The “Fifth BRIC”

October 28th, 2010

This place isn’t on most investors’ radars…yet. But that will change soon.

This country:

  • Is a member of the 20 wealthiest nations on earth: the G-20
  • Is the world’s third largest democracy, after India and the US
  • Has the world’s fourth-largest population of 240 million people
  • Has a stock market that has gone up nearly 44% in the past year
  • Has doubled its economy in the past five years

The place I’m talking about is Indonesia.

You’ve heard of the BRIC economies – Brazil, Russia, India and China. These are the “big guns” in the emerging markets world.

Jim O’Neil, a well-known Goldman Sachs analyst came up with the term back in 2001 in a paper titled “The World Needs Better Economic BRICs.” O’Neil’s point: The BRICs would become the world’s four dominant economies by 2050.

Think of Indonesia as the “fifth BRIC.”

Indonesia is slightly smaller than Mexico. Or about three times the size of Texas. The bulk of the population lives on just five major islands: Sumatra, Java (the location of the capital city Jakarta), Sulawesi, Borneo and New Guinea. But the country’s land mass is spread over an archipelago of 17,508 islands, of which about 6,000 are inhabited.

This string of islands is on a strategic location slap bang in the middle of major sea-lanes linking the Indian and Pacific oceans.

With a GDP of $521 billion, its economy is less than half the size of its nearest BRIC cousin. But it’s certainly big enough to invest in. It’s a well-diversified economy with sizable incomes from agriculture, natural resources and manufacturing. It’s also well situated between India and China. This means its exports should grow as these larger neighbors grow.

Indonesia also has a relatively stable government under Susilo Bambang Yudhoyono. And although levels of corruption are still too high for comfort, it is recognized to be less corrupt than BRIC member Russia. In general the trend is for less corruption over time.

According to The Economist, Indonesian GDP will grow by 5.9% next year. That’s almost three times the World Bank’s 2.4% estimate for the developed economies. And nearly three times the 2.5% forecast for the US (which by the way, looks optimistic).

More important, this growth is being driven by the private sector, not by government spending. In Indonesia, the private sector accounts for roughly 90% GDP.

Also, Indonesia is well isolated from the weak economies of the US and Europe. Only 11% of its exports go to the US. The bulk of the other 89% go to Asian nations. This is another reason to have confidence in the country’s future prospects.

There’s more good news on the consumer-spending front, too. Over the past five years, the average income has doubled to $2,350 a year. And a report by Deutsche Bank predicts that figure can rise another 50% by the end of next year.

Despite this income growth, Indonesia still has the lowest unit labor costs in the Asia- Pacific region. This has attracted manufacturing activities from China. Employment growth is critical, because half of Indonesia’s population is 25 years old or younger.

This means the workforce as a portion of total population will rise over the next 20 years. This should further increase the country’s consumption levels and fuel further economic growth.

But before we move on, I want to flag three risks associated with Indonesia.

First, there will be a change of president in 2014. A shift away from the reforming agenda of the current administration would be negative for investments.

Second, if big international investors get spooked by emerging markets, Indonesia could suffer badly. But it’s important to remember that any turning away from the emerging markets usually only lasts for a short time.

A good example of investors getting spooked (big time) is the recent financial crisis following the subprime mortgage meltdown. Between February and November 2008, the MSCI Indonesia Index fell 72%, measured in US dollars.

Of course, the crisis had nothing to do with Indonesia. Investors everywhere were simply panicking and selling indiscriminately. But (and this is a big but) the index then came roaring back. It’s now up 319% from its lows in November 2008. If you’d bought at the pre-crisis peak and held on, you’d still have made 17% on your investment, measured in US dollars.

Serious investors shouldn’t worry too much about this kind of illogical, short-term market volatility. In fact, if this kind of panicked selling happens again, I’d be recommending you invest more into Indonesia (plus a lot of other places).

Third, Indonesia runs along an active fault in the Earth’s crust. There are quite regular earthquakes and volcanic activity. From time to time this activity can produce major natural disasters. The most infamous recent example was the 2004 tsunami, when a huge undersea earthquake off the west coast of Sumatra triggered the massive waves that pounded parts of Thailand and other countries in the region.

However, despite the omnipresent risks of investing in Indonesia, the country’s stock market has been performing brilliantly. The MSCI Indonesia Index has gained 26% a year over the past 10 years, measured in dollars. This investment performance means that the Indonesian stock market has been one of the strongest in the world over the past decade, considerably outperforming all of the BRICs, as well as the loss-making US stock market.

You would have gained 893% if you’d invested in Indonesia over the last 10 years, measured in dollars. In and of itself, that’s a remarkable run…all the more so when compared to the S&P 500’s 15% decline over the same period. Investors looking to capture the upside of the emerging market megatrend, therefore, would do well to look toward the “Fifth BRIC.”

Regards,

Rob Marstrand
for The Daily Reckoning

The “Fifth BRIC” originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
The “Fifth BRIC”




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

The “Fifth BRIC”

October 28th, 2010

This place isn’t on most investors’ radars…yet. But that will change soon.

This country:

  • Is a member of the 20 wealthiest nations on earth: the G-20
  • Is the world’s third largest democracy, after India and the US
  • Has the world’s fourth-largest population of 240 million people
  • Has a stock market that has gone up nearly 44% in the past year
  • Has doubled its economy in the past five years

The place I’m talking about is Indonesia.

You’ve heard of the BRIC economies – Brazil, Russia, India and China. These are the “big guns” in the emerging markets world.

Jim O’Neil, a well-known Goldman Sachs analyst came up with the term back in 2001 in a paper titled “The World Needs Better Economic BRICs.” O’Neil’s point: The BRICs would become the world’s four dominant economies by 2050.

Think of Indonesia as the “fifth BRIC.”

Indonesia is slightly smaller than Mexico. Or about three times the size of Texas. The bulk of the population lives on just five major islands: Sumatra, Java (the location of the capital city Jakarta), Sulawesi, Borneo and New Guinea. But the country’s land mass is spread over an archipelago of 17,508 islands, of which about 6,000 are inhabited.

This string of islands is on a strategic location slap bang in the middle of major sea-lanes linking the Indian and Pacific oceans.

With a GDP of $521 billion, its economy is less than half the size of its nearest BRIC cousin. But it’s certainly big enough to invest in. It’s a well-diversified economy with sizable incomes from agriculture, natural resources and manufacturing. It’s also well situated between India and China. This means its exports should grow as these larger neighbors grow.

Indonesia also has a relatively stable government under Susilo Bambang Yudhoyono. And although levels of corruption are still too high for comfort, it is recognized to be less corrupt than BRIC member Russia. In general the trend is for less corruption over time.

According to The Economist, Indonesian GDP will grow by 5.9% next year. That’s almost three times the World Bank’s 2.4% estimate for the developed economies. And nearly three times the 2.5% forecast for the US (which by the way, looks optimistic).

