Archive for October, 2009

Financial Ramblings

By: ispeculatornew | Date posted: 10.31.2009 (11:41 am)

vixWow, spectacular week of action as we saw volatility not seen since about one year ago when the whole financial system was on the verge of collapse! Here are some of the best readings I enjoyed this week:)

EBay to begin a new advertising campaign @ WSJ
-You are not going to stay as a financial planner are you?
@ TheFinancialBlogger
Good analysis of the state of the S&P500 @ MyTradersJournal
Cost of a future university degree: 92,369$ @ CanadianCapitalist
A dozen or so ways to earn extra income @ GatherLittlebyLittle
9 more banks being seized! @ Reuters
5 reasons why RIM is a buy @ BuyMyStockPicks
80$ oil is not justified @ TheStreet
ING gets to make a profit @ Advantage US

A new way to protect against inflation? Who cares..?

By: ispeculatornew | Date posted: 10.30.2009 (5:00 am)

inflation2On this blog, as well as on many others, inflation has became an important topic of discussions fears of inflation become more mainstream, especially because of the massive expansion of monetary supplies that were injected by the Fed in the past year. Ironically of course, many argue that the biggest fear is deflation. Today was a good inflation reminder as Norway became the first European country to raise interest rates in an effort to fight inflation. The problem of course is that many think the US will not be able to do such a move because its economy is too fragile. This would create an inflation friendly environment.

inflationIn any case, it is no surprise to see that a new ETF has just been launched whose mission to provide a solid “real return”, 2-3% above inflation. Of course, while inflation sits at current levels, the expected return does sound very low. But in a scenario where inflation could rise to 10% or more, such an ETF would provide solid protection.

The new ETF’s ticker is CPI, a convenient name given the fact that the CPI (Consumer Price Index) is the most known statistic that indicates inflation. It measures the cost of life. It does so by holding a variety of assets such as short term bonds, commodities and some currencies.

inflation-70sThe idea can be good of course. But as I had said when I was discussing “Target Date Funds“, I don’t think it’s usually a good idea to buy “ETF’s of ETF’s“, because you do end up paying for an additional layer of fees while you could easily do it yourself. While I have never personally lived through a period of massive inflation, I doubt it is suitable for most investors to start allocating important portions of their portfolio to protect against inflation. It is not an overnight phenomenon and I would think that if it does become a problem, we will have time to reallocate our portfolios in consequence.

So no, I will not be buying any CPI, at least not as a long term investment. And given all of the fees involved, probably not as a short term investment either. It does have .48% of fees, but you must add to that the fees included in the underlying ETF’s, which could end up costing you close to 1% as constituents change… If you want to pay 1% of fees annually, buy a mutual fund:)

On a more serious note, having different type of assets (equities, commodities, and bonds) is a good idea to generate more solid inflation protection. While gold for example has generally been a good inflation hedge, it has not always been the case so the idea behind this ETF isn’t bad. But that is not enough to make me a buyer of CPI.

Do you plan on trying out this ETF? Don’t get me wrong, I love ETF’s, but I certainly do not think all ETF’s are good ideas, especially when considering each investor. I would much prefer slowly tilting my portfolio to become more “inflation resistant”

Valueclick (VCLK) beats estimates..through cost cutting

By: ispeculatornew | Date posted: 10.28.2009 (5:00 am)

vclkOne of the companies that we have been following in the tech space has been Valueclick (VCLK), which provides online advertising solutions through various forms. The company has been active for a long time and is one of the dot com bust survivors. The company had made some great moves as it had secured funding during those great years but while others wasted their funds, Valueclick hung out to the funds.

It later was able to use those funds to buy several high growth and high valued properties such as Fastclick and Linkshare. But still, Valueclick has not been able to generate organic growth and its technology seems to have fallen behind competitors such as Google and thus growth has stalled.

So it is no surprise to see Valueclick come in with negative growth in today’s earnings report. The actual profits turned out to be better than estimated at .29$ per share while estimates were for only .14$. However, revenue ended up declining almost 13%, even worse than IAC Interactive’s report. No doubt, the context is difficult for all media companies that depend on advertising. But the industry leaders have been able to hold their ground. Valueclick issued guidance of 128-138$ millions revenue for the next quarter which indicates there is a distinct possibility that revenue could go down again, even in the upcoming fourth quarter, the biggest quarter for online advertisers with the black Friday as well as the holidays. This should be seen as a negative for the company.

The company discussed how it viewed overseas markets as an opportunity for growth and that may very well be but since they do admit that 85% of their revenues come from the US market, it would be surprising to see the company be able to turn it around on those markets alone.

To see Valueclick actually beat earnings thanks to cost cutting is actually a perfect opportunity to possibly go short on this stock. I guess it will depend how others judge this performance in how the stock performs in the next few days. From what I can see, even the revenue results are over estimates which could indicate a nice rise in the stock tomorrow.

The one thing I am always worried about when thinking about shorting Valueclick is the fact that it does remain an interesting acquisition target, especially at these low prices. Its technology is not as impressive as it was with competition catching up and more, but there is still a lot of value remaining in the company that could make it a potential target.

