December 1, 2006: Credit cards: Taking a swipe

As a part of reviewing the finance sector recently, I intended to learn more about credit card companies and their prospects for 2007. Here is a summary of my findings:


2006 was an excellent year for unsecured credit quality. Delinquencies and chargeoffs below historical levels are good news.

Bankruptcy filings were down 60% in 2006 relative to 2004. Typically, 40% of credit card company losses are due to bankruptcy. The forecast for 2007 is 1.1 million filings for bankruptcy, still below the 2004 level, up from 2006 but not to a large degree.

The underlying macroeconomic environment remains favorable for chargeoffs, as unemployment is expected to remain stable. Portfolio seasoning is positive as industry growth is accelerating.

It is analysts' opinions that major credit card issuers have factored 2007 loss increases into their forecasts.

The following companies might have a place in your portfolio. I believe that now is a good time to consider purchase. Funds may decide to beef up their holdings in these companies to window dress their portfolios in late December.

Capital One (COF) at 77.00 may go near 100....(what's in YOUR wallet?).
Citigroup (C) 49.00
CompuCredit (CCRT) 37.00
JPMorganChase(JPM) 44.75
MasterCard (MA) 101.00 ...this stock has been a surprise performer.

November 30, 2006: Media: What's what.

I am not a big fan of the fickle media sector. My personal preference are CBS, Fox News, The History Channel, Discovery and ESPN. Also for entertainment, I watch CNBC and CNBC Asia. Not especially refined, is it?

In my portfolio, I have owned Disney (DIS) and sold it earlier this year on a bounce, and CBS, which I sold for a very modest profit about six weeks ago as posted.

Reviewing media for portfolio inclusion, I have taken a look first at major television (big four). ABC is surprisingly leading the pack in several important demographic and quality categories, which is good news for Disney. NBC (of GE) has risen to a tie with CBS, which has lost a significant amount of its prime time audience....CSI is down 30% year to year, Without A Trace is down 35% year to year.
Fox comes in last, but American Idol is coming up next month to place Fox up two or more notches. Note: 1. I can't stand that show and, 2. I must be in a small minority that feels that way.

From an investment standpoint, Disney looks pretty good. Perhaps could go up 20% or more in the first half of 2007. GE (parent of NBC) is a core holding I could not quarrel with, although I do not own it. CBS is well managed but looks like it will be in a rebuilding stage after this disappointing season. NewsCorp (NWS) parent of Fox is rated a buy from many analysts. I would not own it at this time.

XM and Sirius satellite radio companies are not on my buy list. I do strongly recommend the Sirius bonds 9.62% trading at 98.25 with a generous call #82966UAK9.

Cablevision (CVC), Crown Media (CRWN), Gemstar (GMST) I would not recommend at this time.

TimeWarner (TWX) has hope with excellent management in place. Viacom (VIAB), ditto.

Tribune Company (TRB) will track the Chicago Cubs. Nice field, no success.

Video games and other media components I have not had the inclination to immerse in my readings. The vagaries of the market and what product is, this week, hot, is not a game I pursue. If readers have some ideas, drop me a comment or e-mail.

November 29, 2006: Oil and gas???? Read on...

According to a respected energy analyst a report I received today,the upcycle in oil prices are at an end, but upstream costs are still rising in the oil and gas industry, and this is likely to continue into 2008.

A survey of 48 world-wide oil and gas producing companies suggests that total unit costs will rise by 20% versus 2005. Not all companies are affected equally.

The same survey indicates that total upstream capex for these 48 companies will have risen by an astounding $50b or 33% from 2005 to $203b.

Access to lower cost/high value resources is critical if producers are to maintain margins in a flatter oil price environment. Not all companies, says the report, will be able to control these costs.

Rising costs are across all international boundaries. Drillers and service providers should be able to recoup higher costs through higher pricing.

