The Wikinvest Daily Angle Market Insight and Commentary from Thu, 27 May 2010 07:01:44 +0000 en Why Dividend Stocks Rock Thu, 27 May 2010 07:01:44 +0000 admin

Today’s Daily Angle comes from Wikinvest Wire member Dividend Growth Investor. You can read the full article on

According to Ned Davis Research, $100 invested in all dividend payers of the S&P 500 index in 1972, would have grown to $2,266 by the end of 2009. The same $100 invested in non-dividend paying stocks in the S&P 500 returned a negative 39% over the same period. The performance of dividend payers and initiators was even better, returning $2,945 on the initial investment in 1972. Dividend investors should utilize every edge they could find in order to deliver above average total returns. As a result, the findings of the Ned Davis study should not be ignored. The reason whydividend growers outperform is that they represent an elite group of companies which grow earnings, reinvest some of it in the business, and distribute the rest to stockholders. Rising profits equal rising stock prices over the long run, and rising dividends as well.



Some of the companies which raised distributions over the past week include:

The Clorox Company (CLX) engages in the production, marketing, and sales of consumer products in the United States and internationally. The company raised dividends by 10% to 55 cents/share. This was the thirty-third consecutive year of dividend increases for this dividend aristocrat. The stock yields 3.40%. (analysis)

First Financial Corporation (THFF) through its subsidiaries, provides various financial services in Indiana and Illinois. The company raised its semi-annual dividend by 2.20% to 46 cents/share. This dividend achiever has managed to increase dividends to shareholders for 22 consecutive years. The stock yields 3.20%.

Bunge Limited (BG) engages in the agriculture and food businesses worldwide. The company approved a 9.5% increase in the company’s regular quarterly cash dividend, from $0.21 to $0.23 per share. The company, which is a member of the international dividend achievers, has consistently raised dividends since 2003. The stock yields 1.90%.

Transatlantic Holdings, Inc. (TRH), through its subsidiaries, offers reinsurance capacity for a range of property and casualty products, directly and through brokers, to insurance and reinsurance companies, in domestic and international markets. The dividend was raised by 5% to 21 cents/share. The Board of Directors has raised the quarterly distributions of this dividend achiever every year since TRH became a public company in 1990. The stock yields 1.80%.

Canadian Pacific Railway Limited (CP), through its subsidiaries, provides rail and intermodal freight transportation services. The company increased its next quarterly dividend to 27 Cents/share from 24.75 cents per share. Thisinternational dividend achiever has consistently raised distributions since 2004. The stock yields 1.90%.

Click here to continue reading this article on the Dividend Growth Investor blog…

How Connected Are Oil Majors To The Price Of Oil? Tue, 25 May 2010 07:01:27 +0000 admin

Today’s Daily Angle comes fromWikinvest Wire member Hard Assets Investor. You can read the full article on the Hard Assets Investor Blog.

Price comparison of Crude Oil (CL) and the six oil majors (click to enlarge)

Price comparison of Crude Oil (CL) and the six oil majors (click to enlarge)

I’ve written previously about the problems with using ETFs as an oil proxy. We don’t need to get into all of that again, but the primary takeaway is that even though most energy ETFs are composed exclusively of oil derivatives, the funds themselves track the price of their benchmark poorly, especially when said benchmark is in contango.

No, I’ve always been an advocate of a more direct energy play: specifically, using futures contracts to invest in theenergy markets. Of course, this has its own problems, particularly the inability to make long-term plays, due to futures contracts’ expirations.

So what’s a would-be energy maven to do? If the ETFs don’t track the derivatives properly, and the derivatives don’t allow you to invest the way you want anyway, what option do you have?

Enter the oil companies.

Oil companies, obviously, depend upon the price of oil to remain profitable. Intuitively, when oil goes up, so too should oil companies’ stock.

Realistically, however, you can’t expect the current price of a barrel of oil to be entirely responsible for today’s value of an oil company’s share price, as there’s obviously a bit of a lag, and these companies have other facets to their business. So, more accurately, a share price reflects that company’s ability to make a profit from oil, rather than simply to follow oil prices up and down. If you want to make a play purely in oil, an oil company may not be for you.

