Sunday, December 30, 2012

Review of Barron's -- Dated 31 December 2012

All weekend I have been torn between Antifragile and reading (and now reviewing Barron's), but I can pull this off...  One last comment re Taleb's book, he does not even mention perhaps the MOST ANTIFRAGILE investment of them all: Gold!

Onwards to Barron's, where I note the Cover Story: "The End Of Cash?".  Ackk!  No, no, no, no no, no!  I wanna spend CASH when I feel like it, and NOT leave a digital trail...  Alexander Eule writes this alarming story (alarming to me) about the latest trend in retail payments.  Here's why it alarmed me, Eule:

""Most of that [cash] spending will come from poorer Americans who don't have bank accounts and people who want to keep their purchases hidden."  

That's right, it's nobody's business what I spend my cash on.  Eule also provides an interesting data point: that just 2% of point-of-sale payments among households making over $60,000 / year (not that much...) is cash!  2%!  I would guess in OUR household that we spend perhaps 15% or more using cash.  Households making $35,000 however, use cash for some 55% of THEIR transactions (so who gets screwed again?).  He provides another data point of interest: that the Bureau of Engraving and Printing printed up some $359 billion in cash (fiscal 2012), of which $303 billion was in $100s...  Eule:

"In fact, economists at the Federal Reserve estimate that over 60% of all C-notes are now held overseas."

Eule then goes on to note that a lot of the new upcoming $100 bills have been printed already, and are waiting in bank vaults to be introduced.  These would be the new high-security ones.

But, Alexander Eule did not write his article with me in mind...  After all, Barron's main audience is investors, particularly STOCK investors.  Eule provides a nice graph (that would be difficult for me to copy and place here), but in 2011, cash was used for about 29% of retail transaction value.  The below shows 2011 and (estimate for) 2020:

Payment Type
% 2011
% 2020
Credit Cards
Debit Cards

Eule provided a GRAPH, so I had to give "eyeball estimates" in a couple of cases above.

His main point is that it is the credit card companies (mostly Visa (ticker V) and MasterCard (MA), Amex and Discover don't even really count...) will benefit greatly from the coming changes.  Both offer debit cards, and many of the "Other" transactions above are credit or debit card based (internet transactions, etc.).  

Visa and MasterCard will almost certainly grow their share overseas as well.  Already 60% of MasterCard's revenue comes from overseas and 45% of Visa's.  And, globally, 85% of retail transactions are still in cash.  Plenty of room to grow.

He raises another interesting point: that providing cash is essentially a public good, provided at no cost to consumers [leaving behind the point of the Fed and Banksters abusing this privilege], while all credit and debit card transactions have fees...

A fine article Mr. Eule!


Alan Abelson is back at work and has less than kind words for our Congress, Obama and Uncle Ben.  But, he limits himself (unlike many of us, hah!) to discussing the Fiscal Curb (err, Cliff, but I like my reader "Nobody"'s term better..., so "Fiscal Curb" it is for the rest of my piece).  He does not have much confidence that this will work out as both R-Teamers and D-Teamers hope.  Me either.

On the other hand, he quotes Paul Kasriel (recently retired from Northern Trust) as saying that a recession does not automatically hit if taxes go back to the Clinton-era levels.  Uh, I will tell you all this: if MY taxes go up a lot, that's it, we SLAM the door shut on spending!!!


Vito J. Racanelli ("Streetwise") notes that the Dow has real problems modeling the stock market as a whole (vs. the S&P 500 for example).  The Dow is imperfectly constructed, stocks with higher SHARE prices are weighted more heavily, and just one or two stocks that move the Dow (or, in the case of Apple, do NOT move the Dow, as AAPL is NOT in the Dow) move it much more than the S&P 500.  But, may of us already know that, that just means that we have TWO stock index numbers we have to keep track of...


"Review & Preview" offers up some nice morsels.  Zach Trenholm collects six "New Year's Resolutions" from some famous names.  Rather than list them all out (lots of typing), I will paraphrase the two that struck me:

-- Bill Gross wants return of capital than on, and that 2013 will not be like 2012.
-- Michael Thompson wants best places for decent yields without high risk.

Hey, Mr. Thompson!  If you find such a place or two, gmail me!

"He Said":

"There are probably many places...where living standards are higher than ours.  Are we going to send all our children there?"

