Sunday, September 30, 2012

Choosing Best Products To Sell From Clickbank

When you find yourself to be an affiliate of Clickbank, you virtually are confused. Clickbank gives 10,000 merchandise that you may choose from to sell online, each of which normally provides a pretty good commission. The problem is learn how to go about selecting just the best merchandise to sell. You don’t have to fret the merchants as under the Clickbank system, you’ll be able to choose a product and immediately start promoting it and Clickbank handles all the commissions with the merchant totally.

The first and probably best way to “cut out from the herd” products that will work for you as a Clickbank affiliate is category. Clickbank has it’s merchants assign specific categories to all of the products that are in the marketplace. That way if you only want to sell adventure games, you can find that category of product and then get more specific about the particular products that appeal to you. There are two reasons category will be a big measure of your success selling Clickbank products.

One is that you know your niche market. You’ll take these merchandise to clients you know well. You know their tastes they usually come to you to get products to suit their specific pursuits and the realm of specialised knowledge that you share with your buyer base. The second cause is that you know what you wish to sell and what you are good at selling.

You might be trying to sell self help courses in auto repair but be really good at selling ebooks about business. And the more you can combine the products you are going to sell with your particular market and your skills and interests, the better chance you are going to sell a lot of units and make yourself and the Clickbank merchant wealthy. That way everybody wins.

Popularity shouldn not be the one variable that may point you towards Clickbank merchandise that may convey a good return in your effort to promote them from Clickbank. Be aware the commission level. As a rule solely pick up merchandise that provide a 25% or higher commission. That means the merchant wants to share the wealth with and you will see a very healthy profit from the gross sales you make. Different variable limits needs to be that the product ought to have a wholesale price of at the very least thirteen dollars or higher, a 70% or better commission rate, low return numbers and a gravity of 50 or higher. By doing an analysis that mixes all of those variables in regards to the product, you could have better likelihood of selecting winners and cash makers from the Clickbank product library every time.

Looking to find the best deal on clickbank, then visit to find the best advice on clickbank affiliate for you.

Motorola Q2 Revs, EPS Top Estimates; Sells 2.7M Smart Phones

Motorola (MOT) this morning reported slightly better-than-expected second quarter results.

For the quarter, the company posted revenue of $5.4 billion and non-GAAP profits of 9 cents a share, edging past the Street consensus at $5.2 billion and 8 cents. The company said its Mobile Devices unit sold 8.3 million handsets overall in the quarter, including 2.7 million smart phones.That compares to Q1 sales of 8.5 million handsets, with 2.3 million smart phones, and Q4 sales of 12 million handsets, with 2 million smart phones.

The mobile business had revenue for the quarter of $1.7 billion, down 6% from a year ago, with a non-GAAP operating loss of $109 million, versus a $239 million loss a year earlier.

For Q3, the company sees non-GAAP profits of 10-12 cents a share; the Street has been forecasting 10 cents.

In early trading, MOT is off 6 cents, to $7.62.

FOREX-Euro jumps on Greece hopes outweigh ECB rate cut – Reuters

Gainpips.comFOREX-Euro jumps on Greece hopes outweigh ECB rate cut
"The euro has been bouncing around like a yo-yo today," said Brian Dolan, chief currency strategist at in Bedminster, New Jersey. "People had been short based on the ECB rate cut and warnings of economic weakness, but those shorts are being …
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{forex} – Forex News

Intel vs. ARM: The Battle of 2012

The following video is part of our nationally syndicated Motley Fool Money radio show, with host Chris Hill talking with Seth Jayson, James Early, and Ron Gross about what investors should expect in 2012. In this segment the guys discuss why the battle between chipmakers Intel and ARM Holdings will be one to watch in the year ahead.

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Look for more tech stocks to consider for your portfolio? Apple is just one company in the next generation of multibillion-dollar companies riding the mobile revolution to a record profits. The Motley Fool has a new free report on mobile named "The Next Trillion Dollar Revolution" that details a "hidden" component play inside mobile phones that also is a market leader in the exploding Chinese market. Inside the report we not only describe why the mobile revolution will dwarf any other technology revolution seen before it, but we also name the company at the forefront of the trend. You can access this just-released report by clicking here -- it's free.

U.S. HOT STOCK ALERT : Could eTotalSource (OTC:ETLS.PK) be the next Reverse merger candidate?

Thursday�s trading session was remarkable for ETotalSource, Inc. (OTC:ETLS.PK) after some information leaked about the company being a possible reverse merger candidate. Given the recent accumulation by insiders that account for 34% of the companies authorized share structure and rumors about continued accumulation, ETotalSource, Inc. could be having something under its sleeve. The question most investors� are asking is what is in the works for the company. With the companies CFO having experience in mergers and acquisition, this company could be preparing for a massive launch that would catch sideline investors off guard, giving them very little time to get their stake in the company.
Thursday�s trading session proved that the market makers have been short selling the companies stock and had a few shares if any to sell to investors impatiently putting in their bids. Monday�s trading session will be interesting when the stock opens with a gap up and new investors rush in to get their shares. Analysts predict a rally on Monday�s trading session for ETotalSource, Inc. (OTC:ETLS.PK) that will continue through the week forcing market makers into a short squeeze.

Aircastle’s Strength Behind the Headlines

AYR)" hspace="6" vspace="6" width="200" height="56" />When Aircastle Ltd. (AYR) reported earnings earlier in the month, the headline numbers didn’t look all that impressive. The company reported revenue of $135.8 million which was $22 million below the fourth quarter of 2008, and earnings per share came in at $0.29 (adjusted 0.27) which is significantly below the level of earnings from the same period last year. However, the details regarding the company’s overall business environment were actually quite encouraging.

Aircastle is an aircraft leasing company which purchases passenger or freight planes and then leases them under long-term contracts to airlines and freight companies. AYR has taken a very diversified international approach with its fleet of 129 aircraft spread out between 60 different customers in 30 different countries. The focus appears to be passenger planes with only 29% of the vehicles being used for freight. Looking at the length of contracts, the weight average remaining lease term is 4.9 years. This gives investors a fairly stable picture of base revenues for upcoming quarters.

Since owning aircraft can be a very capital intensive business, AYR has a significant debt load of roughly $2.5 billion. With access to capital curtailed over the last two years, you might think that the company would have struggled to meet its obligations. However, management has done an incredible job getting the company through the crisis and the Aircastle which has emerged is much stronger than many would have expected if they had foreseen the coming economic struggle.

Near the peak of the market, management had the wisdom to pursue a conservative growth strategy, deciding not to purchase additional aircraft at excessive prices when the economic fundamentals appeared to be peaking. This allowed the company to continue through the crisis with a stable balance sheet and positive earnings. While management did decrease the dividend to maintain a healthy cash balance, investors likely understand and appreciate this move which was likely instrumental in causing the stock price to rebound sharply from the March 2009 lows.

Since the economy has begun to turn, AYR has been able to order and take delivery of new and used aircraft at extremely attractive pricing which should lead to healthy growth in upcoming years. In the fourth quarter, the company found homes for 11 of 12 new Airbus A330s which it will take delivery of in the coming quarters. Six of these planes will be leased to South African Airways beginning in 2011 in what management calls “further evidence in the recovery of aircraft leasing.”

Fundamentally, AYR appears to be trading at a very attractive price. The company is expected to earn $1.12 this year and $1.14 in 2011. These numbers are likely conservative as AYR has a stable base of customers but could very easily pick up additional aircraft and put them to work in the lease pool which could immediately add to earnings. With a current stock price of $9.73, investors are paying just 8.5 times forward earnings which is quite conservative considering the long-term nature of the firms leases. On top of that, investors are being paid 4% annually through the dividend and it would not surprise me to see management increase that dividend now that cash balances are increasing and the global economy is considered to be more stable.

The stock is listed at 0.7 times book value which means that if the company sold all of its assets and repaid its obligations, investors would immediately realize a near 50% return. The discount is likely due to questions about the book value of the aircraft. In today’s weak economy, it would be difficult to sell all of the aircraft for a reasonable price – and instead investors are looking at the high debt levels. But as long as the company is able to maintain payments on the debt and has healthy productive assets to back up any needed refinancing, the picture should remain rosy.

Aircastle might not double in the next six months, but the value of the income producing assets on the balance sheet along with the potential for upcoming growth should support the stock and lead to reasonable growth. With the market looking a little extended, I prefer to own companies with a strong balance sheet, trading at a discount to book with the potential for increasing business. Aircastle appears to fit that bill.

Full Disclosure: Author has long positions in Sound Counsel client portfolios

Futures Rise after Strong Retail Sales, Jobless Claims

Stock futures rose on Thursday, shrugging off the Bernanke-inspired malaise that had enveloped the market on Wednesday. European stocks are broadly higher, and data released in the U.S. was generally positive: jobless claims fell last week to 351,000 (matching a four-year low) , and personal spending rose 0.2%, slightly below expectations. February auto sales are also expected to be released today.

Dow futures rose 34 points to 12,971; S&P 500 futures rose 3.6 points to 1,368.

