Monday, September 30, 2013

Global Diversification is the “Only Free Lunch that Really Exists”

Alan Moore, founder of Serenity Financial Consulting, LLP, says that if there’s anything risky about international investing, it’s not doing it as part of portfolio diversification.

An academic background and a master’s degree in financial planning taught him a lot about modern portfolio theory, among other things. “[MPT is] the first time anybody ever suggested that diversification is a good thing,” he said, and global diversification is not only part of that theory, not doing it doesn’t seem reasonable. In fact, it’s the “only free lunch that really exists.”

What does Moore mean by that? That “different asset classes and countries, across different industries and sectors, either will increase client return or decrease risk for the same amount of return.” It just doesn’t make sense, he says, not to do it, particularly when you consider how risky investing only in the U.S. can be. “Sequesters, the debt ceiling crisis—the U.S. market can really take a hit. I don’t want [to invest for clients] based solely on what the U.S. is doing,” he said.

Moore’s client portfolios are invested roughly 50/50: about half in the U.S. and about half elsewhere, with the bulk of the elsewhere going into developed markets but with emerging markets also making up part of the allocation. He relies on mutual funds to provide international diversification for client accounts, rather than buying individual equities or seeking out particular country weightings. That provides “exposure to about 20,000 different companies, which is about as diversified as I know how to get,” he said.

Moore looks for investment managers that “buy the market basket,” so that each client’s portfolio has about the same exposure to those 20,000 or so stocks across the globe and also has a “pretty low” expense ratio. He also said he regularly rebalances client portfolios, so that when one sector outperforms, its gains are harvested. That presents opportunities to lock in profits and buy undervalued sectors. “That ability to rebalance is huge, and having those international stocks increases our ability to do that,” he said.

Moore has been doing international investing since he started as a planner, even before he founded his firm, both for himself and for his clients. He believes that “markets are largely efficient and stock prices are set appropriately, and it’s impossible to beat the market,” so he uses passive investing, does not try to time the market and is happy to rely on those mutual fund managers to provide the diversification he seeks—though he does say that a bit more exposure to China would not come amiss because it represents such a large portion of the world’s wealth. Its markets being what they are, making access difficult, he says that sometimes clients are a bit underweighted in China.

That said, Moore said that his investment strategy is not about favoring any country. Instead, it’s “about having your rationale, having your plan and reasons for the plan, and sticking to it.” Financial planning is as much art as it is science, he says, with no single right way to do it, and “there’s no perfect percentage in anything. It comes down to a lot of personal opinion.”

As a result, “What I don’t want is to be guessing. Because that’s all it is. If I say Japan’s going to do really well because they’ve had 20 years of deflation, that’s a guess. It’s playing roulette with clients’ money, and that’s not a position I want to be in.” It’s taking more risk than needed, he says, and thinks that sometimes people do that because they “have to excuse their investment management fees,” he said.

While Moore said that the first question a new client asks is often “Aren’t international investments risky?” when he tells them about the 50/50 strategy, he said they’re fine with it once he’s explained that the U.S. only makes up roughly half of the world’s stock market wealth and that “by keeping more than 50% of investments in the U.S., we [would be] betting that the U.S. will outperform the rest of the world long term. While this is certainly possible, it is also possible that the rest of the world will outperform the U.S. I do not want to make a bet on which one will happen.”

People have been told for a long time that international investing is risky and that U.S. stocks are safer. “The good thing about the market downturn is that folks realized that U.S. stocks are risky too. You’re owning stocks of companies that may fail,” Moore said. Clients are also often surprised to learn that the U.S. does not dominate the financial scene the way it once did. The growth of emerging market economies, such as China, has meant that the rest of the world’s financial markets are more important than they used to be, he said.

In fact, the emerging markets—Central and South America and parts of Europe included—have done “phenomenally well,” although of course he hastens to add that they also carry more risk, he said. But it’s his job to educate clients about such things. He doesn’t work with clients who are so bound up in the minutiae of stocks that they lose sight of the bigger picture.

“Although they have input, they don’t say to me, ‘Ten percent of Europe is too much; we should be at eight.’” Instead, they trust Moore and his strategy, and seem to be enjoying that free lunch.


Saturday, September 28, 2013

A Rental Housing REIT

The Intelligent REIT Investor's Brad Thomas discusses a new rental housing REIT and shares his view on whether it is something that investors should consider.

SPEAKER 1:  My guest today is Brad Thomas and we are talking about housing rates.  Hi, Brad, and thanks for joining me.

BRAD:  Glad to be here, thank you.

SPEAKER 1:  Yeah, I know there is a new IPO of a company.  It is called American Homes 4 You.

BRAD:  4 Rent, American Homes 4 Rent.

SPEAKER 1:  4 Rent, okay, and that is a REIT that it is my understanding is they go out into the single-family housing market, they buy some of these properties that need to be renovated, and then they are not selling them or flipping them, they are renting them.  Is that correct?

BRAD:  That is correct, and first of all, I want to make a point about this company specifically.  When you invest in a REIT today, you are not only investing in these hard assets, which in this case, would be single-family housing for rent, but you are also investing in the management team. 

SPEAKER 1:  Sure.

BRAD:  When you invest in a company, one value that you have in a REIT structure is you have not only the liquidity, the transparency, and the diversification but you also get a management team.  One thing I can tell you about American Homes 4 Rent is that they have an exceptional management team.  One of the key figures behind the company is a guy named Wayne Johnson.  Wayne has a long history of creating shareholder value in a company that he created many years ago called Public Storage, which is the largest public storage company in the world.  Mr. Johnson is, every year, in the Fortune billionaire list.  He has made a large wealth but he has also made a lot of wealth for his shareholders so I want to point that out.  That is what backing American Homes 4 Rent.  Now, the business model itself is fairly new.  We have only had I think now two public rental housing REITS, the other one being Silver Bay, that came out with their IPO I believe in December of last year.

SPEAKER 1:  Correct, and they were a division of another larger company, right?

BRAD:  That is correct.  I believe they were an offshoot as well.  Now, American Homes 4 Rent is now the second largest in the sector.  The largest is actually a private equities firm.

SPEAKER 1:  It is Blackstone.

BRAD:  Blackstone, that is correct.  American Homes 4 Rent, they are very scalable.  Obviously, their name, American Homes, they are scaling this, trying to create the critical mass, so there are some questions out there in terms of how they can manage effectively at such a large portfolio and all of these multiple markets.  My opinion is I think I would, on this particular IPO, I would wait it out.  There is nothing better than patience and seeing how this company performs.  I would personally like to see that company create the track record for managing the large groups of housing because, again, they are in subdivisions.  It is not like an apartment complex where you are aggregated. 

SPEAKER 1:  Exactly.

BRAD:  They are in a lot of different places so I would like to see some management track record and I would also like to see, for most investors, the most important thing is the dividend track record.  I would like to see that.

SPEAKER 1:  Sure, sure.  And you are not a big fan of REIT IPOs in general.

BRAD:  Correct.  I mean, I think, you know, there is really no reason to invest in a REIT today who comes out.  Let’s wait on that company to perform and let’s wait on a bargain.  I like to buy with a margin of safety so let’s wait on that stock to fall, it will come down, and then you can pounce on it then and if you want to load up the truck, load up the truck.

SPEAKER 1:  Are there any other housing type REITS that you like?

BRAD:  You know there are.  There is a niche sector, which is the modular housing sector, and they are not mobile homes.  That is a misconception.

SPEAKER 1:  Yes, right, right.

BRAD:  The one I really like is called UMH.  They are headquartered up in New Jersey, run by a fellow named Sam Landy.  The family has been around a long, long time.  They invest mostly in the Northeastern markets.  They are getting down to the Southeast now but they have a really attractive dividend in the seven-plus range

SPEAKER 1:  That is very healthy.

BRAD:  It is and they have been able to sustain that more recently so I like that sector some.  I think there is a lot of demand for that space and, again, they are not mobile homes.  They are really providing attractive housing for families.

SPEAKER 1:  That is sort of like the Habitat for Humanity homes, right.  Those are modular homes, that they bring in the walls.

BRAD:  Exactly.  I tell you, Warren Buffett owns a piece of Clayton Home, so that will tell you something.

SPEAKER 1:  Sure, yes, exactly.  Thanks for being here, Brad.

BRAD:  Thank you.

SPEAKER 1:  And thanks for joining us at the video network. 

