Sunday, August 19, 2012

Review of Barron's -- Dated 20 August

This weekend's Review is a little bit late because my wife and I took the opportunity to celebrate our Anniversary (No. 27) by going to a trendy Art Deco hotel on Ocean Drive there in Miami Beach, the kind of thing we NEVER do.  We had a wonderful time and even went to one of the recommended nightclubs there in South Beach (The Mansion) to try and keep up with the young'uns out there on the dance floor...  Well, The Mansion was a disappointment when compared to our foray last year at Club 50 (Miami).  Any of you readers who need a hot nightclub recommendation in Miami to go dancing, well, contact me...


The Cover Story of this weekend's Barron's is "Pipeline to 6% Payouts" about master limited partnerships (MLPs).  I have written a few times (although not enough) about the lack of decent yield, decent income in our "ZIRP" environment.  ZIRP and its related QEs are really hurting SAVERS, and it is from savers that the CAPITAL necessary to rebuild America will have to come from.  And if savers are not getting any income, that means less investment will be available in the future...

Author Dimitra DeFotis interviews three experts in the field of energy MLPs and MLP funds (like almost everything else, there are ETFs as a way to play the industry -- more on these ETFs later).  She does a great service to her readers by asking whether the price boom (of these energy MLPs) will keep going up: YES!  The yield values of these ETFs has been well known for some time, and recently (2012) their sahre prices have moved up nicely, so that owners of the MLPs (ot their ETFs) have gotten a double benefit: price appreciation and high yield along the way.  The yileds are still pretty decent, and that is why I presume Barron's decided to highlight them in this issue.

These energy MLPs came about because Congress after 1987 wanted to encourage investment in energy infrastructure (especially pipelines) by giving a tax break (they avoid corporate income t5axes by passing most of their cash flow along to their investors).  That generous tax treatment means there are some 80 MLPs today. These MLPs are little tricky in their tax treatments and even how they move according to the economy and even their payouts to investors.  Here are some of the main thoughts I got from the interview:

1)  The tax treatment IS more complicated, so in this case, IMO, it is better for we "little guys" to invest in the MLP ETFs, which do the taxation accounting themselves, you also get diversity of MLPs.  Disclosure: I own a small position in the JP Morgan Alerian MLP Index ETN (ticker AMJ, which tracks 50 of the largest MLPs), and I am still smiling re THAT investment!  Based on the side-bar story at the end of the article, I would be inclined to recommend looking at the MLP ETFs here, to avoid complicated taxation requirements.

2)  MLPs are a little exposed to interest rates going up, but not that much according to those three experts (under most scenarios).

3)  These MLPs are somewhat under-owned because many of them are small, and some of them are leveraged...

4)  Most of these MLPs are pipelines (and to a smaller degree owners of storage tanks(, although there is some upfield activity in the sector (the most famous is LINN Energy (LINE)) and some downstream names (CVR Partners (UAN) and PetroLogistics (PDH)) which have some refining assets.  It seems, though, that the pipeline MLPs (almost all the rest) act as a "toll booth", taking their payments for pumping gas, gasoline and natural gas through their pieplines.

Nice article Ms. DeFotis!


Alan Abelson is BACK at work, and explains this year's high temperatures and drought bu suggesting it is NOT due to global warming or flatulent cows...  But, by overheated political rhetoric!  And since Paul Ryan was chosen by Mitt Romney to be his running mate, well, the hot words have gotten hotter still.  Abelson then goes on to write that this does not seem to be much other than political theater, and that what portfolio managers will be keeping their eyes on (at least in the near future) will be the Jackson Hole (Wyoming) economic symposium starting August 31.

Abelson, ever ready to be out bear-spotting (hey, it's his JOB), then discusses the junk bond bubble.  Abelson and many others (including Barron's own fixed investment columnist Michael Aneiro) have been warning about so much money pouring into junk bond funds seeking higher yields...  Abelson then brings in Stephanie Pomboy who wrote recently (again) warning us all about the bubble in junk bonds.  Junk bond yields are again under 7%, which is traditionally been a place where new investors in junk bonds go to get slaughtered...  Abelson  provides a handy graph, showing a possible "double bottom" (hey, if you have to ask, you do not want to know) in junk bond yields...  Stephanie Pomboy chips in with an observation: "... those most desperate for yield -- pension funds, insurance companies, and retail investors, will be hit the hardest."  She then goes on to say that junk bond woes could cause MANY other knock-on effects (like pension defaults and municipal bankruptcies).

[ed. note: Hey, Barron's, if you EVER mention Stephanie Pomboy in ANY context whatsoever, please provide a recent picture, OK guys?]