Some retailers posted surprisingly strong retail sales for February, with Gap (GPS) finally showing some strength. The retailer said sales rose 4% in the month, versus expectations for a 1.4% decline. Shares jumped 10% in pre-market trading. Target (TGT) and Costco (COST) also beat expectations.

Kroger (KR) rose 2% after releasing a strong earnings report. Wal-Mart (WMT) rose 1% after raising its dividend by 9%.

Discover Earnings More Than Double

Discover Financial Services(DFS) announced earnings of $649 million for the third quarter on Thursday, or $1.18 per share, roughly two and a half times the $261 million, or 47 cents, it earned a year ago.

Analysts had been looking for a gain of 88 cents per share.

See if (DFS) is in our portfolio

"Our strong capital position has allowed us to continue to invest in growth," said Chairman and CEO David Nelms.Discover's earnings were up from $1.09 per share in the prior quarter. Sales of $26.3 billion set a new record, beating the previous record set last quarter by 9%. Discover's loan book grew 8% from a year ago to $54.1 billion, and rose 3% from the second quarter. Credit card loans were up 2% from a year ago and 3% from last quarter.The company also cited signs of credit quality improvement. The delinquency rate for credit card loans over 30 days past due, for example, hit a record low of 2.43%, Discover said. Shares were up 1.97% to $25.84 a few minutes after the opening bell on Thursday. Shares were up 1.97% to $25.84 a few minutes after the opening bell on Thursday, even as many large cap financials, including Mastercard(MA), Visa(V) and American Express(AXP) were down by at least 2%. -- .

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ABB: Healthy Dividend At A Discount

I am currently a shareholder of ABB, Ltd., (ABB), and I have been since the fall of 2011 as the share price dropped to $20 and below. As usual, I was keeping up with my stock screener when I initially came across ABB, Ltd. and after I spent some time learning about the company, I was instantly attracted to what they do and the purpose they will serve in the future of energy efficiency. The company is certainly cyclical in nature, but their past operational performance has been fairly consistent, which I thought was remarkable.

For instance, their current operating margin is right in line with their 5 to 6 year average, dividends have been consistently paid since 2006 and are definitely growing, free cash flow looks great over the past 5 to 6 years, financial leverage has come down considerably over the years, ROA and ROIC look very strong and stable, current assets are consistently about 60-70% of total assets - where they're able to retain quite a lot of operational flexibility without holding huge amounts of PP&E and other long-term assets, and goodwill/intangibles aren't excessively high for having a record of making numerous acquisitions. All together, I felt that this company had a lot going for it and there was plenty to like regarding their financial health and performance.


Reproduction Book Value: roughly $12

  • Current price to book ratio of about 3x - $36

Earnings Power Value: $20 - $22

  • Exceeds book value estimate by 1.67 - 1.83x, a very strong sign of an economic moat/competitive advantage
  • Current market price of about $21 helps to confirm this estimate is pretty accurate

Franchise Value: $30 - $36

  • With the expectation that ABB can continue to consistently produce ROIC in excess of their cost of capital, any future growth will add value and can be translated into an estimate of intrinsic value today

Price to Fair Value Discount: $30 (.70), $33 (.64), $36 (.58)


With a current discount of 30 - 42%, and a dividend yield of about 3.2%, along with my level of confidence in their ability to perform in line with my expectations of what they've been able to achieve in the past, it's no wonder why I have the highest conviction in ABB as a long-term investment and have made it my largest holding.

Disclosure: I am long ABB.

Will Kraft Foods Help You Retire Rich?

Now more than ever, a comfortable retirement depends on secure, stable investments. Unfortunately, the right stocks for retirement won't just fall into your lap. In this series, I look at 10 measures to show what makes a great retirement-oriented stock.

Among the companies that make essential products that millions of people use every day, Kraft Foods (NYSE: KFT  ) appears near the top of the list. With a wide variety of food products ranging from its signature macaroni and cheese to a big line of snack crackers, Kraft commands a lot of pantry space. But with the company planning to break itself into two companies, will the sum of the parts be greater than the whole? Below, we'll revisit how Kraft Foods does on our 10-point scale.

The right stocks for retirees
With decades to go before you need to tap your investments, you can take greater risks, weighing the chance of big losses against the potential for mind-blowing returns. But as retirement approaches, you no longer have the luxury of waiting out a downturn.

Sure, you still want good returns, but you also need to manage your risk and protect yourself against bear markets, which can maul your finances at the worst possible time. The right stocks combine both of these elements in a single investment.

When scrutinizing a stock, retirees should look for:

  • Size. Most retirees would rather not take a flyer on unproven businesses. Bigger companies may lack their smaller counterparts' growth potential, but they do offer greater security.
  • Consistency. While many investors look for fast-growing companies, conservative investors want to see steady, consistent gains in revenue, free cash flow, and other key metrics. Slow growth won't make headlines, but it will help prevent the kind of ugly surprises that suddenly torpedo a stock's share price.
  • Stock stability. Conservative retirement investors prefer investments that move less dramatically than typical stocks, and they particularly want to avoid big losses. These investments will give up some gains during bull markets, but they won't fall as far or as fast during bear markets. Beta measures volatility, but we also want a track record of solid performance as well.
  • Valuation. No one can afford to pay too much for a stock, even if its prospects are good. Using normalized earnings multiples helps smooth out one-time effects, giving you a longer-term context.
  • Dividends. Most of all, retirees look for stocks that can provide income through dividends. Retirees want healthy payouts now and consistent dividend growth over time -- as long as it doesn't jeopardize the company's financial health.

With those factors in mind, let's take a closer look at Kraft Foods.


What We Want to See


Pass or Fail?

Size Market cap > $10 billion $68.3 billion Pass
Consistency Revenue growth > 0% in at least four of five past years 4 years Pass
Free cash flow growth > 0% in at least four of past five years 3 years Fail
Stock stability Beta < 0.9 0.54 Pass
Worst loss in past five years no greater than 20% (14.6%) Pass
Valuation Normalized P/E < 18 20.72 Fail
Dividends Current yield > 2% 3% Pass
5-year dividend growth > 10% 3.9% Fail
Streak of dividend increases >= 10 years 0 years Fail
Payout ratio < 75% 57.9% Pass
Total score 6 out of 10

Source: S&P Capital IQ. Total score = number of passes.

Since we looked at Kraft Foods last year, the company has kept the same score. The company will look a lot different next year, though, with big ramifications for both Kraft and its competitors.

Kraft has put in strong stock performance over the past year, with a gain of about 20%. Much of the gain has come from the company's plans to break itself into two separately traded companies. Kraft plans to spin off its North American grocery business, hanging onto its current snack and candy businesses.

The split will let each business focus on competing more strongly in their respective industries. For the snack business, rivals Diamond Foods (Nasdaq: DMND  ) and now Kellogg (NYSE: K  ) have tried to make strategic acquisitions to boost their presence in the international snack market. Kraft's split not only hits back at Kellogg and Diamond, but also tries to challenge PepsiCo's (NYSE: PEP  ) emerging-markets strategy. Meanwhile, the U.S. grocery business will be a more mature but arguably less exciting segment that should nevertheless appeal to income-hungry investors.

For retirees and other conservative investors, the big question is whether Kraft after the split will continue to build its strong brand name and good reputation. If it doesn't, then Kraft may no longer be the right stock for retirement investors to rely on for long-term success.

Keep searching
Finding exactly the right stock to retire with is a tough task, but it's not impossible. Searching for the best candidates will help improve your investing skills, and teach you how to separate the right stocks from the risky ones.

If you really want to retire rich, no one stock will get the job done. Instead, you need to know how to prepare for your golden years. The Motley Fool's latest special report will give you all the details you need to get a smart investing plan going, plus it reveals three smart stocks for a rich retirement. But don't waste another minute -- click here and read it today.

Add Kraft Foods to My Watchlist, which will aggregate our Foolish analysis on it and all your other stocks.

Saturday, September 29, 2012

Does It Still Make Sense to Diversify Internationally?

One class of investors will be only too glad to wave 2011 goodbye. If you had any money riding on overseas stock markets, chances are you�ve taken some pretty nasty lumps. This past year, the broadest measure of developed foreign markets, the iShares MSCI EAFE Index Fund (NYSE:EFA) lost 15.62% in dollar terms (excluding dividends).

The emerging bourses, according to the iShares MSCI Emerging Markets Index ETF (NYSE:EEM), fared even worse, skidding 21.12%. Painful indeed, especially when you consider that the headline U.S. stock indexes were either slightly above (Dow Jones industrials) or slightly below (S&P 500) the breakeven line.

So the question arises: Does it still make sense to diversify internationally? Or has another investment fairy tale gone “poof” at midnight?

Values Point to Profits Ahead

Tempting as it is to be cynical about a financial world that often seems broken, I don�t think we�ve seen the end of great profit-making opportunities in foreign markets. In fact, the recent weakness in overseas stocks is probably setting us up for exceptional returns once the current distress passes.

The main reason, of course, is valuation. As of mid-December, according to Bloomberg, the stocks in the Stoxx Europe 600 index were quoted at a slender 10.1 times estimated 2011 earnings, versus 12.2X for the Standard & Poor�s 500 index — a discount of 17%. The iShares MSCI Pacific ex-Japan Index (ETF) (NYSE:EPP), which normally trades at a sizable premium to the S&P because of Asia�s superior economic growth, was at 12.6X.