Friday, September 27, 2013

How To Hedge Against A Government Shutdown

Rising tensions in Washington have trigged anxiety in the stock market. Investors are climbing a wall of worry. But those who want to protect their portfolio in the event of a government shutdown or contentious debt-ceiling debate might consider hedging with put options.

In a note published today, Goldman Sachs analysts Robert Boroujerdi, John Marshall, Michael Chanin and Krag Gregory say not much gfear has been priced into put options for either the S&P 500 or stocks with higher exposure to government spending. As a result, they suggest one of the following hedging strategies:

Buy the optimal SPX puts to hedge a 5% down-move: Buying a November 1650 put on the S&P 500 index costs 1.2% and Goldman estimates a 2.7-to-1 payout if the index falls 5% by mid-October. Beware of government exposure: The firm tracks a basket of more than 100 companies that derive at least 20% of their revenue from the government. Though the list includes defense contractors and tech giant, more than half of the names are health-care companies, including Amgen (AMGN), HCA (HCA) and UnitedHealth Group (UNH). Buy puts on stocks with high government exposure: November puts on government-exposed names cost 2.4% on average (5% out of the money strike).

Wednesday, September 25, 2013

Post-Surgery Wound Care Will Never Be the Same (CMXI, ALQA, ARTH)

When traders think of post-surgical wound management stocks, they may first think of names like Cytomedix, Inc. (OTCBB:CMXI) or Alliqua Inc. (OTCMKTS:ALQA). And well they should. Both companies have something of a history in the arena. ALQA is the purveyor of SilverSeal and Hydress antibiotic bandages, while CMXI is the developer of the AutoloGel system, which induces an affected patient's on body to do what it's supposed to do if there's a wound that won't heal. Cytomedix also makes the Angel platelet-rich plasma (PRP) delivery system. There's a relatively new name to add to the list of game-changing stocks in wound-management industry, however.... Arch Therapeutics Inc. (OTCBB:ARTH). The company is developing - well, has developed - a product called AC5 that nips post-surgical bleeding in the bud, largely negating the need for other post-surgical bleeding-control measures.

Just for the record, Cytomedix, Alliqua, and Arch Therapeutics aren't necessarily direct competitors.... at least not yet. They aren't exactly working together either, though. All three are aiming to safely and effectively help patients prevent wounds (whatever the cause) from remaining open, bleeding, and inviting potential infection or other complications.

ALQA, through SilverSeal, and CMXI, through AutoloGel, prevent open wounds from remaining open and prone to infection by being applied externally. Both systems can be used for a variety of wounds, including post-surgery openings. Right now, ALQA, through AC5, is only targeting post-laparoscopic surgical wounds... from the inside! AC5 is, in simplest terms, a powder that turns into a durable gel that can envelope the area or organ where surgery is to be done. It's firm enough to remain in place and stop bleeding, but soft enough for surgeon to slice through. Once it's been sliced, it can re-adhere to itself. 

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And that's when the potential of AC5 really comes to light. The wound-envelope can be applied before surgery is actually started. It 'sets up' in a matter of seconds (as opposed to minutes for other hemostasis options that don't work as long), and last for weeks. That means a surgery leads to a very minimal loss of blood, as any bleeding resulting from a sliced vein is almost immediately halted before it has a chance to begin. Less bleeding from a surgical site means less seepage into the wound on the skin that is necessary to perform surgeries... even laparoscopic ones.

For the time being, Arch Therapeutics is only testing AC5 on select laparoscopic procedures. But, open surgical procedures are on the radar. The gel-like substance would certainly work as well in open surgery applications. It's completely transparent, and can confirm to unusual and changing body and wound shapes. When that use makes its way onto the radar - and that's not apt to be too far down the road - that's when companies like Alliqua Inc. and Cytomedix, Inc. do need to start worrying.

In the meantime, small cap speculators owe it to themselves to put ARTH on their radar. It's a new name because it's a relatively new company. The underlying technology is bound to draw attention soon, however, as clinical testing and other milestones begin to be reached later this year and next year; there's nothing else out there quite like it. These milestones all have the potential to be stock-moving catalysts. 

If you'd like more detailed looks and insights like this one, become a subscriber to the free SmallCap Network daily newsletter. You'll get stock picks, market call, exclusive analysis, and more. Subscribe today.

Chanos Indirectly Dings Brazil ETF...Again

The iShares MSCI Brazil Capped ETF (NYSE: EWZ) traded slightly higher in late trading Tuesday even after noted short-seller Jim Chanos, founder of Kynikos Associates, indirectly reiterated his bearish view on EWZ's two largest holdings.

Speaking at the Bloomberg Markets 50 Conference, Chanos responded to a question from Bloomberg's Tom Keene about how to play the recent bounce in emerging markets by saying "I'm looking at Petrobras."

Related: As Dalio Dances Dangerously With Brazil, Chanos Smiles.

That may not be a direct bearish call on Petrobras (NYSE: PBR), Brazil's state-owned oil giant, but it was less than a year ago at the Ira Sohn Conference that Chanos called Petrobras and Vale (NYSE: VALE), the world's largest iron ore producer two of his favorite shorts.

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Chanos told attendees at Ira Sohn that every dollar Petrobras brings in is flowing back out, but that production is declining. A recent auction for licenses to explore Brazil's Libra field was disappointing as some of the largest U.S. and European oil companies opted not to participate due to high production costs and difficulties in working with the Brazilian government.

Chanos added that the Bloomberg conference that countries with exposure to iron ore are in trouble over the next 12 months. Two Petrobras and two Vale securities combine for nearly 22 percent of EWZ's weight.

On Monday, in what was generally a bullish assessment of emerging markets, JPMorgan told investors to stay away from sectors that are value traps, a group that includes Brazilian banks, according to Bloomberg. Financial services is EWZ's largest sector weight at 27.6 percent.

EWZ, the largest Brazil ETF with nearly $6.2 billion in assets under management, is up almost 12 percent in the past month.

For more on ETFs, click here.

Sunday, September 22, 2013

The Deal: Caesars Launches Massive Refinancing

NEW YORK (The Deal) -- Caesars Entertainment (CZR) has launched an initiative to refinance a total of $4.85 billion in debt, giving bondholders in its property unit a better-than-expected deal.

Under the refinancing plan, holders of $4.4 billion in commercial mortgage-backed securities (CMBS) will receive $0.99 on the dollar plus accrued and unpaid interest while holders of $450 million in mezzanine debt will receive $0.90 on the dollar plus accrued and unpaid interest, according to a Sept. 17 statement.

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Private equity-backed Caesars is sweetening the deal for new debt holders by throwing in its Octavius Tower and Linq assets--Las Vegas properties from its Caesars Operating Co. unit--as security on their loans.

To fund the refinancing, the Las Vegas-based casino and hotel operator plans to issue a $3 billion term loan, a $269.5 million revolving credit facility, $500 million in first-lien notes, and $1.35 billion in second-lien notes. Caesars hasn't released information about the pricing of these new loans, but a bondholder in the property company said in a Sept. 18 interview that the company plans to price the first-lien loan at Libor plus 550 basis points with a 1% floor and a 99 offer price. The casino operator hopes to price its $500 million in first-lien notes at 7% and its $1.35 billion in second-lien notes at 9.5% to 10%, the source added. He thinks a 7% coupon for the first liens makes sense, but 9.5% to 10% seems too low for the second-lien notes. He believes 11% would be more reasonable, although the company may be able to swing a lower coupon price due to investors' hunger for yield. The main point of this refinancing isn't to reduce Caesars' staggering debt load of $23.5 billion, as the discounts on the buyback are mild. The primary focus would be the elimination of worrisome debt maturities in 2015. This refi would give Caesars more time to work out a comprehensive restructuring to tackle its debt problem. Now that the property company refinancing is underway, "All eyes are on the disaster at OpCo [Caesars Operating Co.]," the bondholder said.

He believes Caesars needs to shed all but the bank debt in its OpCo unit.

The bondholder expects that Caesars will do what it can to reduce debt outside of court, but he thinks a Chapter 11 bankruptcy--ideally a prepackaged agreement--is inevitable.

"It's just a lot of debt," he said, explaining, "You need to run this through a Chapter 11 process just to clean up the holdouts."

