FXI

ICYMI: 5 Concerns About Impending Rate Hikes

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The first Fed rate hike in nearly a decade came and went December 16, putting an environment of ZIRP (zero interest rate policy) to an end, a policy that grew out of the Financial Crisis and the depths of the Great Recession late last decade. The Fed had paused plans to hike the federal funds rate for much of 2015 as a result, in our view, of getting a more informed read on the potential implications of emerging market developments–namely dislocations in the local Chinese equity markets (FXI) and recessionary conditions in Brazil (EWZ)–and the stock market crash (SPY) in the US in August that sent equities of some of the most well-known stocks including Apple (AAPL) and General Electric … Read more

Bye Bye Energy MLPs

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West Texas crude oil prices (USO) just broke through $32 per barrel to the downside for the first time since 2003. Share prices of those in the energy complex (XLE) continue to reel, and we maintain our view that the tremendous fallout in energy master limited partnerships (AMLP, AMZ) may not be over. From our perspective, the MLP business model may not survive in its present state, as equity markets continue to “wise up” to the artificial equity pricing paradigm that has centered on the group’s financially-engineered payouts. Without an artificial pricing paradigm to “prop up” their equity prices, for example, the incentive to perpetuate such a business model is substantially reduced. Distribution cuts would then inevitably ensue as a … Read more

The Markets Swoon Again

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The broader US markets (SPY) swooned again January 7 as fears of a slowdown in China (FXI), or worse, a dislocation in Asia’s currency markets, and ongoing concerns about the sustainability of some of the most leveraged “players” in the energy complex took the spotlight again. None of this should be surprising. As we’ve done many a time before with the mortgage REITs, namely American Capital (AGNC) and Annaly (NLY), SeaDrill (SDRL) and the latest with Kinder Morgan (KMI), our members are far ahead of developments. That’s our job – we’re not reporters. We strive to get the right information to our members before it becomes “information,” and using the newsletter portfolios as an indication of our views on capital … Read more

Seeking to De-risk the Newsletter Portfolios

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There’s never a good reason to panic in investing, but the 276-point slide in the Dow Jones Industrial Average (DIA) January 4, the worst start to a year since the credit crisis in 2008, reminded us why we hold more than a 30% cash position in both newsletter portfolios at the moment: with a US stock market still near all-time highs, we like having ample capital available to scoop up bargains as stocks inevitably give back some of their gains. The question for us is not whether the broader US stock market will decline from here but whether such a decline will be 10%, 20% or more. After all, the S&P 500 (SPY) has essentially tripled from the March 2009 … Read more

BABA Bounces Big! GMV Growth Solid, Monetization Rate Better

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Best Ideas Newsletter portfolio holding, Chinese e-commerce giant Alibaba (BABA), reported solid fiscal second-quarter results for the period ending September 30. The report was welcome news after effectively a bear raid on the company’s shares from a widely-read publisher, the note of which effectively marking the company’s trading bottom. We continue to believe shares of Alibaba are a bargain even after the spike. Please be sure to access the company’s 16-page report for its cash-flow derived fair value estimate and fair value estimate range. Management added upbeat commentary in the press release, noting “strong growth across the board and particular outperformance in mobile.” Gross merchandize volume (GMV) in the company’s China retail marketplaces grew to $112 billion in the period, … Read more

Alcoa Disappoints in Third Quarter, China Weakness Prevalent

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Alcoa (AA) no longer is the industrial bellwether it once was as the global economy migrates more toward a service orientation, but the aluminum giant still has its hands in a lot of end markets. The company’s third-quarter results, released October 8, showed revenue falling 11% on a year-over-year basis, and modest net income of $0.07 per share, excluding special items. Acquisition and divestitures muddied the waters, but the general take was a negative one. The company is doing the best it can to migrate away from the volatility of its lower-margin operations, focusing its efforts on value-add operations, and while it is making progress, the company remains tied to the broader economic environment and the pricing pressures that inevitably … Read more

Yum! Brands Blows Up

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The share price chart of Yum! Brands is shown above. The writing was on the wall. We warned about the impending collapse in Yum! Brands’ (YUM) shares in our highly-selective July 14 note, “Warning! 5 Heavily-Followed Dividend-Paying Stocks to Avoid:” “The owner of KFC, Pizza Hut and Taco Bell has a solid franchise, but its share price has rocketed too far too fast, perhaps on renewed speculation that it will spin off its Yum! China division into a separate entity, which may never happen. But while speculation fuels the share price advance, there are a few things we do know for certain. The fast-food environment in the US is cutthroat, and the trend toward fast-casual is a long-term secular dynamic, … Read more

Standard & Poor’s Notes Heightened Default Risks

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Not all is well in Big Oil, or at least, not all is what it once was. The upstream oil and gas arena continues to face significant pressure from falling energy resource pricing, runaway capital spending projections and conditions that may not subside anytime soon. At the heart of the problem is OPEC’s strategy to maintain market share, apparently at all costs, which is different than the cartel’s efforts in previous cycles to support the price. Though upstream industry constituents have announced capital spending reductions and some have idled rigs, commercial inventories of crude oil remain at decade highs, and risks to the global economy, not the least of which from China (FXI), Brazil (EWZ), and Australia (EWA), threaten the … Read more

China, Petrobras and the Circling Sharks

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The Federal Reserve meeting last week came and went, and now the markets are back to focusing on fundamentals, as they should. The problem for equity investors, however, is that the fundamentals aren’t great, and it is becoming increasingly more difficult for even the most bullish investors to find reasons for optimism, at least in the near term. The economic environment in China (FXI) continues to worsen. We outlined our grave concerns regarding the implications of its collapsing stock market on the health of the country’s property market, and the resulting consequences on China’s largest banks. Commodity-linked entities in China continue to feel pain, and the preliminary reading on the Caixin China manufacturing purchasing managers’ (PMI) index fell to Financial … Read more

As the World Turns

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Our growing concern over market participants’ lackadaisical approach to what will inevitably become a contractionary monetary cycle has been evident for months. The US market crash of August 24 has disrupted the comfort levels of many investors, however, but it has not derailed the confidence of long-term planners, nor has it interrupted the conviction of optimists that believe the sky is the eventual limit for equity prices in their lifetimes. We take a more measured and cautious view of risky assets at Valuentum, and we’ll never tell investors to ignore the information contained in market prices. The risk of a recession in the US beginning this year is remote, but concerns are mounting for 2016. US gross domestic product continues … Read more