Saturday, July 7, 2012

Review of Barron's -- Dated 9 July

Midsummer...  Hot here, hot where many of you readers are.  Our daughter said it might reach 106 degrees in the city where she lives...  So, I did the bare minimum of errands, and am able to get a relatively early start on reviewing this pretty interesting Barron's today.


The Cover Story is titled "What's the Best Bond Fund for You?" My short answer is: None!  But, that would be a cop-out, and besides, it is just a part of Barron's Quarterly Guide to Mutual Funds (a special section).

I have a lot of problems with bonds.  One of the biggest one is that our family's older bonds are almost all going to expire in 6 - 12 months.  We were getting relatively decent returns for many years on these 5 + years dated paper.  Now I look out there and see 5 year rates abysmally low (under 1% for Treasuries, and also pretty meager for corporates except the junk).  I really do not know what we are going to do to get some income when our current bonds expire.  I have other problems with bonds too, the biggest other problem is counterparty risk...

Back to the article, author Beverly Goodman writes a LOOONNNNGGGGG article which really just discusses the big bond funds, how much money there is in each one of THEIR funds (all the big bond funds have different ones aimed at different people, eg high yield, international, etc.).  But, there was NO MEAT in the article, by that I mean that I did not see any investing IDEAS on how to get income.  Sorry, Beverly, my hopes were dashed by your article.

In that same special section, however, there are other articles.  Michael Shari writes of three fund managers (one of them bonds only) who are sifting through the Euro area for investments, with some success to date.  William Browne (manages the Tweedy Browne Global Value Fund) is buying European companies that have broad exposure OUTSIDE of Europe.  He owns Diageo (drinks!) and G4S (of the UK, they are private operators of prisons, they are also providing some security at the Olympics there).  Philippe Brugere-Trelat runs the Mutual European Fund (TEMIX), he has bought Continental AG (German tire and auto parts maker that I thought Schaeffler had recently bought, I will have to look into that) and AP Moeller Maersk , the BIG (they move ONE TENTH of the world's trade) Danish shipping company, but Bugere-Trelat says they should be thought of more as a rich conglomerate (oil producer from offshore Danish fields, it owns a bank and supermarkets there as well).  John Lovito runs American Century International Bond, 62.5% of those bonds are in Europe.  Part of his strategy has been to buy UK bonds and other bank and sovereigns outside the eurozone.  Lovito has bought NO corporate bonds by European manufacturers this year...

Jack Willoughby (still in the special section here everyone) writes up his interview with Bill Hambrecht, a very well known name in technology investments, having been a part (often a BIG part) of the IPOs of Google, Apple, Adobe, Amazon, Genentech and others.  Hambrecht has a new model for more fairly pricing IPOs, and he critiques the way Facebook was handled (yes...).  Hambrecht's concept is called the "Open IPO" and (I guess) is something like a Dutch Auction process (anyone interested in correcting, please do, do the work and let me know).

The rest of the special section just runs the performance numbers of the HUGE numbers of mutual funds, ETFs, Closed End Funds, etc.  I am less enchanted with ETFs than I used to be, they are getting complicated now, and I foresee COUNTERPARTY RISK as more of a danger now than before.


Moving right along to the main section of Barron's we find Alan Abelson with his usual pole position article.  Abelson notes that the physicists at CERN just found the elusive Higgs boson, the "God Particle" I have read about on-and-off for years.  The Higgs boson apparently will fill in some blanks in particle physicists' theories of subatomic particles (you want more, look it up yourself!).  Abelson wonders if we should have the physicists turn their attention to the economy, as economist have done such a bad job explaining anything or making decent predictions...  Abelson quotes legendary investor Gerald Loeb re stock analysts (and presumably economists):

"... in a bull market you don't need them; in a bear market you don't want them."


Abelson then goes on to note the lousy job numbers on Friday and the various central bank cuts and maneuvers to try and turn things around in China, Europe and the UK.

Nest up for Abelson is further digging around re the job numbers.  He also quotes and discusses Dave Rosenberg (familiar to ZH readers, of Gluskin Sheff) and Stephanie Pomboy (familiar to any guy who seen the pretty lady...), both of whom are downbeat...  And with the Fiscal Cliff coming as well as the election, well don't look to them to brighten your day!

Note to ANY readers interested in OTC Interest Rate Swaps!  SwapClear has an ad on the same page where Abelson finishes (my edition).  From the ad:  "SwapClear is the only clearing service to have successfully handled an OTC interest rate swap default."


Michael Santoli ("Streetwise") writes that Barclay's may have to some serious restructuring like selling off pieces in addition to whatever fallout lands on them re the LIBOR scandal.  Yet he says that Barclay's might be undervalued compared to say Morgan Stanley... [Ed. note, NO THANKS to either one]  There are some bright spots that Santoli points out: Wal-Mart Stores (WMT), Johnson & Johnson (JNJ), Kimberly-Clark (KMB) and Dr. Pepper Snapple Group (DPS) all reached 52 week highs, all four are economically defensive
plays (disclosure, our greater family has small positions in JNJ and KMB).


"Review & Preview" features small pieces that I often mention ("He Said" for example as well as small articles), this is on pages 14 and 15 (my edition).  Weather guru Evelyn Browning-Gariss notes that the usual pattern of a more than one year gap from "La Niña" to "El Niño" is apparently broken this year, that might explain the recent heat wave...  And when the change is rapid (like this year), it is often bad for crops...