More important, this growth is being driven by the private sector, not by government spending. In Indonesia, the private sector accounts for roughly 90% GDP.

Also, Indonesia is well isolated from the weak economies of the US and Europe. Only 11% of its exports go to the US. The bulk of the other 89% go to Asian nations. This is another reason to have confidence in the country’s future prospects.

There’s more good news on the consumer-spending front, too. Over the past five years, the average income has doubled to $2,350 a year. And a report by Deutsche Bank predicts that figure can rise another 50% by the end of next year.

Despite this income growth, Indonesia still has the lowest unit labor costs in the Asia- Pacific region. This has attracted manufacturing activities from China. Employment growth is critical, because half of Indonesia’s population is 25 years old or younger.

This means the workforce as a portion of total population will rise over the next 20 years. This should further increase the country’s consumption levels and fuel further economic growth.

But before we move on, I want to flag three risks associated with Indonesia.

First, there will be a change of president in 2014. A shift away from the reforming agenda of the current administration would be negative for investments.

Second, if big international investors get spooked by emerging markets, Indonesia could suffer badly. But it’s important to remember that any turning away from the emerging markets usually only lasts for a short time.

A good example of investors getting spooked (big time) is the recent financial crisis following the subprime mortgage meltdown. Between February and November 2008, the MSCI Indonesia Index fell 72%, measured in US dollars.

Of course, the crisis had nothing to do with Indonesia. Investors everywhere were simply panicking and selling indiscriminately. But (and this is a big but) the index then came roaring back. It’s now up 319% from its lows in November 2008. If you’d bought at the pre-crisis peak and held on, you’d still have made 17% on your investment, measured in US dollars.

Serious investors shouldn’t worry too much about this kind of illogical, short-term market volatility. In fact, if this kind of panicked selling happens again, I’d be recommending you invest more into Indonesia (plus a lot of other places).

Third, Indonesia runs along an active fault in the Earth’s crust. There are quite regular earthquakes and volcanic activity. From time to time this activity can produce major natural disasters. The most infamous recent example was the 2004 tsunami, when a huge undersea earthquake off the west coast of Sumatra triggered the massive waves that pounded parts of Thailand and other countries in the region.

However, despite the omnipresent risks of investing in Indonesia, the country’s stock market has been performing brilliantly. The MSCI Indonesia Index has gained 26% a year over the past 10 years, measured in dollars. This investment performance means that the Indonesian stock market has been one of the strongest in the world over the past decade, considerably outperforming all of the BRICs, as well as the loss-making US stock market.

You would have gained 893% if you’d invested in Indonesia over the last 10 years, measured in dollars. In and of itself, that’s a remarkable run…all the more so when compared to the S&P 500’s 15% decline over the same period. Investors looking to capture the upside of the emerging market megatrend, therefore, would do well to look toward the “Fifth BRIC.”

Regards,

Rob Marstrand
for The Daily Reckoning

The “Fifth BRIC” originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
The “Fifth BRIC”




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

Live SP500 Trading Video & Analysis

October 28th, 2010

Many have been wondering what the newly upgraded service TheGoldAndOilGuy.com provides so I have put together this report so you can see the pre-market morning video, updates, charts and trades.

View Trading Video and Anaylsis Here: http://www.thegoldandoilguy.com/downloads/ETF-Trading-Newsletter.pdf

Chris Vermeulen
TheGoldAndOilGuy.com

Read more here:
Live SP500 Trading Video & Analysis




Chris Vermeulen is a full time daytrader and swing trader specializing in trading (NYSE:GLD), (NYSE:GDX), XGD.TO, (NYSE:SLV) and (NYSE:USO). I provide my trading charts, market insight and trading signals to members of my newsletter service. If you have any questions feel free to send me an email: Chris@TheGoldAndOilGuy.com This article is intended solely for information purposes. The opinions are those of the author only. Please conduct further research and consult your financial advisor before making any investment/trading decision. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Commodities, ETF

Lexmark Intl (NYSE:LXK) — Revenue Expectation Missed, Stock Slammed

October 28th, 2010

Lexmark International (NYSE:LXK), the Lexington, Kentucky-based printer manufacturer, revealed third quarter revenue that fell far short of expectations and, not surprisingly, the stock was slammed. Many of the company missteps and problems that Strategic Short Report editor Dan Amoss has been busily bringing to our attention are finally coming home to roost.

This week, he explained to his readers exactly happened and where we go from here:

“Lexmark (NYSE:LXK) missed its revenue expectations for the third quarter. The market hated the report. So much for the ‘efficient market hypothesis’:

“Considering Lexmark’s long-run track record, the stock’s moon shot in September and October was totally unjustifiable. It seems the market was extrapolating Lexmark’s recent (temporary) market share gains far into the future.

“But Lexmark’s profit margins and earnings are likely peaking right now, and HP is preparing to compete more aggressively.

“Revenue wasn’t the only disappointment in the third quarter report. Inventories also surprised on the upside. Management described on today’s conference call what it considers an ‘inventory overshoot’ — one that’s expected to be worked off quickly. That may be the case, but working off excess inventory typically depresses gross margins.

“Lexmark’s earnings quality has deteriorated. On a year-over-year basis, inventories and accruals (prepaid expenses) are now both growing faster than sales. You can see this in the chart below:

“Finally, in another shock to the market, CEO Paul Curlander announced his retirement, effective next spring. There doesn’t appear to be any nefarious reasons for the management change. Curlander said he’s fulfilling a career goal of retiring ‘early.’

“Many negative factors are at work here. The U.S. stock market is extremely overbought and complacent, and I suspect the market is also misreading how the Fed’s QE2 will impact the U.S. economy. GDP growth is still decelerating, and soaring commodities will crimp margins at many companies.

“Further, we could easily see a return of bearish sentiment after next week’s U.S. election and Fed meeting.

“With no sell-side analyst wanting to be the last one to ‘downgrade’ Lexmark stock, we’re also likely to see a more negative tone from the stock cheerleading community going forward.”

LXK’s share price has been crippled by the revenue announcement, but, as described above, the bad news continues to pile on. The profit margins and earnings are already peaking, competition is heating up, the executive office is in transition, and then there’s, of course, the weak state of the broader economy. In this environment, Lexmark’s future looks bleak. How can you benefit from the situation? Well, you can catch the opportunity to profit despite Lexmark’s impending downtrend by signing up for Dan Amoss‘ newsletter, the Strategic Short Report. It’s available through the Agora Financial reports page, which can be found here.

Best,

Rocky Vega,
The Daily Reckoning

[Nothing in this post should be considered personalized investment advice. Agora Financial employees do not receive any type of compensation from companies covered. Investment decisions should be made in consultation with a financial advisor and only after reviewing relevant financial statements.]

