FXI

5 US-Centric Undervalued Stocks with Fantastic Economics

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“In business, I look for economic castles protected by unbreachable moats.” – Warren Buffett << Read more about Economic Castles Image Source: Rob Faulkner The see-sawing action in the US markets has not let up, with the latest wave of the upward variety. The S&P 500 (SPY), however, remains nearly 8% off its all-time highs, as global markets continue to ebb and flow with news of negative economic data followed by the prospects of an ever-easing monetary environment and so on. Several major economies across continents are in technical recession (Brazil, Canada, etc), while others continue to face a slowing pace of economic expansion, not the least of which are Australia (EWA) and China (FXI). The global economic outlook is … Read more

Things Are So Bad They’re Actually Good?

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Brazil’s (EWZ) economy, nearly 60% of South America’s (ILF) gross continental output, entered into technical recession following the second consecutive quarter of GDP declines, the latest reading a fall of nearly 2%. Economic data assessing the health of Brazil’s largest South American trade partner, Argentina (ARGT), remains “flawed”, according to the International Monetary Fund, which believes the country will only grow marginally in 2015 and remain stagnant in 2016. Including contributions from Venezuela, which is dealing with near-hyperinflation, the combined gross national product of the three struggling countries accounts for approximately three-fourths of South America’s entire economy. Though less than half the size of Brazil’s, Canada’s (EWC) economy has also fallen into recession during the first half of the year, … Read more

Extreme Volatility in Crude Oil Prices Continues

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After a short-lived reprieve on hopes that OPEC will suddenly abandon its strategy of share retention instead of price support and that US oil production was modestly lower through the first five months of the year than previously expected, reality is now setting back into the oil futures market (USO). At the time of this writing, West Texas Intermediate crude oil prices for October delivery are hovering in the $43-$45 per barrel range, and futures have traded wildly between “recession” and “bull market” the past several months and days, respectively. There are three major areas of concern that may continue to impede any sustainable rise in crude oil prices, however. 1. OPEC is not caving in. OPEC’s strategy to deal … Read more

Batten Down the Hatches – Another US Market Crash Probable

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A global financial contagion like that of the Financial Crisis just six short years ago cannot be ruled out. The magnitude of wealth lost in China’s (FXI) equity market is simply staggering, and we’re already witnessing bad loans soar across China’s Big 4 banks. We’re hearing that property, used as collateral for stock margin trading in China, is often being sold for 90 cents on the dollar as speculators look to cover losses. We expect the fallout from the collapse in Chinese equity markets to eventually reverberate through their property markets, impacting loan-to-values in the commercial and residential arenas, sparking significant loss rates and asset write-downs across the Chinese financial system. We continue to assess the tangible evidence of an … Read more

China Eases to Support Country’s Stock Bubble; US Markets Cheer Behavior?

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Roughly $4.5 trillion has evaporated from the Chinese markets (FXI) since the middle of June – real, tangible wealth that no longer exists. Equities on mainland Chinese exchanges still trade at a median reported earnings multiple of 60+ times, according to Bloomberg. After direct government intervention in the country’s markets failed, China has now moved to cut interest rates and reduce bank reserve requirements, and this somehow has the US markets cheering. Does such irrational behavior by US investors finally mark the peak? Here are 5 observations worth noting. 1. The Financial and Capital Markets are Fragile If the Financial Crisis of 2008-2009 taught this generation anything, it was a lesson in the fragility of the financial and capital markets … Read more

The Debt Bubble Is Deflating; Will It Pop?

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The fundamental concerns surrounding the financial health of China-dependent companies across the globe are tangible, and the risk of a currency crisis and eventual credit crunch are real, if they aren’t already happening. Fortescue Metals Group (FMG), the fourth-largest iron ore producer in the world, announced over the weekend, that profits were nearly completely wiped out (down nearly 90%) for the fiscal year ending June 30, even as the firm shipped 33% more tons of iron ore during the period over last year’s mark. The largest iron ore producers, BHP Billiton (BHP) and Rio Tinto (RIO), are only adding to production overcapacity, conditions that are wreaking havoc on the commodity price. Iron ore prices are to remain under pressure as … Read more

The Flight to Safety

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Image Source: Pravine Chester It’s no secret that investors have been disappointed with returns across the equity market in 2015, and this week has not made the unrest any easier to deal with. Money managers across the globe will be looking at a short-term chart of the S&P 500 (SPY), observing that the broad US index has finally broken down from a critical multi-month base, and many will look to “lighten up” on some of their equity positions that they have been reluctantly “letting run” for months. It is no surprise to us why Netflix (NFLX) was one of the market’s worst performers in Thursday’s trading session. The company is trading at nearly 500 times earnings (not a typo), and the low … Read more

Assessing the Fallout from the Collapse in China’s Stock Market…Thus Far

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No longer do we live in an isolated world. If you weren’t convinced of this before the Global Financial Crisis, the credit crunch of late last decade should have changed that. Just as the interconnectedness of global financial markets is undeniable, we think the significance of the health of the Chinese economy is as critically important to the trajectory of equity prices across the globe. That’s why we’re not taking the recent collapse in the Chinese stock market lightly. Here’s what we’re hearing. China’s major restaurant bellwether, Yum! Brands (YUM), owner of KFC, addressed whether a decline in the country’s equity market has impacted sales. Though the company noted that “a very small percentage of customers have been impacted,” we’re … Read more

The Chinese Market Is Rigged

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The Chinese equity markets do not reflect reality. The government has made it so. Trading on hundreds of  Chinese-listed stocks has been halted or suspended during the past few weeks, short selling (or even selling by large shareholders) has been banned, and as much as 10% of GDP has been pledged to prop up Chinese shares, and the list of government intervention goes on and on. The Chinese equity markets are “rigged,” and the government holds all the cards. Even so, share prices won’t stop falling. There may be nothing left to stop them. The writing has been on the wall for years that a bubble had been forming in China. As when everyone was on margin and “playing” the … Read more

Here Comes the Correction

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The S&P 500 (SPY) has been stuck in neutral for most of 2015, and we’re not surprised. The forces against a further advance have been mounting for some time. Not only are valuations stretched on some of the strongest business models, but global economic growth remains sluggish, perhaps punctuated by falling gross domestic product in the US during the first quarter of the year. But that is not all that is ailing the global equity markets as of late. Nothing short of a 1929 US-equivalent stock-market crash in China (FXI) is currently ensuing, and the government is doing all that it can to prop up the markets to ensure stability. The Shanghai Shenzhen 300 Index has fallen an incredible 30% … Read more