Disputes between different classes of bondholders with disparate recovery expectations are likely to scuttle the chances of an out-of-court solution, the bondholder explained. Beyond the usual creditor class disputes, Caesars also has a problematic contingent of basis traders that have no incentive to take a haircut, the source noted. These basis traders have hedged their bets by holding both second-lien debt and credit default swaps that insure them against the non-payment of their second-lien debt. Essentially, they are arbitraging what they believe is a mispricing of similar securities by taking opposing short and long positions with the expectation that their values will converge. For now, Caesars has breathing room until some of its unsecured debt matures in 2015. The company may want to restructure that debt or even work out a comprehensive restructuring before then in order to avoid paying par for the unsecured notes. The bondholder believes Caesars and its private equity owners, Apollo Global Management and TPG Capital, will want to take care of one particular detail before undertaking a bankruptcy filing--the parent company's guarantees on the operating company's shaky debt. Caesars hived off some of its most attractive assets into a new unit, Caesars Growth Properties, in a move to protect its crown jewels. That protection, however, depends on the health of the ultimate parent company, Caesars Entertainment Corp. The parent's health is threatened because it still guarantees the operating company's debt. "You've created a good amount of value with [Caesars Growth Partners] and PropCo [the property company]. Now how do you keep the value in the parent from getting sucked down into the OpCo [Caesars Operating Co.]?" the bondholder asked. "You get rid of the parent guarantees."

Caesars could accomplish this by buying back its notes due in 2015, 2016, and 2017. If one type of operating company creditor loses its parent guarantee, everyone loses their parent guarantees.

Alternatively, Caesars could get a waiver on the parent guarantee on its bank debt, or buy back the bank debt. The company would certainly have to give those parties an attractive deal, but if one acquiesced, the other would lose its parent guarantee. Then Caesars could slide into Chapter 11 with its Caesars Growth Partners assets and property company assets cordoned off more securely.

Fitch Ratings Inc. said on Sept. 18 that it expects to give the new first-lien debt issued at Caesars Entertainment Resort Properties LLC--the $3 billion term loan, the $269.5 million revolver, and the $500 million in notes--a rating of B-, while the $1.35 billion in second-lien notes are expected to score a CCC.

The ratings agency explained that its ratings on Caesars Entertainment Resorts' debt are under pressure due to concerns about a default at the Caesars Operating Co. unit. Fitch said it would examine the restricted payment covenants when the property unit releases its new credit agreement, in order to see what protections the agreement provides in the case of an operating company default. Fitch also affirmed its CCC ratings on parent company Caesars Entertainment Corp. and its Caesars Operating Co. unit. Apollo Global Management and TPG Capital hold a 70% stake in Caesars from a 2008 buyout that clocked in at a whopping $30.7 billion with $12.4 billion in debt. Caesars' common stock is listed on Nasdaq under the symbol CZR. Its shares dropped nearly 10% from its pre-refinancing-announcement closing price of $25.93 on Sept. 17 to a closing price $23.39 on Wednesday. Written by Lisa Allen

Saturday, September 21, 2013

The Beginning of the End for Facebook

NEW YORK (TheStreet) -- I've never been a big fan of Facebook (FB), definitely not the stock, and perhaps to a lesser extent, the application. The stock is ridiculously priced at 208 times trailing earnings, 48 times 2014 consensus earnings estimates, more than 10 times book value, and 18 times revenue. Keep in mind that these sentiments are from a value investor, who simply can't fathom those multiples, and growth investors would make the argument that those measures are irrelevant in Facebook's case. [Read: Dramatic 48-Hour Shift in Apple Sentiment] Indeed, the stock has been on a tear since mid-July, following a better-than-expected quarter after an aggressive push into mobile advertising, and shares are up nearly 80% since then. The stock has finally managed to eclipse its intraday high of $45 from its very first day of trading on May 12, 2012. The company now boasts of having more than 1 million advertisers; that's impressive, and one of the reasons that investors are re-engaged.

FB ChartFB data by YCharts

There is no doubt that some investors have made money from owning the stock, and I am not discounting the possibility that shares may run even higher. We've seen countless examples of overvalued companies continuing to head higher, well beyond their true value. It's yet another example of the inefficiencies that make the markets and investor psychology so fascinating. Investors will continue to buy names, such as Facebook, that are priced for perfection.

In the past few days, two things happened, neither of which relates to the company's financials, that have me again questioning Facebook's prospects. Granted these are completely anecdotal in nature, and their relevance is more from the gut, than from the mind. In fact, I was not even planning on writing about Facebook today, but can't help myself. The first thing was an article in our newspaper entitled "Facebook's Fall From Cool," written by a local high school student. In the article, the young author proclaims that Facebook has become an "obligation," as opposed to a "source of entertainment." Now, that may be nothing new. The article itself caused me to quiz my own teenagers, who told me in no uncertain terms, that kids have turned away from Facebook, and would rather use Twitter or Instagram. [Read: Understanding Obamacare: 4 Things You Need to Know ] Now, the fact that Facebook bought Instagram last September is certainly not lost on me. The question is, when will the kids also tire of Instagram, and what will take its place? Perhaps Facebook will be the force behind the next hot social media application, but that is presuming a lot.

The second thing that happened, which has dampened the little enthusiasm I had remaining for Facebook itself, was a series of posts by one of my own Facebook friends, who is a very decent guy.

Two days ago, he mentioned that he'd be undergoing a colonoscopy, likening it to April 15 -- tax day. That was fine, actually funny, but still much more than I, or anyone else needs to know.

Then late yesterday came the recap of the procedure, four paragraphs worth. Too much information, and enough to sour me from logging on, and reading about anyone's latest medical exploits, or how little Billy can now recite pi out to 400 decimals. They should perhaps rename it "Bragbook," or "TooMuchInformationIDon'tCareAboutBook."

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Mark Zuckerberg has publicly stated that he never intended for Facebook to be cool. But I can't help but question the growing, albeit anecdotal, sentiment of Facebook fatigue. This does not mean that the company won't continue to earn millions of dollars. It just means, that in my view, it is hard to make the case that the company, currently valued at $112 billion, is worth more than either McDonald's (MCD), or Home Depot (HD), or DuPont (DD) and Walgreen (WAG) combined. There's often a disconnect between price and value, and we may once again be seeing it here. My gut could certainly be wrong, it would not be the first time. Follow @JonMHellerCFA This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

At the time of publication, Heller had no positions in stocks mentioned. Jonathan Heller, CFA, is president of KEJ Financial Advisors, his fee-only financial planning company. Jon spent 17 years at Bloomberg Financial Markets in various roles, from 1989 until 2005. He ran Bloomberg's Equity Fundamental Research Department from 1994 until 1998, when he assumed responsibility for Bloomberg's Equity Data Research Department. In 2001, he joined Bloomberg's Publishing group as senior markets editor and writer for Bloomberg Personal Finance Magazine, and an associate editor and contributor for Bloomberg Markets Magazine. In 2005, he joined SEI Investments as director of investment communications within SEI's Investment Management Unit. Jon is also the founder of the Cheap Stocks Web site, a site dedicated to deep-value investing. He has an undergraduate degree from Grove City College and an MBA from Rider University, where he has also served on the adjunct faculty; he is also a CFA charter holder.

Thursday, September 19, 2013

Public Storage Price Target Lowered by Jefferies (PSA)

Jefferies reported on Thursday that it was maintaining a “Hold” rating on the California-based self-storage REIT, Public Storage (PSA), but went on to lower its price target for the company.Omotayo Okusanya, an analyst with the firm, cited that because the company’s portfolio of storage locations was virtually full, there was limited growth potential. Furthermore, Okusanya went on to comment about how Public Storage will have a hard time growing earnings even via acquisitions given its current size. As such, Jefferies reiterated a “Hold” rating on the stock and lowered its price target from $165 to $160 a share.

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Public Storage shares inched lower on Thursday, shedding .85% on the day. The stock is up over 4.4% YTD.

Wednesday, September 18, 2013

Will the Fed send mortgage rates higher?

30 year fixed mortgage 091713 NEW YORK (CNNMoney) Housing market experts are keeping a close eye on the Federal Reserve as they anxiously await word on whether the agency will start pulling back on its controversial stimulus program, known as quantitative easing.

Since September of last year, the Fed has been buying $85 billion in mortgage-backed securities and Treasury bonds a month to help support the economy. The purchases have been credited for the historically low mortgage rates seen this year, which ultimately helped stimulate home sales and boost prices.