Some emerging markets are even cheaper. Brazi is selling for about 8X trailing 12 months� earnings, and India about 12X — both well below their norms for the past five years. Remember also that despite a recent slowdown, these countries are still growing much faster than the developed economies of North America or Europe.

For the opening months of 2012, I�m taking a cautious view of most foreign stock markets. Europe�s sovereign debt travails will weigh on economic activity around the world, but especially in the EU homeland. In addition, we�re picking up early signs that China�s credit-fueled boom may be due for a setback in 2012. Chinese purchasing managers report that the country�s manufacturing sector is now contracting at the steepest rate since early 2009.

From North to South

Accordingly, I recommend that you proceed slowly and judiciously with new commitments. In Europe, I advise you to favor recession-resistant health care and consumer-staples names, such as drug maker Novartis (NYSE:NVS) and food processor Nestle (PINK:NSRGY). Not so coincidentally, both are based in Switzerland — with its friendly business climate and sound currency.

Both stocks also throw off generous dividend yields: 4.07% for NVS, and 3.41% for NSRGY. Dividends are typically paid once a year, in April. Switzerland extracts a 15% withholding tax on dividends remitted to U.S. shareholders, but you can obtain a credit against this tax if you hold the stock in a taxable account (not an IRA).

Among the other developed markets, my top choice is Australia, whose tax law encourages corporations to pay out the lion�s share of their profits in the form of dividends. As a result, most Australian stocks yield considerably more than their U.S. counterparts.

Take Westpac Banking (NYSE:WBK). Strong and conservatively managed, this Aussie bank has boosted its dividend more than 400%, in dollar terms, over the past 10 years. Current yield: a mouth-watering 7.8%. Dividends are paid semiannually, in July and December. No withholding tax is currently imposed on U.S. residents.

For a diversified portfolio of Australian stocks, consider iShares MSCI Australia Index Fund (ETF) (NYSE:EWA). This ETF owns a large slug of financials (44% of the portfolio), but it also gives you exposure to Australia�s natural-resources sector. Current yield: 4.71%.

Submerged, Not Sunk

Given that emerging markets have taken it on the chin, I�m confident that Brazil and India, my two longtime favorites among the developing bourses, will eventually snap back to their 2011 highs and beyond. Before a lasting turnaround can occur, however, investors will need to get a sense that the growth outlook in these countries is stabilizing.

That will take time. So, I suggest dribbling cash into vehicles like iShares MSCI Brazil Index (ETF) (NYSE:EWZ) and PowerShares India Portfolio (ETF) (NYSE:PIN) in equal-dollar installments over a period of three to six months.

For the immediate future, emerging-markets bonds seem to hold greater potential than stocks. Unlike U.S. Treasuries, EM bonds offer worthwhile yields that exceed, in most cases, the dividends you could earn on stocks from the same countries.

The J.P. Morgan U.S. Dollar Emerging Markets Bond Fund (NYSE:EMB) is the safest pick, suitable for virtually all investors. If you want to shoot for a little more income, go with TCW Emerging Markets Income Fund (MUTF:TGINX), which invests mainly in private-sector bonds rather than governments. Current yield: 6.94%.

Will Alternative Energy Ever Go Mainstream?

The problem in evaluating various forms of power is that two critical elements of the debate -- the true costs of production and the efficiency of the energy source -- are often ignored, or wind up buried beneath "statistics" designed to sway the heart instead of the brain. In many cases, an ignorant public and a highly divided political system simply demonize what they barely understand. Let's try to ignore the talking heads for a while and look at the numbers at ground level.

A pressing need
Renewable energy's support is often based on hope and hype, promising freedom from polluting hydrocarbons and the nasty terrorist-harboring petrostates that control them. But that hope ignores the reality, which is that we need to power our many devices quickly, cheaply, and consistently, and we need to do it right now. Alternative energy is not yet up to the task, and so hydrocarbon alternatives remain (for now) on the fringes, as the U.S. Energy Information Administration's data show:

Power Source

2010 U.S. Power Consumption (million bbl. oil equivalent)

Percentage of U.S. Power Consumption

Coal 3,439 21.7%
Oil and gas 10,012 63.2%
Nuclear 1,394 8.8%
Biomass/biofuels 381 2.4%
Geothermal 35 0.2%
Hydro 414 2.6%
Solar 18 0.1%
Wind 153 1.0%
Total 15,846 100%

Source: U.S. Energy Information Administration.

The biofuel category seems respectably sized until one realizes that it includes anything based on bio-stuff, including trash-burning power plants and the corn ethanol foisted on you at the pump. Wind and solar have a long way to go.

You say you want a revolution
None of that should matter if alternative energy can one day rise to the challenge and beat hydrocarbons at their own game. I've written before about why solar energy isn't doomed, but it has a long way to go. All of our alternative energy options do. Journalist Robert Bryce's number-crunching in Power Hungry offers laymen an easy-to-understand view of the energy reality. What he found convinced him that when it comes to efficiency, the best option might be the one the world is currently most afraid of.

Power Source

Area Required to Generate 2,700 Megawatts

Power Density

South Texas Nuclear Project Plant 18.75 square miles 300 hp/acre (56 watts/sq. meter)
Average U.S. natural gas well 19.6 square miles 287.5 hp/acre (53 watts/sq. meter)
Oil stripper well (10 bbl./day) 39 square miles 148.5 hp/acre (27 watts/sq. meter)
Solar (photovoltaic) 156 square miles 36 hp/acre (6.7 watts/ sq. meter)
Wind 869 square miles 6.4 hp/acre (1.2 watts/sq. meter)
Biomass-fueled power plant 2,606 square miles 2.1 hp/acre (0.4 watts/sq. meter)
Corn ethanol 21,267 square miles 0.25 hp/acre (0.05 watts/sq. meter)

Source: Robert Bryce, Power Hungry.

Major oil and gas drilling installations, such as Chevron's Petronius offshore platform, can easily roar past nuclear in terms of potential power density. Such platforms, though, are wholly dependent on striking a massive gusher beneath the surface. It's clear that nuclear power requires the smallest footprint out of the available hydrocarbon alternatives. Nuclear even bests many oil producers for efficiency. SandRidge Energy (NYSE: SD  ) operates over 3,000 oil wells in the Permian Basin, but each is individually less than half as efficient as a nuclear plant.

Despite this evidence, we're not likely to see much new nuclear construction for a few years. The world's hysterical overreaction to the Fukushima disaster made that clear. A nuclear-energy winter doesn't necessarily harm Exelon (NYSE: EXC  ) and other nuke-reliant utilities, but uranium miners are likely to be left in the cold until the world comes to its senses.

Green rogue's gallery
The flight from nuclear power is hastening "energy sprawl," a phrase coined by the Nature Conservancy in reference to the much larger physical footprints needed to generate renewable power. The issue could become so acute by 2030 that an area the size of Minnesota would be required for domestic energy production.

The worst offenders, as you might expect, are corn ethanol and other biofuels. Corn ethanol has gotten major support from oil refiners Valero Energy (NYSE: VLO  ) and Marathon Oil (NYSE: MRO  ) , which both own ethanol plants. But the political tide finally seems to be turning, as Congress let a $0.45-per-gallon ethanol subsidy lapse in the final days of 2011.

Niche biofuel producers seem to have bigger problems. Range Fuels, a "forest wastes" producer supported by the Bush administration's Department of Energy, went belly-up this year. Gevo (Nasdaq: GEVO  ) , a similarly styled bio-refiner receiving similar levels of government support, is finding its strategy difficult to implement and has shifted to corn-based production.

Incomplete solutions
Wind and solar have more than one way to increase energy sprawl. Bryce points out that the size of an installation is only part of the problem:

Some 40,000 miles of new lines will be needed by the wind sector alone. If we assume that each of these transmission lines requires a 100-foot-wide swath of right-of-way ... then those 40,000 miles of transmission lines will cover about 750 square miles of territory, which is about half the size of the state of Rhode Island.

Another problem is intermittency -- energy sources that can't always be "on" when you need them. Any excess power generated by wind and solar has to be quickly sold (if possible), as there's no technology available that offers efficient industrial-strength long-term energy storage. Nanotechnology might one day break down that wall, but tomorrow's energy storage solutions have been on the horizon for ages.

What investors can do now
If you want to put your money in clean energy, you should invest in what gives the most bang for the buck. After all, says Nature Conservancy scientist Robert McDonald, "saving energy saves land." Petroleum's still the most efficient form of energy to invest in right now, and its price is unlikely to drop any time soon. Find out how you can take advantage of this booming market with the Motley Fool's free report on three companies striking gushers with $100-per-barrel oil prices. Don't get left behind -- reserve your free copy day.

Nothing New: Labor Market Is Still Soft

The latest statistics show that the economy continues to add jobs, but at a slow pace. Does the recent weakness in the manufacturing sector cast a darker shadow over the recovery?

Dimming A Bright Light?

