Sunday, December 23, 2012

Review of Barron's -- Dated 24 December 2012

I wish a Merry Christmas to all of you who found their way here, I hope that you feel as blessed as we do.  And thanks for dropping by!

This issue is relatively short, as will be my review, as we are busy making holiday preparations here as well.


Many times Barron's has Cover Stories with seductive titles...  This weekend's edition has the Cover Story "Europe: Time To Buy".  Which is an invitation to buy the the issue if I have ever seen one.  There is a picture of a demonstration, lots of signs & flags, and people chanting, singing or yelling...  I cannot ID the city, as I cannot read anything, the photo is not clear enough for me to even know what language...

Author Jonathan Buck advises us that "Europe is on Sale".  Buck:

"So, is now a good time to buy European stocks?  You bet."

Well, maybe.  He indicates that the Stoxx Europe 600 index has risen 15% this year (vs. roughly 12% - 13% for the US S&P 500, although the Stoxx 600 trails on a three year basis).  Also that the Stoxx 600 has a (2013 estimated) PE of about 11.5 (vs. S&P 500's 12.5), and that the yield on the average yield on the Stoxx 600 is 3.8% vs. S&P 500's 2.2%.  So, on those three measures, yes, Europe looks attractive...  Also, he says that European companies are awash in cash.  OK, FOUR winning items.

But (you knew this was coming), Europe is apparently in far worse trouble than the USA is, at least for now.  In my eyes (not in his though) Europe looks to be on a perilous down-slope, it does not look to ME to that the Euro-area crisis is anywhere CLOSE to being resolved.  Pessimists like me can be found everywhere.  When looking at a BAD place to invest, I like to follow the below follow the below maxim (which I did by investing in Peru in 1991, when it was in grave peril):

"Buy when the blood is running in the streets."

I am not sure, but it may have been one of the Rothschilds who said that.  If you look at the COVER itself of Barron's, you see people demonstrating, but you do not see BLOOD.  Yes, sure, there were people beaten up, gassed and in a few cases killed over the past few years in European street demonstrations...  But, IMO (not worth much), here's another saying, I refer to Europe's coming future:

"You ain't seen nothin' yet."

MY opinion is that it would be better to wait.  On the other hand, Jonathan Buck knows the continent much better than I do (although I would be curious to see how his recommendations have worked out in recent years).  For the many of you who find Mr. Buck more credible than me (smile,,,), here is a list he compiled with the help of various analysts and through his own work (I am changing or modifying his comments to reduce space):

many global brands
Rio Tinto
global miner, China play
strong drug pipeline
big digital advertiser
great luxury brands
Deutsche Post
its DHL unit is growing
positive restructuring?
focusing on profit…
oversold utility

Buck discusses the prospects of each one of the above, in many cases I cannot dispute the quality nature of some of the above companies (Volkswagen, Roche, EADS and LVMH), but I do not like EUROPE.  The yields are fairly attractive though.

Good article on a needed topic, but I am staying away.  If I had to buy, the four just above mentioned companies look good re diversification from Europe and of high quality.


Randall W. Forsythe "pinch-hits" this weekend for Alan Abelson.  Forsythe notes that Congress did notake the Mayan Apocalypse scenario very seriously either, failing to even pass anything re the Looming Fiscal Cliff.  The stock market is NOW a little nervous...

He paraphrases Greg Valliere (Potomac Research Group), paraphrasing perhaps because Mr. Valliere may have used colorful language, that Washington, DC has LONG KNOWN about both our spending problems as well as the nature of the Fiscal Cliff, he warned about this IN BARRON'S in October, 2011.  There are still some avenues open for sort-of resolving this in a not too apocalyptic way ("Plan C", letting the D-Team handle this, or even more can kicking).

Forsythe goes on to write that no one knows, not even the strategists!, what is likely to happen re the Cliff (and related matters like the Debt Ceiling, etc.) nor how it will affect stocks.


Kopin Tan ("Streetwise") discusses GOLD and gold mining stocks.  The stocks have lost (on average I presume) almost 20% since late 2011.  Gold itself has lost some 8% since early October (but has gained roughly 6% vs miners' losses of 20%) in 2012.  Gold, at roughly $1650 is some 12% off its peak (2011).  Gold has NOT done as well as many other commodities he points out.  He likes the miners better.  I'll take the gold itself, physical only!

Mr. Tan also quotes a BofA Merrill strategist who says that stocks are a better bet than bonds (but lots of people have been wrong about that for years now).  Still Treasuries yield VERY LOW amounts, and the economy may, MAY, be coming back, which would be good for stocks and bad for over-valued bonds.


Andrew Bary writes a timely short piece at "Review & Preview" that resolves a question I have had for sometime: How bad WAS Hurricane Sandy's destruction (economic)?  Bad, but not catastrophic, using his title.  AIG has the biggest loss (est. $2.0 billion), but the losses at each of the firms mentioned do not appear to endanger ANY of them.  Some analysts now like these guys.

"He Said":

"I will use all the powers of this office to help advance efforts to help advance efforts aimed at preventing more tragedies like this."

President Obama, announcing his intent to tighten gun laws.

[Ed. Note: I do not doubt his sincerity here...]


Tiernan Ray (writing in "Follow-Up") notes that database giant Oracle (ORCL) is up some 17% since the Barron's article on it on April 30.  Oracle is pushing further into the cloud, and may have more room to run.

Jack Willoughby writes (same article, different column) that Paccar (PCAR, the truck respected maker of Kenworth and Peterbilt brands) is also doing well, and may also have good growth prospects (new plant in Brazil and recovering global economies).


