February 1, 2008: China Recycled: Going Green With Sancon Recovery Services

Until recently, Chinese policy was to promote economic expansion regardless of environmental consequences. Besides, the environmentalist zealots had given China a pass on the Kyoto Treaty protocols. Why worry about pollutants and toxic residue when the Al Gore's of the world had turned the other cheek on the issue, giving Third World nations a free pass on trash?

Then came the Olympic bid success. Oops. Better clean up. Then, astute observers, noting the hypocrisy of Kyoto, demanded that China respond to environmental issues or face trade penalties and other unpleasant sanctions unless major environmental issues were addressed. Reluctantly, the Big Reds had to support projects to clean up the most exposed (to foreign eyes) western cities in the country. Especially the large cities. Enter Sancon Resources Recovery (SRRY).

SRRY is a tiny company (only $5m in market capitalization) that is expanding quickly, with Chinese government blessing and support, to be one of the main resource recovery services primarily in the western urban areas of the country. Established in 2002, Sancon today has environmental service plants based in Shanghai, Chengdu, Tianjin, Nanjing and Dongguan with more planned, In fact, Sancon plans to deploy waste logistic sites in over 30 Chinese cities during 2008. Sancon is currently the only environmental service company specializing in industrial waste management in China that has such nation-wide coverage.Sancon also has numerous recycling schemes in Australia that allows the company to play both ends of the recycling process (trash from Australia is sold to Chinese companies through Sancon China to recycle into goods for both domestic consumption and export).

Sancon is not only a waste recovery company. Its trading operation obtain approximately 25,000 tons of recycled raw materials (primarily plastics, cardboard, paper and glass)from the United States, Japan, Australia and various European countries each year. Sancon, nominally headquartered in Australia, is one of the few foreign-owned companies to attain a government Waste Management License from the Chinese Government. Sancon also has interets in "green" energy generation projects.

Trading about 20,000 shares per day, SRRY was last priced at $0.23 per share. Finances are transparent and follow Australian accounting models. Sancon is not currently profitable, but is well on its way towards becoming a success story in the feast or famine Chinese securities market.Importantly, the Chinese Government by their deeds wants this company to succeed. Well-connected Chinese nationals control the majority of executive positions in the firm.

I'll be the first to admit that this company may fall flat and fail. Sancon Recovery Services is not for anyone but the most adventuresome investor. That said, it also has the potential to become a superb ground floor investment that is currently operating underneath practically everyone's radar screen. Whether you are a believer or a sceptic, SRRY is worth a look. The company website is www.sanconinc.com

If you decide to buy shares, I recommend limit orders. And patience.

DISCLOSURE: THE AUTHOR HOLDS A POSITION IN SRRY.

January 30, 2008: Down, but not out: PowerShares International Listed Private Equity Portfolio

On occasion, a relatively obscure, poorly performing fund may contain the seeds of success over the long term. We all know the old saying "every investment has its season". This ETF has been stuck in a monsoon-created mudslide since its inception in September of 2007,sinking a little deeper without respite. That may be about to change.

PowerShares' International Listed Private Equity Portfolio (PFP) has as its objective to invest 90% of total assets in stocks that comprise the International Listed Private Equity Index and American Depository Receipts based upon the stocks in the International Listed Private Equity Index. The fund also will invest at least 80% of its total assets in publicly listed companies that invest in or lend capital to privately held companies.

PFP has wide latitude in the selection of companies and investment objectives. Diversification for this fund means that the portfolio may hold exposure to companies that include the early, mid and/or late consolidated stage of investment, sector investing and/or geography. Companies may include publicly traded limited partnership interests, investment holding companies, special purpose acquisition corporations, publicly traded venture capital funds, closed-end funds, ADRs, financial institutions that lend or invest in private companies, REITs, and "any other vehicle whose primary purpose is to invest in privately held companies"(Prospectus).

The Index for this fund was developed by Red Rocks Capital in February 2007 and is, as titled, international in scope. As with most ETFs, back testing data make it look stunning in comparison with competitive indexes. The reality is that this thinly-traded fund since inception has performed poorly. However, examining the contents of PFP as it presently exists exposes lucrative securities that may bode well for investors with speculative cash in need of a fund.

PFP, with approximately $14.5m in assets trades at this writing at $21.06.The fund has 37 holdings, a price to book of 1.26, a PE of 12.01 and an assumptive ROE of 15.75%. It trades in line with net asset value at present.

Why is this fund attractive? I believe it is now in the sweet spot for sector performance internationally, currency risk is mitigated and the geographical placement of the fund parts are well-positioned to withstand a mild recession and propel forward faster than more mundane funds with emphasis on financials able to buy distressed assets in the cheap, infrastructure investments worldwide providing excellent cash flow for decades and infrastructure investments in target areas (Asia and the Middle East) providing immediate profits through management and construction contracts.

Significant companies in the portfolio include Eurazeo, Jafco Ltd.,3iGroup PLC, Wendel, Macquarie Infrastructure, Macquarie Airports, Babcock and Brown Infrastructure Group,GIMV N.V.,International Capital Group PLC, KKR Private Equity Investors and RHJ International SA.

