What This Key Stock’s Move Today Means for the Retail Sector

October 7th, 2010

What This Key Stock's Move Today Means for the Retail Sector

As we've been discussing throughout the past six months, a range-bound market means you're likely better off moving in and out of certain stocks and sectors as they prove timely. Buy-and-hold appears dead for now, although few have the ability to profit from very short-term trades either.

Costco (Nasdaq: COST) highlights the value of a “mid-term trade.” In just six weeks, investors have made about +25% from this investment. Yet Wednesday's quarterly report from this retailer tells us it's time to “sell on the news.”

Whenever you see a stock make a solid move as Costco has, it leads you to wonder if business is trending well ahead of expectations. That's why it makes sense to hang on and see how quarterly results fare. I've noticed solid upward moves in four other retail pays I track; Best Buy (NYSE: BBY), Leapfrog Enterprises (NYSE: LF), Office Depot (NYSE: ODP) and Casual Male (Nasdaq: CMRG). Is business improving for these firms, or is the recent spike in Costco and these other companies' shares simply due to a re-rotation back into retail?

Wednesday's dismal ADP jobs report, which is a precursor to Friday's monthly employment report from the Labor Department, should give pause. So the retail trade may be premature and it may be time to book profits in recent retail gainers. That's what investors are doing with Costco, which is pulling back -1.5% today after running from $60 to $65 in the second half of September.

Costco's quarterly sales slightly lagged estimates (when you back out the impact of gas price changes), although per share profits were slightly better than analysts had expected. And judging by the numbers, the recent rally makes this stock now look fully valued. Thanks to the tepid economy, Costco's sales are likely to only rise +6% to +7% in the fiscal year that began last month. Profits are likely to grow at low double-digits. Yet shares trade for about 20 times projected fiscal 2011 profits and are really no bargain.

Action to Take –> Whether it's the broader stock market or an individual stock, I'm always on the lookout for a sideways chart. When a stock is rising, buyers outnumber sellers. When a stock starts to move sideways, that's a sign that either sellers are stepping in or buyers are petering out. Either way, it often results in the next move being a downward one, as sellers eventually overwhelm buyers. I'm not predicting that for Costco specifically, but you may want to use this as a signal to take profits if you have secured a solid run in an investment.

As noted above, select retail stocks have had a nice run, though it is unlikely they are reflecting improving consumer spending. On Wednesday and Thursday, a wide range of retailers will weigh in on how they fared in the back-to-school season. How the sector trades in response will be telling. If Costco is any indication, investor sentiment may be cooling and it may be wise to book any profits you've had on “mid-term trades” like this one.


– David Sterman

P.S. –

Uncategorized

What This Key Stock’s Move Today Means for the Retail Sector

October 7th, 2010

What This Key Stock's Move Today Means for the Retail Sector

As we've been discussing throughout the past six months, a range-bound market means you're likely better off moving in and out of certain stocks and sectors as they prove timely. Buy-and-hold appears dead for now, although few have the ability to profit from very short-term trades either.

Costco (Nasdaq: COST) highlights the value of a “mid-term trade.” In just six weeks, investors have made about +25% from this investment. Yet Wednesday's quarterly report from this retailer tells us it's time to “sell on the news.”

Whenever you see a stock make a solid move as Costco has, it leads you to wonder if business is trending well ahead of expectations. That's why it makes sense to hang on and see how quarterly results fare. I've noticed solid upward moves in four other retail pays I track; Best Buy (NYSE: BBY), Leapfrog Enterprises (NYSE: LF), Office Depot (NYSE: ODP) and Casual Male (Nasdaq: CMRG). Is business improving for these firms, or is the recent spike in Costco and these other companies' shares simply due to a re-rotation back into retail?

Wednesday's dismal ADP jobs report, which is a precursor to Friday's monthly employment report from the Labor Department, should give pause. So the retail trade may be premature and it may be time to book profits in recent retail gainers. That's what investors are doing with Costco, which is pulling back -1.5% today after running from $60 to $65 in the second half of September.

Costco's quarterly sales slightly lagged estimates (when you back out the impact of gas price changes), although per share profits were slightly better than analysts had expected. And judging by the numbers, the recent rally makes this stock now look fully valued. Thanks to the tepid economy, Costco's sales are likely to only rise +6% to +7% in the fiscal year that began last month. Profits are likely to grow at low double-digits. Yet shares trade for about 20 times projected fiscal 2011 profits and are really no bargain.

Action to Take –> Whether it's the broader stock market or an individual stock, I'm always on the lookout for a sideways chart. When a stock is rising, buyers outnumber sellers. When a stock starts to move sideways, that's a sign that either sellers are stepping in or buyers are petering out. Either way, it often results in the next move being a downward one, as sellers eventually overwhelm buyers. I'm not predicting that for Costco specifically, but you may want to use this as a signal to take profits if you have secured a solid run in an investment.

As noted above, select retail stocks have had a nice run, though it is unlikely they are reflecting improving consumer spending. On Wednesday and Thursday, a wide range of retailers will weigh in on how they fared in the back-to-school season. How the sector trades in response will be telling. If Costco is any indication, investor sentiment may be cooling and it may be wise to book any profits you've had on “mid-term trades” like this one.


– David Sterman

P.S. –

Uncategorized

This Stock is Locked in a Battle — Here’s How You Can Play Both Sides…

October 7th, 2010

This Stock is Locked in a Battle -- Here's How You Can Play Both Sides...

It is the job of every Wall Street analyst (known as a “sell-sider”) to convince clients to buy stocks on their buy list. Those clients — hedge funds and mutual funds also known as “buy-siders” — give the ideas a listen, but often form differing opinions on those very same stocks.

And right now, the two camps are clearly divided on one of the strongest tech stocks of the past 10 years. That stock is Equinix (Nasdaq: EQIX), which operates massive data centers that host major companies' websites and enterprise servers. Right now the company's detractors, largely on the buy-side, are showing the winning hand: shares fell an eye-popping -33% on Wednesday after the company reduced quarterly guidance.

At first glance, that sell-off may seem unwarranted as management simply shaved guidance by a very small amount. And the damage appears largely confined to just two customers, both of which asked for some price concessions on a new contract. Management was quick to note that business is otherwise trending well.

Sell-side analysts, which have always been very supportive of this stock, were quick to come to its defense. Even though shares fell from $105 to $72, Deutsche Bank still expects shares to move back to $100, Piper Jaffray's price target was lowered from $124 to $110. Merrill Lynch? Standing by its $130 price target, despite Wednesday's news.

To understand why analysts remain so bullish about this stock's future, you need to look to the past. Equinix developed a brilliant business strategy where major web servers from different companies sat right next to each other and are also plugged right into global Internet traffic points, known as co-location. The whole move to data centers has been an obvious one for IT managers, as it saves money and headaches, and Equinix's co-location services made the offer all the more compelling.

As Equinix's selling proposition lured customers in droves, the company's sales took off and EBITDA margins soared, steadily rising from 12% in 2005 to 40% in 2009. Not that Equinix has much to show for those impressive operating metrics — the company has continually poured all of its cash flow back into the business, and as a result, has generated negative free cash flow for each of the last four years.

Sell-side analysts have never had much problem with that, as they have assumed that once investments are complete, free cash flow would be bounteous. And in the next year or two, that is indeed expected to finally be the case. But the company's detractors hold a much more dim view of the long-term. They note that this is still a price-sensitive business, and they think that this week's modest shortfall — highlighted by some price concessions — is a harbinger of things to come.