Michael Santoli ("Streetwise") writes that low recent low volatility has made hedging on the S&P 500 Trust (SPY) very cheap now.  That is, you can lock in recent gains (SIX WEEKS of S&P 500 gains now, read that at Zero Hedge?) by buying puts on the SPY.  I will take him at his word, but would remind my readers that you just as easily SELL calls at a higher SPY price (and so receive a small premium) and cash in a bit of any gain on the S&P from now until expiration OR just sell your SPY position now and be done with it.


There were only two items that caught me eye this weekend at "Review and Preview":

1)  "She Said":  "We feel committed to do everything we can to maintain the [euro].  The ECB ... is completely in line with what we have said all along."

German Chancellor Angela Merkel in supporting ECB President Mario Draghi

[ed. note: the ECB seems to have always been somewhat hard-line]

2)  Brendan Conway writes a short column about how the drought may cause more farmers to slaughter cows this fall, thereby bring meat prices down (for a while, NEXT year meat prices will likely go UP as the herds will be smaller).  Bottom line:  If you have a big freezer, "Back up the truck" if/when meat prices go down in the next few months.


Michael Santoli write a bearish piece on Waste Management.  Even though the company sports a 4% dividend yield, corporate insiders have sold some 180,000 shares around its current price (for a total of some $50 million)...


Jonathan Buck (Barron's "Europe Go-to Guy") writes a bullish piece on Swatch, the Swiss company that practically saved the Swiss watch-making industry.  Swatch is not just cheap watches either, they own Omega and Breguet, some of (the latter's) whose watches sell for up to $300,000, and Swatch makes some 80% of the movements for ALL Swiss watches...


Author Gene Epstein (Budget Faceoff: Ryan vs. Obama) looks at the two different plans offered by each.  Paul Ryan (above mentioned as Romney's running mate) several months ago proposed a stringent budget for the US government out to the year 2022.  His plan would REDUCE (not eliminate) budget deficits to approximately half of where they are, and his plan has some credibility (not too much though, as Congress almost always spends more than what they promise.  Obama's plan is perhaps more realistic, in the sense that spending will be kept at VERY high levels (and that is making assumptions), and so the deficits and debt will get much worse.

My take?  I would prefer Ryan's plan (even if we were not to get it all, and who does get it all?), but I fear that Obama's plan (or something close) is what we are likely to get.  Ugh.


Jonathan R. Laing wrote an interesting piece on Prosafe, a Norwegian offshore oil-services provider I had never even heard of before.  Prosafe offers "floatels" (floating hotels) which are semi-submersible structures to house the EXTRA workers needed in some phases of offshore oil-drilling rigs' work: such as when they do construction, maintenance or decommissioning work.  That is, when the operators are doing tasks that require MORE workers than normal (drilling say) operations.  There are only 20 or so of these "floatels" in the world, but Prosafe (PRSEY here, but thinly traded) has 11 of them.


Taxes, taxes, taxes...  It looks like some kind of tax hikes are coming...  BIG ones if we go over the dreaded "Fiscal Cliff" (coming at us ever more rapidly Alan Abelson reminds us)...

But, Jim McTague ("D.C. Curent") suggests that increasing the tax on gasoline could be coming no matter which major candidate wins.  There are a couple of ideas floating out there...

McTague is a pro.  I think it would be one way to raise some real revenue (not nearly enough, but enough to "make a difference"), but NEITHER candidate is saying anything about this unpopular idea now.  But, keep an eye out next year.


"Technology Week" author Tiernan Ray discusses Cisco Systems (CSCO) a company I have not read much about lately.  CSCO has just raised it dividend to 3%, joining various other main-line technology companies (like Microsoft and Intel) in paying out more in a "blah" technology arena...  Cisco's competitors seem to be doing worse or else priced to perfection (FFIV re the latter), so CSCO may be a good play for the longer term, collect a decent dividend and wait for a tech turnaround.


Editor Thomas Donlan this weekend provides a rather pessimistic view of Paul Ryan's likelihood of getting his plan through.  First, in politics Donlan notes, the old saying that; "If you're explaining, you ain't winnin,".  He means here that many Republicans were not happy with Mitt's choice of Ryan (who has the big plan to cut the dificit, mostly bu spending cuts) and why some Democrats are so happy with Romney's choice of Ryan...

Donlan is pessimistic a a few ways about this coming election (he quotes from American University Professor Allan Lichtmann's "13 Keys to the White House", and Obama has at least 8 of them...) as well as the fact that the Democrats can find it much easier to scare people than the Republicans can explain and reassure them...