Not too long ago, the manufacturing sector seemed to be a brighter spot in the economy. New orders for manufactured goods increased in eight months last year. And the two slips that we saw in the latter half of the year were effectively insignificant relative to the growth rates that we saw in the other four months (2.00%, -0.67%, 3.75%, -0.99%, 1.36%, 1.24%, respectively, according to the U.S. Census Bureau). The first quarter of this year also looked pretty hot, as new orders increased at seasonally adjusted rates of more than 3% in January and March, easily making up for February's 0.28% decline. The second quarter, though, started off on a down note, as new orders dove 1.23% in April. Still, relative to the gains earlier in the year, April's number seems to be just a slight setback.

This leads us to the industrial production figures provided by the Federal Reserve. Here, too, we see that the manufacturing sector has been moving along at a relatively good clip. Industrial production in the manufacturing sector increased each month in the latter half of 2010, and it continued to climb into this year, advancing 0.6%, 0.2%, and 0.6% in the January through March period. In April, we saw manufacturing hit the wall: industrial production dropped 0.4%, marking its first decline since June last year and its most significant decline since it fell 1.2% in May 2009.

As we look at this data, it is important to remember that one month does not make a trend. It is easy enough to reflect on the numbers and think that the manufacturing sector is simply taking a breather before continuing to grow.

If that is, indeed, the case, then the loss of 5,000 manufacturing jobs in May should not be overly worrisome. Figure, in the latter half of last year, the economy added 17,000 manufacturing jobs (according to data from the BLS). Even including the lost positions in May, the manufacturing sector still added 129,000 jobs this year. That seems to be pretty good momentum. A momentary pause in this case should not be surprising or troubling.

Still, I'm a bit concerned.

Reason For Concern

Arguably, payroll employment is a concurrent indicator, so seeing the job losses in May suggests continuation of the slowing in manufacturing that we saw develop in April, when both industrial production and new orders fell. The sense of unease grows a bit as we focus on specific areas, particularly the production of non-durable items. Two of the last three months saw job losses in this area, including the shedding of 13,000 positions in May. (Strength in durable-goods production, other than motor vehicles which also experienced weakness, partially offset this decline last month.) That paints a somewhat bleaker picture.

In "Consumer Spending in the Age of the Jobless Recovery," I mentioned that if we focused exclusively on personal spending, we would likely determine that the current recovery is a bit slower than what we saw following the 1990 and 2001 recessions. While a sluggish consumer was not necessarily a big deal following those two earlier recessions, as residential investment picked up and buoyed growth, there is more reason for concern now.

Manufacturing has, net, added jobs this year, and it seems to be taking a breather. Unfortunately, that breather could turn into a longer-term break given the weakness in consumer spending and the protracted problems in housing. Do not be surprised if GDP forecasts get trimmed. While the economy still appears to be growing, the latest statistics suggest that the pace of that growth is slower than what we saw just a couple of months ago.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

How Low Will This Market Go?

A fall in the euro sent equity and commodity markets into a downward spiral yesterday. Sentiment against the euro strengthened following Germany�s stand that its government is against raising the lending limit for a euro zone bailout.

In response, Italy�s 10-year bond yield rose 7%-plus, and Spain and France saw their bond yields jump as well. The U.S. dollar rose, of course, and the rise was accentuated by a series of better-than-expected economic reports.

Commodities fell sharply in response to the stronger dollar. The CRB Index fell 3.4%, and gold settled at $1,587.70 an ounce, down 4.6%, and silver lost 7.6%.

The Dow Jones Industrial Average closed at 11,823, off 1.1%, the S&P 500 ended at 1,212, down 1.13%, and the Nasdaq closed at 2,539, down 1.55%. The NYSE traded 928 million shares, and the Nasdaq crossed 512 million. Decliners were ahead of advancers on the Big Board by 3-to-1 and on the Nasdaq by 2-to-1.

Yesterday, every major index violated its near-term support as the dollar rocketed to new highs.

The breakdown of the S&P 500 is significant because it confirmed the failure of the index to break higher at its bearish resistance line (June/July, October and November highs); it turned down from its 200-day moving average — a confirmation that the long-term bear market is intact; and it crushed the near-term support provided by the conjunction of the 20-day and 50-day moving averages.

The question is: How low will it go?

The answer may surprise you: Not very far, at least initially. There is a broad band of support at 1,124 to 1,225 that will more than likely slow the decline, and the uptrend line of a major trading triangle rests at 1,175.

Additionally, the Fibonacci numbers off of the November low to the December are: 50% = 1,212 (yesterday�s close), 61.8% = 1,200.

Finally, we are approaching the holiday period when trading traditionally slows and volume falls until we enter the New Year.

Yesterday�s higher close in the PowerShares DB US Dollar Index Bullish Fund (NYSE:UUP) confirmed the bull market in the U.S. dollar, and that conclusion is backed by the MACD buy signal. But volume on the breakout is not as high as the average volume of the October sell-off.

Conclusion: The most followed indices have broken from major support levels, indicating that the bear market is intact and that prices should head modestly lower.

But European politicians are no less nimble than our own. When our credit markets were in jeopardy (not that they still aren�t), the Feds sprang TARP, then QE1 and QE2 while dropping interest rates to near zero. And each move was immediately greeted with a rebound in stocks.

The Europeans have followed the same pattern and will, in desperation, scramble to turn an outgoing tide with each attempt triggering a rally in equities. Thus, shorts should expect violent rebounds. Take profits when you can. (Check out my colleague John Jagerson who turned a 67% profit overnight last week.) And protect positions with stop-loss orders.

The trend is down, but expect more volatility and less predictability.

Dropbox Said ‘No’ to Apple, But Saying ‘Yes’ to an IPO?

Founded in 2007, Dropbox now is one of the hottest companies in Silicon Valley. But the company’s allure isn’t anything new. According to a recent story in Forbes, Dropbox got (and turned down) a nine-figure buyout offer from Apple (NASDAQ:AAPL) just a couple of years after its launch — a huge deal considering Apple traditionally avoids major acquisitions. Apple has some of the world’s best engineers, but Steve Jobs realized that Dropbox had something compelling.

Dropbox allows for storage across a multitude of devices. The company now has roughly 45 million members who store 1 billion files every three days. And according to Forbes, it looks like the company will generate $240 million in revenues for 2011.

While Dropbox is super-easy for consumers to use, the technology is extremely complex — it must deal with 18 operating systems and three mobile systems.

What�s amazing is that Dropbox created its business with only $7.2 million in funding. But the business model — a “freemium” approach, where users get 2 gigabytes free but must pay a monthly fee for any additional storage — has been quite profitable.

To keep up the momentum, Dropbox recently raised $250 million. The investors include the typical tier-1 VCs like Benchmark, Greylock Partners, Sequoia Capital and Accel Partners. But Goldman Sachs (NYSE:GS) also participated — no doubt, the firm sees a juicy opportunity to snag a future IPO assignment.

But in a way, the private funding is almost a quasi-public offering. Keep in mind that Dropbox’s valuation is a whopping $4 billion, compared to LinkedIn�s (NYSE:LNKD) $8.4 billion market cap. In other words, the expectations for Dropbox are robust.

The company will need to fend off tough rivals. Of course, Apple has its iCloud offering. And companies like Google (NASDAQ:GOOG), Amazon (NASDAQ:AMZN), (which has raised $162 million) and YouSend also offer alternative storage systems.

But so far, Dropbox does have the lead in the market — and there still are no signs that the momentum is slowing down. And the founders definitely are committed to building an enduring company. After all, how many 20-somethings turn down hundreds of millions of dollars from the iconic Steve Jobs?

Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of �All About Short Selling� and�All About Commodities.� Follow him on Twitter at @ttaulli. As of this writing, he did not own a positioning any of the stocks named here.

Friday, September 28, 2012

3 Ways To Grab Closed-End Funds At A Discount

In the second half of our two-part interview, asset manager and author Scott Schultz discusses how he evaluates which closed-end funds are on sale, and why they would make good investments. Part 1 can be found here.

Scott Schultz: Now, let’s go offshore. I think there are a whole lot of problems going on in Europe now, and it’s in the news regularly, and for the most part, I surely can’t argue with it.

But I’m a history buff, and I look at one country that comes and goes with wars and that, but Switzerland tends to really never get embroiled in any of it. Right now, the Swiss Helvetia Fund (SWZ), trades on the New York exchange, and this fund has as its objective long-term capital appreciation through Swiss-owned companies.

OK, nobody really is in Switzerland—they don’t have any companies, right? Wrong. Top holding, Nestle (NSRGY.PK), 20.6%. Novartis (NVS), major drug company. Roche Holdings (RHHBY.PK), medical. UBS (UBS). You were looking there, and that’s almost half of the fund.

This fund is 87 or 88 cents on the dollar, and they are Swiss companies. So, I look at that and say if I want to be overseas, Switzerland is not a bad place to be.

So then, I’ll roll into a fixed-income product. Some people, they want income. Our current holding there would be the Morgan Stanley Emerging Markets Debt Fund (MSD). Now, that fund right now is paying about 6.1% interest—double the 30-year Treasury. It’s also trading at 90 cents on the dollar, and it’s backed up by some very interesting securities.