In addition, bears say that major global phone companies such as AT&T (NYSE: T) hold the strongest long-term hand, since they actually operate the Internet's backbone and can set the pace on pricing. As of yet, that scenario hasn't played out, as Equinix's sales power ever higher.

To keep sales rising, Equinix has been making some fairly hefty acquisitions and is rumored to be planning another, this time for a European company known as Interxion in the coming weeks.
Not everyone on the sell-side is convinced that Equinix can keep pulling away from the competition. Citigroup just lowered its rating from “Buy” to “Hold,” citing concerns about stagnant growth at a recently acquired division and rising customer turnover. It thinks this week's modest pre-announcement is “an early sign-post that revenue growth for its core demographic in the U.S. may be slowing sooner than we anticipated.”

Kaufman Brothers believes that digital content companies such as major media firms may actually look to move away from the use of data centers and start hosting more servers on their own corporate sites. That would be a real blow to the data center industry. But most sell-side analysts remain quite bullish, and will probably keep pounding the table for the stock in the days ahead.

Action to Take –> Equinix is scheduled to meet with the investment community on November 11th. Ahead of that event, shares are likely to rebound from here as the sell-side talks up the big disparity between the current price and their price targets. So despite this news, shares may now be a short-term buy, but they increasingly look like a long-term sell. Shorts made a killing on this week's plunge, and many have likely covered their short positions. But as shares rebound, they are bound to attract fresh short interest. You can look to go long on this name now, and perhaps reverse course if shares move back into the $80s or $90s.


– David Sterman

David Sterman started his career in equity research at Smith Barney, culminating in a position as Senior Analyst covering European banks. David has also served as Director of Research at Individual Investor and a Managing Editor at TheStreet.com. Read More…

Disclosure: Neither David Sterman nor StreetAuthority, LLC hold positions in any securities mentioned in this article.

This article originally appeared on StreetAuthority
Author: David Sterman
This Stock is Locked in a Battle — Here's How You Can Play Both Sides…

Read more here:
This Stock is Locked in a Battle — Here’s How You Can Play Both Sides…

Mutual Fund, Uncategorized

This Stock is Locked in a Battle — Here’s How You Can Play Both Sides…

October 7th, 2010

This Stock is Locked in a Battle -- Here's How You Can Play Both Sides...

It is the job of every Wall Street analyst (known as a “sell-sider”) to convince clients to buy stocks on their buy list. Those clients — hedge funds and mutual funds also known as “buy-siders” — give the ideas a listen, but often form differing opinions on those very same stocks.

And right now, the two camps are clearly divided on one of the strongest tech stocks of the past 10 years. That stock is Equinix (Nasdaq: EQIX), which operates massive data centers that host major companies' websites and enterprise servers. Right now the company's detractors, largely on the buy-side, are showing the winning hand: shares fell an eye-popping -33% on Wednesday after the company reduced quarterly guidance.

At first glance, that sell-off may seem unwarranted as management simply shaved guidance by a very small amount. And the damage appears largely confined to just two customers, both of which asked for some price concessions on a new contract. Management was quick to note that business is otherwise trending well.

Sell-side analysts, which have always been very supportive of this stock, were quick to come to its defense. Even though shares fell from $105 to $72, Deutsche Bank still expects shares to move back to $100, Piper Jaffray's price target was lowered from $124 to $110. Merrill Lynch? Standing by its $130 price target, despite Wednesday's news.

To understand why analysts remain so bullish about this stock's future, you need to look to the past. Equinix developed a brilliant business strategy where major web servers from different companies sat right next to each other and are also plugged right into global Internet traffic points, known as co-location. The whole move to data centers has been an obvious one for IT managers, as it saves money and headaches, and Equinix's co-location services made the offer all the more compelling.

As Equinix's selling proposition lured customers in droves, the company's sales took off and EBITDA margins soared, steadily rising from 12% in 2005 to 40% in 2009. Not that Equinix has much to show for those impressive operating metrics — the company has continually poured all of its cash flow back into the business, and as a result, has generated negative free cash flow for each of the last four years.

Sell-side analysts have never had much problem with that, as they have assumed that once investments are complete, free cash flow would be bounteous. And in the next year or two, that is indeed expected to finally be the case. But the company's detractors hold a much more dim view of the long-term. They note that this is still a price-sensitive business, and they think that this week's modest shortfall — highlighted by some price concessions — is a harbinger of things to come.

In addition, bears say that major global phone companies such as AT&T (NYSE: T) hold the strongest long-term hand, since they actually operate the Internet's backbone and can set the pace on pricing. As of yet, that scenario hasn't played out, as Equinix's sales power ever higher.

To keep sales rising, Equinix has been making some fairly hefty acquisitions and is rumored to be planning another, this time for a European company known as Interxion in the coming weeks.
Not everyone on the sell-side is convinced that Equinix can keep pulling away from the competition. Citigroup just lowered its rating from “Buy” to “Hold,” citing concerns about stagnant growth at a recently acquired division and rising customer turnover. It thinks this week's modest pre-announcement is “an early sign-post that revenue growth for its core demographic in the U.S. may be slowing sooner than we anticipated.”

Kaufman Brothers believes that digital content companies such as major media firms may actually look to move away from the use of data centers and start hosting more servers on their own corporate sites. That would be a real blow to the data center industry. But most sell-side analysts remain quite bullish, and will probably keep pounding the table for the stock in the days ahead.

Action to Take –> Equinix is scheduled to meet with the investment community on November 11th. Ahead of that event, shares are likely to rebound from here as the sell-side talks up the big disparity between the current price and their price targets. So despite this news, shares may now be a short-term buy, but they increasingly look like a long-term sell. Shorts made a killing on this week's plunge, and many have likely covered their short positions. But as shares rebound, they are bound to attract fresh short interest. You can look to go long on this name now, and perhaps reverse course if shares move back into the $80s or $90s.


– David Sterman

David Sterman started his career in equity research at Smith Barney, culminating in a position as Senior Analyst covering European banks. David has also served as Director of Research at Individual Investor and a Managing Editor at TheStreet.com. Read More…

Disclosure: Neither David Sterman nor StreetAuthority, LLC hold positions in any securities mentioned in this article.

This article originally appeared on StreetAuthority
Author: David Sterman
This Stock is Locked in a Battle — Here's How You Can Play Both Sides…

Read more here:
This Stock is Locked in a Battle — Here’s How You Can Play Both Sides…

Mutual Fund, Uncategorized

The Man Selling the Fed’s Secrets

October 7th, 2010

The Man Selling the Fed's Secrets

I'd be surprised if you've heard of Larry Meyer, but in the past few days, he's created quite a buzz.

Larry Meyer is a former Federal Reserve Governor. He holds a B.A. from Yale; a Ph.D. from MIT. His pedigree is top-notch. So are his connections.

Meyer is still buddies with the folks on the Federal Open Market Committee, the policy-making body of the U.S. Federal Reserve. And his friends tell him what goes on at their meetings weeks before the general public gets to read about it.

You would think sharing that information with anyone outside the current Fed members would be illegal. You would also think the fact that Meyer charges well-heeled clients $75,000 each for access to what he has heard — well ahead of the investing public — would be unlawful. Amazingly, neither action is illegal, according to a Reuters investigation.

One of the Federal Reserve's main tools is setting target interest rates, and profits can be made or lost based on what the Fed says at its meetings. It makes me mad (and likely you too) that some have inside access. But there is a way to fight back.

I think we'll be much better off finding a few good income investments that are simply less sensitive to interest rates.

Why interest rates matter to income investors
When interest rates rise, the price of some fixed-income securities, like bonds, tend to fall. For an extreme example, you wouldn't want to hold a risky corporate bond paying a 7% yield if you could now get a safer 10-year Treasury bond paying 7%.