The stated expense ratio is .75%. The unstated expenses are the sometimes outrageous fees baked into private equity companies and the deals they concoct. That said, this fund may just be in the right place, at the right time, for the right investor.

DISCLOSURE: THE AUTHOR DOES NOT PRESENTLY HAVE A POSITION IN PFP.

January 25, 2008: Time to clean up with EnergySolutions?

With the sudden gyrations in the energy sector comes opportunities to buy some issues on the cheap. One stock that has had a sudden, yet perhaps unjustified decline is EnergySolutions (ES). Driven from approximately $28.00 to $19.00, ES could represent good value at this time.

EnergySolutions is a provider of specialized, technology-based nuclear services to government and commercial customers. Included in the arsenal of services are engineering, in-plant operations, outsourced specialty services, spent nuclear fuel management, decontamination and decommissioning, logistics, transportation, processing and disposal of all things nuclear. It also owns and operates facilities that fulfill its services. ES has been acquiring companies that complement its core activities.

Not reflected in the lowered stock price, U.S. and EU nuclear cleanup awards are on definitely on track. EnergySolutions is likely the best way investors can reap profits from vast amounts of cleanup efforts ongoing and to be contracted in the future. ES, headquartered in Salt Lake City, UT has thirteen regional U.S. offices. It is also well positioned in the EU with twelve regional offices,and is especially strong in the U.K. It is my view that the services provided by ES are recession-resistant, if not recession-proof.

Going public in November, 2007, EnergySolutions' initial public offering was priced at $23.00 per share. Granted, the seasoning of this almost new security is lacking. Institutional ownership data is nil to date. And the very few analysts that follow this stock are still in a wait and see mode, CSFB excepted (they like ES very much and have a recent price target of $32). Ground floor, anyone?

Trading at $20.87 on Thursday's volume of 538,000 shares, I believe an investor looking to add a focused, profitable, non-traditional energy company as a small part of a diversified portfolio could well speculate buying ES at this time. I suspect one could also justify ES being an alternative energy play without too much of a stretch.


DISCOSURE: THE AUTHOR DOES NOT OWN ES IN ANY PORTFOLIO AT THIS TIME.


Note:

I will be down South doing neat things through Monday. As always, I appreciate y'all sending e-mails and comments. Commentary will commence again of Tuesday, if I have something to add to the mix!

January 24, 2008: Donegal Insurance Group, unwrapped.

Donegal Insurance Group is a mini-conglomerate of companies that the Donegal Insurance Group has assembled to do business in stable (some may reason "boring") markets. It also owns Province Bank, with three branches in and around Lancaster, PA.

At present, Donegal owns the following entities:

Le Mars Insurance Company located in LeMars, Iowa which does business in Iowa, Nebraska, Oklahoma and South Dakota.

The Pennsylvania Insurance Group which includes the Pennsylvania Insurance Company and the Pennsylvania Indemnity Company located in Salisbury, Maryland serving Maryland, Delaware, Virginia and New Hampshire.

Southern Insurance Company of America located in Duluth, Georgia doing business providing personal and commercial insurance coverages in Georgia, Tennessee, Alabama, Louisiana, and Arkansas.

Southern Insurance Company of Virginia located in Glen Allen, Virginia doing business in Virginia, South Carolina and North Carolina.

Atlantic States Insurance Company, located in the headquarters city of The Donegal Group, Marietta, PA with a branch in Greenville, OH doing business in Ohio, Maryland, Virginia, Delaware, New York, Georgia, Tennessee and Pennsylvania.

The Donegal Group (DGICA) has a market cap of $421 million. The company holds approximately 45% of outstanding shares with institutional holdings keeping all but 5% out of individual investor hands. The Insurance company is rated "A" per A.M. Best. The PE is approximately 11, the Price to Book about 1.28 and the Price to Cash Flow 15.07 according to the company's latest figures. The return on equity is about 13.65%. The five year annual growth rate is 12.25%. Trading at $17.69 per share with a 2.04% dividend and a volume of around 33,000 shares per day, this stock presents an interesting situation.

I have followed this security for quite some time. Some would call it a "channel stock" as it trades in a fairly narrow band. Others would simply call it dead money.I believe that the conservative business and investment approach this company has consistently taken over decades, and the fact that is has weathered the present stock market and economic turbulence very smartly bodes well for the future. It may even catch the eye of a larger financial company on the search a quality acquisition.

This is a company Ron Paul may find too conservative. But in today's market, DGICA is worth a glance - or more. Their website is www.donegalgroup.com

DISCLOSURE: THE AUTHOR DOES NOT HOLD A CURRENT POSITION IN DGICA.

January 23, 2008: The "Surge" Might Work.

If a surge can be successful in Iraq, why not in the worldwide financial markets - especially for the benefit of the large cap behemoths? A safe way to play this mildly contrarian instinct is with the iShares S&P Global Financial Sector Index Fund (IXG).This ETF has been around a since 2001 and has shown decent performance and tax efficiency.IXG sports a paltry .48% expense charge.