Lexmark Intl (NYSE:LXK) — Revenue Expectation Missed, Stock Slammed originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Lexmark Intl (NYSE:LXK) — Revenue Expectation Missed, Stock Slammed




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Commodities, Uncategorized

When Fear Takes Over: The Prospect of Hyperinflation

October 28th, 2010

What’s the big news? Every headline you read implies the same thing. All eyes are on Ben Bernanke.

“Bernanke expected to announce hundreds of billions in new QE,” says one headline.

“Investors counting on support from the Fed,” says another.

“Fed easing could push stocks higher,” says a third.

The man is supposed to announce a program of quantitative easing. He’s supposed to do it next week. And if he announces too little of it, investors are going to sell risky investments – including stocks and commodities. In the meantime, investors are guessing.

Yesterday, the betting went against a big push into QE. Investors figured that maybe they’d over-estimated Ben Bernanke’s commitment to chicanery. They worried that the announcement next week might fall short of expectations.

The Dow retreated 43 points yesterday. Gold dropped back $16.

What will it do tomorrow? Who knows? The whole investment world has gone a little crazy. It’s all speculation now…speculation on how much new money the Fed will add to the system.

Investors aren’t buying in anticipation of higher earnings or looking forward to a healthier economy. They’re not padding their retirement nests with great stocks at great prices, or participating in the growth and prosperity of 21st century America by buying equities. Instead, they’re gambling that the economy will get worse…and that Bernanke will be forced to go boldly where only fools and morons have gone before….

…that is, on the road to hyperinflation.

Remember. There’s inflation. And there’s hyperinflation. Normal inflation is caused when people have more money to spend and less to spend it on. They bid up prices.

Hyperinflation is different. It comes not from an increase in demand for things…not from greed, that is…but from FEAR…raw, naked, unadulterated fear that paper money is losing its value.

What touches off hyperinflation? Sometimes the cause is obvious. Central banks print up bills with lots of zeros on them. Everyone knows the currency has become “funny money.” Everyone rushes to get rid of it.

Typically, this causes a collapse in the economy…which convinces the central bank to add more zeros!

The US central bank is not adding zeros – not yet. It is just threatening to add more currency. Will this new currency lead to inflation? Probably not much. The money will get into the hands of speculators at the big banks – those that can borrow from the Fed. It won’t get into the hands of small businesses and householders. So, most people will not really feel richer; they will not want to borrow. They will not want to spend. Demand will not increase. Prices won’t go up appreciably.

But while this new money probably will not create inflation, it could well create hyperinflation. We don’t know how it works…not exactly. There are so few examples in history that we have no sure model to show us. But speculators could suddenly lose faith in the US dollar. They could sell it off – in favor of land, stocks, collectibles or gold. Dollar-holders – large, institutional holders – might panic, realizing that their dollars are losing value fast. Householders might follow…desperate to get rid of dollars before the next nightly news report tells them that they have lost another 10% of their value.

All Hell could break loose.

But that is still in the future. Maybe 6 months ahead. Maybe a year ahead.

In the meantime, we are still at the beginning of a Great Correction. We have a long way to go. And we should expect high unemployment, low or negative growth, bankruptcies, bear markets, foreclosures…

The big trend is still biased in favor of generally low consumer and asset prices…maybe even deflating prices. Until Bernanke gets his cash machine running hot…that is…

Then, who knows what will happen?

Bill Bonner
for The Daily Reckoning

When Fear Takes Over: The Prospect of Hyperinflation originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
When Fear Takes Over: The Prospect of Hyperinflation




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Commodities, Uncategorized

When Fear Takes Over: The Prospect of Hyperinflation

October 28th, 2010

What’s the big news? Every headline you read implies the same thing. All eyes are on Ben Bernanke.

“Bernanke expected to announce hundreds of billions in new QE,” says one headline.

“Investors counting on support from the Fed,” says another.

“Fed easing could push stocks higher,” says a third.

The man is supposed to announce a program of quantitative easing. He’s supposed to do it next week. And if he announces too little of it, investors are going to sell risky investments – including stocks and commodities. In the meantime, investors are guessing.

Yesterday, the betting went against a big push into QE. Investors figured that maybe they’d over-estimated Ben Bernanke’s commitment to chicanery. They worried that the announcement next week might fall short of expectations.

The Dow retreated 43 points yesterday. Gold dropped back $16.

What will it do tomorrow? Who knows? The whole investment world has gone a little crazy. It’s all speculation now…speculation on how much new money the Fed will add to the system.

Investors aren’t buying in anticipation of higher earnings or looking forward to a healthier economy. They’re not padding their retirement nests with great stocks at great prices, or participating in the growth and prosperity of 21st century America by buying equities. Instead, they’re gambling that the economy will get worse…and that Bernanke will be forced to go boldly where only fools and morons have gone before….

…that is, on the road to hyperinflation.

Remember. There’s inflation. And there’s hyperinflation. Normal inflation is caused when people have more money to spend and less to spend it on. They bid up prices.

Hyperinflation is different. It comes not from an increase in demand for things…not from greed, that is…but from FEAR…raw, naked, unadulterated fear that paper money is losing its value.

What touches off hyperinflation? Sometimes the cause is obvious. Central banks print up bills with lots of zeros on them. Everyone knows the currency has become “funny money.” Everyone rushes to get rid of it.

Typically, this causes a collapse in the economy…which convinces the central bank to add more zeros!

The US central bank is not adding zeros – not yet. It is just threatening to add more currency. Will this new currency lead to inflation? Probably not much. The money will get into the hands of speculators at the big banks – those that can borrow from the Fed. It won’t get into the hands of small businesses and householders. So, most people will not really feel richer; they will not want to borrow. They will not want to spend. Demand will not increase. Prices won’t go up appreciably.

But while this new money probably will not create inflation, it could well create hyperinflation. We don’t know how it works…not exactly. There are so few examples in history that we have no sure model to show us. But speculators could suddenly lose faith in the US dollar. They could sell it off – in favor of land, stocks, collectibles or gold. Dollar-holders – large, institutional holders – might panic, realizing that their dollars are losing value fast. Householders might follow…desperate to get rid of dollars before the next nightly news report tells them that they have lost another 10% of their value.

All Hell could break loose.

But that is still in the future. Maybe 6 months ahead. Maybe a year ahead.

In the meantime, we are still at the beginning of a Great Correction. We have a long way to go. And we should expect high unemployment, low or negative growth, bankruptcies, bear markets, foreclosures…

The big trend is still biased in favor of generally low consumer and asset prices…maybe even deflating prices. Until Bernanke gets his cash machine running hot…that is…

Then, who knows what will happen?