So when the interest rates of Treasuries rise, investors tend to shed their riskier assets. This causes the price to drop — and the yields to rise — ultimately making riskier fixed-income securities more competitive when compared with safer investments.

It's the number one reason why income investors are obsessed with what the U.S. Federal Reserve is likely to do with interest rates. And why some pay $75,000 for Larry Meyer's analysis.

The two primary reasons the Federal Reserve raises target rates is to slow the economy and/or to prevent out-of-control inflation. But last I looked, the economy wasn't overheating. In fact, the U.S. economic recovery is plodding along.

The U.S. economy grew by only +1.7% in the second quarter of this year. Economists are forecasting a possible +2.1% growth rate for the remainder of the year. Unemployment continues to remain high. And until people are back to work, personal consumption — a primary engine of the U.S. economy — will be constrained.

Meanwhile, inflation is running below 1.2% — well below the level where the Federal Reserve starts breaking a sweat.

But this will eventually change. Interest rates are at historically low levels and in all practicality can't go much lower. When the economy finds more solid footing, you can rest assured that the Fed will be moving rates north.

You don't have to pay someone $75,000 to figure this out.

Two interest rate-friendly strategies with above-average yields
Knowing that rates will eventually rise, I am picking up income investments for my Daily Paycheck portfolio that provide more protection in a rising rate environment. And I'm not sacrificing yield to do it.

Action to Take –> Here are a couple of spots I'm looking:

Bonds with the Potential for Credit Upgrades: In my bond selection, I've tried to pick issues that have a good chance of achieving a rating upgrade. When the credit rating (and thus the perceived safety) of a bond improves, its price rises — while its yield drops in line with other similarly safe bonds. This will give these investments more of a price buffer when interest rates rise.

For instance, I bought shares of Ford Motor Credit 7.60% Notes (NYSE: FCJ) in April for my real-money portfolio. In the worst of the financial crisis, the credit rating on this issue was an ugly “Caa1.” When I purchased the notes, they had already been upgraded to “B1″ — still highly speculative. They have subsequently been upgraded to “Ba3.” Based on Ford's current numbers, I think future upgrades are likely.

Floating Interest Rate Securities: When it starts looking as if a rise in interest rates is imminent, I plan to rotate out of some of my more interest rate-sensitive investments and into investments with more appreciation potential, like floating-rate preferred stocks and bonds. These securities automatically pay higher distribution rates when interest rates rise. While it's hard to purchase individual floating-rate securities, there are a number of closed-end funds that specialize in these stocks and bonds.

In my October issue of The Daily Paycheck, I even picked a floating-rate bond fund as my “Security of the Month.” The fund currently has a yield of 7.6% and pays monthly distributions. I'm adding 335 shares to my $200,000 portfolio. (Sorry, in fairness to Daily Paycheck subscribers, I can't give its name. But if you'd like to join me, you can read all the details in this month's issue. Click here for more information.)

So you can go ahead and pay $75,000 to Larry Meyers. Or you could invest your money in two income strategies that are less sensitive to rising interest rates. I know which I'll be doing.

Uncategorized

The Man Selling the Fed’s Secrets

October 7th, 2010

The Man Selling the Fed's Secrets

I'd be surprised if you've heard of Larry Meyer, but in the past few days, he's created quite a buzz.

Larry Meyer is a former Federal Reserve Governor. He holds a B.A. from Yale; a Ph.D. from MIT. His pedigree is top-notch. So are his connections.

Meyer is still buddies with the folks on the Federal Open Market Committee, the policy-making body of the U.S. Federal Reserve. And his friends tell him what goes on at their meetings weeks before the general public gets to read about it.

You would think sharing that information with anyone outside the current Fed members would be illegal. You would also think the fact that Meyer charges well-heeled clients $75,000 each for access to what he has heard — well ahead of the investing public — would be unlawful. Amazingly, neither action is illegal, according to a Reuters investigation.

One of the Federal Reserve's main tools is setting target interest rates, and profits can be made or lost based on what the Fed says at its meetings. It makes me mad (and likely you too) that some have inside access. But there is a way to fight back.

I think we'll be much better off finding a few good income investments that are simply less sensitive to interest rates.

Why interest rates matter to income investors
When interest rates rise, the price of some fixed-income securities, like bonds, tend to fall. For an extreme example, you wouldn't want to hold a risky corporate bond paying a 7% yield if you could now get a safer 10-year Treasury bond paying 7%.

So when the interest rates of Treasuries rise, investors tend to shed their riskier assets. This causes the price to drop — and the yields to rise — ultimately making riskier fixed-income securities more competitive when compared with safer investments.

It's the number one reason why income investors are obsessed with what the U.S. Federal Reserve is likely to do with interest rates. And why some pay $75,000 for Larry Meyer's analysis.

The two primary reasons the Federal Reserve raises target rates is to slow the economy and/or to prevent out-of-control inflation. But last I looked, the economy wasn't overheating. In fact, the U.S. economic recovery is plodding along.

The U.S. economy grew by only +1.7% in the second quarter of this year. Economists are forecasting a possible +2.1% growth rate for the remainder of the year. Unemployment continues to remain high. And until people are back to work, personal consumption — a primary engine of the U.S. economy — will be constrained.

Meanwhile, inflation is running below 1.2% — well below the level where the Federal Reserve starts breaking a sweat.

But this will eventually change. Interest rates are at historically low levels and in all practicality can't go much lower. When the economy finds more solid footing, you can rest assured that the Fed will be moving rates north.

You don't have to pay someone $75,000 to figure this out.

Two interest rate-friendly strategies with above-average yields
Knowing that rates will eventually rise, I am picking up income investments for my Daily Paycheck portfolio that provide more protection in a rising rate environment. And I'm not sacrificing yield to do it.

Action to Take –> Here are a couple of spots I'm looking:

Bonds with the Potential for Credit Upgrades: In my bond selection, I've tried to pick issues that have a good chance of achieving a rating upgrade. When the credit rating (and thus the perceived safety) of a bond improves, its price rises — while its yield drops in line with other similarly safe bonds. This will give these investments more of a price buffer when interest rates rise.

For instance, I bought shares of Ford Motor Credit 7.60% Notes (NYSE: FCJ) in April for my real-money portfolio. In the worst of the financial crisis, the credit rating on this issue was an ugly “Caa1.” When I purchased the notes, they had already been upgraded to “B1″ — still highly speculative. They have subsequently been upgraded to “Ba3.” Based on Ford's current numbers, I think future upgrades are likely.

Floating Interest Rate Securities: When it starts looking as if a rise in interest rates is imminent, I plan to rotate out of some of my more interest rate-sensitive investments and into investments with more appreciation potential, like floating-rate preferred stocks and bonds. These securities automatically pay higher distribution rates when interest rates rise. While it's hard to purchase individual floating-rate securities, there are a number of closed-end funds that specialize in these stocks and bonds.

In my October issue of The Daily Paycheck, I even picked a floating-rate bond fund as my “Security of the Month.” The fund currently has a yield of 7.6% and pays monthly distributions. I'm adding 335 shares to my $200,000 portfolio. (Sorry, in fairness to Daily Paycheck subscribers, I can't give its name. But if you'd like to join me, you can read all the details in this month's issue. Click here for more information.)

So you can go ahead and pay $75,000 to Larry Meyers. Or you could invest your money in two income strategies that are less sensitive to rising interest rates. I know which I'll be doing.

Uncategorized

Currency Wars?