Petroleos De Venezuela pays roughly 8.5% interest. The government of Argentina, 7%. Brazil, Russia, Mexico, Philippines. All around, this is a very, very diversified global fund. $338 million in assets. I’m getting 6% [yield], but I’m buying it at 10% off.

One thing about fixed-income funds in the closed-end world, Kate, is that every 12% approximately, of a discount, equals 1% of real cash flow. So, this being 10% off makes that yield almost 7% in actual cash into the investor’s pocket, because they’re getting $1 of interest but they only put up 90 cents to get that dollar. So, that’s the advantage with fixed income.

Now, I’ve got a real flyer. I have it and I rarely ever gamble or take wild guesses, because there’s a four-letter word that I totally hate in the investment world, and that’s called risk. I simply don’t like it.

I look at a fund, and this one is called First Opportunity Fund Inc., (FOFI.PK). It’s over the counter.

I look inside this fund, and as you noted earlier, I was able to name some really high-quality investments. I look at this and I see Johnson & Johnson (JNJ) is about the only thing worth a darn, and a little bit of Wells Fargo (WFC). But there’s a special story here. The individual, at this time, who runs the fund, owns almost two-thirds of the fund.

The asset, it’s at a 28% discount. So just imagine starting a race with you up on the 28-yard line and I’m back at the goal line, and we run that 1,000 times.

What happens with closed-end funds, when it’s called a hostile investor or an activist, somebody who doesn’t like the way the current things are going, and they have enough muscle—i.e. they own enough shares—they can alter the board of directors. “Look, we don’t like what you’re doing. We have a major investment and we want you to change it. If you don’t change it, we’re going to take you over.”

So, that’s what’s called an open ending. They can get enough shares voted, and oftentimes it takes two-thirds of the shares outstanding, so if there are 10 million shares and somebody has roughly 6.8 million shares, they can, in certain cases, make a vote from the board of directors to say we’re going to liquidate all the assets today. All of a sudden, vavoom, you have net asset value. So, this one, if that were to occur, literally I could make for my clients 28% in a day.

So, there’s a fellow here—and again the fund has $246 million in it and there are 28 million shares—but most of those shares are one specific entity. There are roughly 12 to 14 different shell corporations this person uses.

It’s all legal. Nothing here is illegal by any stretch. But at the same time, closed-end funds, being different than open, they only have to report their holdings every six months but they can go to nine months, where a regular mutual fund, every quarter they have to send out prospectuses and all sorts of things. Closed-end funds are not hampered by that at all.

So FOFI, as I like to refer to it, is a speculative security, because if I can get a security that I think this man is going to continue what he does do—and I’ve been around him a while, he’s very successful at topping them, making them to go open—I have the opportunity for my clients to have a home run.

Now, closed-end funds by any stretch, you want to get walked, you want to get a single. You want to get hit by the pitch. It’s just getting on first base. It’s “Get me on base,” because at that point you have that inherent lead against anybody in the open-end funds arena, or frankly the individual stockholder.

If I wanted to buy Berkshire Hathaway A (BRK.A), I’d have to pay maybe $116,000 to $118,000 for one share of the class A shares. However, if you go through the Boulder fund, going back to that, I can get Warren Buffett, 40% of the fund, at $15, $16, $17 a share.

Kate Stalter: Let me ask you something about this at this point. Is there any difference in how you would allocate assets into any of these funds, given the market volatility, or perhaps what you might enter into in a bull market versus a bear market? How do you view that?

Scott Schultz: That’s really good, and this is what I want to segue over into, away from the securities in the book, to what my firm does.

We offer essentially—technically, because we’re 401(k) friendly, which means we can operate 401(k)s and we have the administrative ability to do it.

One is a money market, which of course we don’t report that. We call it hybrid because say something happens with you, Kate, in particular. Aunt Millie passed away and she was very fond of General Motors (GM), or whatever it was, and she gave you shares. “I never want to sell these shares but here’s my other cash I get.”

So, we’re stuck. We have to hold the General Motors because you have this affinity to it. We don’t want to be blamed for it going down, and we don’t want to take the credit for it going up. You would then take the other assets and invest it in closed-end funds.

So, we have those, and we have individual stocks. We don’t really get in there. We have five offerings mostly: Domestic growth, foreign growth, income, asset allocation—which means it’s a mixture of them both—and hybrid, where we can be across the spectrum of the globe. So, we have five different pieces.

So, for instance, if you are a 401(k) investor, you could put 20% across the board, and each time you made a contribution, that’s how it would go.

If you were an individual investor, Kate, and you came to me and said, “Scott, I have $500,000, or say, $100,000 and I really don’t want to take a whole lot of risk. What do you think?” Well, right now if you want to buy the 30-year Treasury, you’re only going to make 3%. It’s a pretty difficult proposition, but you know that the government, well you think it’s going to be there.

You don’t want to be in Europe. That’s why I have Switzerland. I don’t have a whole lot of confidence that the euro is going to survive. That’s just me.

I don’t like risk, so I tend to steer clear. I warn people, be that as it may. So, we can pick the level of risk and ratchet it and/or divide it for you.

I want like 80% fairly safe. To me, that would be asset allocations where we have a split of fixed income versus securities that are individual closed-end funds, be it foreign, domestic, or both. That’s how we get around to the satisfaction comfort zone, so when Kate sleeps at night, she doesn’t have to worry about it.

Kate Stalter: Right, well that’s always good. Scott, you’ve given us a lot of information today. Wrap up by telling us: What is the best way for the do-it-yourself investor to get involved with closed-end funds?

Scott Schultz: That’s a good one. I would hope that they would consider buying my book, Scott Schultz’s Guide to Closed-End Funds.

There are also a couple of Web sites that we mention in the book. At CEF Connect, you can start sorting there by discounts and premiums.

We’ve explained what a discounted premium is compared to net asset value. Now you can look at all the funds. What’s the fund that’s the biggest, the cheapest on sale?

For instance, right now there is one at roughly 60 cents on the dollar. The Equus Total Return Fund (EQS) literally is selling for 59 cents on the dollar. Now, it’s not a fund I would recommend, but when I would look at FOFI as the fifth largest discount, which is the one I have, I sort of chuckle. But, it’s there, and you can sort just on that site.

A second site is the Closed-End Fund Association. Very good information there.

Another firm, Capital Link. They are the primary producers of an annual conference where many funds get together for investors to co-mingle with the managers, get explained all their questions, get ideas, interact with people that normally they wouldn’t get a chance to.

So, those sites themselves I think would be a good do-it-yourselfer, a good primer...but only after they read my book.

M&A Spotlight: Defense Goes on Offense

By Ben Kolada

Constraints in federal defense spending are causing traditional defense contractors to look outside their core for growth. The latest move is Raytheon’s (RTN) pickup of cyber security firm Applied Signal Technology (APSG). The $490 million acquisition, announced today, wraps up a two-month process from when Applied Signal announced that it would seek ’strategic alternatives’ to increase shareholder value.

Raytheon’s $38-per-share offer for Applied Signal represents a 37% premium over Applied Signal’s closing share price the day before it announced it was looking to boost its share price. We suspect the high valuation was partly the result of a competitive bidding process that included Raytheon competitors L-3 Communications (LLL) and Cobham (CBMHY.PK).

However, this isn’t the first competitive process we’ve seen for a defense-focused IT service provider. The Applied Signal transaction comes just half a year after its larger rival, Argon ST (STST), was scooped up by Boeing (BA). We understand the Argon property was the focus of an even more hotly contested process, with Boeing eventually paying a premium of 41% above Argon’s share price the day before the deal was announced.

The rise in defense IT valuations is the result of traditional defense contractors looking for growth channels as the federal spigot tightens. After a dozen years of consistent growth in federal defense spending, the Office of Management and Budget projects defense expenditures will decrease by an aggregate of 5% from 2010-2015.

Meanwhile, spending on IT defense is expected to rise. As a result, firms like Argon and Applied Signal have received healthy valuations, but they are not alone. Since late October, when Applied Signal announced it was looking at strategic alternatives to increase shareholder value, including selling itself, acquisition speculation has spilled over to Mercury Computer Systems (MRCY), a maker of hardware and software systems for the defense industry. Since Applied’s announcement, shares of Mercury Computer have risen 40%.

Disclosure: No positions

Why Not Just Keep Those Bonds?

Volumes ended up higher yesterday, albeit still weak, and after trading down all day stocks ended up unchanged. Momentum is ebbing, but to that observation I must fairly add the suffix “again” since momentum has ebbed a couple of times already in this bull run. The true believers don’t need momentum, so it won’t bother them; the true disbelievers are already short. The story increasingly is about what happens to the guys in the middle, who are uncommitted.

Those investors have a little more of a boost from yesterday’s potpourri of news. The European Financial Stability Facility (EFSF, aka “the European bailout fund”) sold €5bln of bonds to finance the bailout of Ireland, but received orders for about nine times that amount. In my mind, they ought to say “yours” and sell the full €45bln before investors stop and think carefully about who is guaranteeing the bonds. “Europe” is the answer. To paraphrase Henry Kissinger, who do we call when we want the redemption proceeds? Look, I didn’t read the prospectus, but I know this: when I send them 5 billion, they’re going to send it to Ireland. If Ireland doesn’t give it back, there are no assets left in the Facility so…am I trusting that all of the various countries will pony up the money and pay me back without haircuts?