However, if you want to make a more nuanced long-term bet on the oil industry in general, while concurrently investing in oil itself, one of the oil majors could work … but which one?

To answer this question, I’ve done a statistical regression comparing the continuous front-month prices of crude oil over the last four years with the stock prices of the six oil-majors: BP (NYSE: BP)Exxon Mobile (NYSE: XOM)Total SA (NYSE: TOT)Royal Dutch Shell (Nasdaq: RDSA)ConocoPhillips (NYSE: COP) and Chevron (NYSE: CVX). Let’s see how they stack up.

First, take a look at this chart comparing all six companies with continuous front-month crude oil futures (marked by CL):

The most important thing to notice is that even though the charts are moving more or less together, it’s not that tight a correlation. I don’t need to break out the logarithmic chart to show you that the movements aren’t exactly coupled at the hip.

That said, the prices still do ebb and flow together. Now, let’s compare the prices one by one to see just how strong the relationship is.

Click here to continue reading this article on the Hard Assets Investor Blog…

Hedge Funds Register with SEC Mon, 24 May 2010 07:01:32 +0000 admin

Today’s Daily Angle comes from Wikinvest Wire member Richard Wilson of You can read the full article on Richard’s blog.

Hedge funds will have to register with the Securities and Exchange Commissionnow. The Senate and House versions of the financial reform bill both require hedge funds over a certain size to register with the regulatory agency.

The Senate and House versions of the bill require all hedge-fund advisers over a certain size to register with the Securities and Exchange Commission. That would give the agency a greater window into the trading positions and investment strategies of hedge funds, typically secretive firms that cater to wealthy individuals and big investors.

“There will definitely be an increased level of reporting,” said Steve Nadel, a hedge-fund lawyer in New York, adding that the registration requirement “has the most immediate impact” of any hedge-fund-related provision in the bill.

Lawmakers also are aiming to give the SEC more discretion in its authority over hedge funds, likely leading to deeper scrutiny of the industry’s client base and trading partners, as well as its investments. Although hedge funds have successfully resisted much oversight, some regulators say additional scrutiny is needed to reflect the increased influence of hedge funds on financial markets. Source ]]> More European Companies Delist from the NYSE Fri, 21 May 2010 07:01:10 +0000 admin

Today’s Daily Angle comes from Wikinvest Wire member David Hunkar of You can read the full article on David’s blog.

The exodus of European firms from delisting their stocks on the New York Stock Exchange continue to climb. On Friday German auto maker Daimler AG (DAI) became the latest company to announce plans to delist from the NYSE. This follows the announcement of Deutsche Telekom AG (DT) two weeks ago to delist from the exchange. After these two delistings, just four of the large German companies will trade on the NYSE.

French insurer AXA SA already trades on the OTC markets. Hellenic Telecom (OTE) of Greece has also announced plans to delist from the Big Board.

According to a Wall Street Journal article, some of the reasons for the delistings from the NYSE include:

  • Many European firms view US listing as a liability
  • Foreign investors are able to invest directly via electronic trading platforms in their domestic markets
  • Listing requirements have risen on overseas markets
  • Cost of complying to U.S. regulations such as the Sarbanes-Oxley Act has become burdensome
  • The prestige of a US listing has faded since Enron and the financial crisis
  • The daily trading volume of stock relative to global trading volume is lower for some companies

With the removal of Daimler and Deutsche Telekom, the only four German companies that will continue to trade on the NYSE are Siemens (SI)Deutsche Bank (DB)Fresenius Medical Care (FMS) and SAP AG (SAP).
Other European firms that have already delisted their stock from the NYSE are:

However some firms such as E.ON continue to trade on the OTC markets as noted above.

The full list of German stocks that trade on the US markets can be found here.

General Motors: On the Road to Recovery, but Moving Slowly Thu, 20 May 2010 07:01:26 +0000 admin

Today’s Daily Angle comes from Wikinvest Wire members You can read the full article on the Money Morning blog.