October 7th, 2010

Yesterday, we watched the currencies and precious metals rise all day long, in small increments. But the overnight markets have taken the currencies even higher! For instance, the Aussie dollar (AUD) is near 99-cents, and a new all-time record high! And gold is up another $9 this morning to $1,358!

What’s the muscle behind this push of the dollar to levels we’ve not seen before? Well, I personally think that the main muscle is what’s being termed as a “currency war”… And then there are other items that are helping push the dollar lower, like the German Industrial Production report that printed this morning, and showed an increase of more than three times pace the “experts” forecast! German Industrial Production surged 1.7% in August!

But let’s get back to this so-called “currency war” (I keep hearing the theme to Star Wars in my head!)… US Treasury Secretary Tim Geithner said Japan didn’t fuel international tensions when it intervened in the foreign-exchange market last month.

The Treasury chief said today that there’s a “damaging dynamic” at work in currency markets as countries race to limit appreciation. When asked whether he thought Japan had “set the fire” for this dynamic, Geithner responded, “I don’t, no” in remarks at the Brookings Institution.

Instead, Geithner kept up his calls for China to let the renminbi (CNY) rise against the dollar. He said the “main problem” facing foreign-exchange markets is “a set of emerging-market economies that both remain undervalued and are leaning heavily against the pressures for appreciation.”

In other words… He’s talking about China… And maybe even throwing India under the bus too…

Geithner then stepped up the pressure on China, effectively blaming the world’s number-two economy for the emergence of what some are calling a “currency war” ahead of a G-7 meeting.

And China’s Premier immediately answered saying that the demands to appreciate the renminbi would be disaster for his country…

Why can’t we leave the Chinese out of this? They have their country to run, and we have ours… If we had taken better care of our country’s finances, we wouldn’t be in this mess. I think we would be better off taking care of our own house, and leaving China to take care of theirs. If you rile them up too much, you risk the chance of them telling you to finance your own deficit!

OK… Enough on that… But I can tell you that at no time in the past weak dollar trend, has the negativity been so strong against the dollar as it is at this time. I get all caught up in thoughts on this kind of move, and the thought that keeps coming to me from the back of my brain is that “a star burns the brightest right before it burns out”…

So… What are your thoughts? Is this the end of the run for the currencies? Or… Is there still more weakness for the dollar in store? I truly believe there’s more weakness, but… That’s in the long run… For now, I’ve got to think that we’ve come so far, so fast, that there has to be a pause for the cause. A “filling in of the gaps” and all that! Nothing in the markets is a one-way street…

I yelled out across the desk yesterday that after all the intervention, quantitative easing, and interest rate cutting, the Japanese yen (JPY) is right back to pre-intervention levels of 82.50! So, once again, it is proven that intervention is just wasted money… And that also brings up a point that I think the government of this country, and that probably all countries miss… And that is that the government doesn’t have money! The only money they have is taken from taxpayers… So… When a government says something like, “we’re going to give you money” all they’re doing is letting you keep more of what you had!

Whoa there, partner! I really went astray there! Let’s see… Currencies… Oh yeah! I was writing for a publication yesterday, and made the point that in March of 2009, the Fed/Cartel implemented quantitative easing (QE) and the dollar spent the next eight months in the dumps, much like the move we’re seeing this week. The only thing that saved the dollar, which was teetering on the cliff’s edge in November, was the “discovery” of the Eurozone GIIPS deficit problems… But once those Eurozone countries announced austerity measures, the focus came back to the dollar’s problems.

Now, I’m not here to say that those austerity measures are the cure to all that ails the GIIPS problems… Which is why I continue to say that the euro is not out of the woods… And the media could whip the markets into a frenzy on this subject in a heartbeat.

Getting back to yen for a second… Japanese PM, Kan, said that his “government will take decisive steps when necessary in dealing with a strong yen”…  And then showing that everyone in Japan is not singing from the same song sheet, Vice Finance Minister, Igarashi, said, “Japan won’t weaken yen to become more competitive with other countries in trade and any currency intervention would be at restraining excessive moves. It’s not our intention to engage in a currency devaluation race for the sake of national interest.”

So… Gold is kicking sand in the dollar’s face again this morning, along with gold’s trusty sidekick, silver! I saw my friend David Galland refer to comment by the “Godfather” of newsletter writers, Richard Russell, who was speaking at the Casey Summit held last weekend, and who had this to say about gold… (This is good, so you’ll want to remember this line…)

“Some people refer derisively to gold owners as ‘gold bugs.’ Turning that idea around, legendary investor Richard Russell, in a rare public appearance at the summit, used the term ‘dollar bug’ to describe those who would foolishly prefer holding paper currency over gold. I think that’s a very good way of looking at the gold versus dollar argument.”

So… I’m taking that one to heart… From now on, I’m going to refer to dollar buyers and “dollar bugs”…

OK… Let’s get back to the Aussie dollar, for it was the best performer last night, and is now at an all-time record level versus the dollar. The Aussie dollar got a boost from yet another spike in employment. Full-Time Employment in Australia was 55,800 in September, which was the most workers taken on in eight months… I would have to think that the Reserve Bank of Australia (RBA) members are kicking themselves right now, for not hiking rates earlier this week when they had the chance. Now they’ll have to wait for their November meeting, and that could put them behind the inflation 8-ball… But I doubt it… The RBA has done a good job of being proactive with their rate hikes that go back to last year. Oh, by the way, the Aussie dollar did trade to 9915-cents overnight, slipping back just a bit on profit taking.

The “QE is coming soon to a central bank near you” campers, like me, will probably have to think about it more after today, as Fed Head Fisher (from Dallas) is scheduled to speak, and is a non-believer in the usefulness of QE… And then the lone hawk on the Cartel, Fed Head Hoenig will also be speaking. You can always count on Hoenig to deliver some good sound bites that differ from the rhetoric heard from the Cartel.

I had a nice talk with a reporter yesterday regarding Brazil… We talked about the prospects for a stronger real (BRL), and so on… The real, after getting caught up in the currency rally, had ignored the latest measure the government had undertaken to stem the real’s weakness, but it all caught up with the real yesterday… But today… I’m waiting for the Brazilian market to open, because… Given the price action in currencies versus the dollar overnight, I would suspect that real opens strong!

With the other emerging market currencies rising versus the dollar overnight, I would think that real join that move. But we’ll have to wait-n-see, eh?

And oil continues to show price increases… With black gold (Texas tea), now regaining $83 per barrel, the Canadian dollar/loonie (CAD) is nearing parity to the green/peach back (US dollar).

And here I am ready to go to the Big Finish, but just remembered that there are two Central Bank meetings going on as I type… The Bank of England (BOE) and the European Central Bank (ECB) are meeting this morning… I guess the most important thing to come from these two meetings will be the ECB statement at the press conference following the meeting. The ECB seems to be champing at the bit to remove stimulus, but just can’t pull the trigger.

If the ECB is seriously concerned about the strength of the euro – remember they were elated for manufacturing and exports to see the euro drop to 1.20 – then they could trip the euro up with a statement about removing stimulus… Otherwise, there won’t be any mention…

And a currency that I don’t talk much about, but I’m always thinking about, the Singapore dollar (SGD), has gained over 3% in the past month! And why not? Japanese yen is at a 15-year high versus the dollar, and the Chinese renminbi has gained 1.5%… Gotta keep up with the Joneses!

I’ve explained this before, but for all the new readers… The Monetary Authority of Singapore (MAS) is the gatekeeper for the Singapore dollar. The MAS meets twice a year, and issues a statement about their wishes for the Singapore dollar… Five months ago, the MAS issued a statement that called for a gradual strengthening of the Singapore dollar… I’m thinking that the MAS will retain that policy at their next meeting, which takes place next week.

