Archive for December, 2008

4 winners for 2009

By: ispeculatornew | Date posted: 12.31.2008 (4:38 pm)

Happy new year to everyone.

This first post of 2009 will be a bit longer than usual posts as I entered a friendly competition with a few other bloggers. The rules are very simple. Pick 4 stocks and the winner will have the best return on those 4 picks for the 2009 year. It should be very interesting as things could change a whole lot over the course of a complete year. I will describe my 4 picks along with a few of the reasons behind them. I will then link to picks by my fellow bloggers:

I hesitated between picking only ETF’s or only specific companies and finally decided to pick 2 of each, so here we go:

#1-GLD: There is a lot of speculation about the direction of Gold in 2009 and I see this as a play on a few fundamentals of the economy. First off, I can only see the US dollar going down in 2008 and that would be bullish for gold in my opinion. As well, with both Euros and US Dollars now looking very expensive, there is a good possibility that investors will turn to gold. GLD is a very solid ETF, has no problems with liquidity and I see good possibilities for this investment if the economy rebounds but also even if the economy has a relapse.

#2-USO: This pick might have a tougher time at the start of 2009 but I cannot imagine having oil at 35-40$ at year’s end, it will just put too much pressure on supplies. Sure, demand has decreased recently with the global economic slowdown. But the world GDP is still positive and there is still very much an increase in demand in the world. There is supply in many other areas of the world outside of OPEC but the problem is that they cannot sustain producing oil at such low prices. Therefore, I foresee that eventually oil prices will increase in order to be able to pick up the production and account for the increased demand. I was tempted in picking a solar energy ETF here because it is somewhat of a similar play as they are so correlated. Solar energy also benefits from huge push in renewable energy from the US and foreign governments. However, there is still a lot of unknowns about the market and its profitability so I decided to stick with USO.

#3-BIDU: This stock got slammed big time in recent months when news came out about the search engine being paid to display ads for illegal pharmeutical ads. They got hit very severely but as I had said back then, Baidu operates in China, things are a bit different and the offence, while serious, is not as serious as it would have been had it occurred for a US company. Their earnings are still strong, they still have solid growth and are undervalued in my opinion.

#4-EBAY: Ebay has been also under a lot of pressure as news of declining traffic and trouble ahead has overshadowed growth in other segments. I do believe that Ebay will have a good year although it might be under more pressure in the next 2-3 months.

So there you have it, my picks for 2009. On a quarterly basis, I will be writing about the performance of these 4 as well as the performance by the picks by my fellow bloggers. Here are links to other picks, please note that some of them are not yet published so you might need to click a bit later on:)

MyTradersjournal 2009 picks

Where does all my money go 2009 picks

Dividendgrowthinvestor 2009 picks

Four Pillars 2009 Picks

Zach stocks 2009 picks

The Wild Investor 2009 picks

TheFinancialBlogger 2009 picks

Million Dollar Journey 2009 picks

Is owning a sports team an investment or a hobby?

By: ispeculatornew | Date posted: 12.31.2008 (4:00 am)

I’ll just give you my opinion as I don’t think there is a black or white answer to this question, but what got me thinking is the recent decision by Honda to let go of its much praised Formula racing team.

It was purchased by the world’s second richest man, Carlos Slim. On the surface, this is what it looks like to me. Owning a sports team is a lot more a hobby than anything else. Honda has said it would save over $300 millions. Now sure, winning had the potential of perhaps brand enhancement and maybe indirect sales but $300 millions? Was it perhaps nothing more than a little toy?

How about baseball teams like the New York Yankees or the Montreal Canadiens? In good years, they are able to bring in a profit of course. But they also have tougher times and it seems difficult to imagine that the reason they are in the business is to make money. Pro teams often are more about the passion of a specific owner than anything else. Does it just so happen that once an owner makes so much money in a business, he is ready to enter a business for the simple reason of having an extra adrenaline knowing that his team is playing for the highest awards possible?

Some of the most famous teams are currently for sale as their owners struggle with the finances. The Chicago Cubs, perhaps one of the 5 most famous sports teams has been for sale for a few months now but has not received any serious offers. If it was a wise business decision, you’d think that even in the current environment there would be some good offers.