General Motors Corp. just logged its first quarterly profit since 2007. The company also claims to have paid back its government loans “in full,” and is rumored to be interested in buying back its financing arm.

But the truth of the matter is that GM isn’t as far down the path to recovery as it would like the public to believe. The company’s strong first quarter was greatly aided by Toyota Motor Corp.’s (NYSE ADR: TM) highly publicized recalls. Its claims that it has paid back government debt have been greatly exaggerated. And the United Automobile Workers (UAW) union is already pushing for restoration of many of the perks that it lost during the auto industry’s near collapse.

General Motors reported first-quarter profit of $865 million as its revenue surged 40% to $31.5 billion. That made for the company’s first quarterly profit in three years. GM - a company that took millions in taxpayer money to remain viable and came close to running out of money in 2008 - reported free cash flow of $1 billion.

GM in April repaid the balance of its $6.7 billion loan from the U.S. government, as well as smaller loans from Canadian authorities. The company aired several ads with GM Chief Executive Officer Ed Whitacre touting that achievement.

Whitacre claimed that his company repaid the government loans “in full” and “with interest five years ahead of the original schedule.” But what Whitacre didn’t mention in the ads is that the loans were paid back with money from another government kitty. The government extended $43 billion in bailout funds to GM in addition to the nearly $7 billion in loans the company claims to have repaid.

At this point, the U.S. taxpayer still owns a 61% stake in General Motors and a 56.3% stake in Ally Bank, formerly known as GMAC LLC.

GM won’t be able to pay off its debt until it launches an initial public stock offering - the timetable for which is still unclear. GM Chief Financial Officer Chris Liddell said the IPO could come later this year, but it’s just as likely to be pushed off into next year.

“The IPO will happen when the market’s ready and when the company is ready,” said Liddell. “It could happen by the end of this year, that’s a possibility. It could happen next year, that’s a possibility as well.”

GM’s first-quarter profit “is a good, useful step on the road to the IPO,” he said. “I’d like to think the first quarter demonstrates we’re making good progress. Now that we’ve achieved profitability, the next step is to achieve sustainable profitability.”

Sluggish sales in Europe will be one of the major roadblocks to that effort.

GM in the first quarter earned $1.2 billion before interest in North America compared to a $500 million loss in Europe, according to Liddell.

GM plans to cut 8,000 jobs at its European unit, Opel, and reduce its capacity by 20%. Continued restructuring costs at Opel will almost certainly lead to losses beyond the $506 million pretax first-quarter deficit.

Still, even if GM does turn its business around, the taxpayer is likely to remain on the hook for a substantial sum of money. The U.S. Treasury has $43 million tied up in the carmaker, which means GM would need to have a total value of about $80 billion after dilution for the government to break even, BusinessWeek reported. The old GM’s market capitalization peaked at about $53 billion in April 2000, according to Global Financial Data.

Fortunately, the loss on the government’s investment is now expected to be less than $8 billion, which is significantly less than the $30 billion projected in 2009.

Click here to continue reading this article on the Money Morning blog…

Why Euro is Falling Despite the EU/IMF Plan Wed, 19 May 2010 07:01:01 +0000 admin Today’s Daily Angle comes from Wikinvest Wire member Kathy Lien of and You can read the full article on her blog.

The big story in the financial markets is the mammoth EU/IMF rescue plan. A lot has been written about the plan on many sites including our own. Given that the plan which in many ways is just as significant as the will be the focus of the financial markets for weeks to come, it is important to have a good understanding of the details and their implications for the foreign exchange market. Over the past few weeks, uncertainty in the Eurozone has affected risk appetite in assets across the globe and even with the rescue plan developments in Europe will continue to dominate trading in the coming weeks. The price action in the forex market indicates that even though investors are relieved to see this major announcement from EU/IMF/ECB, they are not completely confident that it will be a game changer. The goal was to spread calm through the financial markets and if you look at the VIX which fell sharply or equities which rose significantly, you could say the goal was achieved, but if you look at the move in , you would be more skeptical.currenciesTARP

How much money is involved?