Then there was this from The Economist

The US doesn’t have to rely on negotiations or a trade war to overpower the harmful effect of China’s currency policy on the US labor market and trade, according to The Economist. The most powerful tool the US can bring is to pursue adequate monetary and fiscal stimulus at home. “At the present nominal exchange rate, expansionary monetary policy in America would prove highly inflationary in China, which is a darn good reason for everyone in China (including those pesky exporters) to favor appreciation,” the magazine notes.

Yes, that’s all good, but it’s easier said than done!

To recap… The currencies and precious metals have taken their assault on the dollar to new heights overnight with both the Aussie dollar and loonie nearing parity to the dollar, and the euro moving toward 1.40. Gold is $1,360 this morning, and doesn’t appear to be looking in its rearview mirror for profit takers. The so-called “currency war” is a key driver to all this dollar weakness… And after all the money spent on weakening the Japanese yen, the yen is back to pre-intervention levels!

Chuck Butler
for The Daily Reckoning

Currency Wars? 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:
Currency Wars?




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

Currency Wars?

October 7th, 2010

Yesterday, we watched the currencies and precious metals rise all day long, in small increments. But the overnight markets have taken the currencies even higher! For instance, the Aussie dollar (AUD) is near 99-cents, and a new all-time record high! And gold is up another $9 this morning to $1,358!

What’s the muscle behind this push of the dollar to levels we’ve not seen before? Well, I personally think that the main muscle is what’s being termed as a “currency war”… And then there are other items that are helping push the dollar lower, like the German Industrial Production report that printed this morning, and showed an increase of more than three times pace the “experts” forecast! German Industrial Production surged 1.7% in August!

But let’s get back to this so-called “currency war” (I keep hearing the theme to Star Wars in my head!)… US Treasury Secretary Tim Geithner said Japan didn’t fuel international tensions when it intervened in the foreign-exchange market last month.

The Treasury chief said today that there’s a “damaging dynamic” at work in currency markets as countries race to limit appreciation. When asked whether he thought Japan had “set the fire” for this dynamic, Geithner responded, “I don’t, no” in remarks at the Brookings Institution.

Instead, Geithner kept up his calls for China to let the renminbi (CNY) rise against the dollar. He said the “main problem” facing foreign-exchange markets is “a set of emerging-market economies that both remain undervalued and are leaning heavily against the pressures for appreciation.”

In other words… He’s talking about China… And maybe even throwing India under the bus too…

Geithner then stepped up the pressure on China, effectively blaming the world’s number-two economy for the emergence of what some are calling a “currency war” ahead of a G-7 meeting.

And China’s Premier immediately answered saying that the demands to appreciate the renminbi would be disaster for his country…

Why can’t we leave the Chinese out of this? They have their country to run, and we have ours… If we had taken better care of our country’s finances, we wouldn’t be in this mess. I think we would be better off taking care of our own house, and leaving China to take care of theirs. If you rile them up too much, you risk the chance of them telling you to finance your own deficit!

OK… Enough on that… But I can tell you that at no time in the past weak dollar trend, has the negativity been so strong against the dollar as it is at this time. I get all caught up in thoughts on this kind of move, and the thought that keeps coming to me from the back of my brain is that “a star burns the brightest right before it burns out”…

So… What are your thoughts? Is this the end of the run for the currencies? Or… Is there still more weakness for the dollar in store? I truly believe there’s more weakness, but… That’s in the long run… For now, I’ve got to think that we’ve come so far, so fast, that there has to be a pause for the cause. A “filling in of the gaps” and all that! Nothing in the markets is a one-way street…

I yelled out across the desk yesterday that after all the intervention, quantitative easing, and interest rate cutting, the Japanese yen (JPY) is right back to pre-intervention levels of 82.50! So, once again, it is proven that intervention is just wasted money… And that also brings up a point that I think the government of this country, and that probably all countries miss… And that is that the government doesn’t have money! The only money they have is taken from taxpayers… So… When a government says something like, “we’re going to give you money” all they’re doing is letting you keep more of what you had!

Whoa there, partner! I really went astray there! Let’s see… Currencies… Oh yeah! I was writing for a publication yesterday, and made the point that in March of 2009, the Fed/Cartel implemented quantitative easing (QE) and the dollar spent the next eight months in the dumps, much like the move we’re seeing this week. The only thing that saved the dollar, which was teetering on the cliff’s edge in November, was the “discovery” of the Eurozone GIIPS deficit problems… But once those Eurozone countries announced austerity measures, the focus came back to the dollar’s problems.

Now, I’m not here to say that those austerity measures are the cure to all that ails the GIIPS problems… Which is why I continue to say that the euro is not out of the woods… And the media could whip the markets into a frenzy on this subject in a heartbeat.

Getting back to yen for a second… Japanese PM, Kan, said that his “government will take decisive steps when necessary in dealing with a strong yen”…  And then showing that everyone in Japan is not singing from the same song sheet, Vice Finance Minister, Igarashi, said, “Japan won’t weaken yen to become more competitive with other countries in trade and any currency intervention would be at restraining excessive moves. It’s not our intention to engage in a currency devaluation race for the sake of national interest.”

So… Gold is kicking sand in the dollar’s face again this morning, along with gold’s trusty sidekick, silver! I saw my friend David Galland refer to comment by the “Godfather” of newsletter writers, Richard Russell, who was speaking at the Casey Summit held last weekend, and who had this to say about gold… (This is good, so you’ll want to remember this line…)

“Some people refer derisively to gold owners as ‘gold bugs.’ Turning that idea around, legendary investor Richard Russell, in a rare public appearance at the summit, used the term ‘dollar bug’ to describe those who would foolishly prefer holding paper currency over gold. I think that’s a very good way of looking at the gold versus dollar argument.”

So… I’m taking that one to heart… From now on, I’m going to refer to dollar buyers and “dollar bugs”…

OK… Let’s get back to the Aussie dollar, for it was the best performer last night, and is now at an all-time record level versus the dollar. The Aussie dollar got a boost from yet another spike in employment. Full-Time Employment in Australia was 55,800 in September, which was the most workers taken on in eight months… I would have to think that the Reserve Bank of Australia (RBA) members are kicking themselves right now, for not hiking rates earlier this week when they had the chance. Now they’ll have to wait for their November meeting, and that could put them behind the inflation 8-ball… But I doubt it… The RBA has done a good job of being proactive with their rate hikes that go back to last year. Oh, by the way, the Aussie dollar did trade to 9915-cents overnight, slipping back just a bit on profit taking.

The “QE is coming soon to a central bank near you” campers, like me, will probably have to think about it more after today, as Fed Head Fisher (from Dallas) is scheduled to speak, and is a non-believer in the usefulness of QE… And then the lone hawk on the Cartel, Fed Head Hoenig will also be speaking. You can always count on Hoenig to deliver some good sound bites that differ from the rhetoric heard from the Cartel.

I had a nice talk with a reporter yesterday regarding Brazil… We talked about the prospects for a stronger real (BRL), and so on… The real, after getting caught up in the currency rally, had ignored the latest measure the government had undertaken to stem the real’s weakness, but it all caught up with the real yesterday… But today… I’m waiting for the Brazilian market to open, because… Given the price action in currencies versus the dollar overnight, I would suspect that real opens strong!

With the other emerging market currencies rising versus the dollar overnight, I would think that real join that move. But we’ll have to wait-n-see, eh?

