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

May 30, 2010

June 1, 2010: Cuba, Si? Investment, Si?

Recently, the New-York based Americas Society, in conjunction with the Council of the Americas, issued an assessment of the climate for U.S. investment in Cuba.

"Cuba has persistently ranked as one of the worst business environments in the world", stated Maria Werlau, a consultant specializing in Cuban affairs."The economy is in shambles, suffers from a high external debt and has investment rules that stifle international investments in and about the country."

Anna Szterenfeld, Latin American Editor for The Economist Intelligence Unit ranks Cuba 79th of 82 countries as a place to do business - the worst in Latin America.

Dismal indeed. And just the place where investors should be sniffing about for investment opportunities for the long term.

Cuba has an estimated 4.8 billion barrels of oil off their northern coast. Their economy has dictated that favorable exploration and drilling opportunities are now present. Investment in this area is better than in any other Latin American country, according to Juan Belt of the consulting firm Chemonics International. Environmental concerns? Betcha there is practically none, unless an oil spill comes from the "gringos". Drill where you want using the methods that are most economically favorable. With the recent BP rig blowout, US drilling is likely curtailed, or at least made cost prohibitive with litigation and environmental impact roadblocks . The northern Caribbean is now Cuba's oil patch to exploit. Investment is coming from China and Venezuela as well as publicly traded companies such as Canada-based Sherrit International, Norway's Norsk-Hydro, Spain's Repsol and Brazil's Petrobas.

Also interesting are the abundant mineral reserves Cuba possesses. Reliable studies indicate that the Castro brother's island produces over 70,000 metric tonnes of nickel annually, making this commodity Cubas's most important export. Cuba may seek partners to make their production more efficient. Holgiun province alone holds 34 per cent of the world's known reserves. Cuba supplies 10 per cent of the world's cobalt, a critical component of making super alloys. The U.S. considers cobalt to be a strategic metal. Cuba has a large supply of manganese and the U.S. has practically none, importing from countries such as Gabon and Brazil.

Cuba has a developing telecommunications infrastructure. President Obama has opened this sector to bids from U.S. companies. With one of the the lowest cell phone penetrations in the Western Hemisphere, opportunities abound.

Tourism is huge in Cuba. Private homes are for sale to non-U.S. foreigners for the first time in fifty years. British companies such as Esencia are constructing Florida-style golf course communities along the coasts. Cruise lines are poised to include the island as an important part of travel packages.

Sugar, tobacco and other agricultural commodity investments are problematic due to climate vagaries such as hurricanes and the belief that these will remain under strict government control.

Companies to look at according to Market Oracle, include: Repsol (REP),Petrobas (PBR), Freeport-McMoRan (FCX), Royal Carribbean (RCL), Carnival (CCL), Vodaphone (VOD) and a favorite amongst early and optimistic investors, Sherrit International (SHERF). Your research will no doubt produce more ideas than the above.

Investing in Cuba is challenging and speculative. Companies that have a manageable portion, not all, of their capital tied up in the island nation will be a starting point to begin your quest. Don't sell either Cuba or it's people short. Who knows? Investing there may be easier and more rewarding than in the U.S. down the road. It is not too early to think about the possibilities.

No position in the above securities.

May 14, 2010

May 14, 2010: Time For A Permanent Portfolio Using ETFs?

With investors held hostage to government whimsy both here and abroad, coupled with the vagaries of trying to game the market only to be disappointed time and again with one's best laid investment plans going haywire, it may be time to structure a Permanent Portfolio with wealth that is both precious and essential to your long term expectations.

The Permanent Portfolio concept was explained to the average investor in the 1970's by the late Harry Browne. Having a Speculative Portfolio for making educated guesses on the market and a Permanent Portfolio, designed to hold long term investments theoretically assembled to account for the unexpected while producing tangible gains is a seasoned idea which at present merits your consideration.

Inspired by Browne and the steady success of his portfolio successor Michael Cuggino, here is a proposal to construct a Permanent Portfolio on your own, using Exchange Traded Funds.