What does the investor get within this fund? A gold mine of world class financials that just might shortly be ripe for picking. The top holdings of IXG include HSBC Holdings, Bank of America, JP Morgan Chase, AIG, Citigroup, Banco Santander SA, Unicredito Italiano SP,Mitshubishi UFJ Financial, BNP Paribas, Allianz SE, Wells Fargo, UBS, Banco Bilbao Vizcaya Argentina, ING Groep NV, Goldman Sachs, Royal Bank of Scotland, Intesa San Paolo, AXA, Deutsche Bank AG and the Commercial Bank of Australia. Of the 256 financial institutions in this portfolio, the companies listed above comprise approximately 30% of assets totalling over $243 million dollars. The fund trades at $69.60 and has a yield of approximately 3.95%. IXG tracks the Standard and Poors Global Financials Sector Index, a subset of the Standard and Poor Global 1200 Index.

The portfolio includes 40.92% in banks, 26.19% in diversified financials, 21.25% in insurance, 6.28% in real estate and less than 1% in short term securities.

It is apparent that there is a worldwide effort now to shore up financial weaknesses, give financials breathing room to move forward and regain profitability, and to prevent the shorts and the bears from roaming over the landscape chewing up and spitting out one financial institution after another. It is in every country's political interest that features a free market to have the flow of capital resume. If it means almost free money, so be it.

The individual investor should look beyond the current crisis and be ready to strike at financials worldwide. IXG is a vehicle to consider for this situation.

DISCLOSURE: THE AUTHOR DOES NOT HOLD A POSITION IN IXG.

January 23, 2008: "Germinate" Your Portfolio: HAI (Healthcare-Associated Infection) Plays

picture: the Plague, 14th Century painting.

Healthcare-Associated Infections (HAIs) are a big issue - and in need of immediate attention. Effective October 1, 2008, Medicare will no longer provide incremental reimbursement to hospitals for a number of preventable conditions.Other Managed Care organizations are probably going to follow suit. I would wager that just about every reader has heard of someone,knows someone or had an HAI personally over the past three years. Our family had first-hand experience with a HAI, and it was a nasty experience.

The healthcare industry has of necessity become increasingly focused on HAIs as the incidence of resistant bacteria and costs to treat HAIs continue to rise. Based upon data published by the American Journal of Infection Control, the average cost of a single HAI is over $13,900. with no guarantee of satisfactory treatment. The Association for Professionals of Infection Control and Epidemiology estimates that Healthcare-Associated Infections cost many billions of dollars in the United States alone. There are several studies concluding that preventive measures by hospitals to reduce HAIs have a substantial impact upon the profitability of the institution, even before lawsuits commence.

Controlling HAIs is going to require a huge mega-billion dollar investment nationwide and worldwide. The challenge is daunting. Doctors and other healthcare professionals are spread over a larger patient base, creating ,ore opportunities for pathogens to be transmitted. Over-prescription of anti-biotics over the last two decades have produced the mutation of drug-resistant strains of bacteria such as MRSA and VRE. Ineffective infection control programs in healthcare facilities are rampant.

It is apparent to me that this segment of the healthcare industry is poised for explosive growth. What companies stand to benefit? The following are at the forefront, but have yet to be fully recognized for future HAI profits:

Becton Dickinson $87.62 (BDX) is a HAI leader worldwide in a variety of areas, especially injection, infusion and blood collection products. Diagnostics are huge, too.

Steris $29.26 (STE) For disease control wash products.

Johnson and Johnson $66.29 (JNJ) Not a large part of this behemoth, but the company is active in the HAI field and is a good "buy" candidate for several reasons, imo.

Bard $96.68 (BCR) Is very focused on the HAI market. Their strength in infection control is with internal organ and body areas such as catheters.

Ecolab $47.71 (ECL) Cleaning and sanitizing chemicals plus a strong sterilization (instrument, skin and surface cleaning chemical) division bodes well for this HAI-sensitive company.

3M $74.91 (MMM) Is one of the top global companies dealing with HAI. It is growing its HAI preventive medley of services in many ways. I like it as I do JNJ.

There are others racing into this field. An ETF for HAI companies would be interesting. Given the present slaughter of stocks,companies that are likely to profit from the woes of Healthcare-Associated Infections may be good for your financial health.

DISCLOSURE: THE AUTHOR DOES NOT OWN ANY OF THE STOCKS MENTIONED IN THIS ARTICLE.

January 21,2008: Too Early? Maybe, The Time Is Right For Bank of Nova Scotia

Many a financial institution whose stock price has collapsed in recent times has richly deserved the result.The investor with courage and patience, though, can find financials that have been punished due to guilt by association and thus may be astute candidates for accumulation. One such company is the Bank of Nova Scotia (BNS).