The following companies are recommended as being able to function in this new environment, and are recommended for consideration if oil and gas-type companies are to be in your portfolio:

Anadarko Petroleum (APC)
Denbury Resources (DNR)
Devon Energy (DVN)
Hess Corporation (HES)
LUKOIL (LUK /LKOH.RTS)
Norsk Hydro (NHY.OIL)
Occidental Petroleum (OXY)
Petrobas (PBR)
Plains Exploration and Production Company (PXP)
Range Resources (RRC)
Royal Dutch Shell (RDS)
Statoil (STL.OL)
XTO Energy (XTO)

Also mentioned was Chesapeake Energy (CHK) because of outstanding management that has been navigating extremely well to date.

Consideration of Canadian Energy Trusts are still worth a look (see earlier post)for yield, Watch the politics in Canada closely.

November 25, 2006: Do mutual funds stink?

So says Laszo Birinyi in the new issue of Forbes magazine. And Mr. Birinyi presents a good case for his premise.

He states that the financial press generally presents a poor picture of hedge funds. .."accidents waiting to happen". Yet, Birinyi accurately states that the financial world's best minds are gravitating towards hedge funds. Why? Better compensation for achieving positive results. Beyond that, these managers enjoy a freedom to maneuver that is often prohibited at traditional money management firms. One recent academic study found that mutual fund managers who also ran hedge funds had better results than those who did not. Hedge fund managers are at the cutting edge the business and receptive to new ideas. I think all investors in mutual funds should size up their managers. Are they 26 years old trying to manage three or more mutual funds and hundreds of millions of dollars for a "big box" mutual fund company?
Have they been banished to your fund because of poor performance elsewhere? Does this remind one of our Catholic clergy being shifted about to minimize scandal a decade or more ago?

Birinyi states that "if you regard hedge fund managers as reckless gunslingers, you are missing and important part of their culture. While they certainly seek to outdo the market, they also put strong emphasis on not losing clients' money."

Mutual funds' typical customer is not a sophisticated client. Fund companies preach long term investing. Yet long term investing for many, if not most mutual funds means allowing a fund manager to have a quick trigger finger for the popular investments of the day - a bad idea-, generating a steady stream of buy and hold assets from uninformed customers, thus generating a steady stream of assets and fees. Year in, year out. The majority of funds lag behind the S&P 500. Some are way, way behind. At a time when the S&P is showing double digit gains, large cap growth funds are barely in the black. According to fund tracker Lipper, they had a total return of 0.2% for the year through September 30th. This category of funds controls 20% of all mutual fund assets.

And what does one get for the fees paid to mutual fund managers? Herd investing according to Birinyi. And he has data to prove it.

What Laszlo Birinyi recommends for the individual investor is to buy individual stocks on your own. Be your own hedge fund manager. Through research and readings, the individual investor should do better than most mutual funds. I also recommend using ETFs as an important component of going it alone, something Birinyi does not address.

I have "gone it alone" for almost thirty years. I have had some disappointment, but no long term regrets. I agree with Birinyi.By in large, mutual funds stink.

November 24, 2006:Power politics and the War on Terror

Has anyone noticed that the reporting on the War on Terror, especially in the Middle East, has gone from rants and editorial hate speech against the war to a monotone
that reminds me of reading English language Pravda in the 1970s and listening to PBS radio news today? Why is this occurring?

Now that Tony Blair has announced he will stand down as PM of the United Kingdom and the Democratic Party has taken up leadership positions in the United States Congress after railing in concert with the drive-by, mainstream media against the Iraq war, an inconvenient truth has come forth: THERE IS NO PLAN EXCEPT TO CUT AND RUN from the newly elected leadership.AND THAT WON'T WORK.

Illustrating this view is Sir Barak Obama (D. Sen. Il), he of deep voice and deep loyalty to the corrupt Democratic Party in Chicago, when he states that we should "withdraw in six months". Why not immediately? Why not in seven months? Have his far left backers such as George Soros and the multi-million dollar shakedown machine of the Jesse Jackson family giving him marching orders? HRM Obama wants to be the Vice President in 2008 on a Hillary Clinton ticket. Is he and a few others of prominence taking a far left position as per Senator Clinton's request so she can position herself as a moderate for the 2008 presidential race?

