I am retired and take educated guesses on all things financial.

February 28, 2010

February 28, 2010: Chile, No Cause To Tremor.

The devastation of wide areas within Chile may give investors pause. The Bolsa de Commercio de Santiago will likely expect some selling pressure as the country sorts out the damage from the powerful earthquake Saturday. As the market has been one of the best performers in thew world over the past year, this expected pullback may give investors an opportunity to selectively enter and wait for this resilient country to come back.

Fortunately, Chile has positive investing attributes such as almost nil corruption compared to Latin American neighbors, a liberal capital market, free trade policies. low debt (which will be of benefit during the current crisis) and a democratically elected conservative government leader in Sebastian Pinera.

Investors may wish to closely follow, and buy on dips, the Chile Fund,Inc.(CH) which traded at $18.05 on Friday, with a 52-week trading range of $9.66-19.66/share and the iShares Chile ETF (ECH) which traded at $56.75 on Friday, with a 52-week trading range of $30.02-60.94/share. Utilities, materials and industrial stocks make up the lion's share of holdings.

I believe that the following Chilean ADRs are worth looking at for purchase on dips:

Sociedad Quimica y Minera de Chile (SQM): Trading at $36.55 with a 52-week trading range of $22.61-43.93/ADR share, SQM is a leading producer of fertilizers and speciality chemicals in Chile. Average daily volume for the past ten days was over 685,000 shares. It has a yield of a little over 2.00%.

Vina Concho y Toro (VC0): Trading at $47.00 with a 52-week trading range of $29.82-50.89/ADR share, very thinly traded VCO is one of the leading wine producers in the world. It has a yield of approximately 0.90%. This stock may be quite volatile.

Compania Cervecerias Unidas (CCU): Trading at $38.68 with a 52-week trading range of $25.93-42.89/ADR share, CCU is somewhat thinly traded. This company is a leading producer and licensee of beer, wine, water and soft drinks in Chile and Argentina. It's most well-known license is Heineken, which it produces regionally. CCU yields 3.15%.

Due to prospective property damage claims and an impaired infrastructure, I would avoid individual financial and power-generating and supply company stocks for now until further information is made available. If you disagree, the two funds above contain these and other sectors within their portfolios.

February 20, 2010

February 21, 2010: National Bank of Greece Not An Achilles Heel

As the Greek philosopher extraordinaire Plato would have it, the realm of ideas is absolute reality, and truth itself is an abstraction. The Greek government(s) have been denying truth, reality and ideas for too long, and now they will be, in part, held to account. If the assumption that the EU will not let Greece fail is correct, there is an opportunity in Greek securities that may be appropriate for their speculative portfolio.

I have been following three Greek stocks that are traded as ADR's. These are Coca-Cola Hellenic (CCH) which trades at $23.17 with a 1.70% yield and has a wide presence outside of Greece, Hellenic Telecom (OTE) which trades at $6.35 with a 8.17%yield and may be at some risk short term to the Greek meltdown, and the National Bank of Greece(NBG) which trades at $3.71 with no dividend.

None of the three common stocks listed above thrill me. CCH appears fully priced, OTE may not hold the dividend and also will suffer distress from a very weak Greek consumer, and the NBG common stock, while holding promise, does not pay you to wait for better times.

What to do? Investors may want to explore the National Bank of Greece $2.25 Preferred Shares (Euronext symbol NBGPRA, or look for the National Bank of Greece Preferred Class A security, NBGpA). This security is liquid, averaging about 160,000 shares traded over the latest 10-day period. Trading at $20.80 and yielding 10.82%, investors stand a good chance to be handsomely rewarded with a high yield and the possibility of a capital appreciation as the security has a $25.00 call feature which can be exercised in 2013. Note that the preferred goes "ex" on March 3rd with the dividend paid shortly thereafter. Dividend are in US dollars taxed at the low 15%rate.

A downside to this security is that the dividends are not cumulative. In case they are skipped,or dropped, you lose. I view this as unlikely now that Europe is propping up the monetary system. The National Bank of Greece, like J.P. Morgan in the US at the height of the banking crisis, may pay little or no common stock dividends but will likely continue to pay on the preferred.