Quick trade news

By: ispeculatornew | Date posted: 10.27.2009 (3:52 pm)

The Microsoft (MSFT) -Baidu (BDIU) trade that was initiated yesterday has already proved profitable as the earnings from Baidu came in much lower than anticipated which resulted in a loss of over 12% in today’s trading alone. Add to that the decent performance of Microsoft and I am already happy to report that it is time to close out this trade, as it currently stands at +20,37%. I will do so tomorrow morning and report prices as well as the final performance on the trade.

bidu1

Another good earnings report came out for me as IAC Interactive (which I am short against Google) released earnings that did beat estimates in terms of earnings but also had a 9% decline in revenue, another clear sign that the company is not doing too well. Cutting costs will only get you so far, especially in the tech area. This is also good news because so many estimates focus on earnings that it might provide more opportunities.

iaci2

Other trades have not moved much since Sunday’s report….!

Long Microsoft(MSFT) – Short Baidu(BIDU)

By: ispeculatornew | Date posted: 10.26.2009 (5:00 am)

While I am long Baidu in my 4 picks for 2009 and still ok being so (cannot change those picks anyway), the valuation for Baidu is becomming very extreme with the stock up over 300% so far this year. It now trades at 435$, at 86 times earnings!! Because of that, I feel like it is a good time to go short on Baidu going against Microsoft. The company started by Bill Gates is gaining momentum with Bing and even seems to have Google on a defensive position, something we have not seen in a long time.

For those who had not read, we had a series of article about Microsoft:

Part #1
Part #2
Part #3
Part #4
Part #5
Part #6

Bing is still slowly but surely gaining market share:

Last week’s announcement of a deal between Bing and Twitter generated some panic at Google headquarters and the piles of cash that Microsoft is throwing at search is starting to show results.  Baidu off course is another reason why Google executives are getting frustrated as they continue to show very strong results in China.

msft

bidu

Financial Ramblings

By: ispeculatornew | Date posted: 10.24.2009 (5:00 am)

oil_pricesGood morning everyone! It was an interesting week in the markets with volatility picking back up, markets ending the week with 2 drops and oil back at 80$… bring back some memories? There continues to be a fairly large group that believes we are headed back for a major stock market drop..I’m not part of that group but the next week should be very interesting. In the meantime, here are some of the more interesting readings I enjoyed this week:

-TFB discusses the pros and cons of locking a fixed rate on your mortage. I don’t necessarily agree with the conclusion but it’s worth reading, you can give your thoughts.
-MDJ discusses why most financial planners do not plan finances!
-MTJ is selling some EEM puts, should make for an interesting trade:)
-Wondering how a good credit score can help you save money? No Longer:)
-Is oil being back up at 80$ a signal of upcoming inflation?
Should you take that call even without knowing who is calling?
5 ways to make sure you do not lose everything to the next Bernid Madoff
Is Calpers too big too fail??

You might also want to check out this Carnival:

Carnival of Pecuniary Delights #29 Money and Songs Edition
Carnival of Money Stories
Festival of frugality

Current Positions commentary

By: ispeculatornew | Date posted: 10.23.2009 (4:00 pm)

A few weeks ago, I had made 3 picks for the 4th quarter of 2009 so I thought it might be a good idea to take a quick look at how the positions have been doing since they were put in place.

Basically, the average of the 3 trades made that week is up 1,20%, which is not bad.

Here are the returns so far:

Long AAPL-Short INTC:     +7.19%
Both companies have announced good earnings but there is still a lot of momentum on this trade and I am hoping the launch of the Ereader will be enough to push this trade past 20%!

aapl1

intc1

Long CTRP-Short EXPE: -13.22%

I have been a bit surprised by the underperformance of this trade given that this is a valuation trade, I still believe in this position am hoping it does not breach -20%…!

ctrp1

expe1

Long GOOG-Short IACI: +9.64%

This trade lost a few feathers but it is still up almost 10%. Google has been a bit on the defensive this week regarding its competition with Bing but remains as strong as ever while IACI remains unable to do much to impress

goog1

iaci1

Investors making the same mistakes over and over…

By: ispeculatornew | Date posted: 10.23.2009 (5:30 am)

jmHave you heard of John Meriwether? He was front in center in the famous collapse of Long Term Capital Management, the biggest ever hedge fund collapse losing $4.6 billion in less than 4 months because of the collapse of the Russian government bonds.
Then, just a few months ago, he was forced to close his second hedge fund after it lost 44% of its value during the recent financial crisis. You would think that would be it right? Who in their right mind would still be giving this guy their money to manage after two famous failures. It’s not like it’s not eeasy to find this information.
And yet, here we go again. John is launching a new venture, “JM Advisors management”, it will be accepting new investors in 2010. Not convinced? It will apparently be using the same relative value strategies that were used in the two previous hedge funds. The strategy tends to deliver big returns in calm and more predictable periods as it profits from mispricings between similar assets.
The problem of course is that it seems to not have much protection when markets start acting in more irrational ways. And of course to boost its returns, it uses a lot of leverage. LTCM used leverage close to 25 times its capital while his latest venture was closer to 10.
We do not yet know how to proceed to invest in the fund but will be sure to give you indications as information becomes available…. Seriously, who is crazy enough to invest their money in such managers who appear to underestimate downside risk time after time after time. And this is not a one time problem. Brian Hunter, who had a very spectacular collapse while working at Amaranth is still working in the hedge fund industry and also did not have any problems getting back in the market, with investors more than willing to give up their funds… are there not enough good managers???
Truth is, I do not have a clear answer but here are the possible reasons that I could imagine:

1-These guys did have some good returns: in fact good is probably an understatement. LTCM had achieved very impressive returns in its earlier years and had certainly showed that the strategy could work “under the right circumstances”.