In U.S. dollar terms, the rescue package is worth approximately $1 trillion. In euro terms, the EU/IMF have agreed to a EUR750 billion plan that would involve up to EUR440 billion in loan guarantees, EUR60 billion in emergency funding from the European Union and EUR250 billion from the IMF. The ECB also started to buy government bonds but failed to provide any specifics. Although 27 different nations are involved in the bailout, most of the money will come from the 16 members of the Eurozone.

What was announced?

In a nutshell, the following was announcements were made:

  1. New EU Special Purpose Vehicle to distribute the new loans – this is where the big questions remain (see below)
  2. New Swap Lines with Fed, BoE, SNB and BoC to ease liquidity – in other words, the Fed will ease demand for dollars by reopening the spigot vis a vis other central banks.
  3. ECB Government Bond and Corporate Debt Purchases Undermines credibility of central bank

The EUR60 billion in emergency funding will be made available immediately but it could be sometime before the larger loan guarantee package is made available.

According to the ECB:

In view of the current exceptional circumstances prevailing in the market, the Governing Council decided:

  1. To conduct interventions in the euro area public and private debt securities markets (Securities Markets Programme) to ensure depth and liquidity in those market segments which are dysfunctional.
  2. To adopt a fixed-rate tender procedure with full allotment in the regular 3-month longer-term refinancing operations (LTROs) to be allotted on 26 May and on 30 June 2010.
  3. To conduct a 6-month LTRO with full allotment on 12 May 2010, at a rate which will be fixed at the average minimum bid rate of the main refinancing operations (MROs) over the life of this operation.
  4. To reactivate, in coordination with other central banks, the temporary liquidity swap lines with the Federal Reserve, and resume US dollar liquidity-providing operations at terms of 7 and 84 days. These operations will take the form of repurchase operations against ECB-eligible collateral and will be carried out as fixed rate tenders with full allotment. The first operation will be carried out on 11 May 2010.

What are the unanswered questions?

With Angela Merkel’s Party losing majority, it will take a few days if not a few weeks to get the rescue plan through the upper and lower houses of Parliament. We saw how long it took to get to get the Greek bailout plan approved and we can only imagine how long it will take for this plan to be passed.

  1. What will be the exact mechanics behind how the Special Purpose Vehicle that will provide the loan guarantees to member states? What are the rules and terms of contribution and aid?
  2. How long will it take before the SPV is approved by individual nations?
  3. Will Greece accept these terms? Will they amend it?
  4. Can all of the Eurozone countries afford to contribute to the plan and will the countries seeking aid be able to handle the tough conditions that may accompany the loans?
  5. The IMF supposedly has $268 billion left, where are they getting the rest of the money? Most likely U.S. taxpayers!
  6. What is the size and scope of the ECB’s bond purchases?

What are the implications for the EUR/USD?

Considering that the ECB’s decision to buy government and corporate bonds is akin to , it offsets some of the positive impact on the euro. The ECB has pledged to sterilize the intervention which would neutralize the monetary policy impact but complete sterilization may be more of a medium term goal than a near term one. Comments from ECB member Weber suggests that he may be one of the critics voting against government bond purchases as he warned of the significant risks. In the near term, the rescue plan will help to limit losses in the euro and we believe that last Thursday’s low of 1.2521 in the EUR/USD will become the currency pair’s near term bottom. However gains should be limited until some of the above questions are answered. Don’t forget, in early September 2008 when US Treasury Secretary Hank Paulson put the “bazooka” on the table by effectively nationalizing and hoping the markets would calm down but just days later Lehman collapsed and the entire financial system went into a tail-spin.FreddieFannieQuantitative Easing

Filling The Switch & Data Gap Tue, 18 May 2010 07:01:10 +0000 admin

Today’s Daily Angle comes from Wikinvest Wire member Rob Powell of You can read the full article on Rob’s blog.