But now the Fed is expected to announce that it will scale back on its bond-buying program -- a move that is expected to cause rates to slowly rise, said Doug Duncan, chief economist for Fannie Mae.

The mortgage market has already factored in a modest cutback in the Fed's purchases. Mortgage rates have risen 1.2 percentage points since May when Fed chairman Ben Bernanke mentioned the possibility of reducing the agency's bond-buying program. In June, he noted that the tapering could begin as early as September, if the economic recovery continued on course.

However, even if the Fed started cutting back on its bond purchases this month, many don't expect the cuts to be sizable. "The recovery has been weaker the past couple of months than what the Fed had been talking about," said Duncan. "It would be a surprise if they act aggressively."

Duncan said initial cuts to the bond-buying program likely won't exceed $10 billion a month and most of those cuts will be in Treasuries.

Those expectations were reinforced in a paper presented by Northwestern University economists Arvind Krishnamurthy and Annette Vissing-Jorgensen at an annual meeting for central bankers in Jackson Hole, Wyo., late last month. The economists found that the purchase of mortgage-backed securities served as a more effective stimulus than the purchase of Treasury bonds.

Should the Fed continue to purchase mortgage-backed securities at current rates, there is a chance mortgage rates could actually head lower, said Keith Gumbinger of, a mortgage information provider.

Frank Nothaft, chief economist for Freddie Mac, expects the Fed to act slightly more aggressively. He anticipates that the agency will cut its purchases of Treasuries by about $10 billion a month and reduce its purchases of mortgage-backed securities by $5 billion. He expects the Fed to continu! e to scale back its purchases through mid-2014, when the program would end entirely.

As a result, Nothaft expects mortgage rates to climb to close to 5% by next June. Last week, the 30-year fixed rate averaged 4.6%.

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Despite higher mortgage rates, only a small number of potential homebuyers -- those who would have to struggle to afford a home in the first place -- would put the brakes on their purchases, said Nothaft.

Remaining buyers would probably welcome a slight cooling off in the housing market. Home prices were up 12.1% in June compared with a year earlier, according to the S&P/Case-Shiller home price index.

That kind of surge has stirred fears of a new housing bubble and many economists -- and homebuyers -- wouldn't mind seeing price gains come back to more normal levels. To top of page

Tuesday, September 17, 2013

In India, Toilet Paper Becomes More Valuable Than the Rupee

India is slowly, or rapidly, becoming a complete financial disaster. Growth has slowed and the nation is trying to do what it can to fight inflation while still trying to juice up the economy. India is one of the great BRIC emerging market nations, but it is not living up anywhere close to its potential. So, the question is, what can they do now that the rupee is hitting yet another all-time low?

Wednesday’s closing levels in India should alarm investors of emerging markets and developed markets alike. The Hindustan Times confirmed that the rupee at 68.80 is the lowest official close. Some are trying to blame the possibility of war or military conflict in Syria, but this one-way ticket to financial hell in India is more of a unique situation than it is a global one.

Even the BSE Sensex, what used to be known as the Bombay Stock Exchange, has now suffered another 500 point plunge before recovering. We recently warned that emerging market investors would try and try to remain patient, up to a point, but capital is exiting the nation rapidly and investors have decided for now to not allocate new capital into India.

Calling a bottom based on technicals and oversold sentiment is easier to do in developed markets, but many investors do not give the same feelings in emerging markets because they want to enter these markets when the fundamentals merit a long-term investment. Most longer-term investors and traders do not enter emerging markets for a quick in-and-out trade of a few percent, but rather for serious gains over a longer period. The situation is bad enough that trying to be a bottom fisher may simply resemble being a bottom sniffer.

India is a market and economy with great promise. Its growth generally rivals that of China and its population is over 1.2 billion. It is also a young population, and one that is still growing. Unfortunately, its policies are not working and its infrastructure is simply not up to date in a manner that can support its full potential growth rate ahead. And at the end of the day, the country simply has to develop internal growth, as it cannot simply rely on being an outsourced-IT and outsourced call center nation for the rest of the world.

We previously said that the Indian rupee is becoming worth less than the paper it is printed on. Unfortunately, toilet paper is holding its value in dollars better than the nation’s currency. The WisdomTree Indian Rupee (NYSE: ICN) hit a new low of $17.42 and the exchange-traded product is down 2.6% on last look. Its price chart looks like a downhill ski slope, with the end being a cliff rather than the ski lodge.

WisdomTree India Earnings Fund (NYSEMKT: EPI) is down yet another 2.7% at $13.05, and it hit a new low of $13.00 on Wednesday against a high of $20.50. The PowerShares India (NYSEMKT: PIN) is down another 2.5% at $13.54, and it hit a new low with its 52-week range now at $13.50 to $19.66. The India Fund Inc. (NYSE: IFN) is a closed-end fund rather than an exchange traded fund (ETF), and it is down almost 1.75% at $16.95, with its shares hitting a new multiyear low of 416.88, against a 52-week high of $24.10.

Market Vectors India Small-Cap ETF (NYSEMKT: SCIF) is down almost 3% at $22.38, and the new low was put in today, with its 52-week range now being $22.25 to $46.60. This one is now down over half from its high and without any extreme leverage other than holding smaller stocks.

If good old regular emerging stock market losses are not daring enough for you, there is the triple-leverage suicide show for true gluttons for punishment. The Direxion Daily India Bull 3X Shares (NYSEMKT: INDL) is down another 7.5% to $27.62. and its new 52-week range is $27.20 to $99.20. Imagine an ETF with leverage so high that you can take losses of greater than 70%, and that is even after the fund announced a reverse split effective as of August 20.

Here is why there is so much promise in India. GDP growth had averaged about 7% since 1997, but now India's growth is slowing down to what might as well be recessionary. Its localized inflation seems to be a mystery to outsiders when you consider that it implemented reforms and deficit reduction measures to reverse its slowing growth. The nation’s gross domestic product was $4.76 billion in 2012 on a purchasing power parity basis, making it the fourth largest economy in the world with some 6.5% growth.

We previously noted, indicating levels right around now, that if India’s stock market and currency were to fall another 10% or 15% then the foreign capital outflows might create true economic and market panic. That is the risk right now, so things either are going to suddenly get much better with a new set of policies or India is about to jump off the cliff.

See also: Can Raghuram Rajan save India?

Unfortunately, emerging market investors now have to wade through territory that they might have only worried about back in our own recession. It is sad to report that the BRIC nations may just be the new PIIGS. It is a sad day when owning toilet paper is better than owning paper money in a country.

Sunday, September 15, 2013

Hot Gold Companies To Own In Right Now

Just as we examine companies each week that may be rising past their fair value, we can also find companies potentially trading at bargain prices. While many investors would rather have nothing to do with companies tipping the scales at 52-week lows, I think it makes a lot of sense to determine whether the market has overreacted to the downside, just as we often do when the market reacts to the upside.

Here's a look at three fallen angels trading near their 52-week lows that could be worth buying.

One lustrous investment
If you hadn't guessed by now, I'm a big fan of gold and gold miners. There are multiple factors at the moment that I feel could usher in another rally in gold prices. These include weak global economies, which make gold an attractive safe-haven investment; low domestic interest rates, which make gold attractive relative to low-yielding CDs and bonds; copious U.S. money printing, which could lead to inflation; and a contrarian mentality to buy when others are fearful. That's why I think investors would be foolish to pass up on cost-efficiency mining expert Goldcorp (NYSE: GG  ) at its current levels.

Hot Gold Companies To Own In Right Now: Australian Dollar(AU)

AngloGold Ashanti Limited primarily engages in the exploration and production of gold. It also produces silver, uranium oxide, and sulfuric acid. The company conducts gold-mining operations in South Africa; continental Africa, including Ghana, Guinea, Mali, Namibia, and Tanzania; Australia; and the Americas, which include Argentina, Brazil, and the United States. It also has mining or exploration operations in the Democratic Republic of the Congo, Guinea, and Colombia. As of December 31, 2010, the company had proved and probable gold reserves of 71.2 million ounces. The company has a strategic alliance with Thani Dubai Mining Limited to explore, develop, and operate mines across the Middle East and parts of North Africa. AngloGold Ashanti Limited, formerly known as Vaal Reefs Exploration and Mining Company Limited, was founded in 1944 and is headquartered in Johannesburg, South Africa.