Bill Bonner
for The Daily Reckoning

When Fear Takes Over: The Prospect of Hyperinflation originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
When Fear Takes Over: The Prospect of Hyperinflation




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Commodities, Uncategorized

Charles Kirk to Interview Me Live at 5 PM ET Today

October 28th, 2010

I am excited to announce that Charles Kirk of The Kirk Report will be conducting a live interview with me at 5:00 p.m. ET today for one hour.

The format of the interview is text-based and Charles typically includes a healthy dose of questions from the audience, so I encourage anyone who is interested to join us at this link – and bring along some questions in your back pocket.

Since I live only about five miles by kayak from AT&T Park, I am acutely aware of tonight’s World Series game, but I have it on good authority that our interview will not run into extra innings and put fans in some sort of Heidi Game dilemma.

So bring your questions and I will bring the lumber, dig in, and be sure not to take any pitches, no matter how far out of the strike zone they may be…

Related posts:

Disclosure(s): none



Read more here:
Charles Kirk to Interview Me Live at 5 PM ET Today

Uncategorized

European Confidence the Highest Since 2007

October 28th, 2010

As we draw closer and closer to the FOMC meeting next week, the clearer the markets believe they are to figuring out what the FOMC might do with regards to quantitative easing (QE)… So, I found some quotes from bond king, Bill Gross, and analyst, Mark Gilbert, regarding what they see. You won’t want to miss their quotes!

The currencies and precious metals are seeing some healing this morning. The US traders haven’t been kind to these risk assets lately, so it’s certainly possible that the US traders remove the tourniquets, and halt the healing. The big news this morning surrounds QE… Apparently the Fed Heads are asking dealers to estimate the scale and impact of QE… Hmmm… Yes siree Bob! Bloomberg got a hold of the survey given to NY bond dealers…

Actually, I like the idea of surveying bond dealers, but five days before your meeting? Shouldn’t this have been done a couple of weeks ago when the FOMC first indicated they would be implementing QE once again? Oh well…

I gave an interview to US News & World Report yesterday, and told the writer there that each $500 billion of QE would be equivalent to a 50 or 75 BPS Fed Funds Rate Cut… Fed Head, William Dudley, who is vice chairman of the Fed, said he expects the FOMC to announce $500 billion in “initial buying”…

Here’s the problem I see with doing the QE in smaller pieces… The FOMC would do this in an attempt to pull the wool over the markets’ eyes… But, for the last couple of weeks, the markets have believed the amount would be $1 trillion (I think $2 trillion, and Goldman thinks $4 trillion)… So, if the FOMC comes out next week and says something less than $1 trillion, the markets will be disappointed, and begin to wonder just how deep this QE is going to be when it’s all said and done!

Here’s Mark Gilbert from Bloomberg last night on QE…

Albert Einstein defined insanity as doing the same thing repeatedly and expecting different outcomes. The crazy gang at the Federal Reserve should heed those words when debating how much more market manipulation to inflict on the world of fixed income.

The worrisome thing about so-called quantitative easing – a concept still novel enough to mean whatever the Humpty-Dumpty’s in central banking want it to – is that its consequences remain unquantifiable, and the perceived need for more central-bank purchases of securities should make investors uneasy.

And here’s Bond King, Bill Gross on QE…

We are, as even some Fed Governors now publicly admit, in a “liquidity trap”, where interest rates or trillions of QEII asset purchases may not stimulate borrowing or lending because consumer demand is just not there. Escaping from a liquidity trap may be impossible, much like light trapped in a black hole.

Bill Gross then went on to say, “Check writing in the trillions is not a bondholder’s friend, and, if truth be told, somewhat of a Ponzi scheme.”

WOW! Both Bill Gross and Mark Gilbert doing their best Aaron Neville, and telling it like it is!

OK… How about we stop with the QE talk for today? It’s beginning to give me a rash!

Yesterday, we saw both Norway’s Norges Bank and the Reserve Bank of New Zealand keep their powder dry, and pass at this meeting at a chance to raise rates. First, the Norges Bank left rates unchanged, but the Norges Bank Governor said at a press conference that “Norway’s normal rate is 5%.” So, if that’s what he truly believes, he has some work cut out for him!

The Reserve Bank of New Zealand (RBNZ), Governor Alan Bollard said, “Despite some data turning out weaker than projected, the medium-term outlook for the New Zealand economy remains broadly in line with that assumed at the time of the September Monetary Policy Statement.”

You might recall that the September MPS in New Zealand was the thing that got me all lathered up about another rate hike… So, something is keeping Bollard from hiking rates, and I think I know what it is… In fact, I think Bollard took a swipe at the US/FOMC and their plans for QE… Let’s listen in, and see if you hear what I hear… “Downside risks to the outlook for global growth continue, with high public and private debt inhibiting recovery in many developed economies. Moreover, it is unclear how further policy support would impact on the outlook for growth in our Western trading partners. Offsetting this weakness, strong growth continues in China, Australia and emerging Asia.”

You tell ’em, Allan!

Well… I saw this yesterday, and just shook my head in disgust… Finance chiefs from South Korea & South Africa signaled that they may act to slow gains in their currencies… Hmmm, didn’t the G-20 just agree, no pledge, to NOT do this? I guess if you’re not a part of G-20, then you’ve got no problem selling your currency to keep it weak!

OK… the euro (EUR) is a bit stronger this morning, actually, very near where it was yesterday morning, when I came in, but then saw it lose ground all day… The single unit received some wind for its sails this morning when the latest Business Confidence, as reported by the think tank IFO, printed, and showed a rise to a 12-month high (index # .98, with the consensus at .79)…

And overall for the Eurozone, the outlook is feeling like it’s getting better, according to the latest European Confidence and Economic Outlook reports. Eurozone manufacturing, led by Germany, was very strong in October, which is a good thing, given that the euro was inching higher all month. The European Confidence Index rose to 104.1 from 103.2… That’s the highest this index has been since December of 2007!

I know, and realize that confidence doesn’t exactly feed into economic activity, but Shoot Rudy, if you’re not confident, how are you going to spur activity? So… I like this number from the Eurozone…

And in Japan… The land of QE and stimulus… The Bank of Japan (BOJ) left rates unchanged last night, and set out details of their next attempt to stimulate their economy with 5 trillion yen QE… You may recall me telling you that they had approved this at their last meeting… I would have to think that Mark Gilbert’s comment above about Einstein’s definition of insanity would apply to the BOJ, eh? I mean, come on… the BOJ has been implementing QE for over a decade… Sure has worked out well for them, eh?

Gold really took it on the chin yesterday, with silver following… But, as I said at the top, they are seeing some healing today. I have to say that I truly believe that the weakness we’ve seen in the currencies and metals this past week is directly tied to investors, traders, hedge fund managers, etc., taking off their dollar short positions ahead of the QE announcement next week, for they just don’t know what to expect from the FOMC…

So… What that does is give everyone that was on the sidelines a chance to pick up their fave currency or metal at cheaper prices! For the negativity toward the dollar has backed off… For now… Of course that’s just my opinion of what’s going on, as I view it from the cheap seats… I could be wrong…

My beautiful bride of 34 years will tell you that she can’t believe I would say that “I could be wrong”… HA!