-- Russian President Vladimir Putin, on recent US adoption ban.

OK...  Russia is HIS turf, he is The Boss there.  But, I heard that there are some 700,000 orphaned YOUNG children without parents there...

Jack Willoughby writes a short piece on the Dodd-Frank financial-reform (?) law, and how they are NOT addressing the "shadow banking system" (money-market funds, repurchase agreements, "dark pools", etc.).  He refers to a book called Misunderstanding Financial Crises (Gary Gorton).  Gorton says we only have appearance of reform under Dodd-Frank...


Economist Gene Epstein, who despite an economist I usually agree with (!) writes a cheerful article on the Fiscal Curb: "Cheer Up!  The Cliff Doesn't Look So Grim".  He bases his case on historical data when there were Keynesian contractions, and says that we did not do so badly...

Well we will see.  My view is that there is NO EASY WAY OUT, that we are going to suffer...


DC pro Jim McTague believes that the Fiscal Curb debate will get resolved one-way-or-another relatively soon.  Maybe a can kick or two, but he thinks that both sides need to show that they can govern.

And the longer the Fiscal Curb debate goes on, the less likely President Obama can get to the rest of his agenda, hmm...   :)


Leslie P. Norton writes a bullish piece on Motorola Solutions (MSI), the part that Google did not buy.  She asserts that municipalities are very likely to pony up the money to buy better communications equipment in coming years (Hurricanes Katrina and Sandy anyone?).

Well, OK, that's probably true.  But, MSI has TRIPLED off its 2009 lows...


Reshma Kapadia (until recently the writer of the "Emerging Markets" column) writes that Itau Unibanco of Brazil (ITUB) looks good for a turnaround after two hard years for Brazilian banks.  ITUB is Brazil's biggest private bank,a nd is likely to perform well now she says, especially since Brazil is no longer cutting rates.

[Ed. Note, I know a guy who works for a "major US capital goods manufacturer" who sells equipment to South America including Brazil.  I was asking him the other day about whether or not lefty-sounding new President Dilma Roussef was going to wreck Brazil.  He told me quite to the contrary, that she is cleaning house of corruption, and that capital good imports were likely to increase after his disappointing year in 2012]


Tiernan Ray ("Technology Week") writes that "no matter how you look at it, Apple's shares are cheap".  He notes that Apple (AAPL) has always come through hard times to dazzle customers with their user-friendly and innovative iGizmos.  He notes tha AAPL is selling at just 7.5 or so P/E.  And that the future still looks very good, IF they can maintain their higher prices vs. competitors (offering less desirable products).


Leslie P. Norton has an interview with Ian Bremmer (Eurasia Group, a political-risk consultancy) and author of Every Nation for Itself: Winners and Losers in a G-Zero World.  Bremmer's term "G-Zero" means a world without a dominant superpower to play World Policeman, or Lender of Last Resort.  The USA would pull back from sea-lane guard duty, etc.  This is quite different than the "Flat World" that many thought we would get (sort of a more homogenous world, kind of bland and American-like with fewer troubles).

In a G-Zero world, foreign governments matter more.  Multinational companies will have to dedicate more attention to issues like the current spat between China and Japan over those islands...  Nor do the American people want to deal with problems like Syria anymore.  Bremmer thinks that a lot of worrisome issues will likely not matter much into 2013 and beyond.  The US will not strike Iran, Israel will find that we care less about them, Europe will likely not implode, China is still run by a small (actually smaller now) group at the top.  He expects relatively few surprises, except maybe in Japan as their new government is rightist.

What companies will benefit?  Companies with strong brands and diversification (Cocoa-Cola (C) and General Electric (GE)).  Who might have problems?  Companies that let their technology go to China (Siemens) or are "one-trick ponies" (AAPL)...


Jack Hough again sticks to the pattern I have seen, picking four bullish stocks.  He discusses  a "Reverse January Effect", in which stocks that have had a good run, but lately gotten hit, might be good picks in the year to come.  His list includes stocks with recent losses of between 17% and 28%.  The P/Es are relatively low, and he makes a good case that they are quality companies.

Apple (AAPL)
Cirrus Logic (CRUS)  <--- makes audio chips for Apple
Nat'l-Oilwell Varco (NOV)  <--- world leader in various oil drilling eqmt
Ross Stores (ROST)

Do your own diligence, but NOV is a quality company, and has been since I worked in the oilfields (1979 - 1981).