Not widely followed, Scotiabank as it likens itself to be called, is not just some stodgy weathered regional bank being battered by the winter storms of northeast Canada. This 176-year old institution is one of North America's premier financial institutions and Canada's most international bank. Scotiabank Group and its affiliates serve approximately twelve million customers in fifty countries, offering a diverse range of products and services which include personal, commercial, corporate and investment banking. Its diversity is its strength in the present economic climate. Significantly, the Bank's CDO exposure is limited at $1.2b largely backed by corporate loans rather than mortgage securities.

Domestic banking, 36% of net income, reported strong asset and deposit growth. Residential mortgages and personal deposits were strong year to year and quarter to quarter. BNS has traditionally been considered one of the lending institutions that demands high standards from prospective borrowers.

International banking, 29% of net income, was strong, up 12% year to year. Scotia bank has a very strong presence in the Caribbean (twenty-one island countries) and Mexico. It also is expanding its presence prudently in Central and South America (nine countries), Europe and the Middle East (Egypt, Ireland and the U.K.) and Asia (India, China, Singapore, Malaysia, Japan, Hong Long, South Korea, Taiwan, Thailand and Vietnam). Scotiabank has profitable banking operations in the United States, primarily in several major metropolitan areas and vacation havens.

Wholesale banking, 33% of net income, rose 34% year to year due to successful loan loss recoveries, net-interest income and structured credit investments.

Infrastructure improvements worldwide took a chunk of money from the bottom line and are ongoing, but BNS has always shown that it is in the game for the long haul and is no surprise to shareholders. The Bank of Nova Scotia has traditionally worked to create sustainable value.

BNS currently trades at $44.46 per share, down from $57.15 a few months ago. Sporting a 4.1% dividend that was recently raised by the company, a PE of 11.3 with a market cap of $44b with 49% in the hands of institutional shareholders, I feel that this stock is an excellent candidate to lead the first wave of the financial pack out of the wilderness. You may want to peruse their website, www.scotiabank.com

DISCLOSURE: THE AUTHOR MAINTAINS A POSITION FOR BNS IN HIS PERMANENT PORTFOLIO.

January 18, 2008: A Port In A Storm: MDU Resources Group

Ouch. Gentle Ben being too gentle. Share prices falling in a reverse "hand over fist". Recession? Depression? Stagflation?

As investors head for safety, I think one overlooked stock to consider in this environment is MDU Resources Group (MDU). Trading at $25.85 with a PE of 11.7, a 2.3%yield and a market cap of $5 billion, MDU is a relatively unknown and unappreciated infrastructure, basic materials and natural resource play. The company, headquartered in Bismarck, ND consists of five parts:

Natural gas and oil production in Montana, Wyoming, Colorado, New Mexico, Texas, Oklahoma, Louisiana, the Gulf of Mexico and Alabama under the auspices of Fidelity Exploration and Production.

Construction materials and mining in Texas, California, Oregon, Washington, Idaho, Montana, North Dakota, Minnesota, Iowa, South Dakota and Nebraska under the auspices of the Knife River Corporation.

Natural Gas pipelines and energy services in Canada, Montana, North Dakota, South Dakota and Wyoming under the auspices of WBI Holdings, Inc.

Electric and gas utilities in Washington, Oregon, Montana, Wyoming, North Dakota, South Dakota and Minnesota under the auspices of Montana-Dakota Utilities Company and Cascade Natural Gas Corporation.

Construction services in Washington, Oregon, California, Nevada, Montana, Colorado, Arizona, North Dakota, South Dakota, Oklahoma,Texas, Missouri, Louisiana,Illinois, Ohio and Florida under the auspices of MDU Construction Services Group, Inc.

MDU Resources has a management team that appears to be wise,allowing each facet of the group to manage towards respective strengths and to re-invest profits purchasing entities as diverse as Cascade Natural Gas, asphalt plants in California and, recently, 97 billion cubic feet of proven natural gas reserves in Texas (for $235 million).

This is not a growth company. It is a value stock that continues to enhance its portfolio reaching out to buy assets the Buffet way, businesses they understand on the the cheap for long term results.

With Congress ready to pounce on an economic incentive package, I see lots of cash being thrown at public works projects (infrastructure), low and middle income subsidies or credits (utility bill assistance, fuel subsidies, etc.). This will benefit MDU.

MDU's geographic center is not likely to experience the worst of a possible recession.

MDU is diversified to profit from just about any economic scenario.

Importantly, MDU is not ignoring the siren call of going green. It is developing substantial wind power electric generation capabilities along with politically correct projects in other areas of the company. A smart move considering today's global warming frenzy.

MDU has a lot going for it. You may want to take a look. www. mdu.com.


DISCLOSURE: The author holds MDU Resources Group in his Permanent Portfolio.

January 18, 2008: How Sweet It is

Pictures: nicknamed "Air Force Barbie" at boot camp for officers, the Barbie is still at her side, and Dad and Capt. Gail together.

I was invited to Wright-Patterson Air Force Base in Dayton, Ohio Tuesday where my daughter received recognition at a high level for her performance on several projects that had a significant impact upon USAF operations. Her area commander flew all the way from San Antonio, Texas to speak and personally honor her.

