Thursday, December 09, 2010

9 December 2010 The Score Today was 16 to 13


9 December 2010 The Score Today was 16 to 13

That would be up versus down on the market today. I was a little under the weather today so got to catch up on emails and reading. I am reading a book that I can not recommend called Applied Economics. We got it in an attempt to understand the mechanics of qualitative easing, but it did not meet my expectations. I will keep it in my library and use it instead of xanax next time I have insomnia.

Anyway it was a boring day in the market and I can honestly say we made no trades today. There was some profit taking but most people were sitting on the sideline even though we had a decent initial jobless claims report. I think the caution may have been attributable to Nancy Pelosi and 53 of her friends not supporting President Obama’s proposed compromise regarding the tax cuts. Some say she wants to step down kicking and screaming. I will miss her pleasant Formica smile.
Today the bulls must be running the streets of Pamplona and the Bears must be starting their long winter nap. We did learn that you can make money with calls when the market goes up and you can make money with puts when the market retreats. You can’t make money with options when the market don’t move. It’s kind a like a spinning roulette wheel with no ball.
Callin Out Around The World
Martha And The Vandella’s were lookin for a brand new beat, but we had a reader looking to diversify their portfolio by looking at some global ETFs. We were given permission to share our response to the list he provided (Thank You Robert). We used Reuters and Morningstar to do the homework and it was an interesting little assignment. As usually, do your homework. We might add there are some interesting emerging market opportunities in Africa and Eastern Europe as well. Enjoy the read.

EWJ – Japan

This the Japanese segment of the world equity index fund. The near 100% stock fund is loaded with mid to giant cap Japanese holdings. Their top ten is a whose whose of Japanese companies. Loaded with Automotives, electronics, and industrials, and a bank. To make a play on these, it is a play on the Japanese economy. Because of QE II and rumors of QE III, China has been selling some of our debt and buying Japanese debt. The falling Yen could make their exports more attractive in a global market. China a few other Central banks seem to buying Japanese debt (Sovereign and Corporate) probably in an effort to make a currency play, but a return on the debt.

The ETF itself is trading in a narrow range of 9-11 for the last couple of years and is only yielding 1.5%. Not real exciting. The New Democratic party which took over in August 09 has some interesting stimulus ideas in place like grants for green energy development and aid to recent grads and making nice with a few of their Asian neighbors, but with a little luck you could see a 11-12 NAV next year. My humble opinion of course.

EWY - Korea

In contrast to the EWJ this is a volatile ETF that has ranged from 45-57 over the last 12 months. In looking at the top holdings, it is a big diversification compared to EWJ. Returns seem a little cloudy because of the WON dollar relationship. When the dollar drops against the won the return will go up. S Korea is the 4th largest economy in Asia and 60% of its GDP is exports. (IT, industrials, financials, and materials) from what I read S Korea is going through some serious deregulation which should create a healthier financial sector and economy. The SKOR etf is a little more diversified so you might take a look at it. Overall I kinda like what I saw in EWY.

EWA - Australia

This is a great multi country play as Australia’s exposure to China and other Asian countries make this ETF geographically diversified despite it being Australia specific. What I don’t like about the ETF is its sizable holdings in Rio Tinto, BHP, and Woodside Petroleum and their exposure to commodity volatility swings. (I am guessing we will see most commodities go up next year so this might not be a bad thing.) The Australian economy is white hot because of its exposure to India and China. Inflation could be a concern, but it appears as though their banking industry is pretty regulated and secure. Be careful of the new taxes in the mining industry, Australia’s trade relations with China, and the crazy hot Aussie dollar as that could kill exports. The NAV trades in a narrow range of 22-25 but has a decent yield of 3.5%.

RSX – Russia

This fund is a mad hatter’s crazy ass ride. Up 74% one year down 138% the next. Think oil and gas and gas and oil. If you think those commodities are going to rise in 2011 (I do) then this will probably be a good bet. Even if we get a bump in those commodities, corruption in the govern and in the board room could make a good year bad. Because of the corruption and poor financial reporting, even the Bloomberg’s and Reuter’s cannot comfortably judge what will be. I would keep this diversifications to a 5-10% holding in this emerging market play and even that should be Vegas monies.
EWZ – Brasil
Brazil where the women are gorgeous and have great big cellular bills? Whats up with the cell phone bills in Brazil. Our guy averages about 1700US a month. You should invest in a cell company down there? But I digress and it is late.
Commodities and huge rising middle class make this ETF look sexy. The major financial sectors are Itau Unibanco and Cramer fave Banco Bradesco, both very solid financial plays. World cup commitments and Summer Olympic commitment means a mandatory ramp up on infrastructure improvements. More jobs more middle class more prosperity. I am liking this one.
It is volatile and the government has shown they are not afraid to cool things off when they have to. That can be good or it can be bad if they guess wrong. The only other thing that is a little goosey is that the Brazilian Government is your partner in the biggest EWZ holding Petrobas.
The fund is only up about 4% this year but has averaged 45% over the last 6 years. It take a flyer on in it.

PIN - India

Surprisingly there are not that many India funds. Unlike China and Brazil India PIN holdings only have a 20% exposure to export markets. You can look for GDP just under China’s next year China is expecting a conservative 9-11% and India is looking for 8-9%. The country is bureaucratic and corrupt. Droughts expected next year could force an inflation factor that might hurt the fund. If India ever got its act together in the ag sector they could be a world leader and better employ the 50% of the population that is employed in that sector.
I think the fund could see a 20-25% gain next year. I would not count on the 79% gain seen in 09.

I hope this helped.

If I were going to play, I would weight the investment like this:

EWJ – Japan 5%

EWY - Korea 10%

EWA - Australia 25%

RSX – Russia 20%

EWZ – Brasil 25%

PIN - India 15%

It should be another quiet day tomorrow unless Pelosi and Reid shake things up in DC. Look for some profit taking but I am thinking the market will close slightly up. From the 34 e-mails I gleaned tonight here are some ideas for plays tomorrow.

UBS has mentioned that EXR Extra Storage Space might be the target of a take over. This could be a time to buy on the rumor and sell on the news. I am not impressed by the fundamentals or the chart. I won’t be buying any, but thought it worth a mention.

This one confuses me. CAG ConAgra. Its fundamental don’t look too bad, it is throwing a sustainable 4.15% dividend, but the management is talking 2011 earnings down. It is coming up on several buy lists? When you look at the chart, it looks like a classic short stock. Too much confusion. We will leave it alone.

WBMD WebMD is looking pretty good. Its financials are pretty clean The chart is shaping up nice for a possible play with a Call option. We will wait until we can see the direction of the market.
Here is one we are going to take a shot at. STR Questar, the gas Utility in the West. We made some money with that stock in 08-09. We are trying to get some April 2011 18.00 calls for 80 cents. We will be looking for a bump in the stock to 19 by January and that should give us a double.

And lastly, there were some after close pre earnings announcements for PLL PALL. They reported strong today so we might have missed the bus on this but we are going to try and grab a March 50.00 call for about 2.20 each. If we get it we will probably flip it some time tomorrow with what I hope to be a 30% gain.

Is The World Flat?

I was bit under the weather today and since we were talkng about global markets and the market being flat, I decided to see if the earth was actually flat.  Here was my result:

Salve Lucrum


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