As James Altucher, managing director at Formula Capital, stated on CNBC recently, "It's the safest bank in Greece....they've got a solid balance sheet and trade at seven times earnings."

If you are gaming Greece, it may be better to hopefully control your bat for a line drive hit rather than swinging for the fences.

February 12, 2010

February 12, 2010: John Burns' Take On Housing

I would hazard a guess that few investors have heard of John Burns. Burns is "Best of Breed" from my vantage point analyzing and predicting real estate trends. He publishes a subscription service which comprehensively slices and dices all things related to the housing industry entitled The U.S. Housing Forecast. In addition, he provides a free monthly newsletter which is precise, readable and thought-provoking under the banner U.S. Building Market Intelligence.

The February newsletter, about seven pages in length, summarizes the current state of housing affordability and grades out key factors. In addition, additional facets under the categories of economic growth, leading indicators, consumer behavior,affordability index, existing home market, new home market, repairs and remodeling and housing supply are quantified.

Burns computes complex and seasonally adjusted data and then summarizes,assigning a grade. The grade is based on a bell curve with an "A" historically best, a "C" historically average and an "F" for historically worst. Those easily glazed over by numbers appreciate this.

Burns grades out current home affordability as a "C-". Why? Although he assigns a grade of an "A-" for the affordability index and an "A+" for mortgage rates, he sees problems.

"Only 50% of new home buyers traditionally are coming out of an apartment. The other half need a down payment. Here is what weighs down the grade:

Equity: Average equity in a home is $82,471, which is a "D".
Loan To Value (LTV): Loan-to-value,at 62.5% is an "F" because of the historical norm of 34.5% (this statistic includes the almost 1/3 of all homeowners who do not have a mortgage).
Income Growth: Incomes have declined 3.9% in the past year, which is the worst on record.

While affordability has rarely been better for an entry-level buyer, affordability has rarely been worse for the many potential move up/move down buyers who bought or refinanced their home in the past ten years."

Here are Burns' other grades:

Economic Growth: D+
subsets: real GDP C+, employment growth 1-year D, employment growth rate D, unemployment rate F, mass initial layoffs B+, productivity B-, retail sales C,capacity utilization F, inflation core B+, full CPI C,personal income F, federal deficit F, household growth rate D, owned households D, rented households C+.

Leading Indicators: C+
subsets: leading economic index B, ECRI leading index A-, manpower employment outlook D, temporary employed workers F, corporate profit growth D, corporate bond spread (vs. 10-year treasuries) D,capital goods new orders D,money supply M2 C-, 2-year treasury A-, 3-month treasury B, Dow Jones return C, S&P 500 return C+, NASDAQ return B-, Willshire 500 B-,S&P Super Home building C, large firm standards on business loans B, small firm standards on business loans C+, crude oil price D, ISM manufacturing index C+, ISM non-manufacturing index C-.

Consumer Behavior: D
subsets: consumer confidence D, consumer sentiment D+, consumer comfort F,revolving credit per household growth rate A+, personal savings C-, net worth growth rate D, financial obligation ration D+,misery index (unemployment plus inflation) D+.

Existing Home Market: D+
subsets:Case-Shiller price index D,NAR single family annual price appreciation C-, Freddie Mac price appreciation F, annual sales volume B, existing home inventory D+,months supply of unsold homes C, purchase mortgage application index C-, pending home sales index D+, home ownership rate B.

New Home Market: D+
subsets: housing market index F,multi-family condo market index D, annual appreciation rate D, constant quality price index D+, sales volume F,new home inventory for sale B+, months supply of unsold homes B-, months of homes completed B-,months of homes under construction C,months of homes not started C+.

Repairs and Remodeling: D-
subsets: home ownership improvement activity D-, remodeling market index D-,remodeling market future D+, private residential construction D, residential investment as % of GDP, F.

Housing Supply: F
new housing completed F, single family starts F, multifamily starts F, single family permits F, multifamily permits F, manufactured housing placements F,total housing stock F, homeowner vacancy rate F.

Some of the categories may be fuzzy, although a careful reading of Burns' work makes it sensible and thorough.

In short, we are not our of the woods in the housing industry, though the demise of the American dream of home ownership is greatly exaggerated.

John Burns is a first-rate analyst who deserves your attention.