Really? Keep your bonds, I’ll keep my money. At least if I buy Johnson & Johnson (JNJ) bonds, there’s something to seize if they go under.

Still, whether the success of the auction was predicated on the gullibility of investors or a need to appear to be part of the solution (some 43% of the bonds went to central banks, governments, and agencies), there is no doubt that it was a success. And that got Spain thinking. So Spain’s rescue fund, called the Fondo de Reestructuracion Ordenada Bancaria (fondly, FROB) is reportedly to sell a few billion euros’ worth of bonds. After all, says Spanish Finance Minister Salgado, the banks only need about €20bln in extra capital (Moody’s says the real number may be as high as €89bln). Well, at least in the case of FROB I know who to call.

There was one piece of weak economic news, in the form of significant downward guidance from Johnson & Johnson (JNJ) about their full-year sales for 2011. If you want to give the economy credit for GE earnings (although as some readers noted, revenues being up 1% when the economy is expanding by 2% or 3% and the Fed is providing massive liquidity doesn’t exactly constitute a home run even if operating and financial leverage turns those revenues into good-looking earnings), then you have to consider whether JNJ – also a mega-company that sells a wide variety of products although not as wide a variety of GE, to be sure – is sending the opposite signal.

But in my mind, that niggling negative is more than compensated for by two items. The first is the sharp improvement in the Jobs Hard To Get subindex of the Consumer Confidence report to a marginal new low of 43.4 (see Chart, click to enlarge). It is worth remembering, though, that the prior low came in June of last year, when the Census was busy hiring scores of thousands of new workers. Hammer that point back into line, and the current decline starts to look more legitimate.

The man on the street says jobs aren't QUITE as hard to get as they were.

Bed, Bath & Beyond — How to Play Wednesday’s Earnings Report

Bed, Bath & Beyond (NASDAQ:BBBY) reports earnings for the quarter ending Aug. 31, 2011, after the market closes Wednesday. Retail stocks have been slammed during the summer swoon, but Bed Bath & Beyond has bucked the trend. Since mid-July, shares of the company have actually gained 2%.

But it will take a strong earnings report for the stock to improve upon those gains this week.

On some levels, selling retail stocks across the board makes sense. If a double-dip recession materializes, consumers will bear the brunt of the pain. Spending likely will decrease, and profits in the space will decline.

Earnings results give market participants a better gauge of the current environment, including a clearer view of the short-term future. Stock values are meant to be a discounting of future cash flows. When there is a wide disparity between speculation and actual results, traders can exploit the difference for gains.

Operating performance for Bed, Bath & Beyond has been quite strong during the past year, with the company beating estimates in each of the past four quarters:

For the current period, the average Wall Street estimate is for the company to make 84 cents per share. That number is two cents higher than where the average estimate stood 90 days ago. For the full year ending Feb. 28, 2012, profits are expected to be $3.68 per share. In the following year, the number is $4.23 per share, or 15% higher.

At current prices, Bed, Bath & Beyond trades for 16 times earnings. In the middle of August, Wall Street firm Cowen upgraded the company to “outperform” from “neutral,” citing valuation, strong competitive position and growth potential.

During the past 12 months, BBBY shares have gained an impressive 42%:

In a market of uncertainty, proven winners are seeing share values increase after reporting strong earnings results. In the retail space, cosmetic and fragrance retailer Ulta (NASDAQ:ULTA) gained 15% in the day of trading after it reported earnings that beat estimates and included strong guidance.

Guidance has been of particular importance for companies reporting results recently. In the case of Bed, Bath & Beyond, recent earnings results would indicate another quarter of profits that will beat expectations. For the stock to rise of any significance, future guidance will need to be strong.

A closer look at recent share performance shows the company selling off in July. A strong August rally — thanks to the Wall Street upgrade — erased those losses.

Retail sales were strong in August for many retailers. That bodes well for Bed, Bath & Beyond. With the company trading at a level equal to its expected growth rate, there is room for this stock to continue what has been a strong run of late. When Ulta reported results, its shares trade for a hefty 34 times earnings — well above its expected profit growth rate of 25%.

I expect a strong report from Bed, Bath & Beyond on Wednesday. Shares could gain 3% to 5% or more as a result.

Other companies reporting results this week include: AutoZone (NYSE:AZO), General Mills (NYSE:GIS), FedEx (NYSE:FDX), CarMax (NYSE:KMX) and Carnival Corp. (NYSE:CCL).

Cantor Entertainment Takes a Bet on an IPO

Cantor Fitzgerald has been at the cutting edge of innovation in the financial industry, especially with electronic bond trading. The company owns more than 250 U.S. and foreign patents on real-time, secure technology systems.

However, the company’s technology turned out to be useful in other applications — specifically, online gambling. And back in 2006, Cantor built a new company — Cantor Entertainment Technology — to pursue this goal, and it recently filed to go public.

CET provides the technology infrastructure for race and sports book operations in Nevada, covering horse races, as well as football, basketball, baseball and hockey games. The advanced system even allows for “in-running gaming” — that is, a patron can place bets while the event is happening. A pretty innovative way to create even more gambling excitement — and to boost revenues.

The company should have opportunities to expand the business beyond Nevada as more states adopt gambling, not to mention potential growth through casinos in the country’s numerous American Indian reservations.

But perhaps the most interesting part of CET is its mobile business. A casino patron doesn’t have to wait in line — he or she can place a bet in a hotel room, pool, lobby, bar, restaurant and so on. Again, it�s a smart way to boost incremental revenues.

So far, CET has an app for Google�s (NASDAQ:GOOG) Android. But the company is currently developing ones for Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) Windows devices.

CET has an assortment of traditional games, such as video poker, table games and slots. But it also has proprietary offerings. For example, some of CET’s titles involve aggregate outcomes, which allows betting on a series of games — making it possible to wager on scenarios such as whether there will be more blacks than reds on all roulette wheels in the casino.

CET is the only company approved for mobile gaming in Nevada. By early next year, it should have coverage in more than 15,000 hotel rooms at places like the M Resort, the Cosmopolitan of Las Vegas, the Tropicana Las Vegas, the Hard Rock Hotel & Casino and Palms Casino Resort, as well as Las Vegas Sands‘ (NYSE:LVS) The Venetian and The Palazzo.

Keep in mind that CET still is a fairly small company. For the first nine months of 2011, revenues came to $7.7 million, up from $4.6 million in the same period a year ago. The company also suffered an operating loss of $16.6 million.

Yet CET�s market is poised for tremendous growth. According to research from Juniper Research, the mobile gambling market is expected to hit a whopping $48 billion by 2015. And in light of CET�s technology infrastructure, it should be a big player in the space.

Tom Taulli runs the InvestorPlace blog IPOPlaybook, a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of �All About Short Selling� and �All About Commodities.� Follow him on Twitter at @ttaulli. As of this writing, he did not own a position in any of the aforementioned stocks.

Thursday, September 27, 2012

Greece Missed Bailout Deadline: EU Commission

Greece has already missed its Monday deadline to come up with a deal to satisfy the conditions for its second bailout, according to the European Union, and has failed to make the decisions that would finish the deal.

Reuters reported that Amadeu Altafaj, spokesman for the European Commission, said, "We have gone beyond the deadline already," adding that Greek authorities still needed to make the decisions that would allow the release of the second bailout package. As previously reported by, the EU, International Monetary Fund and European Central Bank had set a series of conditions to be met by Monday for Greece to receive its next bailout, which it must have by March if it is not to default.

One of the obstacles has been a deal with private creditors, which the country was working on over the weekend. Even as that drama played out, still unresolved, Athens was battling itself as Bloomberg reported that Antonis Samaras, head of New Democracy, Greece’s second-largest party, said he would oppose some measures that the troika has insisted on. In the report, he was quoted saying, “They are asking us for greater recession, which the country can’t take. I will fight to avoid that.”

The buy-in by Samaras and other opposition leaders is crucial to approval of the next bailout. The troika wants assurances that after the next election, potentially scheduled for April, commitments made today will still be honored by the victorious party. Luxembourg’s Jean-Claude Juncker, who chairs euro finance meetings, was quoted saying Sunday, “If we determine that it’s all going wrong in Greece, then there won’t be a new program–and that means in March you’ll have a declaration of bankruptcy.”

An agreement for a writedown of debt by private creditors must be complete by Feb. 13 for formal presentation if all other processes are to be resolved prior to March 20, when the bond matures. If Greece fails to secure concessions and additional financing by then, it will default.

The country’s two largest unions said on Sunday that they will strike Tuesday against any further austerity measures. Ilias Iliopoulos, secretary general of public sector union ADEDY, said in the report, "Despite our sacrifices and despite admitting that the policy mix is wrong, they still ask for more austerity."

Bond Vigilantes Claim New Victim as German Bund Sale Fails: News Analysis

In an ominous sign of the malignancy of Europe’s financial contagion, Germany held a bond auction Wednesday to which few buyers showed up. Commercial banks bought just 3.64 billion euros of the 6 billion euro auction, forcing the Bundesbank to retain 39% of the debt, a rate of retention Germany’s central bank has not seen in over 12 years.