Meanwhile, anti-Semitic hate speech is increasingly creeping into the mainstream media and being accepted by those who choose to forget the decade of the 1930s.
The only democracy in the Middle East is being led back to a pogrom which Jews have been subjected to every fifty years or so somewhere since the Romans.

The State of the World is not good, and getting worse because there are too few willing to stand up and be counted against Islamic fascism and Jew baiting on the fringes of all other players on the world stage.

The War on Terror and military strategy now being pursued and contracted by the defense agencies of the United States leads me to the following conclusions:

> As mentioned months ago, we are getting out of Iraq for the most part by summer. Senator Osama Obama (a slip by Senator Ted Kennedy last winter) will get his wish, but because it is already in the works. Most troops will be withdrawn to adjacent countries by July, 2007 and, if /when another terrorist debacle hits United States soil, deployed on the home front.Technology will replace boots on the ground in many places. This presents excellent opportunities for Aerodefense stocks previously mentioned.

> Israel will become increasingly isolated and will have to pursue additional WMD's on its own. Iran and Syria will become even more hostile throughout the Middle East area and beyond. It is my belief that no present moderate Arab states are in immediate danger, due in large part to a firm line drawn in the sand by countries interested in hurting the long term interests of the United States, yet still needing viable, reliable countries to extract resources from for economic benefit.No war for oil.

>Look for terrorist cells to operate in a quasi Arab-Latino connection with the overt support of Cuba, Venezuela and Mexican officials receiving bribes from terror states.Our southern border will become an even greater issue. A national identity card may well receive bi-partisan suport.

> The War on Terror will gradually shift focus from Iraq and Afghanistan to Europe , Australia and North America. Europe may be past the point of no return from a socio-political standpoint unless fresh, aggressive leadership emerges to combat the inability at present to counter radical Islam from military and law enforcement positions . Europe is too weak now to do much of anything. Russia is gloating and using enhanced intelligence operations and power politics to extract technological and economic skills at little or no cost to prop up their poorly crafted communist light system and become a strong player on the world stage by 2010.

>China will do what is necessary for North Korea to be nothing more than a nuisance to the northern Pacific region and the United States. China wishes to keep North Korea in the game to sap resources from Japan and South Korea for economic and strategic advantage. China itself has developed a military machine that is being designed to win an aggressive, short war when China determines the west too weak to mount a lethal defense. My estimates from reliable sources indicate this should happen, present trends staying the same, around 2020. We have already had many incursions and cyber attacks from China, fishing for weakness in our military and corporate infrastructure. Lasers were directed at our most sophisticated intelligence satellites this past summer, results being classified.

From an investment standpoint, we have little to be concerned about short term. The markets and economy are wonderful. However, the intermediate and longer term is problematic, perhaps catastrophic. Strong leadership, a will to win and the desire and practice to promote capitalism and a form of democracy on all continents will be the deciding factor in the end. One hopes that individualsof influence will come to this conclusion for the sake of our well being and future generations.

November 23, 2006: Happy Thanksgiving

On this day of giving thanks, perhaps we should praying thanks we do not live in:

Russia: Where they routinely assassinate freedom-loving opponents of "communist light".

China: Where if the payoffs are not made, you may be framed into a crime and sentenced to life in a re-education prison gulag.

Cuba: no comment needed.

Africa (anywhere): Whoever has the most kids under twelve carrying AK47s is a winner.

Venezuela: Spiraling down into chaos for those who actually work for a living.

Middle East: unless you are a man

Europe: Where the death spiral into moral, spiritual, economic and the ability to defend has begun - only the elites don't know it yet.

Mexico: Two governments. One trying to be legitimate, one run on the streets by an useful idiot.

North Korea: Use your imagination. A nightmare.

Yes, in spite of our shortcomings as a nation, we have a wonderful convenient truth to be thankful for: we live in the United States.