2-No doubt that such smart individuals are probably to convince everyone (including themselves) that they learned from their mistakes and would be able to avoid the collapse or large loss the next time around

3- Truth is, many of these managers are so well connected that they have “believers” who will invest under almost any circumstance.

4-Finally, I think many investors know that these are home run hitters that will either get a huge return or strike out. Even the thought of missing out on some incredible returns is often enough to convince some to put up a chunk of money.

What are your thoughts? Could you imagine yourself investing in a very smart and impressive fund manager who has unfortunately suffered a couple of major losses?

The flaws of fixed income ETF’s

By: ispeculatornew | Date posted: 10.21.2009 (5:00 am)

bondsIt is no secret by now, I am a fan of ETF’s (especially when compared with mutual funds) and I have discussed in the past how fixed income ETF’s have been receiving very important flows in the past year or so. You will not be surprised to hear that I am one of those new investors. But ETF’s are not perfect, especially fixed income ones. There has been increasing attention towards the different problems that can be found in fixed income ETF’s in articles by the mainstream media.

The main problem I would say is that most fixed income ETF’s invest in a very large amount of bond issues. This is logical of course because it avoids too much concentration in a single name/issue. Unfortunately, this does create problems. One of the main advantages of ETF’s is the liquidity offered in most cases. This liquidity comes from the fact that at any point, an investor can sell the underlying securities and buy the ETF if ever the pricing of the ETF is incorrect. The opposite is also done of course. However, this “arbitrage” is rarely if ever done on fixed income ETF’s because the costs are too important for a hedger to be able to do this trade. Since bonds do not trade on a market, buying or selling every issue that the ETF owns can become quite an adventure. Because of that, fixed income ETF pricing is more “imperfect”.

Another main critic is that ETF’s usually track indexes. For equity ETF’s, they usually track the main indexes or specific countries or sectors.  For bond ETF’s, it is more abstract. There are of course many different bond benchmarks. But tracking them is more of an imperfect science. These benchmarks often have issues that are almost impossible to trade, especially in the quantities required for the ETF. So these funds are left with a choice of how to correctly track the benchmark without having the exact components. There are many ways to do this but they are all imperfect. So fixed income ETF’s do suffer from more tracking error. It can be positive or negative but it is a problem for most investors.

And finally, there is less transparency for fixed income ETF investors. They can get a list of every bond owned by the ETF but they will not know which bond is being sold, bought and why. This can make a major impact and it is a phenomenon that is not much of a problem in equity ETF’s.

Do fixed income ETF’s have many significant flaws? Absolutely. But I think it is critical for investors to think about the alternatives. If they want to avoid the ETF, they can either buy bond issues themselves or purchase mutual funds. Of course, I would never recommend getting a mutual fund. And the next time you buy a bond, take a close look at your purchase price. Spreads are very high and since the market is illiquid and non transparent, investors, especially smaller ones are often taken advantage of. For these reasons, you can still count me in as a fixed income ETF investor

Billion in earnings for Tiger Woods

By: ispeculatornew | Date posted: 10.19.2009 (5:00 am)

tiger-woods3Tiger Woods is without a doubt the most famous athlete of a generation, if not of all times. Again and again, Tiger has proved how marketable he is and for that exact reason, an almost endless list of corporations are lined up to associate their name with the pro golfer. And thanks to that, he can command very very high prices from his sponsors.

Woods, now 33 years old, has now reached the billion dollars fortune according to Forbes magazine, becomming the first pro athlete to ever reach such an achievement. This came in a year where he made over $100 million in sponsorships which is now the average he is expected to receive. Even such stars as Michael Jordan as well Formula 1 driver Michael Schumacher never went beyond $70M in a year.

It is not quite clear what Tiger is doing with all of his money. He does have a foundation but he has been fairly secretive about what kind of investments he is making.  And at 33, it seems like there is almost no limit to what Tiger will be able to achieve in his career both on the golf course and in terms of earnings. He does hang out with other superstars such as Roger Federer but up until now, Tiger has been in a league of his own in terms of earnings. If even an athlete like Roger Federer, deemed the best of all time in his sport, is unable to even come close to Tiger’s achivements, it is difficult to imagine what kind of athlete would have the best shot.

Do you think other athletes will one day be able to surpass Tiger’s current records? Of course, with time, athletes have been getting better and better numbers but it is difficult to imagine an athlete that would be able to be big enough to generate as much interest from the corporate world.

You can see a nice slideshow that gives a breakdown of Tiger’s earnings here.