And oil continues to show price increases… With black gold (Texas tea), now regaining $83 per barrel, the Canadian dollar/loonie (CAD) is nearing parity to the green/peach back (US dollar).

And here I am ready to go to the Big Finish, but just remembered that there are two Central Bank meetings going on as I type… The Bank of England (BOE) and the European Central Bank (ECB) are meeting this morning… I guess the most important thing to come from these two meetings will be the ECB statement at the press conference following the meeting. The ECB seems to be champing at the bit to remove stimulus, but just can’t pull the trigger.

If the ECB is seriously concerned about the strength of the euro – remember they were elated for manufacturing and exports to see the euro drop to 1.20 – then they could trip the euro up with a statement about removing stimulus… Otherwise, there won’t be any mention…

And a currency that I don’t talk much about, but I’m always thinking about, the Singapore dollar (SGD), has gained over 3% in the past month! And why not? Japanese yen is at a 15-year high versus the dollar, and the Chinese renminbi has gained 1.5%… Gotta keep up with the Joneses!

I’ve explained this before, but for all the new readers… The Monetary Authority of Singapore (MAS) is the gatekeeper for the Singapore dollar. The MAS meets twice a year, and issues a statement about their wishes for the Singapore dollar… Five months ago, the MAS issued a statement that called for a gradual strengthening of the Singapore dollar… I’m thinking that the MAS will retain that policy at their next meeting, which takes place next week.

Then there was this from The Economist

The US doesn’t have to rely on negotiations or a trade war to overpower the harmful effect of China’s currency policy on the US labor market and trade, according to The Economist. The most powerful tool the US can bring is to pursue adequate monetary and fiscal stimulus at home. “At the present nominal exchange rate, expansionary monetary policy in America would prove highly inflationary in China, which is a darn good reason for everyone in China (including those pesky exporters) to favor appreciation,” the magazine notes.

Yes, that’s all good, but it’s easier said than done!

To recap… The currencies and precious metals have taken their assault on the dollar to new heights overnight with both the Aussie dollar and loonie nearing parity to the dollar, and the euro moving toward 1.40. Gold is $1,360 this morning, and doesn’t appear to be looking in its rearview mirror for profit takers. The so-called “currency war” is a key driver to all this dollar weakness… And after all the money spent on weakening the Japanese yen, the yen is back to pre-intervention levels!

Chuck Butler
for The Daily Reckoning

Currency Wars? 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:
Currency Wars?




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

How to Own Gold in an IRA – But Should You?

October 7th, 2010

With pundits and investors alike touting gold as the hedge against the falling dollar, inflation, and the Apocalypse, a natural question investors are starting to ask is what are the various ways they can invest in gold, and for longer term investment horizons, how to hold gold in an IRA. 

How to Own Gold in an IRA

There are a few options for investors seeking to hold gold in their IRA:

  • ETFs – The most popular gold ETF is (GLD) which tracks the underlying price of gold bullion, but you can also own miners via (GDX), speculate a big with Gold Miner Juniors via (GDXJ), or if not having access to your gold keeps you up at night, the Sprott Gold (PHYS) option allows investors access to their gold which some prefer over (GLD) since they don’t trust that the custodian could deliver if called upon.  Note that the Sprott fund trades at a premium to NAV and opens itself up to arbitrage via gold pairs trades when that premium spikes.
  • Physical Gold Bullion – For the very wealthy and those who are distrustful of the claims of the ETF custodians, there is an option to pay a private custodian to hold gold for you in your name.  You’d need to set up a self directed IRA with a custodian who in turn will procure gold from their network of dealers.  You can then transfer money to that custodian up to the max for the year or even from an existing IRA account.  Once you buy the gold in the desired format of gold, coins, or otherwise, the new IRA custodian will ship the gold to a holding depository to be held on behalf.  You should anticipate transaction costs and management fees along the way of course.
  • Other Precious Metals ETFs – While gold gets all the headlines, gold may not even be the precious metal that gives you the best performance!  As outlined in this article on ETFs beating gold, some of the other metals are outperforming; just watch those leveraged ETFs for the long-term, as they all go to zero in the end.

SHOULD You Invest in Gold in an IRA?

I was once told by a very wise man on a completely unrelated topic, “Just because you CAN do something, it doesn’t mean you SHOULD do it”.  Well, this may very well be one of those cases.  The advent of ETFs, metals custodians and middle-men peddling their services on late night television has opened up opportunities for retirement accounts that didn’t exist previously.  Before jumping head first into investing in gold at all, let alone, for the long-term, let’s think about some of the risks involved:

  • Gold doesn’t pay a dividend or coupon – Stocks and bonds do.  In fact, dividends are almost half the return of stocks over 20 years!  Even if they decline in value, often times the market will set an artificial floor and buoy declines since the future cash flows have an intrinsic value to investors.  Held long enough, vehicles with steady payouts like some of the few remaining AAA companies paying dividends and bonds will return to parity and dividend growers will give you capital appreciation as well!  Gold will never grow because it’s not paying or increasing a dividend.  It will only continue to go up in value in terms of your local currency as investors doubt the value of that currency, which may only be a 2010s phenomena.  We just don’t know.
  • This May Be a Bubble – It is completely plausible that you buy into gold now at $1350/oz and end up selling it 20 years from now at $1000/oz.  Gold travels in very long secular trends and we may be at a peak or we may just be getting started.  It’s tough to say, but it’s possible the market has gotten ahead of itself.
  • Gold has Carrying Costs – Regardless of whether you’re holding bullion, paying a custodian to hold it, or you’re buying it through an ETF, it’s expensive to transport, store, protect and monitor significant stores of gold.  Over decades, the additional fees associated with the storage and protection of gold could really add up, very much negating any benefits.

So, there you have it.  If you’re insistent on owning gold in an IRA, there are some options for you.  You can always buy gold in a traditional taxable manner, but make sure you understand the various gold tax rule since they vary depending on your investment vehicle.

Disclosure: Author holds GLD in a traditional trading account.

ETF, OPTIONS

Seven New ETFs Cover New Ground

October 7th, 2010

Ron Rowland

The exchange traded fund menu is growing fast. So far this year more than 170 new ETFs and similar exchange-traded products have hit the market in the U.S.

Quite a few of the new ETFs were just “me-too” funds. The big sponsors like iShares, SPDR, and Vanguard don’t want their rivals to own any niche unchallenged.

Competition is good for consumers because it keeps fees down. On the other hand, the plethora of ETF choices in some market segments can leave investors confused and paralyzed.

That’s why I’m always excited when new ETFs cover unexplored territory: Corners of the global markets that are otherwise inaccessible for most individual investors. I love this kind of innovation. Unfortunately sometimes it doesn’t work out as the sponsor had hoped (see my latest ETF Deathwatch report).

Today I’m going to tell you about seven new funds that offer something unique. If they’re successful in attracting assets, you can bet other firms will come out with similar offerings. For now, though, all these ETFs and ETNs have their corners to themselves.

The Philippines and New Zealand are now available as ETFs.
The Philippines and New Zealand are now available as ETFs.

iShares MSCI Philippines (EPHE)

iShares MSCI New Zealand (ENZL)

You know I’m bullish on Southeast Asia. The Philippines are on the edge of that region and share many of the same attractions. EPHE owns about 26 Philippine stocks from a variety of sectors, with a heavy concentration in financials.

New Zealand is a little farther away and is often lost in the shadow of much bigger Australia. Yet New Zealand is a booming economy and ENZL is the only pure-play for U.S. investors. ENZL also features a more-balanced sector allocation, the largest being materials and telecommunications. New Zealand stocks are also noted for their yields. And the distribution yield on ENZL is expected to be more than 4 percent.