November 22, 2006: JFK...where were you? Construction stocks amid carnage, and Verizon

Some moments remain frozen in time. The assassination of John F. Kennedy is one of those moments for me. I was sitting in a middle school science class when the principal, Mr. Hurst, quietly went in room to room and told us about the death of the President. In our community, John Kennedy was to a large degree hated at the time because of his failure in Cuba and his support for the civil rights movement. More the latter than the former. I remember many classmates making home made "white power" signs prior to an open housing march by Martin Luther King at the insistence of parents, who came to the march with rocks.Personally, I was stunned by the reality only when Lee Harvey Oswald was shot by Jack Ruby, who had strong ties to the Chicago mob (called The Outfit). Many strongly suspected the mob connection right away. And then the funeral, with "JJ" saluting his father's casket on the caisson.I remember tears, then. I also remember adults on our block of small homes who were glad he was dead, so hated he was in some quarters. Yet more than a few of those haters later had sons wounded, maimed and killed in Viet Nam, fighting for their country in a war JFK escalated. Patriotism trumped hate and politics, at least in the early and mid-1960s.

I have posted the very poor state of the housing industry. I received a few e-mails basically asking for a few ideas to consider as potential purchases if the carnage continues. Here are my choices for your consideration. Please research these carefully before you part with your loot.

Fortune Brands (FO) about 80
Lennar (LEN) about 49
M/I Homes (MHO) about 35
Standard Pacific (SPF) about 24

Late last week, I was doing a few stock screens and Verizon (VZ) came up looking very good in a richly priced market. Sporting a 4.25% yield, this company has spun off its phone directory business and now has the potential to grow organically to provide a cumulative 20% or more return over the next twelve months. Verizon Wireless is first rate and Verizon Business is growing very well. 2007 could well be the proverbial tipping point for this cash cow. I purchased VZ today for my portfolio after a hard search for a portfolio addition in communications.Just don't expect 5 gazillion Verizon employees to follow you around after your purchase(VZ should outsource, but I digress).

November 20, 2006: State of Foreclosures and Aero Defense

I had a brisk weekend of football watching the OSU/MI game in Columbus and then up to Cleveland for the Browns/Steelers game with friends from Michigan, Ohio and Pennsylvania. How sweet it was to witness the excitement and competition that these two wonderful games showcased. I prefer collegiate sports. Actually, I truly prefer a fine symphony orchestra playing the Tschaikovsky Fourth Symphony, but I digress.

Do NOT think about buying home builders or their minions yet.October 2006 foreclosures were up 42% from October 2005.October's level was 3% higher than September's results. October's foreclosure activity represents the second highest level since RealtyTrac began disclosing this data in 2005.

In October, FIVE STATES represented 46% of all of the country's foreclosures. For comparison, these five states represent 32% of the nations households. California leads the nation with 13.9%, Florida had 9.9% of the total, Texas had 8.8%, Michigan 7.1% and Illinois had 6.7%.

Key states in foreclosure upticks include Nevada, up 318% (not a typo),California up 200%,Michigan up 106%,Colorado up 88*, Virginia up 53%, Florida up 51%, Arizona up 19%. Bright spots included Texas down 9% and Maryland down 17%.

In October, there was one foreclosure for every 1,061 households. One out of every 360 households in Colorado, one out of every 438 households in Nevada and one of every 535 households in Georgia were in foreclosure. This is a staggering statistic that bodes poorly for BOTH home builders and lending institutions who are carrying overpriced/overmortgaged and poorly maintained properties in their real estate portfolios.

It is my opinion, and I believe others as well, that the increase in foreclosures is being driven by investors walking away from properties that are now under water. As home prices continue to come under pressure in many markets, foreclosure activity will remain at high levels, thus putting additional inventory into an extremely over-supplied market.

The housing market and their lending partners are in deeper trouble than being marketed to you, the investor. Watch out.

I continue to stand firm on buying selected Aerodefense stocks. BE Aerospace (BEAV), Goodrich (GR),L-3 Communications (LLL), and Esterline Holdings (ESL).Boeing (BA) again is a buy even though it is at a high.