Today’s data cupboard only has the Weekly Initial Jobless Claims on its shelves… Tomorrow, we get to see the first estimate of third quarter GDP, which the experts are forecasting to be right at 2%… I’m of the thought that it will be south of that number…

Then there was this… Ahhh… you knew this would happen, right? Here’s the skinny… Yesterday, I told you that CFTC member, Bart Chilton, said that, “there have been repeated attempts to influence prices. There have been fraudulent efforts to persuade and deviously control that price.” So, knowing this… The lawsuits against the banks many feel are to blame for these allegations are beginning…

Two large banks (I won’t mention their names) were sued by an investor claiming they manipulated silver futures and options prices in violation of US antitrust law by placing “spoof” trading orders.

For those of you who have never heard of “spoof” trading orders… They are “the submission of a large order which is not executed but influences prices and is then withdrawn before it reasonably can be executed.”

It’s just beginning folks… Bart Chilton opened Pandora’s Box of law suits… Not his fault, he was only stating the facts as he found them! In fact, I think that Bart Chilton should get a medal for his bravery, for it couldn’t have been easy to make those statements…

To recap… The currencies and precious metals are seeing some healing this morning, knowing all too well that the US traders have not been kind to these two risk assets lately. The Fed has passes around a survey to NY bond dealers, regarding QE… Chuck did a long interview with US News & World Report yesterday on QE and currencies, for it’s all about QE these days… 24/7!

Chuck Butler
for The Daily Reckoning

European Confidence the Highest Since 2007 originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
European Confidence the Highest Since 2007




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

OPTIONS, Uncategorized

European Confidence the Highest Since 2007

October 28th, 2010

As we draw closer and closer to the FOMC meeting next week, the clearer the markets believe they are to figuring out what the FOMC might do with regards to quantitative easing (QE)… So, I found some quotes from bond king, Bill Gross, and analyst, Mark Gilbert, regarding what they see. You won’t want to miss their quotes!

The currencies and precious metals are seeing some healing this morning. The US traders haven’t been kind to these risk assets lately, so it’s certainly possible that the US traders remove the tourniquets, and halt the healing. The big news this morning surrounds QE… Apparently the Fed Heads are asking dealers to estimate the scale and impact of QE… Hmmm… Yes siree Bob! Bloomberg got a hold of the survey given to NY bond dealers…

Actually, I like the idea of surveying bond dealers, but five days before your meeting? Shouldn’t this have been done a couple of weeks ago when the FOMC first indicated they would be implementing QE once again? Oh well…

I gave an interview to US News & World Report yesterday, and told the writer there that each $500 billion of QE would be equivalent to a 50 or 75 BPS Fed Funds Rate Cut… Fed Head, William Dudley, who is vice chairman of the Fed, said he expects the FOMC to announce $500 billion in “initial buying”…

Here’s the problem I see with doing the QE in smaller pieces… The FOMC would do this in an attempt to pull the wool over the markets’ eyes… But, for the last couple of weeks, the markets have believed the amount would be $1 trillion (I think $2 trillion, and Goldman thinks $4 trillion)… So, if the FOMC comes out next week and says something less than $1 trillion, the markets will be disappointed, and begin to wonder just how deep this QE is going to be when it’s all said and done!

Here’s Mark Gilbert from Bloomberg last night on QE…

Albert Einstein defined insanity as doing the same thing repeatedly and expecting different outcomes. The crazy gang at the Federal Reserve should heed those words when debating how much more market manipulation to inflict on the world of fixed income.

The worrisome thing about so-called quantitative easing – a concept still novel enough to mean whatever the Humpty-Dumpty’s in central banking want it to – is that its consequences remain unquantifiable, and the perceived need for more central-bank purchases of securities should make investors uneasy.

And here’s Bond King, Bill Gross on QE…

We are, as even some Fed Governors now publicly admit, in a “liquidity trap”, where interest rates or trillions of QEII asset purchases may not stimulate borrowing or lending because consumer demand is just not there. Escaping from a liquidity trap may be impossible, much like light trapped in a black hole.

Bill Gross then went on to say, “Check writing in the trillions is not a bondholder’s friend, and, if truth be told, somewhat of a Ponzi scheme.”

WOW! Both Bill Gross and Mark Gilbert doing their best Aaron Neville, and telling it like it is!

OK… How about we stop with the QE talk for today? It’s beginning to give me a rash!

Yesterday, we saw both Norway’s Norges Bank and the Reserve Bank of New Zealand keep their powder dry, and pass at this meeting at a chance to raise rates. First, the Norges Bank left rates unchanged, but the Norges Bank Governor said at a press conference that “Norway’s normal rate is 5%.” So, if that’s what he truly believes, he has some work cut out for him!

The Reserve Bank of New Zealand (RBNZ), Governor Alan Bollard said, “Despite some data turning out weaker than projected, the medium-term outlook for the New Zealand economy remains broadly in line with that assumed at the time of the September Monetary Policy Statement.”

You might recall that the September MPS in New Zealand was the thing that got me all lathered up about another rate hike… So, something is keeping Bollard from hiking rates, and I think I know what it is… In fact, I think Bollard took a swipe at the US/FOMC and their plans for QE… Let’s listen in, and see if you hear what I hear… “Downside risks to the outlook for global growth continue, with high public and private debt inhibiting recovery in many developed economies. Moreover, it is unclear how further policy support would impact on the outlook for growth in our Western trading partners. Offsetting this weakness, strong growth continues in China, Australia and emerging Asia.”

You tell ’em, Allan!

Well… I saw this yesterday, and just shook my head in disgust… Finance chiefs from South Korea & South Africa signaled that they may act to slow gains in their currencies… Hmmm, didn’t the G-20 just agree, no pledge, to NOT do this? I guess if you’re not a part of G-20, then you’ve got no problem selling your currency to keep it weak!

OK… the euro (EUR) is a bit stronger this morning, actually, very near where it was yesterday morning, when I came in, but then saw it lose ground all day… The single unit received some wind for its sails this morning when the latest Business Confidence, as reported by the think tank IFO, printed, and showed a rise to a 12-month high (index # .98, with the consensus at .79)…

And overall for the Eurozone, the outlook is feeling like it’s getting better, according to the latest European Confidence and Economic Outlook reports. Eurozone manufacturing, led by Germany, was very strong in October, which is a good thing, given that the euro was inching higher all month. The European Confidence Index rose to 104.1 from 103.2… That’s the highest this index has been since December of 2007!