"CEO Spotlight" this weekend is by Dyan Machan, who writes about Macy's (M) CEO Terry Lundgren.

Lundgren saw the light after too much partying in college, and then went to work.  He WORKED and he found mentors (which would make a good subject to study, mentoring potential high-level performers).  He has been at Macy's about 10 years and turned the company around.  The stock has doubled since late 2009.


"Other Voices" this week is by Mike Astrachan (4L Macro Opportunities of Tel Aviv, Israel).  He is very bearish on Europe, believes that Germany will leave the Eurozone and that hyperinflation is a real risk after all the defaults to come there in Europe...


Editor Thomas Donlan writes two pieces this weekend.  The longer one discusses the failures of the Fed from 2008 - 2011, and how that in 2012 they have cemented into place what appear to be failed policies of Quantitative Easing...  He believes that the Fed's "Dual Mandate" (set for it by Humphrey-Hawkins in 1977) should be dropped, and the Fed should only concentrate on a stable price level as its goal.

I would agree.

His shorter piece makes the case for ending the ability of the minority party in the Senate to filibuster.  He quotes Vice President Richard Nixon (acting as president of the Senate) in January, 1957 as wanting to end the ability to filibuster if the minority party can round up 40 votes...

I don't know about this one, have not given this any thought until now. One part of me LIKES Donlan's idea that the people elected the Senators, so the majority should be free to act.  The other part of me LIKES the idea of a Senate that can only move slowly...


In the Market Week section, we are reminded that stocks lost about 1.9%, perhaps on doubts that D.C can cut a deal on the Fiscal Curb...

Assif Shameen ("Asian Trader") is pretty well convinced that Japan is serious about weakening the Yen to jump-start it export sector.  Who gains?  Japanese auto makers Toyota, Nissan and Honda.  Who loses?  Korean exporters, especially if Korea does not weaken ITS currency...  Shameen then goes on to write that two analysts like Asia, especially China and northeast Asia (Japan, Korea, Taiwan and Hong Kong).

Ben Levisohn ("Emerging Markets") writes a bullish piece on the whole world!  I exaggerate a little, but he rounds up two experts as well that say that Asia (especially China) seems past its down-in-the-dumps, and looks to well.  I hope so!  If China does well, it will import more primary commodities from Peru...

Jonathan Buck ("European Trader") writes that various analysts are bullish on Europe, even on companies in weaker Spain (Repsol) and Italy (Pirelli).  Buck believes that most of the political risk in Europe is in the past (well, uh...).  He is careful not to be specific by using strong language, he writes "can" and "could" a lot...  We will see, I'll look elsewhere.

Bradley Davis writes this edition's "Current Yield".  He believes the long love affair of investors buying Treasuries will continue...  Until inflation comes anyway...

Mary de Wet ("Commodities Corner") writes that SUPPLY of commodities may be important to watch.  She brings in THREE experts (so take that Messrs. Shameenm Levisohn and Buck!) who believe that many commodities will have increased supply and likely lower prices.  Possible exceptions?  Corn and wheat, depending on the weather in the USA, as well as GOLD, production is increasing a scanty 2% per year, well under monetary growth...

Three insiders unloaded just over $70 million in Fidelity National Info Services (FIS, I leave it to the reader to look into who they are), while other insiders dumped $49 million in Visa (V -- despite the rosy prospects cited in the Cover Story...), $41 million in Exacttarget, Inc. (ET, who?) and almost $32 million SI Green Realty Corp (SLG, again, who?).

NOTHING in the classifieds drew my attention...

Despite the Peruvian Central Bank's apparent intervention a little over a week ago to weaken the Mighty Peruvian Sol (one of my readers sent me a Bloomberg news item about that), the sol yet again climbed to yet another all-time high vs. the US dollar, climbing some 0.7% last week.  While that mightily benefits Ameru (why, almost making our lil ol bearing company "mighty"), it HURTS Peruvian exporters.  The Peruvian Sol has risen some 34% vs. the dollar in the past three or so years.  34%!  Who would have predicted that?


Verdict:  If you feel like I do about the importance of CASH, that alone is worth the five bucks (plus sales tax) to buy this issue.

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