Advisors' Opinion:
  • [By Mel Daris]

    AngloGold Ashanti (AU), a South African company, is trading for $33 and pays a dividend which yields 3.20%. The stock has an astonishing P/E of 1,015. Its net income totaled $112 million last year, but negative cash flows of $620 million. It holds net tangible assets of $4.3 billion and its balance sheet has not grown nearly as quickly as the other companies on this list. AngloGold has two new mines coming online in Congo and Colombia.

Hot Gold Companies To Own In Right Now: Claude Resources Inc.(CGR)

Claude Resources Inc. engages in the acquisition, exploration, and development of precious metal properties, as well as production and marketing of minerals in Canada. It primarily explores for gold in northern Saskatchewan and northwestern Ontario. The company holds interests in the Seabee gold mine located at Laonil Lake, northern Saskatchewan; and the Madsen property that consists of 6 contiguous claim blocks totaling approximately 10,000 acres, located in the Red Lake Mining District of northwestern Ontario. It also holds interest in the Amisk Gold project, which covers an area of 13,800 hectares in the province of Saskatchewan. The company was founded in 1980 and is based in Saskatoon, Canada.

Advisors' Opinion:
  • [By Christopher Barker]

    Hardly a johnny-come-lately, Claude Resources initiated small-scale gold production from its flagship Seabee mine in Saskatchewan in 1991. Just last year, Claude added the Santoy 8 mine to that operation to offer a touch of timely growth. Meanwhile, the operation hosts a number of compelling exploration targets like the recently discovered Neptune zone. After 10 of 15 recent drill holes from Neptune featured visible gold, including a nice high-grade intercept of 84.66 g/t over 3.2 meters, prospects are building for Claude to add some additional years to this time-tested operation.

    While I welcome the existing cash flow from Seabee, my investment thesis for Claude Resources centers around a pair of exciting exploration properties: the Amisk joint venture project southeast of Seabee and the Madsen property at Red Lake, Ontario. At Madsen, historical gold production between 1938 and 1976 yielded 2.4 million ounces at an average grade of 9 g/t. To date, Claude has identified an indicated resource of 928,000 ounces at a comparable grade. At Amisk, drill intercepts of eye-catching thickness suggest strong potential for a profitable open pit operation, including an intercept of 2.16 g/t over 241 meters! The deposit's 921,000 indicated gold-equivalent ounces represent only an early stage hint of the deposit's full potential. The stock is a top-10 holding for Sprott Asset Management, and a core holding for this Fool as well.

Hot Casino Stocks For 2014: Agnico-Eagle Mines Limited(AEM)

Agnico-Eagle Mines Limited, through its subsidiaries, engages in the exploration, development, and production of mineral properties in Canada, Finland, and Mexico. The company primarily explores for gold, as well as silver, copper, zinc, and lead. Its flagship property includes the LaRonde mine located in the southern portion of the Abitibi volcanic belt, Canada. The company was founded in 1953 and is based in Toronto, Canada.

Advisors' Opinion:
  • [By Vatalyst]

    With headquarters in Canada, Agnico-Eagle is a gold producer that has been around for a while with operations in Canada, Finland and Mexico and the United States that has paid a cash dividend for 29 consecutive years. AEM gained 25% over the year and reported 83.5% growth in quarterly earnings. It has a market capitalization of $11.4 billion and a trailing P/E ratio of 34x with expectations of earning $0.55 per share. AEM, like other operators like it, are likely a better bet than ETF trust options like SPDR Gold Shares (GLD).

Hot Gold Companies To Own In Right Now: First Majestic Silver Corp.(AG)

First Majestic Silver Corp. engages in the production, development, exploration, and acquisition of mineral properties with a focus on silver in Mexico. The company owns interests in La Encantada Silver Mine comprising 4,076 hectares of mining rights and 1,343 hectares of surface land located in Coahuila; La Parrilla Silver Mine consisting of mining concessions covering an area of 69,867 hectares; and San Martin Silver Mine comprising approximately 7,841 hectares of mineral rights and approximately 1,300 hectares of surface land rights located in Jalisco. It also holds interests in Del Toro Silver Mine consisting of 393 contiguous hectares of mining claims and an additional 129 hectares of surface rights located in Zacatecas; Real de Catorce Silver Project comprising 22 mining concessions covering 6,327 hectares located in San Luis Potosi state; and Jalisco Group of Properties consisting of mining claims totalling 5,240 hectares located in Jalisco. The company was founded in 1979 and is headquartered in Vancouver, Canada.

Advisors' Opinion:
  • [By Goodwin]

    The shares closed at $88.19, down $1.1, or 1.23%, on the day. Its market capitalization is $77.08 billion. About the company: Siemens AG manufactures a wide range of industrial and consumer products. The Company builds locomotives, traffic control systems, automotive electronics, and engineers electrical power plants. Siemens also provides public and private communications networks, computers, building control systems, medical equipment, and electrical components. The Company operates worldwide.

Hot Gold Companies To Own In Right Now: CME Group Inc.(CME)

CME Group Inc. operates the CME, CBOT, NYMEX, and COMEX regulatory exchanges worldwide. The company provides a range of products available across various asset classes, including futures and options on interest rates, equity indexes, energy, agricultural commodities, metals, foreign exchange, weather, and real estate. It offers various products that provide a means of hedging, speculation, and asset allocation relating to the risks associated with interest rate sensitive instruments, equity ownership, changes in the value of foreign currency, credit risk, and changes in the prices of commodities. CME Group owns and operates clearing house, CME Clearing, which provides clearing and settlement services for exchange-traded contracts and counter derivatives transactions; and also engages in real estate operations. Its primary trade execution facilities consist of its CME Globex electronic trading platform and open outcry trading floors, as well as privately negotiated transact ions that are cleared and settled through its clearing house. In addition, the company offers market data services comprising live quotes, delayed quotes, market reports, and historical data services, as well as involves in index services business. CME Group?s customer base includes professional traders, financial institutions, institutional and individual investors, corporations, manufacturers, producers, and governments. It has strategic partnerships with BM&FBOVESPA S.A., Bursa Malaysia Derivatives, Singapore Exchange Limited, Green Exchange, Dubai Mercantile Exchange, Johannesburg Stock Exchange, and Bolsa Mexicana de Valores, S.A.B. de C.V., as well as joint venture agreement with Dow Jones & Company. The company was formerly known as Chicago Mercantile Exchange Holdings Inc. and changed its name to CME Group Inc. in July 2007. CME Group was founded in 1898 and is headquartered in Chicago, Illinois.

Hot Gold Companies To Own In Right Now: Thompson Creek Metals Company Inc.(TC)

Thompson Creek Metals Company Inc., through its subsidiaries, engages in mining, milling, processing, and marketing molybdenum products in the United States and Canada. The company?s principal properties include the Thompson Creek Mine and mill in Idaho; a metallurgical roasting facility in Langeloth, Pennsylvania; and a joint venture interest in the Endako Mine, mill, and roasting facility in British Columbia. It also holds interests in development projects comprising the Davidson molybdenum property and the Berg copper-molybdenum-silver property located in northern British Columbia; the Howard?s Pass property, a lead and zinc project situated in the Yukon territory-northwest territories border; and the Maze Lake property, a gold project located in the Kivalliq district of Nunavut. The company produces molybdenum products, primarily molybdic oxide and ferromolybdenum, as well as soluble technical oxide, pure molybdenum tri-oxide, and high purity molybdenum disulfide. As o f December 31, 2010, its consolidated recoverable proven and probable ore reserves totaled 462.2 million pounds of contained molybdenum in the Thompson Creek Mine and the Endako Mine. The company was formerly known as Blue Pearl Mining Ltd. and changed its name to Thompson Creek Metals Company Inc. in May 2007. Thompson Creek Metals Company Inc. is based in Denver, Colorado.

Advisors' Opinion:
  • [By Christopher Barker]

    My recent survey of bargain-basement stock valuations among gold miners identified Thompson Creek Metals as a glaring opportunity for value investors. The miner sports two world-class molybdenum mines with 534 million pounds of reserves between them, along with an array of attractive development projects in the pipeline. Foremost among those is the Mt. Milligan copper and gold project, where Thompson Creek expects to launch itself into the ranks of intermediate gold producers with production commencing in late 2013.