I know, and realize that confidence doesn’t exactly feed into economic activity, but Shoot Rudy, if you’re not confident, how are you going to spur activity? So… I like this number from the Eurozone…

And in Japan… The land of QE and stimulus… The Bank of Japan (BOJ) left rates unchanged last night, and set out details of their next attempt to stimulate their economy with 5 trillion yen QE… You may recall me telling you that they had approved this at their last meeting… I would have to think that Mark Gilbert’s comment above about Einstein’s definition of insanity would apply to the BOJ, eh? I mean, come on… the BOJ has been implementing QE for over a decade… Sure has worked out well for them, eh?

Gold really took it on the chin yesterday, with silver following… But, as I said at the top, they are seeing some healing today. I have to say that I truly believe that the weakness we’ve seen in the currencies and metals this past week is directly tied to investors, traders, hedge fund managers, etc., taking off their dollar short positions ahead of the QE announcement next week, for they just don’t know what to expect from the FOMC…

So… What that does is give everyone that was on the sidelines a chance to pick up their fave currency or metal at cheaper prices! For the negativity toward the dollar has backed off… For now… Of course that’s just my opinion of what’s going on, as I view it from the cheap seats… I could be wrong…

My beautiful bride of 34 years will tell you that she can’t believe I would say that “I could be wrong”… HA!

Today’s data cupboard only has the Weekly Initial Jobless Claims on its shelves… Tomorrow, we get to see the first estimate of third quarter GDP, which the experts are forecasting to be right at 2%… I’m of the thought that it will be south of that number…

Then there was this… Ahhh… you knew this would happen, right? Here’s the skinny… Yesterday, I told you that CFTC member, Bart Chilton, said that, “there have been repeated attempts to influence prices. There have been fraudulent efforts to persuade and deviously control that price.” So, knowing this… The lawsuits against the banks many feel are to blame for these allegations are beginning…

Two large banks (I won’t mention their names) were sued by an investor claiming they manipulated silver futures and options prices in violation of US antitrust law by placing “spoof” trading orders.

For those of you who have never heard of “spoof” trading orders… They are “the submission of a large order which is not executed but influences prices and is then withdrawn before it reasonably can be executed.”

It’s just beginning folks… Bart Chilton opened Pandora’s Box of law suits… Not his fault, he was only stating the facts as he found them! In fact, I think that Bart Chilton should get a medal for his bravery, for it couldn’t have been easy to make those statements…

To recap… The currencies and precious metals are seeing some healing this morning, knowing all too well that the US traders have not been kind to these two risk assets lately. The Fed has passes around a survey to NY bond dealers, regarding QE… Chuck did a long interview with US News & World Report yesterday on QE and currencies, for it’s all about QE these days… 24/7!

Chuck Butler
for The Daily Reckoning

European Confidence the Highest Since 2007 originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
European Confidence the Highest Since 2007




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

OPTIONS, Uncategorized

More Upticks in Economic Data vs. Expectations

October 28th, 2010

Today was the first week since the end of August that both the initial claims and continuing claims for unemployment were lower than consensus expectations.

While one week of noisy data should not substantially embolden the bulls, there has been a noticeable uptick in positive reports since the beginning of September – one that just so happens to coincide with the upturn in stocks.

I last updated the chart below at the beginning of the month and since that time, the pattern of positive surprises has continued. Note that housing and construction continue to provide the most consistent positive surprises, while the consumer appears to have a turned a corner at the end of August, giving a boost to stocks.

If the data are painting any sort of discernable picture, from my perspective the canvas looks like a story of slow but steady improvement – and more slow than steady at this stage.

Related posts:

Disclosure(s): none



Read more here:
More Upticks in Economic Data vs. Expectations

Uncategorized

More Upticks in Economic Data vs. Expectations

October 28th, 2010

Today was the first week since the end of August that both the initial claims and continuing claims for unemployment were lower than consensus expectations.

While one week of noisy data should not substantially embolden the bulls, there has been a noticeable uptick in positive reports since the beginning of September – one that just so happens to coincide with the upturn in stocks.

I last updated the chart below at the beginning of the month and since that time, the pattern of positive surprises has continued. Note that housing and construction continue to provide the most consistent positive surprises, while the consumer appears to have a turned a corner at the end of August, giving a boost to stocks.

If the data are painting any sort of discernable picture, from my perspective the canvas looks like a story of slow but steady improvement – and more slow than steady at this stage.

Related posts:

Disclosure(s): none



Read more here:
More Upticks in Economic Data vs. Expectations

Uncategorized

Get Down Under With Australia ETFs

October 28th, 2010

Ron Rowland

See if you can guess the country …

• Straddles two different oceans

• Part of the British Commonwealth

• Huge wilderness area

• English-speaking

• Democracy

• Capitalist

• Technologically and industrially advanced

• Huge natural resource reserves

Did you think about Canada? If so, you’d be correct. But another country also fits the description: Australia. However, here in the U.S. we aren’t as familiar with Australia. Few of us have been there, and it’s a long way from home.

Investors need to check out what is happening down under because Australia has some amazing investment opportunities. You can take advantage of them with exchange traded funds (ETFs), too. Let’s take a closer look.

Australia: Better than Canada?

I love Canada and all things Canadian. I’ve made some good money over the years by investing with our neighbor to the north. But right now, being neighbors with the U.S. isn’t so attractive.

The border won't protect Canada from our recession.
The border won’t protect Canada from our recession.

You see, the border can’t protect Canada from all our economic problems. Parts of the Canadian economy are shrugging off the U.S. recession. Inevitably, though, weakness here means weakness there.

The Aussies also have deep ties to the U.S. and the industrialized West, but there are important differences. The same oceans that make it seem so remote also insulate Australia from the trouble we’re going through — and put it that much closer to fast-growing China and Southeast Asia.

Think about it this way: Australia is to China as Canada is to the U.S. So if you believe (as I do) that China is going to overtake the U.S. as the world’s largest economy in the coming decades, Australia is likely to do far better than Canada.

Vast Area, Vast Potential

Australia certainly has plenty of room to grow — and I mean that literally. People forget how big it really is!

Here’s a good comparison: The continental U.S. has a land area of about 3.1 million square miles. Australia’s land area? Just a bit smaller at 2.9 million square miles.

Now compare population: The U.S. has about 300 million people. Australia, with almost as much land mass, has a population of only 22 million — and most of them are concentrated in a few big cities near the coast. The interior “Outback” is vast, largely unpopulated, and filled with all kinds of mineral riches.

Australia's outback is vast, unsettled and rich.
Australia’s outback is vast, unsettled and rich.

The Asians certainly see potential in Australia. For instance just this week, Singapore Exchange Ltd. made an $8.3 billion offer for ASX, Australia’s primary stock exchange. The potential combination could create a regional trading powerhouse.

