Sunday, February 17, 2013

Review of Barron's -- Dated 18 February 2013

For the second time in a month, the blogosphere has prominently featured the cover of Barron's, this week Zero Hedge put up an article noting that Barron's Cover Story features a picture of President Obama with the title "Follow Me: We Can be Like Greece".  Most of my readers are from Zero Hedge and do not need the link, but this may very well serve some of you:

http://www.zerohedge.com/news/2013-02-17/all-hope-and-change-roads-lead-greece

I still had not been able to procure Barron's (as of 2:00 PM Sunday) as their distribution here in Miami is now very poor, I live in a wealthy suburb, and NO ONE here in town carries it anymore.  I had to drive to MIA (the airport), and yet I still had to search for it only to find it at the 3rd newsstand I went to (hint: you won't find it at NewsLink, try Hudson News instead).

Nonetheless, with such a promising looking story on the cover, I felt the need to go and fetch it, read it (as almost every issue has interesting gems in there somewhere) and write up my review.

Please recall that I only read and write about things that interest me, or occasionally of interest (perhaps) to the larger community if it IS boring for me...

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Yes We Can!  And probably will at some point be like Greece...  Author and economist Gene Epstein, who has tended to be a font of common sense (even though he is a self-admitted economist) writes the Cover Story.  It is alarming and damn ought to be!  I am pleased that Barron's and Epstein decided to ring the bell on this urgent issue that the overwhelming majority of people in our country choose to ignore, it is to their great credit, and I applaud.

Epstein starts his article:

"In his State of the Union speech last Tuesday, President Obama concluded that "the State of the Union is stronger."  The big question is: stronger than what?  Federal debt is a record $12.2 trillion [Ed. Note: ?, the debt calculator at the top of my blog says $16.4 trillion, but he may be using different numbers], or 76% of the nation's output of goods and services.  While that's still well below Greece's 153%, we're steadily headed in the wrong direction."

He then immediately goes on to note that our debt could reach that 153% by 2035...  [Why do I feel that he is optimistic?]  And the REAL problems would then start: depression and an unemployment rate of 20%.  The CBO (and many, many, many, many others) have been warning for many years of this problem, high deficits leading to an unsustainable debt.

More Epstein, writing more common sense:

"This problem can't be solved by asking the rich to pay a little more, despite what the president says.  In fact, Barron's calculates that immediately increasing the marginal rate to 50% on the top 1% of the country's earners would bring in $500 billion over the next 10 years.  This would barely dent the country's debt load, which would then be $20 trillion, and do little to forestall a financial crisis."

There is a handy graph (Barron's is pretty good at providing handy graphs when they are most needed) that shows two vertical scales (right is percentage of retired people (gray shading, taking us from some 13% now to about 21% by 2043) and left scale is Debt/GDP, rising from some 40% now to 200% in 2043).  For me,  drawing graphs that far into the future (2043?) is very speculative -- except for the demographics, I am OK with the graph there: "demographics is destiny" said someone.  There are three "curves", the CBO estimate shows our Debt/GDP at some 215% (2043), another curve assumes a 50% tax rate on the wealthy (top 1%), that ration declines to 210%.  The third curve even adds in rolls in taking away the Bush tax cuts (to everyone else NOT in the top 1%), taking that Debt/GDP to about 200%.  Big f***ing deal!  Epstein is right in his comment quoted above, raising taxes on the rich essentially does nothing!

It's the spending, stupid!

(The above is directed at our "esteemed" elected officials in Washington, DC as well as their handlers the banksters and lobbyists...)

Epstein concludes (although these are my words not his) that we will have to drastically cut spending now or renege on our entitlement promises to the elderly in the future (and both are likely IMO).

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Jim McTague follows Epstein's article with one of his own.  McTague is an expert on the machinations of what goes on re Congress and the Administration.  His piece "A Dangerous Game of Chicken?" examines the likelihood of "sequestration" (automatic spending cuts) versus various proposals going around Congress.  He discusses the three main players: ("The Loathsome") Sen. Harry Reid, Speaker John Boehner and (Republican) Minority Leader Sen. Mitch McConnell.  There is at least one proposal going around (like a contagious disease) put out by Sen. Reid, but it apparently is disliked by both the R-Team as well as the D-Team, and so has little chance of passage...

McTague concludes: "The markets seem to favor sequestration because it would mean some spending cuts.  At least it's a start."

Yes, it is a start.  And at this point, I would agree with the markets.  Our leaders have failed us (duh), again.  An automatic across-the-board set of cuts (exempting the entitlements however) is better than anything else likely to come from DC.