It is such wonderful feeling having a child reach that level of achievement, and to be so recognized within the most demanding of careers, military service. Having five children and their spouses presently serving as military officers, I still have the soft spot for "daddy's little girl", even though she is in every respect a women of leadership. I know they all were happy for Captain Gail on Tuesday, even though their duties kept them elsewhere.

Well done.

January 16, 2008: Market Vectors Coal ETF: Not So Fast

I understand the excitement created when a new ETF hits the market. Especially when it is a parsed and novel pure play on a commodity that is in widespread use. Let me propose a contrarian view of the Market Vectors Coal ETF (KOL).

The opinion of a contrarian that I subscribe to is probably different than the usual definition, "the majority opinion is wrong". The original book on the contrarian approach was the THEORY OF CONTRARY THINKING (1954) by Humphrey Neill. Neill stated throughout his book that contrary thinking is only considering other sides of an issue - to look at all sides of the question. For some reason, this book encouraged a wave of investment gurus to deduce a train of thought that they applied as contrary thinking, but cannot be factually supported - the simple-minded idea that the majority opinion is wrong.

Several positive articles on KOL have appeared in recent days. They deserve respect and the attention of astute investors. My contrary approach is commenting upon other sides of the coal issue.

Coal is a hideous polluter.According to the Union of Concerned Scientists,burning coal is the leading cause of smog, acid rain, global warming and air toxins. In an average year, a coal plant generates 3,700,000 tons of carbon dioxide, which is politically toxic to the current global warming-induced world mindset. And we know this mindset is pervasive. Let's not bother with the 10,000 tons of sulfur dioxide, 500 tons of small airborne particles, 10,200 tons of nitrogen oxide, 720 tons of carbon monoxide, 220 tons of hydrocarbons, 175 pounds of mercury and 114 ponds of lead.In the Midwest, home inspections are now including arsenic soil samples on house lots. Why? Our government has set new,more stringent arsenic standards. And homes fail this test in coal burning power plant regions. The 225 pounds of arsenic produced by a typical coal-fired plant is supposed to cause cancer in one out of one hundred people who drink water contaminated by 50 parts per billion. Let the litigation begin.

There is plenty of coal in the ground. Hundreds of years worth. What is the urgency to buy now? Perhaps one strategy is to guess what coal or Big Energy companies will be the winners in a coal global consolidation period, if there is one. An ETF may not capture the profits of this theme.

If companies consolidate and size allows more investment in environmental procedures,it stands to reason that there must be in place technology to allow coal to burn cleaner. Thus, more coal will be mined for use and the companies will win the politically correct end game of cleaner coal, which will bring joy to most ardent global warming zealot.

I have located one company that has a leg up to make world-wide coal companies politically viable. And I think this company and others to follow may deliver more shareholder value than coal itself.

It appears that the number one company worldwide in the carbon product toxin recapture field is Kinder Morgan Energy Partners (KMP). KMP is the only Master Limited Partnership that has a large amount of carbon dioxide recapture experience, which is highly specialized and not easily replicated. KMP is a likely partner of choice for clean burn CCS projects and thus will capture the profits for this necessary procedure. KMP is superbly well managed,and is best of breed in several endeavors of energy transmission, diffusion and alternative energy applications based upon years of experience. Dividends are tax advantaged.

Contrary thinking according to Neill begs that questions be asked from several directions to ascertain the validity of a proposal. This article scratched the surface. I do not think KOL is a stinker. But I would advise looking at the commodity of coal as Mr. Neill penned long ago.

DISCLOSURE: The author has no position in KOL or KMP.

January 15, 2008: Investment Advice (you already know)

picture: have to love the "morans" (sic)

Wading through many financial and quasi-investor blogs, including mine, I regularly have to take stock of a financial truism and apply it.

The "First Rule of Trading Systems": The system or fund that worked perfectly up to now will not work well when you stake your money on it.

A system's apparent success may be due entirely to coincidence or luck. Unless the investor can point to a reason, based upon economic principles, that the system should work, you should not expect success to continue. The very best of technical and fundamental analysis systems at some point break down. The same "can't miss" approach hawking the newest ETFs, parsing the parsed, seem to take their marketing cue from the schlickmeisters of the past, backdating results to predict the future and/or filtering data and total expenses.

For sure, some systems may appear to be very appealing - especially to the mathematically inclined. But at some point, the system will break. Having a balanced portfolio, including assets out of stocks and bonds, is wise for the experienced investor, and a must "Avoid Financial Ruin" card for the novice.

Do not fall into the contrarian trap. The idea that the investing public is always wrong is an arrogant thought that offers no insight into the occupation of investing. No one in my life has ever told me why the majority must be wrong. Factually, the majority isn't always wrong. In 1940, contrarians would have placed their bets on the Nazis. In 1959, against Castro. Last Sunday, against the Chargers. History is filled with examples of contrarians being wrong. And correct. Thus, the contrarian position is factually unsupported.