The premise is to have five categories of investment which will rise or fall independently.This portfolio should be rebalanced every six months to retain the ratio of one category to the others. The goal is to have the portfolio retain absolute value and rise approximately 2% better than the Citigroup 3-month U.S. Treasury Bill Index annually.

Precious metals: 25%

iShares Comex Gold Trust ETF (IAU)15%
iShares Silver Trust ETF (SLV)5%
First Trust Global Platinum Index ETF (PLTM)5%

Swiss Franc Assets: 10%

Currency Shares Swiss Franc Trust ETF (FXF) 5%
iShares MSCI Switzerland Index ETF (EWL) 5%

Worldwide Real Estate and Natural Resources: 20%

iShares North America Natural Resource Index ETF (IGE) 5%
Vanguard Energy ETF (VDE) 5%
iShares FTSE EPRA/NAREIT Developed World Real Estate ex-U.S. ETF (IFGL)5%
Vanguard REIT ETF(VNQ) 5%

Agressive Growth Stocks: 15%

iShares Morningstar Small Company Growth Index Fund ETF (JKK)10%
ProShares Credit Suisse 130/30 ETF (CSM)5%

U.S. Treasury Bills, Bonds and Other Dollar Assets: 30%

Vanguard Total Bond Market ETF (BND)10%
Vanguard Short Term Government Bond ETF (VGSH) 10%
Vanguard Intermediate Term Government Bond ETF (VGIT) 10%

I have attempted to propose ETFs from established companies that are actively traded (the Swiss Franc ETF excepted) and have low transaction costs and management fees. The percentage allocations to ETF's within a category is not a mandate.

Permanent Portfolio purists have generally invested in gold and silver coins and bars rather than through funds, have used Swiss Confederation Bonds as SF currency and have laddered U.S. government obligations individually.


May 05, 2010

May 5, 2010: Why Rent When You Can Buy? Four Interesting Rental Companies

In most instances, rental companies deal in aircraft, vehicles and rent-to-own home basics. I have never found these areas to be fertile ground for my investments. By chance, I screened some niche rental players that usually fall under the radar screen, yet are unique, large enough to warrant confidence that trading volume and stable management present, and pay a noteworthy dividend.

Here are four companies that you may want to explore:

McGrath RentCorp (MGRC): Trading at $24.80 with a 52-week trading range of $17.01-27.41, a market cap of $595m and yielding 3.58%, McGrath RentCorp is a provider of rental modular buildings for classroom and office space. MGRC also rents electronic test equipment for general purpose and communication needs, and liquid and solid containment tanks and boxes (including hazardous material). It also sells products they rent, much of it through MRGC's Enviroplex subsidiary.

Electra Rent Corporation (ELRC): Trading at $14.35 with a 52-week trading range of $8.24-14.95, a market cap of $345m and yielding 4.21%, Electro Rent is engaged in the rental, lease and sale of electronic equipment, primarily test and measurement data and personal computer data (DP) equipment. A significant portion of ELRC's portfolio of equipment is rented or leased to the aerospace and defense, semiconductor, electronics and telecommunications industries.

Textainer Group Holdings Ltd.(TGH): Trading at $22.92 with a 52-week trading range of $8.81-24.48, a market cap of $1.1b and yielding 3.89%, Textainer is a holding company of companies involved in the purchase, management, ownership, leasing and disposal of a fleet of intermodal containers. TGH plays all sides of the container niche they have carved for themselves, from working with investors in containers to military management of cargo, and everything in between.

Tal International Group (TAL): Trading at $25.44 with a 52-week trading range of $8.81-26.98, a market cap of $782m and yielding 3.93%, Tal International, founded in 1963, is a lessor of intermodal freight containers. Operating in 37 countries, TAL operations includes the acquisition, leasing, re-leasing and sale of multiple types of intermodel containers which includes dry freight, refrigerated and special containers for heavy and oversized cargo such as construction products. TAL has 702,000 containers (1,140,000 twenty-foot equivalent units or, TEUs) in use at present,which places the company third amongst independent intermodal lessors by fleet size.