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Randall W. Forsyth is again in Alan Abelson's "briar patch" and first informs us that Swedish researchers have found oxazepam (a benzodiazepine closely related to Valium and in the same family as Xanax) in the water near Uppsala, Sweden!  The researchers then went on to find out that perch (a small fish) swimming in those waters there are "much greedier and more efficient feeders" and were more likely to go off on their own (leaving their fellow schoolmates behind).  He draws a parallel with Wall Streeters...

But, it is liquidity (not anti-anxiety drugs), in extra-large helpings, he believes that help explain the brash behavior in the deal-making sector last week: Heinz being acquired by Berkshire Hathaway (tickers BRKA and BRKB), Comcast's (CMCSA) takeover of the "other 49%" of NBC it does not own (from GE), Dell's (DELL) proposed leveraged buyout by Michael Dell (see my notes on Ben Stein's negative view of insiders making money at shareholder expense further down), the airline merger between American ((AAMRQ) and US Air, and the merger of Liberty Global (LBTYA) and Virgin Media (VMED), the last one I had missed on CNBS somehow during the week...  The above total: approximately $95.7 billion last week alone (and $160 billion in M & A for 2013 so far, a very fast start).

Forsyth goes on to write that the disconnect between Wall Street and Main Street is as wide, or wider than ever.  From falling sales alarming WalMart (WMT) to the sequestration cuts (estimated at $85 billion), there is a lot to be concerned about...

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Kopin Tan ("Streetwise") lets us in on a couple of other deals.  Nasdaq OMX GRoup (NDAQ) is apparently in play.  And IPOs have raised some $6.03 billion (35% better than the average since 2001) so far this year.

[Ed. Note:  This will not end well.]

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In "Review and Preview" there is a short piece of the dangers in investing in hedge funds.  Like we do not know that?  Things to look out for: lack of transparency, an inadequate track record, poor risk management, lack of due diligence, hard-to-understand strategies, and many more.  My advice?  Only risk your "play money" (money you can lose 100% of and not worry about it) with hedge funds.

"He Said":

"[When] anyone in the investment community calls something a certainty...[he's] extremely arrogant or sanctimonious.  Or..., once in a while, he's right."

William Ackman, on his short position in Herbalife.

William Waitzman writes a short piece on there being PLENTY more money for deal making than we have seen so far...

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Andrew Bary writes a BEARISH piece on Linn Energy (LINE).  LINE has a big yield (equivalent) of 8%, but because of derivatives, he thinks cash flow may be overstated...  He mentions LINE peers (but does not say to buy them) Apache (APA), Devon Energy (DVN) and Suncor Energy (SU).  I think his tone re LINE and its peers is clear enough though...

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Jack Hough is back at his pattern of picking four companies to consider buying, this week these would be companies in the smartphone sector.  NOT Apple (AAPL) though!  He believes that Apple's margins may come down and he suggests Samsung Electronics (005930.Korea -- hey, I have this one memorized now!), Broadcom (BRCM), Vodafone (VOD) and OmniVision Technologies (OVTI, they make camera chips for the smartphones) as better bets.

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"Technology Week" author Tiernan Ray writes that technology REITs have not been doing well lately and that companies that are viewed similarly (Rackspace Hosting (RAX) and Equinix (EQIX)) are unloved and overvalued.

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OK..., it had to happen sometime...  Author J. R. Brandstrader writes up a piece on "Goldman Sachs Small/Mid Cap Growth Fund".  The fund's managers seek out small companies overlooked by the market's rally (really, no one else does that?).  One of their Top 10 holdings is the above just-mentioned Rackspace Holdings (RAX)!  LOL!  If it's Goldman Sachs, well they may be the smartest guys in the room, but I would not trust them with any of my money...

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"Weekday Trader" author Teresa Rivas writes a bullish note on Parker-Hannifin (PH), a company I have known and liked for many years.  They make various nitty-gritty items like hoses, connectors, valves, etc.  In may cases they have little competition and they have excellent distribution (unlike Barron's...).

Disclosure: we have a small position in Parker-Hannifin.

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Here's a Classified from this week:

www.2bpd.net, which is the website for an oilwell in Wyoming that is for sale, and produces, yes, two barrels per day...  Interested?  Lauranunes@cox.net or 619-985-5657.  I went to take a look, I do NOT know how to assess these opportunities, but it is an interesting peak at getting into the oil biz for $105,000.

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Typically, when Barron's does an Interview, it is interesting especially if it involves interviewees in foreign places like Switzerland...  But, for me, ZZZZZ.  Sorry, Mr. Strauss.  Not much meat...