For a sector that has been on fire for several years now, the colocation and data center space has had relatively few companies available for investment by the general public in the US marketplace. And with Switch and Data now part of the growing Equinix (EQIX) empire, there are suddenly fewer still. There are of course the two REITsDigital Realty Trust (DLR) and [[DuPont Fabros (DFT), and there are Terremark Worldwide (TMRK) and Savvis (SVVS), but nevertheless there has been a common perception amongst some that Equinix is the only big game in town. That era seems about to end as a group of dynamic companies are rapidly moving to restore depth to the field.

  • Coresites is apparently planning an IPO worth some $230M to which it will add senior debt and a credit facility to amass a warchest of $500M or more. The company will apparently be a REIT, in the vein of Digital Realty and Dupont Fabros and lists some 2M square feet of rentable space in its portfolio.
  • Telx made their S-1 filing in March, offering details on their own $100M plans after raising money for expansion last year as well.
  • European colocation specialist Interxion is also apparently taking the US IPO plunge. This one has been rumored for years, but apparently the time is finally ripe. The company generated $226M in revenue in 2009, which makes it somewhat larger than Switch and Data was.

I suspect there will be more as well. Amongst other private companies who are aggressively expanding in US markets are QTS, which bought that monster Qimonda facility in Richmond, and Telehouse which has been rather noisy as well over the past year. Are there others that we should be keeping an eye on?

Oh yes, there’s also Cincinnati Bell, which appears to be moving into position with its purchase of Cyrus One from ABRY. More?

You Say You Are a Market Maker? Great, Act Like One Mon, 17 May 2010 07:01:58 +0000 admin

Today’s Daily Angle comes from Wikinvest Wire member Yves Smith of Naked Capitalism. You can read the full article on

The drama of financial regulatory reform is, to a considerable degree, playing right into the industry’s hands.

I have several pet theories as to why this has happened. One is the fact that the drafting of new rules and the related horse-trading started before there had been any meaningful investigations, and more important, there did not seem to be much in the way of forensics in the offing. We had the FCIC, with a limited budget for this sort of exercise, tight timetable, and questionable structure, and SIGTARP, with real prosecutorial powers, but limited resources and a narrow mandate.

Attitudes shifted markedly with the disclosure of the Lehman bankruptcy report by Anton Valukas, and underwent a sea change with the SEC’s suit against Goldman over Abacus 2007 AC-1. But rather than use the sudden change in public perceptions (and perhaps more important, media coverage) to reopen the scope of regulation, Team Obama is hell bent to get Something Done well before mid-term election, presumably to appease “populist anger”.

We seem to be missing a key lesson of the Great Depression, and that is likely by design, given the power of the financial services lobby. The abuses brought to light by the Pecora Commission helped secure the passage of securities reforms. And perhaps as important, it made clear to the banking industry that far-reaching changes were to be implemented. The 1933 and 1934 securities acts reflect a sophisticated understanding of market operations, precisely because some insiders were involved in the drafting of legislation. They recognized they were either going to be on the bus, or under the bus, and chose accordingly.

By contrast, the industry has done a very good job in maintaining a united front against reform. One example: a colleague, who has written a few articles that have appeared on the Internet related to credit derivatives. He has been asked to do expert witness testimony, both for plaintiffs (meaning against the big dealer banks) and for a big bank. Even though his work has been pretty technical in nature and does not implicate the bank in question, the bank and its attorneys are very uncomfortable with the fact that he has exposed tradecraft, and have made it clear that they do not want him publishing at all if he is to work with them. It is one thing to ask an expert witness to review articles pre-publication to make sure they do not compromise a client; quite another to put a gag order on someone who has a long-standing publishing history. Similarly, I have run across others who clearly believe abuses occurred, yet are unwilling to break ranks (and I don’t mean outing themselves, simply talking to an investigator or reporter on an deep background basis).

So the result is that we’ve had proposals come in late in the game that are crowd-pleasing but either ineffective or ill thought out, and that works to the industry’s benefit (they can beat them back, and the existence of a flawed proposal that is taking up legislative and press bandwidth makes it harder for other, better conceived measures to move forward).