I believe that the original book on contrary thinking was the THEORY OF CONTRARY OPINION (1954) by Humphrey Neill. He clearly stated throughout the book that contrary thinking is only CONSIDERING the other side of an issue - to look at all sides of a question. For some reason, this book started a wave of financial gurus to deduce that too much bullish sentiment implied that there is too little buying power left to push stocks higher. This evolved into a third stage of the contrarian investment approach which is not factually supported - the simple minded idea that the majority is always wrong.

If you speculate, do it with funds you can afford to lose. Use courage to act upon factually supported reason and judgment with all investments regardless of asset class. It's your money.

January 14, 2008: Calamos Global Total Return Closed-End Fund makes sense for defense

The Calamos Global Total Return Fund (initiated in October, 2005) invests in a diversified portfolio of global equity, global convertible issues and high-yield fixed income securities. Calamos Holdings, LLC are headquartered in Naperville, IL outside Chicago. The Calamos family maintains a steady, experienced hand over their domain of funds. I particularly appreciate a genuine interest this LLC has for all shareholders, whether they be institutional or the modest individual investor.

The Calamos Global Total Return Fund (CGO) portfolio's latest breakdown (Dec. 31, 2007) has its 110 holdings in the following proportion: Foreign Stock (44%), Domestic Bond (24%), Convertibles (15%), Domestic Stock (11%), Cash (4%), Foreign Bond (1%), Preferred Stock (1%). Market Cap Allocation appears to be approximately 72% Giant Cap, 25% Large Cap and 3% Medium Cap. During 2007, The Global Return Fund easily beat two comps, the Morningstar World Allocation average and the Dow Jones Moderate Portfolio TR USD (up 20.7%, 11.8% and 8.0% respectively). This closed-end fund often trades at a modest premium from its net asset value, currently $139m. The stated distribution rate is 7.27%. Ordinary distributions are paid monthly. Annual expenses are at about 1.20%.

Calamos has as a primary objective a steady and predictable income stream from this fund and other closed-end funds in its arsenal. Steady income with international diversification seems an appropriate fit at this time. A strong defense in a potential bear market is a good thing. An excellent management team with decades of experience helps, too.

In regards to where CGO is situated worldwide, I believe the breakdown to be as follows: 20% U.S., 15% Australasia, 15% Eurozone, 14% Japan, 9% Asia Developed, 7% U.K., 6% European, 5% Latin America, 1% Canada. Top stocks included Nokia, Nintendo, Singapore Exchange, Petro China, Infosys Technologies, ASX Ltd., QBE Insurace Group Ltd., Punch Taverns 5% CV, Givaudan Nederland and British American Tobacco. Remember that 41% of the portfolio is in bonds, preferreds and convertibles that throw off cash.

I am usually not a fan of closed-end funds, but I like the Calamos strategy and approach. They have a nice stable of products. You can see them all and more at www.calamos.com


DISCLOSURE: I do not own CGO, but do own another Calamos product.

January 11, 2008: PowerShares Emerging Markets Sovereign Debt ETF (PCY), a vote of confidence

Almost all articles dealing with securities written from a point of view that avoids politics. This makes sense. Who wants to go out on a limb and predict political circumstances in an investing forum? However, in more and more instances, I believe that commentators on ETFs and other readily available funds should comment on informed basic political implications as well as the potential profitability of the target investment.

Such is the case with the PowerShares Emerging Markets Sovereign Debt ETF (PCY).
Launched on October, 2007, the fund is based upon the Deutsche Bank Emerging Market U.S. Dollar Balanced Liquid Index. The fund provides access to sovereign debt comprising approximately twenty-six emerging market issues. Essentially, the fund holds dollar-denominated debt that is high yield because the issuing country is deemed to be of relatively moderate risk, economically and politically.Approximately 27% of the debt is rated high quality,69% is rated as being of moderate risk and 4% worse. The security maturity averages out to be about fourteen years. The current yield is 8.01% at $25.81 per share. Distributions are paid monthly. The market value of PCY is about $41 million dollars and trades at a very slight premium to asset value.

The portfolio of this ETF is well dispersed to achieve maximum yield punch and to neutralize political uncertainty, with no sovereign debt security commanding more than 4.75% of assets. Countries represented in the PCY portfolio are Uruguay, Ukraine, Peru, Venezuela, Poland, Hungary, South Africa, Russia, Bulgaria, Qatar, Chile, The Philippines, Viet Nam, South Korea, Panama, Indonesia, China, El Salvador, Colombia, Brazil, Turkey and Mexico.

Looking outwards, there is no country on this list which is likely to default because each country needs to retain and service debt to grow its economy. To default would be ruinous to them, regardless of their political system. Warren Buffet recently began to invest outside of the United States. When asked about the risk of investing outside the United States by a CNBC reporter, he remarked that there was some risk everywhere, and that to not invest outside of the United States appropriately is not good business. PCY is appropriate and well-reasoned. In each of the countries above, our government has blossoming trade relations (South Korea, China and Brazil), military and education links (practically all) or solid reasons to be patient (Venezuela and Viet Nam). It is also likely that the United States will be entering a period of introverted political policies not unlike several decades of the 19th and 20th centuries. Emerging markets will thus be naturally growing faster through internal production, trade and consumption - more so with each other.