    With 6 million ounces of gold reserves, accompanied by 2.1 billion pounds of copper, Mt. Milligan will deliver about 262,100 ounces of gold per year for the first six years of a 22-year mine life, averaging 194,500 ounces annually over that entire span. Although 25% of that gold production is already spoken for through a gold stream agreement with Royal Gold (Nasdaq: RGLD  ) , Thompson Creek Metals is sure to enjoy a powerful cash-flow explosion.

Hot Gold Companies To Own In Right Now: NEW GOLD INC.(NGD)

New Gold Inc. engages in the acquisition, exploration, extraction, processing, and reclamation of mineral properties. The company primarily explore for gold, silver, and copper deposits. Its operating properties include the Mesquite gold mine in the United States; the Cerro San Pedro gold-silver mine in Mexico; and the Peak gold-copper mine in Australia. The company also has development projects, including the New Afton gold, silver, and copper project in Canada; and a 30% interest in the El Morro copper-gold project in Chile. The company was formerly known as DRC Resources Corporation and changed its name to New Gold Inc. in June 2005. New Gold Inc. was founded in 1980 and is headquartered in Vancouver, Canada.

Advisors' Opinion:
  • [By Christopher Barker]

    This stock has set the gold standard for share price appreciation among gold miners, advancing more than 140% since I introduced Fools to the new face of New Gold back in January 2010. Looking out over the long-term horizon, New Gold has constructed a gorgeous development pipeline to complement its trio of producing gold mines, featuring: a low-risk 30% stake in Goldcorp's El Morro project in Chile, the New Afton copper and gold project in British Columbia (with production scheduled to begin mid-2012), and the recently acquired Blackwater project north of New Afton.

    Although I expect the Blackwater deposit to expand considerably with further exploration, the project's initial indicated gold resource of 1.8 million ounces already leaves New Gold in command of 14.7 million ounces of measured and indicated gold resource. Tossing in copious supplies of by-product metals -- most notably 83.5 million ounces of silver and 3.5 billion pounds of copper -- New Gold is positioned to enjoy consistently low production costs throughout its sustained growth trajectory.

Hot Gold Companies To Own In Right Now: Newmont Mining Corporation(Holding Company)

Newmont Mining Corporation, together with its subsidiaries, engages in the acquisition, exploration, and production of gold and copper properties. The company?s assets or operations are located in the United States, Australia, Peru, Indonesia, Ghana, Canada, New Zealand, and Mexico. As of December 31, 2009, it had proven and probable gold reserves of approximately 93.5 million equity ounces and an aggregate land position of approximately 27,500 square miles. The company was founded in 1916 and is headquartered in Greenwood Village, Colorado.

Saturday, September 14, 2013

Is Google Setting Up to Knock Out Netflix?

With shares of Netflix (NASDAQ:NFLX) trading at around $216.74, is NFLX an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock's Movement

The shorts recently lost more than their shorts when Netflix beat expectations. However, just as the Netflix movie has played out so far, there has been a recent twist. Google Inc.’s (NASDAQ:GOOG) YouTube has just announced that it's launching a paid subscription service starting at just $0.99 per month. While that $0.99 number is being thrown around a lot, the average price will actually be $2.99 per month. That might be a big difference, but it's still considerably cheaper than the $7.99 per month for Netflix. On the other hand, Netflix crushes YouTube when it comes to content.

YouTube will begin with 30 partners and 500 channels, but it will roll out further in the coming weeks. As of right now, the two biggest launch partners are Sesame Street and Ultimate Fighting Championship. So, you can watch everything from Elmo singing "The Bear Went Over the Mountain" to caged warriors attempting to inflict as much future brain damage as possible. For those parties who are potentially interested in YouTube's service without wanting to make a commitment, there is a 14-day free trial.

As far as Netflix goes, margins have been the issue. Based on industry trends, Netflix should manage to hold its own with margins. When there is money to be made for all parties involved, solutions are always found.

There has been a lot of debate about Netflix’s investment on House of Cards, which was $100 million. Though the number is smaller, it's somewhat reminiscent of what Sirius XM Radio Inc. (NASDAQ:SIRI) did with Howard Stern. The goal was to make a big splash. Just by offering an exorbitant amount of money, it leads to a great deal of media attention. And if the investment is a good one, then it has the potential to pay off in a big way. Will House of Cards pay off for Netflix? Nobody can give a definitive answer to that question at this point in time, but it has an 8.9 rating on IMDB, which is phenomenally high.

In regards to traffic for Netflix, it has been up and down over the past year. According to, currently ranks #100 globally and #22 in the United States. Over the past three months, pageviews-per-user has declined 5.50 percent, time-on-site has declined 5 percent, and the bounce rate has increased 1 percent. These obviously aren't good numbers, but they might relate to the improving weather. An interesting note for viewers (not necessarily investors) is that Netflix uses a highly advanced algorithm to determine what you might like to watch. In other words, you're not seeing the same options as everyone else. This algorithm is based on many factors, including time of day and geographic location.

Bulls are focused on subscriber base growth and the likely expansion of subscription rates. In addition to that, the stock has shown resiliency in weak markets.

On the bearish side of the argument, Netflix has to hold off a lot of fierce competition, the stock is very expensive at 530 times earnings, margins still remain small, expenses are catching up to revenue, and the primary driver of cash flow is DVDs, which might be a dying business.

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Now let's take a look at some comparative numbers. The chart below compares fundamentals for Netflix, Google, and Inc. (NASDAQ:AMZN).

Trailing P/E 531.52 26.25 N/A
Forward P/E 69.28 16.50 80.37
Profit Margin 0.65% 20.92% -0.14%
ROE 3.31% 16.36% -1.11%
Operating Cash Flow -8.51M 16.56B 4.25B
Dividend Yield N/A N/A N/A
Short Position N/A 1.40% 1.80%

Let's take a look at some more important numbers prior to forming an opinion on this stock.

T = Technicals Are Strong

Netflix has been one of the biggest winners throughout the broader market year-to-date.

1 Month Year-To-Date 1 Year 3 Year
NFLX 27.83% 133.8% 191.2% 137.7%
GOOG 12.75% 23.95% 43.94% 77.80%
AMZN 0.22% 4.32% 17.37% 109.4%

At $216.74, Netflix is trading well above its averages.

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50-Day SMA 189.12
200-Day SMA 139.70

E = Equity to Debt Ratio Is Normal

The debt-to-equity ratio for Netflix is weaker than the industry average of 0.30, but it still qualifies as normal (for now).

Debt-To-Equity Cash Long-Term Debt
NFLX 0.86 1.03B 700.00M
GOOG 0.10 50.10B 7.38B
AMZN 0.36 7.90B 3.04B

E = Earnings Have Been Decent

Earnings had been improving on an annual basis until 2012. For revenue, some might say that the rate of growth has slowed, which is true, but the rate of growth is expected to fluctuate. Whether or not revenue continues to increase or not is more important.

Fiscal Year 2008 2009 2010 2011 2012
Revenue ($) in billions 1.37 1.67 2.16 3.21 3.61
Diluted EPS ($) 1.32 1.98 2.96 4.16 0.29

When we look at the last quarter on a year-over-year basis, we see improvements in revenue and earnings.

Quarter Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012 Dec. 31, 2012 Mar. 31, 2013
Revenue ($) in billions 0.870 0.889 0.905 0.945 1.02
Diluted EPS ($) -0.08 0.11 0.13 0.1336 0.05

Top 5 Gold Stocks To Buy For 2014

Now let's take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Support the Industry

The average U.S. household watches approximately eight hours of television per day. Trends support the industry because people don't want to pay about $100 per month for channels they don't watch. With streaming video, you can watch what you want when and where you want to watch it. Streaming video is gaining momentum every day, and Netflix is a major player.

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Many arguments can be made that Netflix will succumb to the competition in the future. However, as is the case in many other industries, there will be room for more than one or two players. Consumers will choose which service they want based on their preferences.

Thursday, September 12, 2013

Taper Tantrum Won't Last

The Intelligent REIT Investor's Brad Thomas discusses his outlook for real estate and the new class of data REITs.

SPEAKER ONE:  Hello and thanks for joining us.  My guest today is Brad Thomas.  Hi Brad, and thank you so much for being here.

BRAD THOMAS:  Glad to be here.  Thank you.