UBS E-TRACS 1x Monthly Short Alerian MLP Infrastructure Total Return Index ETN (MLPS)

This one’s name is quite a mouthful, so I will decode it for you. You are probably familiar with the MLP segment: Master limited partnerships that invest mainly in energy pipelines and storage facilities. If not, please review Add Energy Income with an MLP ETN.

Investors can choose from six MLP-related funds on the long side. MLPS is the first, and so far the only, product to provide inverse exposure for this group. I suspect the MLP boom may be a bit overbought — meaning MLPS might come in handy soon.

Most of the MLP funds, including MLPS, are structured as exchange traded notes, or ETNs. They’re essentially a form of bond. With an ETN you are exposed to loss if the issuer should go bankrupt. I explained more in my column last year, Why ETNs are Riskier Than They Look.

WisdomTree Dreyfus Commodity Currency Fund (CCX)

If you like currencies and commodities, then CCX may be just what you’ve been waiting for. This actively-managed ETF holds the currencies of key commodity-producing nations. Such currencies tend to be stronger during times of inflation and often bring higher yields as well.

The list of currencies held by CCX can change. For now eight currencies are represented: Australian dollar, Canadian dollar, Norwegian krone, New Zealand dollar, Brazilian real, Chilean peso, Russian ruble, and South African rand.

Emerging Global Shares Indxx India Infrastructure (INXX)

Global X Brazil Consumer (BRAQ)

India is in dire need of infrastructure improvements.
India is in dire need of infrastructure improvements.

INXX and BRAQ are another combination of two attractive niches: Emerging markets and sectors. India and Brazil are both growing nicely, and these ETFs let you zero in on some of their best sectors.

Global X Lithium ETF (LIT)

I mentioned LIT in my September 9 column on Green Energy ETFs. Lithium is a key ingredient in the lightweight batteries used in electric cars. If the move toward alternative energy sources continues to revive, lithium demand will grow, too. LIT owns the stock of lithium producers and battery manufacturers around the globe. This one is high-risk, but the potential for profits is big, too!

All these funds came out since July of this year, so they don’t have much operating history. Use caution if you want to buy any of them. Limit orders are always a good idea for small funds, especially those with exposure to foreign markets.

Also, don’t be surprised if some of the new ETFs and ETNs don’t last long …

Just this week The Wall Street Journal published an article headlined Uncertain Future for Tiny ETFs. I was quoted in the article and provided some of the statistics reported. You can read it for yourself at the link.

Here is the bottom line: Unproven products from unknown sponsors have a very high failure rate. Yet if they make it, I think some of these funds have tremendous potential. Check them out!

Best wishes,

Ron

P.S. Do you Tweet? I do. Twitter users can follow me at http://www.twitter.com/ron_rowland for frequent updates, personal insights and observations about the world of ETFs.

If you don’t have a Twitter account, sign up today at http://www.twitter.com/signup and then click on the ‘Follow’ button from http://www.twitter.com/ron_rowland to receive updates on either your cell phone or Twitter page.

Related posts:

  1. Feds Scrutinizing Derivatives in ETFs
  2. ETFs Bring the Middle East to You
  3. Profit from the Falling Dollar With ETFs

Read more here:
Seven New ETFs Cover New Ground

Commodities, ETF, Mutual Fund, Uncategorized

Cogent Research Highlights PIMCO’s Active ETF Success

October 7th, 2010

Cogent Research, the Cambridge-based research firm known for its research on financial services, put out a piece on its blog that highlighted new entrants which have joined the ETF industry, those who planning on getting in and the kind of change they are bringing to the landscape. Specifically, Cogent talks about to specific issuers that have made quite a splash in the space since their entry – PIMCO and Charles Schwab.

PIMCO first entered the ETF arena in June 2009 with the launch of its US Treasury index ETF, tracking 1-3 year maturities. Since then it has launched 8 index ETFs and 4 actively-managed ETFs. The four actively-managed ETFs are all run by PIMCO’s portfolio managers, with the municipal bond funds and the Build America Bond fund being run by John Cummings and the short maturity fund being run by Jerome Schneider. As Cogent notes, PIMCO has had a lot of success in gaining traction on its newly launched offerings with total assets in its ETFs reaching $1.3 billion at the end of September, according to NSX data. Of this, about $430 million was in actively-managed ETFs, with its Enhanced Short Maturity Fund (MINT: 100.931 +0.00%), being the biggest success.

As Cogent’s post points out, PIMCO’s success can be largely attributed to its reputation, track record and presence in the fixed-income market. Its brand alone has been able to help it attract assets from investors, something that was illustrated by PIMCO’s ranking in the 2010 Advisor Brandscape – another report that published by Cogent Research in September. Across the 1,560 investment advisors that were surveyed for the report, PIMCO was ranked fourth amongst ETF providers in terms “advisor loyalty”, putting it amongst the likes of State Street and Vanguard even though PIMCO’s ETFs only hit the market in mid-2009.

Another likely reason behind the success of PIMCO’s ETFs is that they provide access to PIMCO’s highly-respected management expertise, which might have been hard to achieve previously through funds that were restricted only to institutions or due to high investment minimums and other restrictions. PIMCO’s Director of ETF Product Management, Don Suskind, confirmed as much in a recent interview with Morningstar, where he came out and said, “We know that people are interested in PIMCO’s views on the market, and we also know that people have strong preferences for the benefits of the ETF vehicle, whether its tax preference or if they want to get the same expense ratio as everyone in the fund or if it’s the convenience of trading a listed security. Really, there is a set of investors that love ETFs, and we want to make PIMCO available to those folks through the ETF.”

ETF

Avis Budget Group (NYSE:CAR) — A New Stage of Avis-Dollar-Hertz Drama

October 7th, 2010

Avis Budget Group (NYSE:CAR), the New Jersey-based international car and truck rental company, is continuing its three-way mating dance with Dollar Thrifty and Hertz over some possible combination. It appears, so far at least, that Hertz hasn’t quite sweetened the honey pot enough to tempt Dollar Thrifty into a merger.

Here to offer additional insight on the potential M&A alternatives is Agora Financial’s editor of the Strategic Short Report, Dan Amoss.

From his most recent reader update:

“At yesterday’s meeting, Dollar Thrifty shareholders voted to reject Hertz’s bid for the company. Apparently, as reported in the press, many DTG shareholders believe Hertz’s offer substantially undervalues DTG stock. This is laughable. I’d have voted to take the money and run far away from this business, thankful that I’d caught a ride on the great “junk stock” rally of 2009.

“Who knows what these DTG shareholders think of Avis Budget’s (NYSE:CAR) offer, which is only a few dollars per share higher? Perhaps they’ll vote to reject that one, too. Either way, Avis is going to move forward with its offer. It issued a press release announcing its intent to commence a tender offer for DTG shares.

“The consensus view of this M&A drama goes like this: the company that acquires DTG will enjoy a bonanza of earnings driven by synergies and cost cutting. Sure, there will be low-hanging fruit on the cost cutting side. But the consensus view is also ignoring the dangerously boosted leverage of the combined company’s balance sheet. I think the risk of higher financial leverage outweighs the theoretical cost-cutting opportunities.

“If Avis winds up acquiring DTG, I think it’ll be a good development for short sellers. We’d see a more highly levered balance sheet in 2011, right when U.S. GDP flat lines or possibly turns negative. The industry’s fantasy that it can boost rental car pricing in cartel-like fashion presumes that demand will stay constant. Plus, everyone assumes that asset-backed financing for rental fleets will remain tame forever. I’m not so sure about this in an environment of accelerating mortgage defaults and stress at the big banks.