In Aero news,USAir wants to merge with Delta for 8.8b in cash and stock. I do not like the deal from the USAir perspective. My last few flights on Delta have been nothing short of nasty, and their main routes are being handled by better, cleaner and cheaper low cost airlines. Boeing is set to receive more than 10b in new business in the coming weeks from commercial airlines. Airbus is still a disaster in spite of their new A350-XWB rollout. ERJ announced it will be in line with high expectations for fiscal 2007.AH and BAE are in competition to build mine protected vehicles similar to the Buffalo now made by General Dynamics.Look for LLL to receive multi-billion dollar contracts over the next sixty days for Project Helix, Army linguist contracts, and the Army/USAF joint Cargo Aircraft.

Democrats are set to take a meat cleaver to military expenditures - until they realize that many of these contracts are to be executed within Democratic controlled House of Representative districts. Politics trumps campaign slogans. No War For Oil. Ha.

November 16, 2006: Canadian Royalty Trusts: Oversold?

Sometimes, the market just becomes totally inefficient in a sector. I believe that the Canadian Royalty Trusts in oil and gas are grossly oversold and should be considered for purchase for mildly speculative monies as a pure dividend play. When yields are approaching 18% or more, I took notice.

A well respected analyst in Canada reported the following with potential scenarios for the trusts in political terms:

1. Canadian tax laws are changed exactly as proposed by the Prime Minister, eliminating tax advantaged status in 2011:45% chance. This is a worst case scenario for oil and gas trusts, but still means the stocks are oversold now on a comparative basis.
2. Tax laws are changed as proposed but existing energy trusts ar exempted: 45% chance. This is nirvana if you buy trusts now with their savaged price.
3. Tax laws are changed as proposed for new trusts, but ALL existing trusts are exempted: 5% chance.
4. Tax laws are changed as proposed but the grace period would be extended past 2011:45% chance.

I like those odds for a conservative speculation.

Here are the Canadian Royalty Trusts listed on U.S. stock exchanges:

Advantage Equity Income (AAV)
Baytex Energy Trusts (BTE)
Canetic Resources Trust ( CNE)
Enerplus Resources Fund (ERF)
Harvest Energy (HTE)
Pengrowth Energy Trust (PWE)
Penn West Energy Trust (PWE)
Prime West Energy Trust (PWI)
Provident Energy Trust (PVX)

There are over twenty five oil and natural gas trusts on the Toronto exchange. I have the complete list. Our international readers can e-mail me for this list. I will see that you receive it promptly.

November 14, 2006: Stock and Bond tip

Thank you for the wonderful e-mails regarding the previous WW2 posts. Russell 120 was a very astute observer of the history surrounding the development of the weapon system, and I thank him for his commentary.

I am trying to construct a direction for selected stocks between now and February. Honestly, I am reluctant to recommend any major portfolio changes, except to advise readers to lighten up pharma and oils, and probably metals as well. I will have a plan to share in a few days.

Here is what I recommend today:

Bond: Yes, I am "serious".....buy the 9.62% Sirius bond maturing 03/01/2033 and callable beginning in 2007 at 104.and change. The cusip is 829666AK9. I purchased some last Thursday at approximately 98/bond. Interest accrues semi-annually. Sirius is a viable company with good leadership. Although the bond is rated junk, I see excellent things ahead for Sirius and very little threat of nonpayment.Potential nice capital appreciation and a great yield while you wait.

Stock: Bristow Group, Inc. (BRS) trading at about 33. Bristow has been trending sideways to down over the past months. This company is one of the largest providers of helicopter transportation in the oil and gas industry. Growth has been driven worldwide through increased exploration and development activity. THIS STOCK THRIVES ON BAD WEATHER emergency contracts at a large markup. The majority of the fleet works in the U.S., however expansion plans are focused on larger aircraft that are well suited to support increasing deepwater activity. While a recession-driven decline in oil and gas demand would affect earnings, the company has below-average leverage relative to peers and a string balance sheet to cushion it against any decline. I say that this stock may reach 43/share in the coming year. It is risky to bet on any oil and gas plays now, but, BRS could be your holding in that area. It is a safe bet, in my view with little downside and strong upside over the long term.