SPEAKER ONE:  The rates have had sort of a tough second quarter.  Most of the returns were down, other than I think in Self-Storage and in the Apartment REITs, but since then they’ve come back a little bit.  I think people have been afraid of interest rates; that oh my gosh, the taperings going to end and interest rates are going to go from basically zero to 15% overnight.  Probably not going to happen.

BRAD THOMAS:  Well, you know, we talk about the market and I like to refer to what Ben Graham referred to as Mr. Market, and I’m not going to tell you to ignore Mr. Market.  We obviously have seen the sell-off.  I like to call that the taper tantrum and, obviously, we’re seeing Mr. Market has really got a taper tantrum today with REITs.  Now the good thing – the silver living, I like to call it, is that REITs today have incredible opportunities in terms of pricing that we’re seeing.  I’m not going to argue with the fact that, prior to May 22, when Bernanke first spoke REITs were a pretty big run-up.  We’re seeing record highs, all-time highs with a lot of the REIT stocks, and we’re starting to see some pretty high valuations in REITs.  So the good thing is today, we’re seeing the REIT market today is almost fairly valued.  Most REITs are down to a level that the investor can buy.  In fact, now we’ve seen several sell-offs, or several tantrums, as we say, and so, we’re seeing some really good opportunities.  I would even argue that there are a number of blue chip REITs that are on sale, and what Ben Graham would say, “bargains.”  That’s what we call a margin of safety today in investing so, certainly, I think there’s a great opportunity for investors today to buy very high quality real estate.

SPEAKER ONE:  Oh and REITs have always sort of had their own cycles too, where most of the time you get dividends, you get the yield, and then, every once in awhile, you get like what we’ve had recently where you get some great appreciation along with the yield, but I know that you’re a fan, obviously, of REITs and you really feel that most people should always have some REITs in their portfolio, but not all kinds of REITs.

BRAD THOMAS:  Well, that’s true, and if we’re referring to the mortgage REIT, yes, you’re probably right.  Mortgage REITs, in my opinion, most mortgage REITs, do not belong in a retirement portfolio.  They’re very volatile.  They have a lot more leverage and we’re seeing today in the equity REITs, going back to the great recession how a lot of the REITs, in fact most of the REITs, have deleveraged their balance sheets.  They’ve made them much more sustainable and durable for the long term.  So, in terms of rising interest rates, most of these companies are prepared for that.  They’ve fixed their debt for long periods.  They deleveraged the company so they’ve got less debt exposure, so absolute I think REITs should be in an investment portfolio, especially now.  You’re seeing some really attractive dividends today.  Again, you can buy blue chip stock s that have very high risk-adjusted dividend yields today, so I definitely believe that REITs….I like to say that anywhere from 10% to 15%, even up to 20% is a fair number to have in terms of real estate or REIT exposure in a portfolio today.

SPEAKER ONE:  Sounds good.  Thank you.

BRAD THOMAS:  Thank you.

SPEAKER ONE:  And thanks for joining us at the video network.

Tuesday, September 10, 2013

Top 5 Tech Stocks To Own Right Now

Rackspace Hosting (NYSE: RAX  ) has seen share prices plummet 48% in just five months. Many investors glanced at the roller-coaster chart and decided to cash out, but Fool contributor Anders Bylund ran in the opposite direction.

In this video, Anders explains how this price drop unlocked an irresistible buying window for him, and what sets Rackspace apart from commodity rivals such as (NASDAQ: AMZN  ) .

The amount of data we store every year is growing by a mind-boggling 60% annually! To make sense of this trend and pick out a winner, The Motley Fool has compiled a new report called "The Only Stock You Need to Profit From the NEW Technology Revolution." The report highlights a company that has gained 300% since first recommended by Fool analysts but still has plenty of room left to run. To get instant access to the name of this company transforming the IT industry, click here -- it's free.

Top 5 Tech Stocks To Own Right Now: Tiscali(TIS.MI)

Tiscali S.p.A provides alternative telecommunications services on fixed networks to private individuals and companies in Italy. The company offers narrowband and broadband Internet access through dial-up and ADSL; and voice, voice over Internet protocol, multimedia, traditional telephone, mobile, value added services, and other services. It also provides various business services, including virtual private network, housing, hosting services, domains, and leased lines. In addition, the company is involved in the digital media and on-line advertising primarily through its Web site. Tiscali S.p.A was founded in 1998 and is headquartered in Cagliari, Italy.

Top 5 Tech Stocks To Own Right Now: Sigma Designs Inc.(SIGM)

Sigma Designs, Inc. provides integrated system-on-chip solutions (SoC) for the Internet protocol television (IPTV), media processor, connected home and media player, prosumer and industrial audio/video, high definition television, and PC-based add-in markets. The company offers semiconductors with a suite of real-time software that enables synchronous processing of video, audio, and graphics streams for various applications. Its media processor product line represents a family of SoC solutions that are a component of multiple consumer applications, which process digital video and audio content comprising IPTV, connected media players, and portable media players. The company?s home networking product line consists of wired networking solutions based on HomePNA, HomePlug AV, and standards, as well as wireless connectivity solutions based on Ultra-wideband technology. Its standards are used for transferring Internet protocol content across coaxial cables, phone lines, a nd power lines to enable service providers to deliver IPTV solutions and other media-rich applications. The company?s video image processor product line comprises of semiconductors that provide video output for professional and prosumer applications. Its home control and energy management automation product line includes wireless transceiver devices along with a mesh networking protocol. The company offers its home connectivity products under the CopperGate; wireless connectivity solutions under the CoAir; video image processors under the VXP; and wireless transceiver devices under the Z-Wave brands. It also provides software elements, such as multimedia library, security management software, and porting adaptations. In addition, the company offers PC-based solutions. It sells its products through direct sales force, manufacturer representatives, and independent distributors primarily in Asia, Europe, and North America. The company was founded in 1982 and is headquartered i n Milpitas, California.

10 Best Dividend Stocks To Invest In 2014: Electrovaya Inc Com Npv (EFL.TO)

Electrovaya Inc., together with its subsidiaries, engages in the design, development, manufacture, and marketing of batteries, battery systems, and battery-related products for the electric transportation, utility scale energy storage and smart grid power, consumer, and healthcare markets in Canada. It develops portable power technology products using its Lithium Ion SuperPolymer technology. The company offers battery systems for plug in hybrid electric vehicles, electric vehicles, and two-wheel vehicles, as well as for commercial truck and offroad applications; and PowerPad series of batteries for notebook computers and other mobile applications, as well as Scribble Tablet PC products for the health care industry. It also provides cells and battery modules; and intelligent battery management systems for automotive, utility-scale, and other integrated systems. The company was formerly known as Electrofuel Inc. and changed its name to Electrovaya Inc. in March 2002. Electro vaya Inc. was founded in 1996 and is headquartered in Mississauga, Canada.

Top 5 Tech Stocks To Own Right Now: TNS Inc.(TNS)

TNS, Inc. a data communications company, provides networking, managed connectivity, data communications, and value added services in the United States and internationally. The company?s Telecommunication Services division operates Signaling System No. 7 (SS7) network that provides call signaling and database access services. This division offers network solutions, such as SS7 and Internet protocol network services; identification and verification services; registry services; and roaming and clearing services. Its Payment Services division offers network connectivity services that enable transmission of card-based payments data between the point of sale device or off-premise automated teller machine and the processor?s host computer; card-present and card-not-present payment gateway solutions; and value added services comprising settlement file transfer, offline polling, outsourced payment processing, and card scheme gateways, as well as operates a software platform. This segment markets its services directly to payment processors, financial institutions, card associations, and merchants in North America, Europe, and the Asia-Pacific; and data communications services to entities that engage in the transmission of state lottery transactions, federal and state electronic benefits transfer, and healthcare transactions, as well as directly to merchants and retailers. The company?s Financial Services division provides data network services to the financial services industry. This segment connects approximately 1,800 financial community end-points located at approximately 625 distinct financial services companies representing buy and sell-side institutions, market data and software vendors, exchanges, and alternative trading venues. TNS, Inc. serves telecommunication firms, retailers, banks, payment processors, and financial institutions. The company was founded in 1990 and is headquartered in Reston, Virginia.

Top 5 Tech Stocks To Own Right Now: Dragonwave Inc (DWI.TO)

DragonWave Inc. provides wireless Ethernet equipment for Internet protocol networks worldwide. It designs, develops, markets, and sells carrier-grade microwave radio frequency networking equipment that wirelessly transmit broadband voice, video, and other data between two points. Its products have application in the backhaul function in a wireless communications network. The company also offers solutions, including leased line replacement, last mile fiber extension, and enterprise networks, as well as provides pseudowire technology. It serves service providers, government agencies, enterprises, and other organizations. The company was founded in 2000 and is headquartered in Ottawa, Canada.