Jacqueline Doherty writes that regional banks PNC may deserve some love from Wall Street.  Well maybe so, but I do not buy ANY bank stocks, than you.


Bill Alpert writes a refreshing (because it's NOT bullish!) piece on Thor Industries (THO), maker of RVs (Airstream) and campers.  He wonders if the sales are really there...


Jack Hough again writes of bullish prospects on four companies (is this what his boss wants him to do each week?  Identify four bullish prospects?).  The below companies have surging free cash flows:

Expedia (EXPE)
Microsoft (MSFT)
Terex (TEX)

His logic is that these four have BETTER cash flow than their P/Es would hint at.  And that is bullish.  Hey, could be!


Tiernan Ray ("Technology Week") reviews his own comments on various technology companies in a nice and candid manner.  He was right about Apple (AAPL), at least for the year even with its recent drop.  He notes that missed Samsung Electronics (005930.Korea), the other one of the BIG dynamic duo of smartphones.  He seems to have been right about Microsoft (MSFT) and Intel (INTC) both having not-so-great prospects, and even more so with Hewlett-Packard (HPQ), but acknowledges hits and misses...  Well, yeah, me too.  I have some hits and many misses...


Lawrence C. Strauss interviews famous growlin' bear Jim Chanos (famed even more so for being down on China).

[I still give the award of "World's Most Growlingest Bear" to Jim Willie CB, the write of "the Hat Trick Letter"]

Chanos is still DOWN on China, and in particular dislikes Agricultural Bank of China (ACGBY).  He does not like Brazilian raw material producers (Vale (VALE) and Petrobras (PBR)) because of China and Brazilian government meddling...

He thinks that our newly found abundant reserves of natural gas is, on balance, a good things for us.  But, it is somewhat energy-price deflationary, especially for coal.  Chanos:

"For every job we add in natural gas, we are losing half a job in coal."


OK, any of you rich guys & gals reading this!  Richard C. Morais (PENTA's editor, the part of Barron's oriented to families with over $5 million in wealth) writes that the Washington, DC suburbs is now the richest zone in America, and that the DC area has new attractions for visitors.  The suburbs are rich because the government has gown so much...

He also mentions (for you REALLY RICH guys!) that fine Bordeaux and Burgundies again dominated recent wine auctions, and that it is the 2009 Chateau Petrus  that is the next great collectors item for vintage Bordeaux collectors (uhh, that wine is priced int he THOUSANDS of dollars per bottle...).


Editor Thomas Donlan writes of natural gas, a subject I have grown to like very much (recall my recent article on Peru using NatGas and LPG was fuel for much of their fleet):

He notes that our NatGas prices run some $3.75 per thousand cubic feet vs. prices of $13 to $16 in other developed markets (which I presume to mean places like Europe and Japan).  But, our own government has thrown up some barriers to exporting NatGas (most economically by liquifyingt it like Cheniere Energy (LNG) does.  We can export to some countries, but to others!

Donlan notes that a study by NERA Economic Consulting finds that although domestic prices of NatGas would go up if the producers were free to export it, that the NET result would be a benefit if we exported NatGas on a large scale.  The other side (some Democrats (Ed Markey) and the environmentalists) worry about certain groups prospering (Markey) and the increased environmental risks.

Donlan believes we can take care of the environmental issues, but that the government should let the free market decide where the gas goes, to US consumers and new factories OR to bring in capital for our exports...  The government usually chooses WRONGLY, favoring one group or the other.  Why not let the free markets decide?


In the Market Week section, Vito J. Racanelli notes that "The Trader", a column he often (but not always) writes that "The Trader" stock picks underperformed the market (their recommendations were up an average of 4% this year vs. about 14% for the S&P 500)...

Kopin Tan ("Asian Trader") notes that Asian stocks had, on the whole, a very good year, most countries averages were up in the 20%-s range, domestic China was the only real laggard at about 0%.

Ben Levisohn ("Emerging Markets") chronicles hits & misses of the column since they started publishing it, but Levisohn is the new author, so he really cannot claim much credit or receive much blame (Brazil did very poorly) as he was not around making most of the picks...

Jonathan Buck ("European Trader" and author of this weekend's Cover Story) reviews what happened in Europe (Stoxx 600 up 14%) as well as some of the columns stock picks.  Winners and losers.  He does not net it out for us.

Michael Aneiro ("Current Yield") again notes the tax uncertainty of muni bonds...  Contributing to recent selling of muni bonds is the whole likely rise in Capital Gains Tax that seems to be coming...

Paul Rekoff ("Commodities Corner") reviews how various commodities performed in 2012.  Short version: grains were UP, crude oil and softs (sugar, coffee) were DOWN and copper and gold did not have much movement.  Rekoff quotes someone infamous re gold:

"Finishing the year with 0% - 4% gains is not what many had in mind when 2012 began," writes Jon Nadler, an analyst with Kitco Metals.

A number I have looked at, but not commented on for quite some time is the "Total" from their "Federal Reserve Data Bank", which when I looked at it before each week was nearing the $3 trillion mark, until beginning to back off (go down).  This week, however, I note that the Fed added a Total of $41 billion, bringing the Total to $2,960 billion, a mere $40 billion to cross that threshold.  You can bet Zero Hedge will note THAT when it happens, as now seems likely.

One of my favorite readers is an alert guy (that's YOU, Nobody, LOL!) who often sends along a comment or two by email.  Last week he sent me a link that the Peru's central bank was going to intervene to stop the rise of the Mighty Peruvian Sol, probably because exporters are being hurt.  This has not showed up in Barron's foreign exchange numbers (they show the Sol unchanged vs. last week), so I will wait to see how the Sol moves in response.

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