November 14, 2006: Patton's best weapon, part 3

Here is the final page of the WW2 post. Thank you for the personal e-mails on this topic, especially the veteran from the UK.From time to time, we need to remaind ourselves that without a strong military from a democratic country, our economic (and investing) freedoms to invest and create prosperity would not exist.

You can click on each document to enlarge.

November 14, 2006: Patton's best weapon, part 2

Several e-mails were received about the part 1 post. Anticipating some interest, I am now going to post two pages of additional pictures of this alomst forgotten, never to be replicated unit of brave men, the 558th mobile field artillery battallion. Most documents can be enlarged by clicking.The second document is a German propaganda leaflet dropped on this unit during the Battle of the Bulge (looks like a 2006 moveon.org. opinion).

November 13, 2006: Patton's best weapon, part 1

The 558th Battalion mobile Field Artillery was a well-kept secret from publicity during WW2. Assigned to General Patton's Third Army, it fought at the front nonstop from July 1944-April 1945. Much feared by the German Army, these guns were 155mm canons mounted on an M-3 tank chassie and were accompanied by an ammunition carriage and spotter plane. Only 72 were manufactured. My children were inspired by a very close relative that served as a 1st Sgt. throughout. He never spoke much about his deeds. He did live an exemplary life, as a good husband and father. He was respected.

You may click on the documents to enlarge.

November 11/12, 2006: Honor our troops/Aerodefense Stocks

THANK YOU...
to our armed forces, past and present, for allowing us to live free to pursue our
dreams, and to practice our interests and faith.And special thanks to my children and their spouses, five of whom are active duty military officers.Boo-yah!


Aerodefense stocks: Recommended for consideration: BE Aerospace (BEAV),Boeing (BA)-thanks to the ongoing Airbus fiasco,Dyncorp (DYN),Embraer (ERJ),Goodrich (GR),L-3 Communications (LLL),and Precision Castparts (PCP).I have previously recommended all of these in past posts. These stocks will continue to prosper with the new Congress, the withdrawl from Iraq and budget parsing by our liberal friends in Congress, because the threats to our national security are real,increasing and will be met by technology superiority.

Recent contracts awaded included Boeing's 1.68b South Korean AWACS deal.FedEx cancelled Airbus orders and went with Boeing for 30 B777s worth 3.48b. Northrup (NOC) won a 2.1b contract for Essex and LPD warships. LLL is the frontrunner for the 900m HELIX system, LLL is also the frontrunner for the USAF/Army Joint Cargo Aircraft,the Army JTRS contract and the 3.5b Army linguist contract.

I do not recommend Northrup at this time in spite of their large military contract order.

November 10, 2006: Election impact on stocks

I tried to digest from various sources, primarily military, the impact of the Democratic sweep of Congress will have on stocks of major industries. Here is a very general summary of my research efforts.

In almost every instance over decades, stock indexes have gone up following an election (1994 and 2002 being exceptions).

Aerospace and Defense: A Democrattic Congress will imply defense spending constraints and likely pressure defense multiples. Rumsfeld's resignation could well lead to an INCREASE of troop strength short term in Iraq at the expense of equipment spending. Aerodefense will experience no significant impact on spending.

Agribusiness: No change. Ethanol has broad support on both sides of the aisle.

Airlines: Taxes and consolidation will remain the same. Do not expect increased implications for airlines, which should be positive for airline related stocks.

Autos: Good for domestic autos (thank you, John Dingle). Bad if taxes are raised by the Dems.

Cable and Satellite: There will probably be franchise reform. A network neutrality policy may be adopted (and vetoed). No other major implications are likely.

Communication Infrastructure: As above, focus on franchise reform and network neutrality. Nothing significant.