"He Said:"

"We see now a weakening of growth in the whole euro area, including...countries that had not experienced that before."

-- ECB President Mario Draghi after the ECB rate cut.

There was another small article (William Waitzman) that mention that both Boomers (that's me!) and their kids (the "Millenials", born from 1982 to 2001) are BOTH looking for fresher and more organic food.  Companies Whole Foods and Hain Celestial both get a positive (our daughter lives RIGHT ACROSS THE STREET from a Whole Foods, shops there all the time).


Andrew Bary writes a positive piece ("To Mozambique and Beyond") on Anadarko Petroleum (APC), which is BIG and SUCCESSFULL in offshore oil drilling.  They have discovered a LOT of natgas in the Gulf of Mexico, off West Africa, and off Brazil and Mozambique.  They have a knack for making big finds...



Two more bullish pieces (Christopher Williams writes "Nice Wheels, Lovely Ride" about Titan International (TWI), they make BIG tires for tractors and mining trucks, and Jonathan Buck writes "A Steely Resove to Rebound" about ThyssenKrupp (TKA.Germany), the big steel maker).

Titan, maybe so.  ThyseenKrupp, no thanks.  Typically I do not offer an opinion re foreign stocks unless I feel like I know something about them.


Economist Gene Epstein ("Economic Beat") writes that job growth in this "recovery" has been very slow, we are usually back to where we started pre-recession by this time, but we are only half way there this time.  Both the private sector and .gov are hiring slowly or even trimming.  There might be some good news though if oil prices stay low, that might help bring back retail (and other sectors) if consumers save enough at the pump.


Tiernan Ray ("Technology Week") writes that Apple (AAPL) is the safe haven in a tech riven with fear!  He makes a good case, in that many of Apple's competitors do not seem to have products that can damage Apple.  Component suppliers NOT connected w/ Apple seem to be weak, but such suppliers that ARE connected with Apple such as Cirrus Logic (CRUS) and Skyworks Solutions (SWKS).

He also likes Stratasys (SSYS) a maker of  "3D printers", machines that can make prototypes of manufactured parts in minutes once the technical specs of the piece are entered and the material put in.  I read a big article in The Economist not long ago about a possible renaissance of manufacturing in the USA, a decent chunk of this may come from companies with "3D printers"...  Keep and eye on this sector, I will...


Gene Epstein pulls double duty and writes an article ("Health-Care STocks Are Still in Play") about Mr. Avik Roy's views on health-care stocks. Briefly if Romney wins, device makers (like Stryker (SYK) and Zimmer (AMH) should be winners.  If Obama wins, Roy sees few buying opportunities.  OK, Avik Roy has told you!


Historian John Steele Gordon contributed a nice article ("The Long View") on Thomas Jefferson's great idea: he gave us a decimal currency.


Editor Thomas Donlan writes that Europe needs a modern day Alexander Hamilton.  Hamilton in the early days here in the USA was a force for centralizing our money, a concept that was controversial then.  His whole record is controversial, but in the early years the country grew quickly even if some sectors had to pay for it...  He believed in the idea of a strong central government (with a permanent national debt & market for it) as well as a deep and liquid market for Treasury bonds, which provided a blessing to the new nation's economy, which it apparently did.  He thinks Europe could use the "enforced self-discipline" that a "Hamilton" would impose.  I go along with Donlan on this idea, but Europe probably will not...


In the Market Week section, Sandra Ward notes that banks (including and especially Deutsche Bank) did poorly last week.  She goes on to write that Netflix (NFLX) did well  last week as their streaming service was the "biggest chaneel" last week, beating any other broadcast or cable channel in hours watched...  She finishes with an observation from BMO Capital, that cut estimates for many tech companies...


Nothing of interest to me in "Asian Trader" (a Malaysian IPO...) nor "European Trader" this weekend.


The "Bond Center" provides four graphs that illustrate various key interest rates (short vs. long term, US vs. others, the Yield Curve, and US Credit).  The euro short term interest rates had been coming down vs. the US dollar over the past few months (higher, but narrower spread), but last week teh euro short term rate dove below OUR 0.5% rate (their rate cut).


Michael Aneiro ("Current Yield") writes that no one wants to buy Treasuries, but they are anyway.


Insiders sold $47,700,000 worth of ServiceNow (NOW).  Somebody (an insider) BOUGHT $5,688,000 of the same stock.  Hmm.  Seems fishy.  And when something seems fishy to me, I say: stay away!


Simon Constable writes this week's "Commodities Corner".  He says that if we go into recession that commodities will be hit HARD.  The dollar would go up (so commodities down), consumption would fall, and credit even less available.  He says energy stocks and miners and their suppliers (Schlumberger (SLB) and Caterpillar (CAT)) would be hit.  OK, you've been warned!

Does that mean I have to sell my speculation, veyron, on Monday?  I bought 400 shares of US-based rare earth miner Molycorp (MCP) at $20.18, my first speculation in years...  It is at $21 "and change" now.


I close, as always, with the performance of the Mighty Peruvian Sol, which last week resumed its uptrend (in general it has gone up vs. the US$ for YEARS now).  The Sol rose some 0.4%.

Verdict:  Yes, yes, buy Barron's this weekend!

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