So how can you get involved in Australia? You can certainly look at individual stocks, but I prefer the convenience and diversification of ETFs. American investors can consider two ETFs devoted to Australian stocks:

  • iShares MSCI Australia (EWA) holds 74 of the largest, most liquid stocks domiciled in Australia. Mining giant BHP Billiton (BHP) is the largest holding, but the biggest sector in this ETF is actually financial services. When expressed in U.S. dollars, EWA has posted a total return of 140.6 percent since the March 2009 market low.
  • IQ Australia Small Cap (KROO) is a newer choice and has a different focus. KROO tracks an index of small-cap Australian stocks, with a heavy emphasis on materials, consumer discretionary and industrial issues.

There is little or no overlap between EWA and KROO, so you could benefit from holding both. Just be aware that they’ll still be highly correlated to each other.

You might also want to check out two other ETFs that are closely related to Australian stocks:

  • CurrencyShares Australian Dollar (FXA) follows the exchange rate between the U.S. dollar and the Australian dollar. The greenback has been losing ground to the Aussie buck for quite some time, a trend that has picked up momentum in the last few weeks. FXA is a good way for Americans to hedge their currency exposure.
  • iShares MSCI New Zealand (ENZL) is a new ETF, just launched in September of this year. New Zealand, as you know, is an island nation near Australia with close economic ties. Whenever Australia prospers, you can expect ENZL to share in some of the good fortune.

As always, be cautious when trading international ETFs. Due to time zone differences, they are subject to large opening gaps — both up and down — when morning reaches the U.S.

Best wishes,

Ron

Related posts:

  1. Six Beaten Down ETFs in the Southern Hemisphere
  2. Seven New ETFs Cover New Ground
  3. Diversify Out Of U.S. Dollars With ETFs

Read more here:
Get Down Under With Australia ETFs

Commodities, ETF, Mutual Fund, Uncategorized

Get Down Under With Australia ETFs

October 28th, 2010

Ron Rowland

See if you can guess the country …

• Straddles two different oceans

• Part of the British Commonwealth

• Huge wilderness area

• English-speaking

• Democracy

• Capitalist

• Technologically and industrially advanced

• Huge natural resource reserves

Did you think about Canada? If so, you’d be correct. But another country also fits the description: Australia. However, here in the U.S. we aren’t as familiar with Australia. Few of us have been there, and it’s a long way from home.

Investors need to check out what is happening down under because Australia has some amazing investment opportunities. You can take advantage of them with exchange traded funds (ETFs), too. Let’s take a closer look.

Australia: Better than Canada?

I love Canada and all things Canadian. I’ve made some good money over the years by investing with our neighbor to the north. But right now, being neighbors with the U.S. isn’t so attractive.

The border won't protect Canada from our recession.
The border won’t protect Canada from our recession.

You see, the border can’t protect Canada from all our economic problems. Parts of the Canadian economy are shrugging off the U.S. recession. Inevitably, though, weakness here means weakness there.

The Aussies also have deep ties to the U.S. and the industrialized West, but there are important differences. The same oceans that make it seem so remote also insulate Australia from the trouble we’re going through — and put it that much closer to fast-growing China and Southeast Asia.

Think about it this way: Australia is to China as Canada is to the U.S. So if you believe (as I do) that China is going to overtake the U.S. as the world’s largest economy in the coming decades, Australia is likely to do far better than Canada.

Vast Area, Vast Potential

Australia certainly has plenty of room to grow — and I mean that literally. People forget how big it really is!

Here’s a good comparison: The continental U.S. has a land area of about 3.1 million square miles. Australia’s land area? Just a bit smaller at 2.9 million square miles.

Now compare population: The U.S. has about 300 million people. Australia, with almost as much land mass, has a population of only 22 million — and most of them are concentrated in a few big cities near the coast. The interior “Outback” is vast, largely unpopulated, and filled with all kinds of mineral riches.

Australia's outback is vast, unsettled and rich.
Australia’s outback is vast, unsettled and rich.

The Asians certainly see potential in Australia. For instance just this week, Singapore Exchange Ltd. made an $8.3 billion offer for ASX, Australia’s primary stock exchange. The potential combination could create a regional trading powerhouse.

So how can you get involved in Australia? You can certainly look at individual stocks, but I prefer the convenience and diversification of ETFs. American investors can consider two ETFs devoted to Australian stocks:

  • iShares MSCI Australia (EWA) holds 74 of the largest, most liquid stocks domiciled in Australia. Mining giant BHP Billiton (BHP) is the largest holding, but the biggest sector in this ETF is actually financial services. When expressed in U.S. dollars, EWA has posted a total return of 140.6 percent since the March 2009 market low.
  • IQ Australia Small Cap (KROO) is a newer choice and has a different focus. KROO tracks an index of small-cap Australian stocks, with a heavy emphasis on materials, consumer discretionary and industrial issues.

There is little or no overlap between EWA and KROO, so you could benefit from holding both. Just be aware that they’ll still be highly correlated to each other.

You might also want to check out two other ETFs that are closely related to Australian stocks:

  • CurrencyShares Australian Dollar (FXA) follows the exchange rate between the U.S. dollar and the Australian dollar. The greenback has been losing ground to the Aussie buck for quite some time, a trend that has picked up momentum in the last few weeks. FXA is a good way for Americans to hedge their currency exposure.
  • iShares MSCI New Zealand (ENZL) is a new ETF, just launched in September of this year. New Zealand, as you know, is an island nation near Australia with close economic ties. Whenever Australia prospers, you can expect ENZL to share in some of the good fortune.

As always, be cautious when trading international ETFs. Due to time zone differences, they are subject to large opening gaps — both up and down — when morning reaches the U.S.

Best wishes,

Ron

Related posts:

  1. Six Beaten Down ETFs in the Southern Hemisphere
  2. Seven New ETFs Cover New Ground
  3. Diversify Out Of U.S. Dollars With ETFs

Read more here:
Get Down Under With Australia ETFs

Commodities, ETF, Mutual Fund, Uncategorized

5 Stocks Under $5 for 2011

October 28th, 2010

5 Stocks Under $5 for 2011

As cliche as the term “stocks on sale” has become, there's still something exciting about grabbing a great stock for less than five bucks a share. They just seem well equipped to dole out bigger rewards — in terms of percentage gains — than their higher-priced counterparts.

With that as a backdrop, here are five sub-$5 equities you may want to consider as we head into 2011.

1. Cincinnati Bell Inc. (NYSE: CBB) – Cincinnati Bell earned more in 2008 than it did in 2007, and earned more in 2009 than it did in 2008. Now that the economy is out of the rut, however, this regional telecom is anticipated to post less income this year than it did last year.

Respectfully, to the analysts, please notice the trend.

While rampant growth has never been the company's strong suit, that's not a fault of Cincinnati Bell — that's just telecom. The trade-off is amazing value. Priced at only 5.7 times trailing earnings and 6.6 times earnings projections for the next twelve months, it's a bargain by most standards. And remember, those are highly reliable earnings.