I do not predict any of the above will be a long term detriment to the United States, unless our military is gutted. I do see the future as a very positive time to own high yield sovereign debt, especially when packaged in a good geo-political manner with low expenses (.50%). PCY may fit nicely into your diversified portfolio.


DISCLOSURE: I own PowerShares Emerging Markets Sovereign Debt ETF (PCY) as a recent addition to my Speculative Portfolio.

January 10, 2008: Complete Production Services, a dry hole?

Complete Production Services (CPX), which went public in the spring of 2006 is dirt cheap or a mess. The analysts can't seem to make up their collective minds. Split almost evenly between "like it or hate it" this company continues to defy consensus.

CPX is a leading provider of specialized oil and gas services and equipment in North America (Canada, U.S and Mexico) that allows customers to develop hydrocarbon reserves, reduce operating costs and enhance oil and gas production. Complete Production Services focuses on basins within North America that have the most attractive long-term potential for growth according to their public relations brochures. The company operates from regionally managed field service facilities throughout Western Canada, the U.S. Rocky Mountains, Texas, Oklahoma, Louisiana and Mexico. Custom solutions to specific extraction and maintenance needs appear to be a strength of CPX.

A veritable shopping mall of hydrocarbon production services, this company features twenty-two service provider companies. Some are Basin Tool, Bell Supply, Bell Tubuler,Mercer Well Services, Shale Tank Services, Western Bentonite Mud Company, Hyland Enterprises, Monument Well Service, Leed Energy Service, Big Mac Tank Trucks, RigMovers, Stride Well Service and SRI-Roustabout Speciality Inc. These and other companies in their domain handle intervention strategies, downhole and wellsite services and fluid handling. One would think that this company would be a resoundind success story given the price and profit margins of hydrocarbon enterprises and specifically, the allure of domestic natural gas. This is not the case with CPX.

The shares of Complete Production Services have lagged almost all other companies in its universe. In fact, as of this writing the stock trades under $16.00 a share, from a high of $27.34 last year. Some analysts had this as a $34.00 stock when oil was under $50.00/barrel.Almost half of the analysts covering this security like it. Credit Suisse First Boston has called CPX significantly undervalued for a long time.

My view is that Complete Production Services is a company offering too many weak revenue services and needs to focus on the more profitable aspects of their holdings.Management appears to be long on promises and weak on delivering the goods to shareholders who are not receiving appropriate shareholder value from the present structure and execution of this quite heavily debted production service octopus.

Investors may want to keep an eye on this company. Even though it's stock performance has been pathetic, the sector it occupies and the possibility of getting the company to perform for the benefit of its shareholders is reason enough to keep it in mind for the future.

DISCLOSURE: I admit to owning CPX in my Speculative Portfolio. And I am stubborn enough to hold it, at least for a while longer.

January 9, 2008: The Answer to your forecasting strategy.

With all of the prognostication sucking the air out of the investment room, I now present to readers my CAN'T MISS 2008 market prediction for the world. Take careful notes.

1. The market will go straight up from here.

2. The market will rise after this mild correction.

3. The market will rise after a large correction.

4. The market will rise in a choppy and labored fashion.

5. The market will trend upward from here through a part of the year and then downward for the rest of the year.

6. The market will head straight down in a crash.

7. The market will rally a bit and then fall.

8. The market will have a big rally from here and then fall.

9. The market will trend downward in a choppy fashion.

10. The market will trend downward for part of the year and then upward for the rest of the year.

11. The market will trade in a narrow range with no basic trend upward or downward.


Thanks to all financial gurus for their valuable input.

January 8, 2008: Can Goodrich keep flying high?

Picture: Now I know Goodrich actually DID build a few.

I remember being confused by thinking the Goodyear blimp was the Goodrich blimp. Such are benign errors of youth. During the conglomerate era, both companies drifted into areas other than tires. Goodyear had to divest all of its non-core ventures and debt itself to the hilt to avoid a takeover by Sir James Goldsmith in the 1980s.
Goodrich did the opposite, gradually transforming itself from a tire company in Akron, Ohio to a leading aero-space entity based in Charlotte, North Carolina.

Recently, Goodrich Corporation (GR) stock has been beaten down by a few analysts primarily due to a perceived weakening of the larger commercial aircraft market beginning in 2010 and the opinion that over performance of Goodrich in 2007 could not be replicated in 2008. I believe that although the predictions of aircraft production slowdowns around 2010 may well occur, Goodrich has anticipated this possibility and has adjusted its components to take advantage of aircraft retrofit and maintenance, and to increase its opportunities in the defense industry. From aerostructures and actuation systems to landing gear, engine control systems, sensors and safety systems, Goodrich products are on almost every aircraft in the world, new and old.