Donlan thinks the Republicans need to go on offense ("jobs, jobs, jobs" and Obama's lousy economy), but he thinks that scaring the people is likely to work...

He finishes with the FACT that we should be scared: the demographics are very ugly (and heading us to national insolvency at this rate), something drastic WILL have to be done.  The sooner the better.


In the Market Section this week, Vito J. Racanelli notes that even if weak, last week WAS the sixth straight week that the stock markets has gone up.  Racanelli goes on to note John Deere's (DE) bad week (low sales due to the drought).  DE sold off...  But, the future is likely to be bright for Deere.  I would agree.

Author Reshma Kapadia ("Emerging Markets" -- Barron's new column that I am enjoying) writes about buying banks in developing countries.  This weekend's column is about investment ideas in developing world banks, where in many cases they are better capitalized than Western banks and are seeing stronger growth than ours are.  She quotes Lewis Kaufman (manager of the Thornburg Developing World Fund (THDAX)) that many developing world banks generate better returns, partly because there is less competition in many emerging economies and they pay little for their deposits (low costs).  There are pitfalls she notes (esp. CHINA, IMO), but then she also mentions that Mark Jason (Invesco Developing Markets Fund (GTDDX)) believes that Brazil's non-performing loans may have already peaked.  Finally, she mentions that Peru's own Credicorp (BAP, and owner of the bank our company uses there in Peru: Banco de Credito del Peru SA) is one of the favorites among investors in emerging countries banks.  I must note, however, that Lima is undergoing a HUGE PROPERTY BOOM, and has been for years, we will at some point have "another Miami" happen there...

"Asian Trader" author Kopin Tan advises us to beware of China's equivalent to YouTube (Youku -- their online video portal).  They are about to buy out a rival, they have the cash (stock actually) to do it, but Tan says that integration is a big risk.

"European Trader" author Jonathan Buck writes that Dutch bank ING Groep (ING) is making real progress in disposing of and writing down bad assets.  ING is considering selling off its insurance assets (and could perhaps get 14 billion euros).  Their "Tier 1" ratio is at 11.1% (which he writes is good), and they are working their way through bad Spanish assets.  He likes ING, with a 2012 PE of about 4.8, which is lower than European rivals like Aegon, Axa, and Allianz.  He finishes his piece by noting that European equities are all up this year (except Spain).

Michael Anerio ("Current Yield") also warns of the danger of the bond markets, danger for buyers of bonds!  Especially junk bonds.  Al lot of companies are offering cheap debt, and with longer maturities.  He cites figures showing that we are in dangerous territory...  Aneiro finishes by noting that Treasuries again had a bad week, the 10-Year note finished the week with a 1.814% yield, a much higher yield that its record low (approx. 1.39%) set some 3 - 4 weeks ago.  The "Bond Center" that shares his page is showing (in one of its four graphs) a notable rise in the Treasury Yield Curve...

Simon Constable writes this weekend's "Commodities Corner", and is titled: "QE3: Mixed Bag for Commods".  Overly briefly, if we get more QE, that would likely be good for gold, silver and platinum; it MIGHT be bad for iron ore, copper and lumber (in that economies might weaken in the face of more QE).  He also writes agricultural commodities should hold up OK (as well as fertilizer companies), while crude could go down, unless there is a Mideast war...

In  "13D Filings" (13 D Filings must be made when any investor acquires 5% or more of a publicly held company) I note that Carl Icahn (owns 9.5% of the company) has suggested to Oshkosh (the maker of emergency vehicles and similar) that they spin-off their JLG unit, which lifts, loaders, booms and platforms.  Alert readers form last week might recall that Icahn owns a lot of troubled heavy-duty truck maker Navistar as well...  What does Carl know?

"Economic Beat" author Gene Epstein writes again of warnings on our debts...  But, no one in authority seems to be listening or will take action.

The only BIG Insider Transactions of note was that 10 insiders sold over $59 million worth of stock of DaVita, Inc.  I had never even heard of these guys, but found the below information at their website (  DaVita Inc., a FORTUNE 500® company, is a leading provider of kidney care in the United States, delivering dialysis services to patients with chronic kidney failure and end stage renal disease. DaVita strives to improve patients’ quality of life by innovating clinical care, and by offering integrated treatment plans, personalized care teams and convenient health-management services. As of June 30, 2012, DaVita operated or provided administrative services at 1,884 outpatient dialysis centers located in the United States, serving approximately 149,000 patients. The company also operated 19 outpatient dialysis centers located in four countries outside the United States. 

And finally, the Mighty Peruvian Sol struck paydirt vs. the US$, rising a tiny (but still up) 0.15%

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