Throughout Europe’s financial crisis, Germany was seen—initially along with France—as the center of European financial strength and the source of funding for the Eurozone’s debt-hobbled periphery. But France’s standing in that core weakened considerably this summer when bank stress tests revealed French banks to be the most exposed to toxic sovereign debt, and this week Moody’s spooked markets by warning France is in danger of losing its triple-A credit rating.

Germany’s poor auction results Wednesday may signal that the feared bond vigilantes no longer see Germany as invulnerable to contagion or as having the capacity to shoulder the funding burdens of the rest of the eurozone.

The spurned bunds yielded just 2%—a low rate but one the market had assigned Germany based on a perception of the soundness of its economy. If today’s poor auction results are indicative of a trend, Germany may be losing its reputation as a safe haven, a status still enjoyed by the U.S. and U.K., whose 10-year bonds and gilts currently yield 1.93% and 2.14%, respectively.

With the infection of Europe’s core now a distinct possibility, all eyes are turning to the European Central Bank to see if it will intervene in markets through massive bond purchases as the Federal Reserve has done in the U.S. and the ECB—more tentatively—has done through its purchases of Italian and Spanish bonds as well as peripheral nations’ debt. The world’s central banks have been fighting a guerilla war with bond vigilantes over the yields of shaky sovereigns. Today was a win for the vigilantes and Germany appears to have been demoted to “shaky.”

Wynn Resorts Could Jump 30%: Goldman

Wynn Resorts (WYNN) has faced a few rocky months, as the company deals with litigation from former top shareholder Kazuo Okada, worries about deceleration in Macau, and questions about its upcoming Cotai development. But investors appear to be forgetting the company’s attributes, Goldman Sachs analyst Steven Kent wrote in upgrading the stock to Buy from Neutral.

“We expect, as some of the fears begin to dissipate and the strength of the same-store, market and unit growth potential is once again fully appreciated, WYNN will trade up and regain its historic premium valuation relative to peers,” Kent wrote.

Like other analysts, Kent expects big things from Wynn’s upcoming development in the Cotai section of Macau.

“From a valuation perspective, Wynn is now trading at 12.1 times 2012 EBITDA and 10.3 times 2013 EBITDA. However, that does not include the value of Wynn Cotai which should be completed by 2015. Using a range of multiples and discount rates suggest that this property alone could be worth $24 to $62 per share.

In comparison Las Vegas Sands (LVS) is trading at 13.0 times 2012 EBITDA and the other Macau gaming stocks are trading at 7 times to 10 times but they do not have nearly the same growth path or dominant position in the market.”

Kent sees Macau gaming trends to “normalize” in June, and expects the company will announce more details about its Cotai project in upcoming months, which should serve as a a catalyst for the shares. His $136 price target is a 30% premium to Wynn’s Tuesday closing price of $104.61 (the stock was at $102.04 when Kent published the note, implying 33% upside).

Turkcell: A Telecom at the Crossroads of Powerful Macro Trends

Before falling to the Turks in 1453, Constantinople was known as the Queen of Cities across Europe and the Middle East. No other city in the world could match its culture, sophistication and economy. The city sat at the intersection of the Mediterranean and the Black Sea, the West and the East, Europe and Asia. It was the axis around which the known world spun.

Modern Istanbul lacks the economic clout of a New York, London or Hong Kong — for now. But as it did in its former days of grandeur, Turkey finds itself at the center of several very powerful forces. That bodes well for stocks that call the nation home — including my top pick for the best stock of 2012, Turkcell Iletisim Hizmetleri AS (NYSE:TKC), a mobile phone operator more commonly known just as “Turkcell.”

Why Turkey, and why now? Well, it is the bridge between a wealthy but economically distressed Europe and a poor but growing Middle East. It has a customs agreement with the European Union, but it also is an emerging economic and political leader in the Islamic world. And while much of the Islamic world — as well as non-Muslim developing countries like Russia and China — still is struggling through the painful transition from autocracy to democracy, Turkey is a good 20 years ahead of the pack and more politically stable.

The �BRIC� countries of Brazil, Russia, India and China might get most of the press, but Turkey has one of the brightest futures among emerging market contenders. Turkey has a younger population than any of the BRICs save India, yet fertility rates recently have fallen to Western levels. This puts the country in a demographic sweet spot for falling inflation and rising real consumer spending growth for decades to come.

Of course, the downside to being at the crossroads of Europe and the Middle East is that Turkey finds itself sandwiched between the two most problematic regions of the world. Europe is struggling to contain its sovereign debt crisis, and the Middle East has been wracked by social revolution and the threat of war against Iran.

Click to Enlarge Not surprisingly, Turkish stocks have taken a beating. The MSCI Turkey Index as measured by the iShares MSCI Turkey Index Fund (NYSE:TUR) is down nearly 50% since October 2010, and off about 30% since summer 2011 as of this writing.

If you believe, as I do, that Turkey has one of the brightest futures of any country on the planet, then the crises on Turkey�s borders should be viewed as a phenomenal opportunity to buy shares of some of Turkey�s finest companies. And my choice for 2012 is Turkcell.

It�s been a rough year for Turkcell shareholders. Actually, it�s been a rough several years. The share price is barely a third of its pre-crisis level, and earlier this year it came close to falling below its 2008 meltdown lows. Investors fleeing the volatility of Europe and the Middle East have had little use for a Turkish blue chip like Turkcell.

Their loss is our gain. There is no object more essential to life in the modern world than the mobile phone, and Turkcell is the dominant wireless carrier in Turkey with a 54% market share. And while mobile phones are ubiquitous in Turkey, the overall market is far from saturated. Market penetration is at about two-thirds of the European average. And smart phones, with their lucrative data plans, represent only 10% of Turkish cell phone users.

Turkey, while the biggest, is far from Turkcell�s only market. The company also is a major player across Eastern Europe and the Middle East, and Turkcell is the market leader in five of the nine countries in which it operates. The key to take away from this is that telephony still is a growth industry in most emerging markets, and Turkcell is a fine company in a great position to profit from that growth.

In Turkcell, we have:

  • A world-class company with a dominant market position in a dynamic emerging economy.
  • A company that sells service that has become a basic necessity for both consumers and businesses — meaning that it is recession-resistant.
  • Great opportunity for growth.
  • A direct play on the Turkish consumer.

Turkcell also is a conservatively financed company. The company has no net debt, and a third of its balance sheet is cold, hard cash. Turkcell has $3.73 per share in cash; not bad considering the stock price is currently less than $12.

Skeptical investors might well be wondering: What�s the catch?

If investing were this simple, it wouldn�t be fun. Turkcell�s board of directors has had an on-again, off-again power struggle between two shareholder groups that reached a boiling point earlier in 2011. The company missed its dividend payment, not because it couldn�t afford it (it most assuredly could), but because the board couldn�t stop bickering long enough to approve it. Markets hate uncertainty, and the uncertainty plaguing this stock explains a fair bit of its underperformance of late.

The board situation will get fixed soon. In the meantime, life goes on, and the company continues to grow and prosper. When the dividend payment is resumed, I expect it to be in the ballpark of 5%. In the meantime, investors can buy a piece of one of the finest emerging-market telecom companies in existence trading for just 9 times expected 2012 earnings.

Disclosure: Turkcell is a recommendation of the Sizemore Investment Letter and is held by Sizemore Capital clients.��

Charles Lewis Sizemore, CFA, is the editor of the Sizemore Investment Letter, and the chief investment officer of investments firm Sizemore Capital Management. Sign up for a FREE copy of his new special report: �Top 5 Contrarian Stocks for 2012.�

A French downgrade could derail eurozone rescue

NEW YORK (CNNMoney) -- In what would be another blow to Europe's beleaguered rescue fund, there is growing speculation that France will eventually lose its top-tier credit rating.

Standard & Poor's could change its outlook for France's AAA credit rating within 10 days, according to a widely circulated report Tuesday in La Tribune, a French financial daily newspaper. If true, analysts say the move could lead to an official downgrade of the nation's rating within months.

S&P declined to comment on the report.

"It wouldn't surprise me if France got downgraded," said Kathy Jones, fixed-income strategist at Charles Schwab, noting that several other European governments have recently faced their own downgrades.

But a downgrade of France's credit rating would have serious repercussions for the European Financial Stability Facility, which European Union leaders have billed as a "firewall" against the debt crisis spreading across the eurozone.

France is the second-largest backer of the EFSF, after Germany. Paris stands behind over €158 billion worth of loan guarantees under the latest iteration of the rescue fund.

"If France gets downgraded, the stability fund gets downgraded too," said Jones. "That's the real concern."

All told, the fund boasts some €780 billion worth of "capital." But analysts say the actual amount is much smaller, given all of the fund's existing commitments.

In the event of a downgrade, investors would likely favor bonds issued by other AAA rated nations at the expense of the stability fund.

"People would go into German Bunds and shun EFSF bonds," said Tobias Blattner, economist at Daiwa Capital Markets in London.

Weak German debt sale is a 'disaster' for Europe

That would make it harder for the stability fund to raise the money it needs to continue supporting troubled euro area nations, such as Ireland and Portugal, which already depend on the fund for bailout money. Not to mention a planned second €110 billion bailout for Greece.