A few days ago, Goodrich again showed its expertise in high margin products by being awarded a Defense Advanced Projects Agency (DARPA) contract to develop next-generation night vision sensor technology for helmet mounted and vehicle mounted applications.

Importantly, Goodrich has decided to proceed with a plan to disperse appropriate operations (aircraft parts, general production facilities, etc.) to low cost providers around the world.

And most significantly, Goodrich is taking its large and growing aircraft maintenance and retrofit operations worldwide. Recently, Goodrich announced that it will build a huge world-class facility in Dubai, slated to be one of the busiest aircraft hubs in the world in a few years.

Goodrich stock is down from the mid-70s in December to its close today at $65.80. The dividend at approximately 1.35% rests alongside a pe of 18.1. I believe that the current stock price represents a buying opportunity to own an evolving yet focused company with anticipatory management at an attractive price.

Analysts downgrading the stock because of an anticipated slowdown for new aircraft sales seem to be missing a large part of the Goodrich story.

DISCLOSURE: I have owned Goodrich (GR) since 2002 in my Permanent Portfolio.

January 7, 2008: What? An REIT?? Maybe. MNRTA

Although the smart money is snapping up distressed real estate on the cheap in many areas of the country for long term rental purposes, most readers can't run away fast enough from almost anything associated with real estate. I can't quarrel with that attitude. However, I would like to bring to your attention one little known REIT that may provide a hefty yield coupled with reasonable security for your portfolio.
That REIT is Monmouth Real Estate Investment Corporation (MNRTA).

Monmouth has been in business since 1968 and invests in net-leased (primarily triple-net leased) industrial properties with long-term leases to investment grade tenants such as Anheuser-Busch, Caterpillar, DHL Express, Western Container, Mead Paper and Sherwin-Williams. The high quality of this $191 million dollar portfolio gives investors the unique opportunity of investing in institutional quality real estate while at the same time receiving high yields generally available only with more speculative investments. In tune with smart money buying on the cheap, Monmouth has acquired over $100 million dollars in net-leased industrial properties since late 2004. MNRTA currently owns 58 properties in 26 states, making it regionally diversified. It leases over 5,700,000 square feet of space.

Monmouth has traditionally maintained a conservative balance sheet, although the fourth quarter 2007 gained significantly over the fourth quarter 2006. Especially noteworthy was an increase in rental revenue by 27%. The stock is trading as of this writing at approximately $7.90 a share and yields 8.61%.

Neither institutions (15% of shares outstanding) nor analysts have appeared to discover this REIT to any degree. The Landy family, which has had its hands in everything from harness racing to mobile home parks holds influence over the operations of this REIT and two other entities, Monmouth Capital and UMH Properties.
They appear to be a steady influence that mandate the "steady as you go" approach that befuddles many of the hot-shot REITs.They also seem to relish high dividends.

In a down and out real estate world, this company stands an excellent chance of avoiding carnage and should be considered as a cash generator for portfolio diversification.

DISCLOSURE: I own MNRTA in my Permanent Portfolio.

January 5, 2008: A Preferred Idea

As one investment theme after another appears to blow up, and with angst a dominant emotion across a wide swath of the investment spectrum, now may be the time to take a look at extracting income from a portion of your diversified portfolio. I try to select income-laden securities that are relatively safe, yet possess grounds for appreciation (not alone here, I'm sure). Thus, I think that a good choice for this approach may be the PowerShares Financial Preferred Portfolio (PGF).

The financials and their minions are in the tank, and the common stock of most have been drawn and quartered. However, preferred stock of these institutions offer an attractive yield now, with the almost certain prospect of a nice gain in share price as the financial quagmire corrects itself.

The Financial Preferred Portfolio holds twenty-eight securities. Since the fund's inception in December of 2006, returns have been in the red, which should be expected. The top ten holdings as of January 3, 2008 are Aegon 6.375% Perpetual Preferred, Royal Bank of Scotland Preferred series N,M and S, ING Perpetual Hybrid 6.375%, HSBC Holdings A 1/40PF A,Goldman Sachs Preferred 1/1000 B, Barclays Bank Preferred 2, Metlife Preferred B 6.50% and Bank of America 1/1000 D 6.204%. The ten securities comprise approximately 46% of the portfolio. The remainder of the portfolio looks to be a roster of traditionally sound and shareholder friendly financial institutions that should appreciate nicely as their business practices are remediated.

As of this writing, 77% of the portfolio is in preferred stock. 19% is in foreign preferred stocks (or their equivalent) and approximately 4% is in foreign bonds. This gives the investor some currency and geographical diversification as well.Security ratings are approximately 75% in the excellent rated categories and 25%in the moderately speculative categories. Monthly dividends for PGF average about 12 cents per share, currently trading at about $21.00. Expenses of the fund are at .60%.

Disclosure. I own PGF as a recent addition to my Speculative Portfolio. It is my opinion that these shares might be best held in a tax-advantaged account.