Of course, there have been some great stories as well. The NY Yankees for example were purchased by George Steinbrenner for $10 millions in 1973 but are now worth $1 billion according to Forbes magazine, a brilliant investment no matter by what measure.

What is your opinion about all of this?

Investment Talking

By: ispeculatornew | Date posted: 12.27.2008 (8:05 am)

I didn’t read much article this week due to numerous Christmas paties. I will also be hosting the Festival of Stock next Monday. You still have today and tomorrow to submit your best investing post 😉

I’ll leave you with some great carnivals:

Carnivals:

Festival of Stocks

Carnival of Investing

Money Hacks Carnival

Did you say bonus?

By: ispeculatornew | Date posted: 12.24.2008 (4:00 am)

Wow, talk about different times. Only a few months ago, employees in the financial world and elsewhere were mostly planning what would happen to their 2008 bonus. When they were created, bonus and other incentives were created in order to benefit shareholders. How? Simply by creating extra motivation for employees to generate more profit which would in the end get extra return for the shareholders.

But somewhere along the way, things got lost, especially in such sectors as financials. In some ways, it became less about the performance and more about simply doing the job. And it also became more of an added salary than about anything related to performance. At some point, a bonus became something related to the number of years of experience and something that employees expected and even included in their budget.

That drew things way further than anyone could have imagined giving managers no reason to use caution in their decisions and no reason really to look into the interests of the shareholders. The problem was that it became such an exageration that the system eventually collapsed with banks and other firms taking on too much risk to be able to sustain any downturn of their assets. Say what you want about the actual crisis, about how it is unique and was unpredictable. But you would the best firms in the business to be able to sustain such a crisis, no matter how unique it was. Were the bonuses the cause of it all? No, they certainly were not. But looking into them gives you a good idea of the unique culture that existed on Wall Street and in many other sectors.

A bonus should be given according to performance of course. But it should also be given with the interest of shareholders in mind. Credit Suisse had a creative way of getting it done as it has decided to pay the bonus this year by giving out portions of the illiquid assets to its employees, using about $5 billions to do so. In order to profit from them, employees will have to remain there for a long time and this will also help Credit Suisse in its task of deleveraging. Seems like a win-win right? I think it’s creative and certainly an interesting way to get it done.

Other companies such as Google are getting smashed for lowering their bonus. Sure, employees went from getting about 1000$ on average (although other reports say some employees received up to 20-30K) to getting a mobile phone this year. But with the stock going down so much, isn’t it normal that shareholders AND employees share the downfall? I just think a bonus should be a reward for performance, of the employee and of the company, not something to take for granted as was too often the case in recent years…

Time to get into oil??

By: ispeculatornew | Date posted: 12.22.2008 (4:00 am)

Oil, the much discussed and much hyped resource has been getting absolutely hammered in recent months as fears of the global recession have been getting louder and louder. Oil is now down to levels not seen in a long time that are having important geopolitical impacts around the world as oil rich nations that got used to the very important revenues from oil are now seeing those almost come down to a stop.

In fact, apart from a few oil rich nations such as Saudia Arabia, many other oil projects are not even reaching the breakeven point. The most obvious point is the sands in Canada that require oil above 50$ on average just to break even. Basically, the fact is that even without the OPEC cuts that were announced this week for oil, a lot of other production costs are being announced around the world.

Can Oil still go down? Absolutely! Many of the analysts that there were predicting 200$ oil earlier this year now have forecasts of 25$! And you could maybe wait for that point to jump in and go long oil (there are many ways to play it, here is a good article about ways to do so) but I would argue that this might be a good time to get involved. I don’t think I’d jump right in Monday morning, simply because there is so much momentum right now for oil to continue its slide. But I would stand ready to make a play as I don’t think we will have oil sitting at 30-35$ in 2-3 years.

So yes, this would be a long term play and I would pre-determine an exit point because remember how you will see oil at 200$ as soon as it reaches 50$…don’t get fooled, determine your trade right now and show discipline. Or maybe event setting a time limit, such as getting into a trade and deciding to get out of the trade one year from now or maybe a little more (at least wait until the world recovery is within sight and starts to be reflected in the markets).