Electric Utilities: Potential problems are environmental legislation and tax policy. The consensus is that the Democrats will try to tax about anything that moves, squeaks or is demonized as a perk for the rich to fund new spending schemes for their major constituency (so-called victims of society and the educational elites.
Utilities are an easy target.

Entertainment Software/Internet Sales: BEWARE of sales tax mandates on internet purchases across the board.

Chemicals: Increased security measures on chemical plants and tougher environmental regulations.

Media: Less deregulation. More intrusion by a Dem-controlled FCC. Bad for Limbaugh, good for PBS.

Metal and Mining: No significant changes, except for carbon regulation for utilities that will impact coal.

Mortgage/Specialty Finance: Bad for student lenders as regulations will be gutted that protected lenders from student defaults.

Oil and Gas: Environmental to a degree. Democratic policy will be surprisingly soft and will be determined by world fuel access.

Paper and Forest Products: Paper companies will be pinched because of higher chemical costs due to security and environmental restrictions at chemical plants. Packaging companies will be hit with additional environmental issues.

Tobacco: Potential for increased regulation. More litigation likely that will severely hamper tobacco profits.

I know these are very general, sweeping remarks. To include more would be to bog down the blog and glaze over your eyes. I have additional information on each industry. If you have specific questions, e-mail me.

November 9, 2006: Election, Iraq,Portfolio tidbits

We now have gridlock on the political front with a Congress that will not be able to override Presidential vetoes and the far left, thinking they actually won on philosophy, pushing a regressive/progressive agenda that most voters don't want and thus alienating 2008 prospects for the Democratic Party. Readers of this blog know that I have mentioned that we would be out of Iraq by the summer of 2007...military contract awards have so spoken. With Don Rumsfeld out, President Bush will listen to James Baker - and get out politically. Let's say: NO WAR FOR OIL to Iran. They will listen. And provide us oil and a stable shell of a country that was known as Iraq.

Although the political landscape has changed, one need not panic with a portfolio selloff. I believe that stocks will be performing very well, and that portfolios should be attended to just as they were the week before the election:carefully, but with confidence.

Here are a few of my recent portfolio tweaks:

I sold most of my position in BG.

I have added fresh cash and proceeds to purchase more Allied Waste (AW),Goodrich (GR), Power Shares Water Resources ETF (PHO), Claymore Yield Hog ETF (CVY), and created a new position in WellCare Health Plans (WCG).

In real estate, I have taken profits in one multi-unit dwelling and used the funds to purchase stock. My portfolio balance is about the same as what I posted last month
and meeting the target of a bit less real estate and a bit more stock by 12/06.

November 8, 2006: Elections, Income Trusts, Canadian Banks

As this is written, the elections have not been declared over. Looks like a mixed bag. Not all the Democrats wanted, a wakeup call for Republicans that they should not take their electorate for granted. Gridlock will prevail, even with last minute surprises overnight.

Canadian Income Trusts have been delivered a blow. Several readers e-mailed me with questions/comments about my recommending Canadian Banks as a winner in this situation. I have done a bit more research on this topic. Here are my findings:

1. Domestic retail banking is still very importantly Canadian banks. Earnings derived from retail operations and wealth management will represent over 65% of aggregate earnings for the six largest banks in 2006, up sharply from 51% in 2004.

2. The six largest banks consider retail banking a "growth business". Net earnings are up 13.8% from 2003-06 annually.

3. The current environment in Canada is more favorable than the US. Credit quality is excellent, economic and consumer data is positive, as is management sentiment.
There is no interest margin compression.The economic cycle is robust with no end in sight.

The two banks that one of my favorite analysts likes are TorontoDominion Bank (TD) and the Royal Bank (RY) owing to the scope and size of their existing retail platforms, their willingness to expand into new product segments, and the state of some of their competitors.

The Bank of Montreal has some problems and I believe is a weak sister to the top six banks at this writing.

Toronto Dominion and the Royal Bank of Canada appear to be going after wealth management in a big way. The Bank of Nova Scotia, which will be opening approximately fifty new branches in Alberta (western Canada) and adding to their wealth management personnel is competitive. The Canadian Imperial Bank of Commerce will become a more effective player in time.