The icing on the Cincinnati Bell cake is the recently-swollen short interest. At 13.8% of the float, all those traders who drove the stock down lately may end up spurring a short-covering rally.

2. Mizuho Financial Group Inc. (NYSE: MFG) — Believe it or not, there are other investment-worthy countries in the Far East besides China. Try Japan, where the banks are apparently coming out of the balance-sheet-blasting credit crunch much faster than their U.S. counterparts. Though the official results aren't in yet, Japan's top three banks are expected to have more than tripled their profits in the past six months on a year-over-year basis. As more bad debt is shed from the books, bottom lines should continue to grow.

Are the numbers the real ones, or just the published ones? Great question, though it may not really matter. If the investing public believes in the results, they'll respond in kind. That's good news for the likes of Mizuho Financial Group, especially now that the company is looking to expand internationally.

3. LSI Corp. (NYSE: LSI) — After seven earnings beats and no misses in the past 14 quarters (and three beats in the past four quarters), the market should start to recognize that this semiconductor manufacturer is underestimated. The fact that the company is on pace to grow earnings by +37% this year and +8% next year is just gravy.

As it stands right now, LSI Corp. shares are priced at about nine times 2011's anticipated earnings, which is stunningly low by tech stock standards against that kind of growth.

4. Graphic Packaging Holding Co. (NYSE: GPK) — While most investors are thinking of the obvious ways to play the rebounding economy, the savvy way to play it may well be with a group that's too obvious to notice, like packaging, signage and printing companies. In fact, the profit of $0.08 per share Graphic Packaging Holding is expected to announce in early November would be a record-breaker for the company.

Graphic Packaging Holding has already proven it's taking advantage of the recovery by swinging back to profitability five quarters ago, and staying there ever since. The year-over-year comparisons have been nice increases that entire time as well, with the biggest one yet slated with the third quarter's estimates.

5. Art Technology Group Inc. (Nasdaq: ARTG) — Trading at a little more than 18 times projected earnings for the next four quarters, one would be hard-pressed to say Art Technology Group is a “cheap” stock. On the other hand, you have to pay for quality and reliability, and this company definitely falls into that category.

The company, in simplest terms, offers e-commerce solutions. Apparently it's a good business to be in. Though income was reeled in slightly during the early part of the recession, Art Technology Group never dipped into the red ink at any point in the past four years.

How so? The nature of the business is heavy on recurring revenue; income growth comes from adding new customers/revenue streams. And now that the economy is on measurably firmer footing, new customers should be easier to find. Given 2011's earnings estimates of a record $0.24 per share, analysts seem to agree.

Action to Take –> There's a difference between “cheap” and “undervalued.” Cheap stocks are on the low end of the price scale for a reason, so being priced under $5 doesn't mean you should ease up on your selection standards. These five names are undervalued, and also just happen to be trading under the $5 mark. That could change in a major way, however, over the course of the coming year.


– James Brumley

P.S. –

Uncategorized

5 Stocks Under $5 for 2011

October 28th, 2010

5 Stocks Under $5 for 2011

As cliche as the term “stocks on sale” has become, there's still something exciting about grabbing a great stock for less than five bucks a share. They just seem well equipped to dole out bigger rewards — in terms of percentage gains — than their higher-priced counterparts.

With that as a backdrop, here are five sub-$5 equities you may want to consider as we head into 2011.

1. Cincinnati Bell Inc. (NYSE: CBB) – Cincinnati Bell earned more in 2008 than it did in 2007, and earned more in 2009 than it did in 2008. Now that the economy is out of the rut, however, this regional telecom is anticipated to post less income this year than it did last year.

Respectfully, to the analysts, please notice the trend.

While rampant growth has never been the company's strong suit, that's not a fault of Cincinnati Bell — that's just telecom. The trade-off is amazing value. Priced at only 5.7 times trailing earnings and 6.6 times earnings projections for the next twelve months, it's a bargain by most standards. And remember, those are highly reliable earnings.

The icing on the Cincinnati Bell cake is the recently-swollen short interest. At 13.8% of the float, all those traders who drove the stock down lately may end up spurring a short-covering rally.

2. Mizuho Financial Group Inc. (NYSE: MFG) — Believe it or not, there are other investment-worthy countries in the Far East besides China. Try Japan, where the banks are apparently coming out of the balance-sheet-blasting credit crunch much faster than their U.S. counterparts. Though the official results aren't in yet, Japan's top three banks are expected to have more than tripled their profits in the past six months on a year-over-year basis. As more bad debt is shed from the books, bottom lines should continue to grow.

Are the numbers the real ones, or just the published ones? Great question, though it may not really matter. If the investing public believes in the results, they'll respond in kind. That's good news for the likes of Mizuho Financial Group, especially now that the company is looking to expand internationally.

3. LSI Corp. (NYSE: LSI) — After seven earnings beats and no misses in the past 14 quarters (and three beats in the past four quarters), the market should start to recognize that this semiconductor manufacturer is underestimated. The fact that the company is on pace to grow earnings by +37% this year and +8% next year is just gravy.

As it stands right now, LSI Corp. shares are priced at about nine times 2011's anticipated earnings, which is stunningly low by tech stock standards against that kind of growth.

4. Graphic Packaging Holding Co. (NYSE: GPK) — While most investors are thinking of the obvious ways to play the rebounding economy, the savvy way to play it may well be with a group that's too obvious to notice, like packaging, signage and printing companies. In fact, the profit of $0.08 per share Graphic Packaging Holding is expected to announce in early November would be a record-breaker for the company.

Graphic Packaging Holding has already proven it's taking advantage of the recovery by swinging back to profitability five quarters ago, and staying there ever since. The year-over-year comparisons have been nice increases that entire time as well, with the biggest one yet slated with the third quarter's estimates.

5. Art Technology Group Inc. (Nasdaq: ARTG) — Trading at a little more than 18 times projected earnings for the next four quarters, one would be hard-pressed to say Art Technology Group is a “cheap” stock. On the other hand, you have to pay for quality and reliability, and this company definitely falls into that category.

The company, in simplest terms, offers e-commerce solutions. Apparently it's a good business to be in. Though income was reeled in slightly during the early part of the recession, Art Technology Group never dipped into the red ink at any point in the past four years.

How so? The nature of the business is heavy on recurring revenue; income growth comes from adding new customers/revenue streams. And now that the economy is on measurably firmer footing, new customers should be easier to find. Given 2011's earnings estimates of a record $0.24 per share, analysts seem to agree.

Action to Take –> There's a difference between “cheap” and “undervalued.” Cheap stocks are on the low end of the price scale for a reason, so being priced under $5 doesn't mean you should ease up on your selection standards. These five names are undervalued, and also just happen to be trading under the $5 mark. That could change in a major way, however, over the course of the coming year.


– James Brumley

P.S. –

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