I say this because oil might go a little down from your entry point, and you must not panic, let’s not fool ourselves, oil is NOT going to 0$:)

Investment Talking

By: ispeculatornew | Date posted: 12.20.2008 (6:00 am)

Every Saturday, The Intelligent Speculator does a review of good read around the blogosphere. Here’s what caught my attention this week:

The Simple Dollar made a review of The Intelligent Investor.

ABC of investing explains the difference between index funds and ETF’s.

I’m Betting On Oil posted at Stock Tips

Risk Aversion and Solutions posted at HarvestingDollars

Dividend Investing vs. S&P Index Fund posted at Dividends 4 Life

DIY Investing Q&A: posted at Triaging My Way To Financial Success

Bear Market Mutual Funds posted at Mutual Fund Investing Tips

Traits Of A Good Investor | The Stock Investor – Stock Advice And Tips posted at The Stock Investor

How I Use Put Options posted at My Wealth Builder.

Carnivals:

Festival of Stocks

Carnival of Investing

Nov09: Hedge Funds report

By: ispeculatornew | Date posted: 12.19.2008 (4:00 am)

The numbers are out for the performance of Hedge Funds for the month of November according to Credit Suisse/Tremont Hedge fund index. The main headline is a global performance of -4,15% for hedge funds which brings it to -19,04% YTD, a bad performance yes, but still much better than equity indexes (major global indexes are down 46% on average in 2008)

In November, only 3 type of hedge funds actually were able to come out with a profit. Of course, the “Short Bias” funds did well, generating a 3,04% return, not very surprising given the market movements. Then managed futures also performed well getting a 3,22% return, the highest in November. The final winner of the month was the global macro category, up 1,54%.

On the bottom, we can find fixed income arbitrage at -5,60% and a crazy return of -40,45% for equity market neutral, which sounds insane and is difficult to understand really! Apparently, 3 of the funds in the index were invested in the Madoff fraud and have thus recorded returns of -100% for the month… talk about a tough time for those investors.

While many funds are being hit with redemptions, one of the few categories doing a lot better is global macro funds. “If you look at the performance of hedge funds, global macro guys have shown the best performance. Certainly, wealthy people have taken notice,” said Quincy Krosby, chief investment strategist for Hartford Financial Services Group Inc. Many reasons are behind it but one of those is certainly that while it is unclear what is happening to single markets or single securities, trading on a global view is a lot clearer to many funds. Another important reason is that these funds are generally very liquid. They will usually be trading only the most liquid products in each asset class which has been a huge advantage this year as many illiquid funds have had a lot of problems dealing with redemptions from investors that created even more downward pressure on the fund’s returns.

These funds have seen many extremes depending on a correct or incorrect view of the economy but a lot of what has happened was anticipated by those who predicted either a recession or even a depression. Strategies of short commodities, long US dollar, long government bonds have been good examples of great sources of returns for these funds. And one of the more recent ones seems to be short GBP! Of course, the challenge for these funds will be timing their re-alignment in the anticipation of an economic return. It should make for a very interesting year in 2009 for investors and managers of these funds!

Internet stocks play (Blue Nile vs Priceline)

By: ispeculatornew | Date posted: 12.17.2008 (4:00 am)


In the current environment, even a tech stock can be very different from one to another. An interesting way to look at things is through Priceline.com(PCLN) and Blue Nile.com (NILE). You might have heard of both but in case I will give you a brief description.

Priceline.com is a travel comparison website that offers the possibility of getting very cheap deals on a variety of travel needs, mainly hotels and plane tickets but even cars, cruises, vacations. Their main objective, above anything else is to beat prices by any competitor. They do have some competition by search engines such as Kayak.com but have generally been able to live up to their promise of providing the cheapest holiday.

Blue Nile is a company that has perhaps had even more of an impact in its industry. It is a rather high end jeweler that is completely online. Its impact has been even more dramatic than for example the impact of Dell on the pc industry. That is because gross margins in the industry are very important to cover for all the costs of stores, employees, etc, etc. Blue Nile has thus been able to get higher margins than competitors while giving their customers much better pricing.

