Bonds: Fidelity New Markets Income (FNMIX 15.39, +0.16, +1.05%), up 41.2% year to date. Manager John Carlson, who used to run the Emerging Market stock fund, has a simple maxim— if you want to own the stocks, you should want to own the debt. Research, analysis, knowledge and judgment are Carlson's calling cards in this often-volatile trade. Carlson manages risk through all of that diversification— 128 plus holdings— but not at the expense of his best ideas. A total of 26% of the fund's $2.1 billion is in his top-10 picks. His debt securities range from Venezuela to Russia, Turkey to Brazil and the Ukraine to the U.S.— in the form of a 7% stake in the Fidelity Cash Central fund.
I view this fund in much the same way that I view our stake in high income, as a hedge against its correlated equity markets risks. Similarly, the yield offers a way to help salve any specific selloff while the holdings offer a way to stem the flood if panic selling in the equity markets ensues. That's a negative imprint of this positive snapshot: long-term, the growth of emerging markets and the debt needed to finance that growth are two rails on which our portfolio's financial engine can run.
Cash: My pick of the litter remains last month's exchange-traded fund, the PowerShares DB G10 Currency Harvest Fund. (DBV 23.18, +0.18, +0.78%) It's up 17% year to date. DBV ostensibly does all the currency trading work for you: it tracks the Deutsche Bank G10 Currency Future Harvest Index, intended to take advantage of the fact that currencies with high interest rates tend to rise in value relative to those with low interest rates. The 10 currencies that the index selects from include the U.S. dollar, the euro, the Japanese yen, Canadian dollar, Swiss franc, British pound, Australian dollar, New Zealand dollar, Norwegian krone, and Swedish krona.
When you combine all three 'alloctions', you have a reasonable offense and a reasoned defense for a month where harvesting gains might be the rule rather than the exception. If this does turn out to be the case, look to next month's column to spotlight seeds we can sow in November's greenhouse for next year's even more bountiful harvest.
By Jim Lowell, Marketwatch | 1 October 2009
NEWTON, Mass. (MarketWatch)— Thoughts of cycles and seasons, turnings from growth toward annual decay and perennial conservation in the real world and its mirror image found on Wall Street, are migrating in and out of my market musings. Talk of a big chill is circulating in the real world marketplace, and on Wall Street. It certainly feels as if the overall cycle on both fronts is overdue for a frost of some magnitude.
But I think the long-term bullish trend remains inexorably intact, whether you think that some one or group had a hand in the cycle or not is not as relevant as the fact that the cycle persists. We know that around this column's corner, we'll get an important earnings season but it won't be as significant as the prior one. Second-quarter earnings not only pulled the herd back from the cliff, they created a stampede of gains whose dust-up was the best since the Great Depression. But third-quarter earnings will be essential to supporting or supplanting this remarkable rebound.
We also know that even before we get to those earnings, we're going to continue to build a case for an economic floor on which we can stand. The production pace has been cut so dramatically below even the anemic pace of sales that a positive outcome is all but a foregone conclusion. Loosely conjectured, this could mean that we're on the road to something like a surprising 5% growth inside the third and fourth quarters. But, if third-quarter earnings fail to deliver broad-based evidence of top line sales growth and not just bottom line management via cost cutting or production efficiencies, then we could be in store for a growing economy and falling market.
So, this month's trading opportunities are biased toward risk management. Last month, we went further out on selective branches of the global market tree in order to grab a few more fruitful gains. Our best pick, iShares Comex Gold Trust (IAU 101.89, +2.06, +2.07%) , returned 5.8%. Our worst pick gained 1.6%, while the S&P 500 (SPX 1,052, +11.47, +1.10%) delivered 4.8%.
Against this year's backdrop, our weekly ETF Trader service here on MarketWatch continues to do what it's designed to do: capitalize on growth trends in the marketplace. Through Sept. 20— and against the solid 20.5% gain for the S&P 500— the service's ETF Aggressive Trader model portfolio is up 72.6%, ETF Total Market gained 39.8%, ETF Sector climbed 34.3% and ETF Seasonality Portfolio added 17.1%. To learn more about ETF Trader, and to sign up for a free 30-day trial, click here.
Here and now, my picks have us returning closer to the stocks/bonds/cash trunk to withstand better the likely near-term blows of a market that is ahead of the near-term fundamentals. My picks for managing the risk and return potential of October's landscape:
Stocks: Fidelity Select Health Care (FSPHX 98.65, +0.96, +0.98%) — Buy. Up 25.3% year to date. Manager Eddie Yoon invests in the gamut of healthcare options: pharmaceuticals, biotechnology, medical equipment and HMOs. The trumped up political crisis that has engendered a rush to 'cure' our healthcare system has done little to dent the fundamental reasons— earnings growth, demographics, and innovation— for keeping a core holding in healthcare now.
I also like Vanguard Healthcare (VGHCX 113.43, +0.72, +0.64%) by virtue of its stellar manager, Ed Owens, and its complementary Hartford Global Health (HGHAX 13.49, +0.05, +0.37%), run by Owens' team. There's also a stealth global market dose here: foreign stocks make up 13% of the holdings, but the companies that aren't listed as foreign stocks derive increasingly greater amounts of revenue form the burgeoning global marketplace.
Bonds: Fidelity New Markets Income (FNMIX 15.39, +0.16, +1.05%), up 41.2% year to date. Manager John Carlson, who used to run the Emerging Market stock fund, has a simple maxim— if you want to own the stocks, you should want to own the debt. Research, analysis, knowledge and judgment are Carlson's calling cards in this often-volatile trade. Carlson manages risk through all of that diversification— 128 plus holdings— but not at the expense of his best ideas. A total of 26% of the fund's $2.1 billion is in his top-10 picks. His debt securities range from Venezuela to Russia, Turkey to Brazil and the Ukraine to the U.S.— in the form of a 7% stake in the Fidelity Cash Central fund.
I view this fund in much the same way that I view our stake in high income, as a hedge against its correlated equity markets risks. Similarly, the yield offers a way to help salve any specific selloff while the holdings offer a way to stem the flood if panic selling in the equity markets ensues. That's a negative imprint of this positive snapshot: long-term, the growth of emerging markets and the debt needed to finance that growth are two rails on which our portfolio's financial engine can run.
Cash: My pick of the litter remains last month's exchange-traded fund, the PowerShares DB G10 Currency Harvest Fund. (DBV 23.18, +0.18, +0.78%) It's up 17% year to date. DBV ostensibly does all the currency trading work for you: it tracks the Deutsche Bank G10 Currency Future Harvest Index, intended to take advantage of the fact that currencies with high interest rates tend to rise in value relative to those with low interest rates. The 10 currencies that the index selects from include the U.S. dollar, the euro, the Japanese yen, Canadian dollar, Swiss franc, British pound, Australian dollar, New Zealand dollar, Norwegian krone, and Swedish krona.
When you combine all three 'alloctions', you have a reasonable offense and a reasoned defense for a month where harvesting gains might be the rule rather than the exception. If this does turn out to be the case, look to next month's column to spotlight seeds we can sow in November's greenhouse for next year's even more bountiful harvest.
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