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PENTA (their column oriented for rich people doing things other than investing) says they may dump the Charitable Tax Deduction...

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Ben Stein, smart investment commentator and actor, writes ("Other Voices", Barron's column by non-Barron's people) that Michael Dell (and more generally other insiders) make money at shareholder expense when there are leveraged buy-outs and similar.  Thank you, Mr. Stein.  Too true.  Ben Stein:

     "One of the smartest businessmen I know, a former high executive of a publicly held entertainment company, once asked me: "What is the first duty of a corporate CEO?"
     "Well, to maximize the utility of the shareholders," I naively answered.
     "You poor child," he said.  "no, the CEO's first duty is to make himself as rich as he can, as fast as he can, with the shareholders' money."  I'm sad to say that decades of observation have confirmed that his conclusion is correct all too often."

Well, there it is.  A confirmed observation that there are LOTS of sleazy CEOs out there, we may have thought we KNEW that, but here is Ben Stein, a connected and apparently decent man (AFAIK), tells us.

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Editor Thomas Donlan writes that the new proposal by our president to raise the minimum wage to $9.00 per hour is "A Step in the Wrong Direction".

Yes, I thought that this was settled decades ago, that raising the minimum wage will discourage entry-level employment for job-seekers...  Silly me!

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Barron's has a Special Section this weekend on America's top 1000 financial advisors (as in persons), they are ranked by state, not nationally.  I mention two, kind of at random.

Ric Edelman is No. One (Virginia), his company accepts small customers and apparently will accept even smaller customers (just $5000) when his Edelman Online starts up.

Bud King is No. One (Missouri).  Bud King: "There is a significant disconnect between the way business owners see the economy and the way market analysts do.  Market analysts appear to be particularly more optimistic at this point in time."

***

In the Market Week Section, on the cover, is ol' "Mr. Barron" himself, peering through a telescope into the night-time sky...  "You can't fool me, that's no meteor falling.  It's the price of gold."

Since very little happened in the stock market last week (on very low volume), I skip Mr. Racanelli's column.

Assif Shameen ("Asian Trader") writes that Indonesia's market has hit an all time high.  He brings ina couple of experts to tell us why Indonesia is a buy.  Interested?  There are two easy ETFs: Market Vectors Indonesia (IDX) and Market Vectors Indonesia Small Cap (IDXJ).

India's stock market has done very well lately as well, Ben Levisohn ("Emerging Markets") writes.  Even with bad economic data...  Two of his contacts say (in essence) to be careful...

"European Trader" author Jonathan Buck writes about Italy's upcoming elections later this month.  He says that a Belusconi ("rightist", my word) win might be destabilizing to their stock market.  A big win by left-leaning Mr. Bersani would be better.  Buck does not say WHY Berlusconi would be bad for Italian stocks (perhaps because he does not support Mario Monti's reforms, as Mr. Bersani does?).

Owen Fletcher ("Commodities Corner") writes that corn may go down in price, due to (at least the view so far) a likely big crop as well as lower ethanol and export demand.  [Ed. Note: A quick review of the DJ-UBS Grains Index (Page M46, my edition) shows grain prices are off some 20% of their recent (since late 2012) highs]

"Current Yield" author Michael Aneiro writes of Yet Another Risk in the bond markets...  This week's edition is "Buyout Risk", in which bonds from a company with them already issued may then issue a LOT MORE of them after the company gets bought out, merges, whatever.  More debt on more debt.  Good catch, Mr. Aneiro!

There have been some insiders selling lately.  Five Below Inc (who?, FIVE) had $107 million dollars worth of stock sold by insiders...  Other companies having $30 million or more sold off include American Express (AXP), Kellogg (K), Nexstar Broadcasting (who?, NXST), Rockwell Automation (ROK), Fiserv Inc.(FISV), and Gilead Sciences (GILD).

On the second last "real page" (as the back cover is always an advertisement) gold is always mentioned.  I usually do not refer to it, as I (and MANY others) cover gold elsewhere.  This weekend, however, we learn that the Odious (I used the term Loathsome re Senator Reid above) George Soros sold $100 million of gold (paper gold?) last week, as gold sank briefly below $1600.

The Mighty Peruvian Sol, unstoppable this weekend, rose some 0.46% (small) against the US$.  Of course it is now going up again, as I head to Peru again soon.  But a $5.00 haircut in Peru is better than a $25 one here...

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My verdict?  If you can get your hands on a copy easier than I could, sure, buy it!  The Cover Story alone is worth it.

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