One example of the ineffective sort is the so-called Volcker rule, to require depositaries to exit the proprietary trading business. On paper, this is a good idea, but the initial Volcker definition was to distinguish trades executed with end customer versus those that were not, which is not a helpful distinction (bond king Salomon Brothers did a tremendous amount of speculation in its regular trading books, long before there were separate prop desks). Although the language is still in play, banking expert Josh Rosner has said, via e-mail, “the Volker rule has holes large enough to drive 4 Mack Trucks through, side by side.”

By contrast, Blanche Lincoln’s proposal, to force banks to get out of the derivatives business (and the climbdown, to have those businesses separately capitalized), is misguided. The problem here is she and the media have fallen for a master stroke by the industry, that of lumping in credit default swaps with “derivatives”. CDS are highly problematic; they have almost no legitimate uses and come with considerable costs (hugely bad incentives). Moreover, the plans underway will not tame them much. They cannot be margined adequately on a contract by contract basis (any sufficient provision for jump to default risk would render the contract uneconomic and kill the product, which is an unacceptable outcome, so it will continue to be inadequately margined). The best remedy would be to regulate it like insurance (which is what it is) but no one is willing to change directions now.

Plain vanilla swaps, like simple interest rate and foreign exchange swaps are not problematic and customer pricing is pretty transparent. And the banks themselves use these products in large volumes to hedge their own exposures. The flaw in the Lincoln plan is that any derivative business running on an independently financed balance sheet would be unlikely to be large enough to handle the hedging needs of the banks themselves.

Click here to continue reading this article on the Naked Capitalism blog…

Candor Counts Fri, 14 May 2010 07:01:51 +0000 admin

Today’s Daily Angle comes from Wikinvest Wire member Saj Karsan of You can read the full article on Saj’s blog.

When reading through the press releases that most companies issue to announce their quarterly financial results, one can get a pretty good idea of which companies are pleased with their earnings and which are not. Unfortunately, however, it often requires reading between, or in this case below, the lines.

When the earnings are positive, the company will usually lead with a statement listing its net income and describing how strong it is. When the earnings are negative, a whole slew of issues are likely to be discussed before the earnings number is deemed relevant.

Consider Nu Horizons (NUHC), a company we have previously discussed as a potential value investment. Two years ago, when earnings were positive, the company reported net income in the 3rd sentence of the press release, in a candid and matter-of-fact manner:

“Net income for the quarter was $1,155,000″

Fast forward to last week’s results where the negative earnings number is not reported until the 7th paragraph, getting trumped by such items as sequential sales results, supplier updates, an update with respect to the strategy for Asia(this is a company based in NY), workforce reductions subsequent to the quarter end, a statement amount debt reduction expectations, sales by geographic region, and a discussion of the company’s tax assets!

Managers of public corporations are just as human as the rest of us: nobody likes giving bad news. When management is not candid with its shareholders, however, it leaves a poor impression with investors. Here are Warren Buffett’s comments on candor:

“We will be candid in our reporting to you, emphasizing the pluses and minuses important in appraising business value. Our guideline is to tell you the business facts that we would want to know if our positions were reversed. We owe you no less. Moreover, as a company with a major communications business, it would be inexcusable for us to apply lesser standards of accuracy, balance and incisiveness when reporting on ourselves than we would expect our news people to apply when reporting on others. We also believe candor benefits us as managers: The CEO who misleads others in public may eventually mislead himself in private.”

This topic may be similar to one we’ve previously seen where managers blame externalities for negative surprises, and credit themselves when positive surprises occur.

Disclosure: Author has a long position in shares of NUHC

2009-2010 Gold Bubble Still Just a Baby Thu, 13 May 2010 07:01:32 +0000 admin

Today’s Daily Angle comes from Wikinvest Wire member Tim Iacono of You can read the full article on Tim’s blog.

Despite all the hoopla about a new all-time high in U.S. dollar terms, the 2009-2010 version of the recurring gold bubble is still quite modest by historical measure, a point that should be clear to see in the graphic below that was in dire need of updating.

Surely, the current move up would be much more impressive than the last two if the metal were priced in euros. It now seems to be only a matter of time before the important €1,000 an ounce milestone is reached – with spot gold now trading at €977 an ounce, it looks to be just a matter of just days, if not hours.