The contrast is very interesting of course in that Priceline is perfectly suited for visitors that are looking to save on their vacations while Blue Nile is targeting those who are looking at making an expensive gift or perhaps even securing the woman of their dreams by buying an engagement ring. And while a diamond is forever and love for life does not have a price, the diamond you buy does have one.

And in this environment of uncertainty and tough economic conditions, you would think that there might be a lot more of growth in the company that is helping its clients save money. It is not a random fact that Walmart (WMT) has been one of the best performing companies in this tough environement and you would think that Priceline could profit as well. Sure, not as many people are going on vacations, but I still think that over the short to medium term, Priceline will have a much better growth story than Blue Nile.

So it was a big surprise for me to see that Blue Nile is actually trading at a higher P/E ratio (27) than Priceline (17). In the past year, the story has been a complete opposite as Blue Nile has seen both its sales and profit fall by close to 50% while Priceline has enjoyed a 50% increase in revenues and almost 100% in Gross profits.

I would thus argue that I would go long Priceline(PCLN) vs short Blue Nile(NILE) but only for a few months until the valuations make more sense or until their P/E ratios move closer to each other.

Are US automakers doomed?

By: ispeculatornew | Date posted: 12.15.2008 (4:00 am)

This subject has been discussed over and over and there are certainly many different ways to view the issue. A little look back. US automakers of course had a huge amount of time to establish a big lead as they experienced the invention of the modern car and were for a long time the only producers in the most important market, the US.

Fast forward a few decades, and the US automakers started to get competition from Japanese automakers. Toyota and others had at first a big advantage in the way that they produced cars, they simply had a superior producing system and that helped the Japanese cars gets a US market share but not big enough for the US automakers to have financial problems.

As time went by and pollution effects became more known as well as with the increasing costs of gas, suddenly the cars made by American companies were not only more expensive but did not represent what the US consumers were looking for putting the GM and Ford’s of this world in double trouble.

Finally, a deep recession like the one we are currently living through was the final knock that has now caused the current problems.

Ford, GM and Chrysler (now owned by private equity group Cerberus) have now gone to the US government asking for a bailout of their own. They were hoping to get the money as easily as the financials had received it but that did not happen and they are now getting grilled as they try to defend their requests.

I have to say that I think it’s very justified for the government to ask tough questions in this case. Sure, a failing of these companies would have very devastating impact on the US economy but the problem is that giving money to companies who are not competitive because of both their costs and their products seems like just extending what seems to be inevitable, the bankruptcy of one or two of these companies. And so they have been asked to come up with specific plans to diminish their costs (including union concessions on pay) as well as plans as to how they will change to become more competitive.

One of the major problems of course if they do not get a bailout is that over half of US consumers have said they would not buy a car from a company under bankruptcy and so even the fear of that happening that currently exists is creating an environement even worse than other carmakers and when you see that even mighty Toyota is struggling, it is easy to imagine how tough it must currently be to make a few sales.

Last week, the congress voted and declined to grant the much needed bailout mostly on fears that the voters did not want it to get through. They did ask the unions to make important concessions which the unions did not accept… Now the President himself will need to get involved in seeing this bailout through.

Should they get the money? Absolutely, but only once they can provide a detailed plan on how they will become competitive, and not until that happens. If for some reason (such as unions) that is not possible, then no, I would not give the money to a company that will be asking for more a few months from now…

Investment Talking

By: ispeculatornew | Date posted: 12.13.2008 (6:00 am)

Every Saturday, The Intelligent Speculator does a review of good read around the blogosphere. Here’s what caught my attention this week:

Dividends4Life tells us about 5 Dividend Stocks to Watch.

Investing School presents Investing With Leverage (or Margin).

Constellation Energy Shares Will Pop on New EDF Offer posted at Fat Pitch Financials

Dividend Capture Strategy – The illusion of getting something for nothing posted at Dividend Growth Investor

Is This the Opportunity of a Lifetime? posted at The Personal Financier

Silicon Valley Blogger presents Worst Economic Crisis Since The Great Depression: Who’s To Blame?

You can get 10% interest on Bank in India posted at Where Does All My Money Go?

Carnivals:

Festival of Stocks

Carnival of Investing

Carnival of Personal Finance

Money Hacks Carnival