Monday, September 9, 2013

Best-Selling Cars and Light Trucks: August 2013

August was a very good month for U.S. sales of cars and light trucks. Industry research firm Kelley Blue Book (KBB) now estimates that seasonally adjusted annual sales in 2013 will reach 16.1 million units, up 11% over the 14.5 million units sold in 2012.

Looking at the various segments of the auto industry, KBB reports that the highest growth segment for the month of August was the luxury sports car group, with sales up 31.4% year-over-year. That is great for Porsche and Mercedes-Benz, but total sales in this segment number just 27,759 for the first eight months of the year. At an average sales price of $87,562, Porsche easily wins the prize for highest price, followed by Jaguar at about $66,000. Among luxury sport utility vehicle sales, Land Rover's average sales price is right around $65,000.

For most of us, however, the mid-size car, compact car, compact crossover and full-size pickup segments are the likeliest choices for a new car purchase. Fully 60% of all vehicles sold to date in 2013 are listed in one of these segments. General Motors Co. (NYSE: GM), Ford Motor Co. (NYSE: F), Toyota Motor Corp. (NYSE: TM), Honda Motor Co. Ltd. (NYSE: HMC), and Chrysler Group are the sales leaders, and every one of these offers a variety of vehicles in each of the four best-selling segments.

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Market share leader GM, with 18.4% share in August, received an average sales price of $34,531 for the nearly 276,000 vehicles it sold last month. The average price is 0.7% higher than it was in August last year. The company's best-selling vehicle is the Silverado pickup.

Toyota claimed market share of 15.4% in August and an average sales price per vehicle of $29,188, up 0.8% over August 2012's average price. Toyota's Corolla is the second-best selling compact car, and the Camry is the best selling mid-size car. The family of Prius hybrids claimed a 70.3% market share in August, up nearly 30% year-over-year.

Ford's August market share came to 14.7% with an average sales price per vehicle of $34,463, up 1.5% from the August 2012 average. Ford's top sellers are its full-size F-series pickups, which sold more than 71,000 units in August, a year-over-year jump of 22.1% and a month-over-month gain of 17.6%.

Honda grabbed 11.1% market share in August and its average sales price per vehicle was $27,507, up 2.5% from its year-ago average. The Honda Civic is the best-selling compact car and the CR-V is the best-selling compact crossover. The Accord trails only Toyota's Camry in the mid-size segment.

Chrysler held 11% of the August market and its average sales price was $32,439, up 3.9% compared with August 2012. As with Ford and GM, Chrysler's Ram pickup trucks led the company's August sales. The Ram trucks average sales price in August was $40,125, up 4.7% year-over-year for the month.

Sunday, September 8, 2013

Will AT&T Surge Higher?

With shares of AT&T (NYSE:T) trading around $36, is it an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

AT&T is a provider of telecommunications services in the United States and worldwide. Services offered include wireless communications, local exchange services, and long-distance services. AT&T operates in four segments: Wireless, Wireline, Advertising Solutions, and Other. The communications products offered through AT&T's segments reach audiences using just about every widely adopted medium: Internet, voice, television, and mobile. As consumers continue to adopt this technology, giant providers like AT&T stand to see rising profits. Look for AT&T to continue its dominance as consumers and companies aim to communicate quickly, easily, and efficiently.

T = Technicals on the Stock Chart are Mixed

AT&T stock has been in a range extending back to last year. The stock is now trading near the low-end of its range and seems to be holding these prices well. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, AT&T is trading around its key averages, which signal neutral price action in the near-term.


(Source: Thinkorswim)

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Taking a look at the implied volatility (red) and implied volatility skew levels of AT&T options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

AT&T Options




What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

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Call IV Skew

July Options



August Options



As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on AT&T’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for AT&T look like and more importantly, how did the markets like these numbers?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)





Revenue Growth (Y-O-Y)





Earnings Reaction





AT&T has seen increasing earnings and mixed revenue figures over most of the last four quarters. From these numbers, the markets have not been too pleased with AT&T’s recent earnings announcements.

P = Poor Relative Performance Versus Peers and Sector

How has AT&T stock done relative to its peers, Verizon (NYSE:VZ), Sprint Nextel (NYSE:S), T-Mobile (NYSE:TMUS), and sector?



Sprint Nextel



Year-to-Date Return






AT&T has been a poor relative performer, year-to-date.

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AT&T provides telecommunications products and services to growing companies and consumer populations around the world. The stock has been in a range over the last year and is now holding price levels near the lower-end of this range. Over the last four quarters, earnings and revenue figures have increased over most of the last four quarters, however, investors have expected a little more from the company. Relative to its peers and sector, AT&T has been a poor performer year-to-date. WAIT AND SEE what AT&T does in coming quarters.

Tuesday, September 3, 2013

The Shocking Truth About Donald Trump's Rise To Success

You've probably heard his popular catchphrase, "You're fired!"

The Donald has long been a bombastic figure on the American financial scene. He is a well-known real estate magnate, and he is almost as famous for his companies' bankruptcies as he is for his companies' lavish real estate projects.


Through it all, however, Donald Trump has shown that he knows what he's doing. He's been a wily businessman, and his real estate development projects have been, overall, fairly successful.

But how did he get his start? And what does he think would make a great investment right now?

The Trump Secret
We hear a lot about Donald Trump's real estate empire. Yes, he's built it up to something truly lucrative. (Forbes puts his worth at $3.2 billion.) However, he didn't get his start from nothing.

So what's his secret?

Like so many successful and wealthy investors and businessmen, Trump had rich parents to help him get in the game.

His father was a wealthy real estate developer named Fred Trump. Fred's father had a firm -- Elizabeth Trump & Son -- that a young Donald worked at while he attended the Wharton School at the University of Pennsylvania. (He had gone to Fordham University for two years before that, after graduating from New York Military Academy.)

In 1968, Trump joined his father's firm officially, and he was put in control of the organization in 1971. At that point, he renamed the company The Trump Organization.

  Like so many successful and wealthy investors and businessmen, Trump had rich parents to help him get in the game.  

He's been involved in numerous business ventures, some of which have gone bankrupt. However, Trump is too savvy to let company and project bankruptcies touch his personal fortune; in fact, he knows how to get back in there and work on the next big thing.

Donald Trump's Investment Advice
Since his family has long been involved in real estate, it's no surprise that Trump makes a lot of real estate investments. He has claimed that his father told him to know everything you can about what you're doing before you invest. This advice seems to be something he takes to heart when he invests in real estate. Since it's the family business, Trump knows a lot about it.

Indeed, his best investment is likely a real estate investment that he made in 1995: The purchase of 40 Wall Street, the old Bank of Manhattan Trust building. It is now known as Trump Tower.

Even though Trump tried to sell it in 2003, and it didn't work out, the building is still considered immensely valuable. Trump has claimed, on several occasions and in different venues, that he bought the building for $1 million. The building is probably worth several hundred million dollars right now.

But what would Trump tell others to invest in? According to Business Insider, Donald Trump believes that the best choice for investing is still equities and corporate bonds. But he also thinks that if you know how to do it, it makes sense to purchase foreclosed homes from banks. He suggests demanding good interest rates and long-term financing, presumably so you can make the most of leverage.

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Trump recently said that he thinks that there are potential investment opportunities in Detroit, for those who can see the potential and buy the real estate. He pointed out, in Crain's Detroit Business, that rock bottom is a good place to invest. After all, where else can you go but up?

And he did use that philosophy when buying 40 Wall Street after it had been neglected as a result of a sale on behalf of late Filipino dictator Ferdinand Marcos falling through. (That tends to happen when your assets are frozen.) The building had been neglected, and Trump turned it into a prime piece of real estate.

Action to Take --> Donald Trump had rich parents who were willing to help him get ahead in the real estate development business. Not all of us are that fortunate, though.

The good news is that we don't need our own rich parents to get ahead. If you know where to look, you can find good companies with rich parent companies to invest in. Get in on these investments while you can, and you could take advantage of them and become rich yourself.

This article originally appeared on
The Shocking Truth About Donald Trump's Rise To Success

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