“This drama is not over, and will enter a new stage.”

According to Amoss, DTG shareholders could vote to reject the bid, or antitrust regulators could block a potential CAR and DTG combination. That’s just a basic outline of the situation. To get Amoss’ specific actionable recommendations based on these developments you must sign up for his newsletter, Dan Amoss’ Strategic Short Report, which is available through the Agora Financial reports page, 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.]

Avis Budget Group (NYSE:CAR) — A New Stage of Avis-Dollar-Hertz Drama 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:
Avis Budget Group (NYSE:CAR) — A New Stage of Avis-Dollar-Hertz Drama




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

Avis Budget Group (NYSE:CAR) — A New Stage of Avis-Dollar-Hertz Drama

October 7th, 2010

Avis Budget Group (NYSE:CAR), the New Jersey-based international car and truck rental company, is continuing its three-way mating dance with Dollar Thrifty and Hertz over some possible combination. It appears, so far at least, that Hertz hasn’t quite sweetened the honey pot enough to tempt Dollar Thrifty into a merger.

Here to offer additional insight on the potential M&A alternatives is Agora Financial’s editor of the Strategic Short Report, Dan Amoss.

From his most recent reader update:

“At yesterday’s meeting, Dollar Thrifty shareholders voted to reject Hertz’s bid for the company. Apparently, as reported in the press, many DTG shareholders believe Hertz’s offer substantially undervalues DTG stock. This is laughable. I’d have voted to take the money and run far away from this business, thankful that I’d caught a ride on the great “junk stock” rally of 2009.

“Who knows what these DTG shareholders think of Avis Budget’s (NYSE:CAR) offer, which is only a few dollars per share higher? Perhaps they’ll vote to reject that one, too. Either way, Avis is going to move forward with its offer. It issued a press release announcing its intent to commence a tender offer for DTG shares.

“The consensus view of this M&A drama goes like this: the company that acquires DTG will enjoy a bonanza of earnings driven by synergies and cost cutting. Sure, there will be low-hanging fruit on the cost cutting side. But the consensus view is also ignoring the dangerously boosted leverage of the combined company’s balance sheet. I think the risk of higher financial leverage outweighs the theoretical cost-cutting opportunities.

“If Avis winds up acquiring DTG, I think it’ll be a good development for short sellers. We’d see a more highly levered balance sheet in 2011, right when U.S. GDP flat lines or possibly turns negative. The industry’s fantasy that it can boost rental car pricing in cartel-like fashion presumes that demand will stay constant. Plus, everyone assumes that asset-backed financing for rental fleets will remain tame forever. I’m not so sure about this in an environment of accelerating mortgage defaults and stress at the big banks.

“This drama is not over, and will enter a new stage.”

According to Amoss, DTG shareholders could vote to reject the bid, or antitrust regulators could block a potential CAR and DTG combination. That’s just a basic outline of the situation. To get Amoss’ specific actionable recommendations based on these developments you must sign up for his newsletter, Dan Amoss’ Strategic Short Report, which is available through the Agora Financial reports page, 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.]

Avis Budget Group (NYSE:CAR) — A New Stage of Avis-Dollar-Hertz Drama 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.”

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Avis Budget Group (NYSE:CAR) — A New Stage of Avis-Dollar-Hertz Drama




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

Stock Market Leaders Are Now Lagging?

October 7th, 2010

Wednesday’s session closed mixed on the day. The DOW posted a third of a percent gain while the tech sector closed down almost nine tenths of a percent. While technology stocks have been leading the market higher in the recent months, today they took the back seat while the DOW took control.

Take a look at the intraday chart of the SPY price action compared to the tech sector. It’s clear the tech stocks where not in favor today. Some tech stocks that really took a beating today were FFIV, NTAP, APKT and AKAM.

On another note, we are entering earning season and I am wondering if we are going to see a “Sell the New” type of thing again.

The broad market is experiencing a 36 day down cycle which has played a very dominant roll in the market this year. It topped out 9 days ago so we should expect sideways chop or some selling over the next 9 trading session. Because the market is trending up, pullbacks should be shallow.

The market continues to grind its way higher on relatively light volume. I have been waiting several weeks now for the volume to come back into the market but its just not happening. The majority of shares being traded are from banks, funds and day traders as the average investor’s not taking part because of the uncertainty looming. The lack of volume (commitment) to the market from the masses is making the market internals swing from one extreme to another on virtually weekly basis making it more difficult to take advantage of short term extreme sentiment levels.

The current market environment has traders shifting gears to more of a momentum trading strategy to take advantage of trends and this is what I am going to start implementing again as the market expands.

Market Conclusion:
In short, the equities market is in an up trend but looks to be overbought. Also with the downward cycle I don’t think the market will expand here and take off. Rather it will most likely chop around and burn off time until some earnings are released and the cycle bottoms. Unless we get a really sharp reversal down which we have yet to see on the SP500 or DOW, nibbling on small long positions or staying in cash is what I am doing right now.

As for gold, silver, the dollar and oil… Well the dollar continues to lose value on a daily basis which in turn is boosting metals along with crude oil. All four of those investments are over extended but they are trending and not really looking like they want to reverse just yet.

Chris Vermeulen
www.TheGoldAndOilGuy.com

Get More Free Reports and Trade Ideas Here for Free: FREE SIGN-UP

Read more here:
Stock Market Leaders Are Now Lagging?




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

Stock Market Leaders Are Now Lagging?

October 7th, 2010

Wednesday’s session closed mixed on the day. The DOW posted a third of a percent gain while the tech sector closed down almost nine tenths of a percent. While technology stocks have been leading the market higher in the recent months, today they took the back seat while the DOW took control.

Take a look at the intraday chart of the SPY price action compared to the tech sector. It’s clear the tech stocks where not in favor today. Some tech stocks that really took a beating today were FFIV, NTAP, APKT and AKAM.

On another note, we are entering earning season and I am wondering if we are going to see a “Sell the New” type of thing again.

The broad market is experiencing a 36 day down cycle which has played a very dominant roll in the market this year. It topped out 9 days ago so we should expect sideways chop or some selling over the next 9 trading session. Because the market is trending up, pullbacks should be shallow.

The market continues to grind its way higher on relatively light volume. I have been waiting several weeks now for the volume to come back into the market but its just not happening. The majority of shares being traded are from banks, funds and day traders as the average investor’s not taking part because of the uncertainty looming. The lack of volume (commitment) to the market from the masses is making the market internals swing from one extreme to another on virtually weekly basis making it more difficult to take advantage of short term extreme sentiment levels.

The current market environment has traders shifting gears to more of a momentum trading strategy to take advantage of trends and this is what I am going to start implementing again as the market expands.

Market Conclusion:
In short, the equities market is in an up trend but looks to be overbought. Also with the downward cycle I don’t think the market will expand here and take off. Rather it will most likely chop around and burn off time until some earnings are released and the cycle bottoms. Unless we get a really sharp reversal down which we have yet to see on the SP500 or DOW, nibbling on small long positions or staying in cash is what I am doing right now.

As for gold, silver, the dollar and oil… Well the dollar continues to lose value on a daily basis which in turn is boosting metals along with crude oil. All four of those investments are over extended but they are trending and not really looking like they want to reverse just yet.

Chris Vermeulen
www.TheGoldAndOilGuy.com

Get More Free Reports and Trade Ideas Here for Free: FREE SIGN-UP

Read more here:
Stock Market Leaders Are Now Lagging?




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

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