If you are going to buy stock, I recommend (again) the Bank of Nova Scotia. You will also do quite well in a safe environment putting money to work in the stocks of Toronto Dominion and the Royal Bank of Canada.Both may well experience a 20% return over the next twelve months, plus dividends and a modest currency hedge against the US dollar.

If you have detailed questions on this topic, I have quite a bit of information to share.

November 7, 2006: Health care: love it or leave it?

I am beginning to look at the managed health care industry in the U.S. for investment opportunities. This area is likely to come under political pressure from the democrats, but I believe that the industry holds excellent promise for the astute investor, so long as the investor remains vigilant for long term damage to the system via pronounced government interference (I do not think this will happen).

I do not like the group insurance companies. I do not like the commercial managed care companies.

I do like the Medicare managed care companies.This area appears to be the only fertile ground for growth at this time.The recent expansion of the Medicaid managed care is the beginning of a multi-year, secular shift. States will likely increasingly adopt managed care programs in an effort to replace outdated fee for service system. The market opportunity remains large and with more sophisticated rate setting, broad-based political support and greater diversification across many states, I believe that growth is going to be very good, indeed. The capabilities to address the large and growing Medicare market are with managed care companies.The privatization of this market will accelerate. Improving efficiencies with more sophisticated pricing will benefit the managed care companies and steer away political intrusion.

The companies that may benefit from this thesis are Centene Corporation (CNC) trading at 23.36, United Health Group (UNH) my personal favorite after being savaged for insider shenanigans at 47.83 and WellCare Health Plans (WCG) trading at 59.10.
You may also wish to check out Coventry Health Care (CVH), Health Net, Inc. (HNT) and Humana Inc. (HUM). I have not researched these three companies, and they may stand to profit as well from the managed health care growth story.

November 6, 2006: Canada income trusts and interesting ETFs

It was announced this past week that the Canadian government will be taxing the many so-called Income Trusts that up until now had received tax-free status. The tax will be phased in over four years, but has understandably caused quite a stir in the Canadian markets from the moment the government decision was announced. To those of us that see government promises as unreliable at best, this decision came as no surprise. In times of distress there comes opportunity. I recommend all Canadian banks and life insurance companies who will benefit from a huge inflow of investment cash bailing out of income trusts. My favorite remains the Bank of Nova Scotia (BNS). Trading north of 45.00/share, I believe it will reach the mid 50s over the next six months, and proceed at a measured pace upward from there. A great long term investment.

I have invested in several relatively new ETFs (see previous posts), but not the following. Those discussed below have some interesting prospects for diversification into more eclectic areas.
I do not recommend these funds at this time. They are interesting to review for inclusion at some future date once a track record is established.

Power Shares has two recent additions: The Dynamic MagniQuant Portfolio (PIQ), which is tracking the Intellidex proprietary filters to produce the 200 stocks with the greatest potential for appreciation. Trading at 25.25 the top holdings are JLG Industries, Continental Airlines,OM Group,Nordstrom and Freescale Semiconductor. No stock or small group of stocks hold a commanding percentage of the portfolio. The Listed Private Equity Portfolio (PSP) will attempt to replicate the Red Rocks index of firms doing successful private equity placement and/or funding. The top holdings are American Capital Strategies, Leucadia National, SVB Financial, Capital Source and Allied Capital (KKR comes in sixth place). This will be an interesting play on the more mundane aspects of the private equity game. I view this as a very volatile fund due to likely government regulatory acts in the near future.www.powershares.com

Claymore has one fund that fits today's list: The Claymore Sabrient Insider ETF (NFO) will attempt to track the Sabrient list of stocks with pin action defined by insider transactions. The top five holdings are NatGear, Consolidated Energy, Sunpower Corp., Natco and Rackable Systems. I think this fund is extremely speculative. I was "racking" my brain trying to remember if I had even heard of many of the companies on this Sabrient brainchild. www.claymore.com