In addition, a downgrade would raise questions about a plan to leverage the fund by using it to insure new issuance of government bonds.

EU finance ministers are expected to unveil details of the insurance scheme later Tuesday after meeting in Brussels.

The loss of AAA status would also hinder an already faltering effort to use EFSF funds to back a special investment vehicle designed to attract capital from non-European governments and private sector investors.

On the bright side, if there is one, a downgrade would not necessarily drive up borrowing costs for the French government, according to Blattner.

"Investors are already pricing in the downgrade," he said.

The yield on French 10-year notes rose above 3.7% last week amid a broad flight from European bond markets. On Tuesday, yields were hovering near 3.5%, sharply higher than the 2.5% seen in early September.

As part of a series of auctions this week, France will offer up to €7 billion worth of 6-, 10-, 15- and 30-year debt on Thursday.

Blattner expects France to be downgraded sometime early next year. He said a combination of the nation's EFSF liabilities, the exposure of French banks to troubled sovereign debt and the government's massive budget deficits make a downgrade all but certain.

S&P downgrades Belgium

In an interview with France Info radio, French Finance Minister Francois Baroin stressed that France is not the only country implicated in the intensifying debt crisis.

"Everyone is concerned, it's not just France," he said, adding that French policy makers are "lucid" and recognize the seriousness of the crisis.

But he ruled out additional austerity measures, saying the French government has a "margin" of €6 billion in reserve.

Tuesday's La Tribune report, based on unnamed government sources, comes weeks after S&P mistakenly sent a message to subscribers indicating that France had been downgraded.

Moody's and Fitch, the other main credit rating agencies, both warned recently that France's credit rating would be at risk if the debt crisis in the eurozone continues to deteriorate. 

Did Canadian Banks Just Find $10.4 Billion Of New Earnings?

I merely mentioned it in passing at the time (see prior post “Are Banks choosing Provincial bonds over Commercial loans?” January 5, 2012), but it was during a chat on air with BNN’s Kim Parlee last week that I realized it deserved more that just a few words.

Between October and November 2011, Canadian chartered banks sold C$81 billion of Federal government bonds, representing 37% of the bank’s entire such holdings, according to data published by the Bank of Canada. I find this fascinating for a couple of reasons, at least. Banks put their cash in a few places when they aren’t lending it to consumers or entrepreneurs. One of those places is government bonds, since they are the most liquid security and easily saleable should cash need to be raised quickly for another purpose (and Regulators require a certain level, too).

As of October 2010, Canadian chartered banks held C$218.2 billion of Canadian government debt with a maturity of more than a year, C$39.2 billion of T-bills and C$4.2 billion of currency. Fast forward a year, and the figures hadn’t changed a lot: C$220.9 billion of Canadian government debt with a maturity of more than a year, C$33.7 billion of T-bills and C$4.4 billion of currency. With C$608.4 billion of total Federal bonds and T-Bills outstanding as of November 30th, the banks owned 43% of Ottawa’s issued debt at the time (ignoring the Crown Corps). That’s big.

But one month later (following the end of the 2011 fiscal year) in November, there was a huge change: Chartered banks held just C$139.5 billion of Canadian government bonds, C$35.3 billion of T-bills and C$4.6 billion of currency. Some C$15 billion of that C$81 billion of “newly available” capital went into increased credit card lending (yikes), while another C$5 billion went to reverse repos, loans, mortgages and personal lines of credit.

But with some modest selling of corporate bonds and (I assume) OSFI concurrence, banks added C$260.5 billion of residential mortgages to their collective balance sheets in November. A 46% increase in just a single month. I assume that “paper” came from CMHC, as there can’t be another entity in the country that could have been warehousing that amount of resi mortgage paper. Unless, or course, the Bank of Canada swapped it. Or this is IFRS standards at work. You can be sure that Canadians didn’t take out quite that many new mortgages in a single month, no matter how hot the Vancouver real estate market got last Fall.

Even if the average Canadian mortgage is paying 4 or 6%, you can imagine why banks would rather hold them as investments than Federal bonds that have dramatically increased in value over the past year and are now paying peanuts on a relative basis: A rate of 0.96% (for a 2 year bond), 1.0% (3 year bond), 1.27% (5 year bond), 1.94% (10 year bond), or 2.49% (30 year bond). Talk about a free earnings pick-up for the banks. Same capital base but a far better yield on your existing assets.

I’d also love to know who bought the C$81B of bonds that the banks were allowed to sell to buy the mortgages. But, that’d be hard to find out. What might be easier for our friends at Bloomberg, Reuters or the DTM to do is to call up the various bank Public Affairs departments and find out a) why these changes took place and b) what it says about OSFI’s view of the health of the global banking system (positive, no doubt), and c) what these new higher-yielding bank assets could mean for 2012 earnings (unless its just IFRS hocus pocus).There’s also BMO bank analyst John Reucassel to rely on, too.

A figure of C$260.5 billion times 4% (the net interest rate pick-up of owning mortgages vs. bonds?) is C$10.42 billion of collective “found” earnings for the banks. That’s meaningful juice.

Disclosure: we own Bank of Montreal (BMO), Bank of Nova Scotia (BNS), Royal Bank of Canada (RY) and Toronto Dominion Bank (TD) in our household)

Employment: The Older Worker Story

Calculated Risk writes about the plight of those trying to compete in the labor market in the years before retirement. It is pointed out (see graph below) that the unemployment rate for those in the 45-54 and 55-64 year old age groups is at the highest level since before World War II.

Click here for larger image.

However, things may be much worse in Europe. The following graph from Real Clear Markets shows that the older worker is participating in the labor market much more in the U.S. than in Europe. The employment rate for over 55 workers in the U.S. (61.8%) is 38% higher than for the average for all Europe (44.7%).

I am having trouble verifying the number that is displayed in the graph for the U.S. Until proven otherwise I will assume that the data is an apples to apples comparison. However, I can not determine the variety of apples or that there are no rotten apples in the barrel. Therefore, reader be wary.

The data base at the BLS (Bureau of Labor Statistics, U.S. Dept. of Labor) contains the following table:

This table indicates that the employment rate for the 55 and over population is around 37%, much like many European countries in the Real Clear Markets graph.

It is true that older workers have been less affected by unemployment in this recession than have younger workers. This is clear in the following table.

The 55 and over age group has the lowest unemployment rate using the official U-3 unemployment rate which many, including this author, argue under reports the true level of unemployment. See "True Unemployment Numbers". However, we are making comparisons and distortions from selection of one unemployment rate measurement over another should be minimal.

The older age group is the only one that shows a ten year increase in employment participation rate. The increase in the number of people working past early retirement age is one of the factors contributing to the draconian drop in employment participation in the younger age groups, particularly 16-24 years of age. When older workers remain in the labor force, there are fewer entry level positions for the young.

Even more interesting results are found when the 55 and older data is broken down into age groups. While the participation of 55-59 year old workers is little changed over the past ten years, older age groups are staying employed longer. The older the age group, the greater the number remaining employed.

For those 70 and older, there has been an increase by over a third in the percentage still working. Since this demographic has been growing rapidly in recent years, the absolute number of 70 and older employed has increased far more than the 1/3 increase in employment participation. In January 2000 there were 1.847 million people 70 and older employed. In January 2010 there were 2.713 million, an increase of 47%. The increase for 75 and older was 63%, to a total of 1.2 million in January 2010.

I recall reading an article recently that described a survey of people 60 and older. I recall that 70% of the respondents said they intended to keep working, rather than retire, for economic reasons. That is, they couldn't afford to stop working. I have been unable to recover that source so I can't determine details of the survey, or even if I have the bottom line correct.

If it was a survey of people currently working, then the indication is that participation rate of those now 60-64 (51%) could be 35-36% when that group is 65-69. That compares to 29% in January 2010. Projecting forward beyond five years, the participation rate for 70-74 could be more than double the January 2010 rate by January 2020.

If social security retirement benefit eligibility ages are moved forward several years, as many believe will be necessary, the employment participation rates for people up to age 75 may increase even more than suggested by the poll numbers.

And the very low participation rates for those 75+ could skyrocket. If 80 becomes the new 70 and 70 becomes the new 60, estimates for where we are headed can be read from the last table above: just add ten years to every age group.

Disclosure: No stocks mentioned.

Thursday Winners: IRobot Gets its Second Wind

Every year, a handful of stocks emerge as intriguing high-growth stories that attract hordes of momentum investors. Shares of these hot stocks can climb and climb until the valuations move into the stratosphere. And then, inevitably, a company can become big enough that it becomes difficult to keep growing at a breakneck pace. Growth rates slow, momentum investors flee, and yesterday’s hot stock becomes today’s laggard.

That’s just what happened to iRobot (Nasdaq: IRBT), which was the darling stock five years ago, but went on to see its shares fall roughly -80% during the next few years. But this maker of commercial and military self-controlled devices just jumped back into the spotlight. After a steady deceleration of sales growth over the last few years, management just announced a +67% jump in first quarter sales, far higher than analysts had been expecting. Over the course of the whole year, management believes sales can rise some +30% above 2009 levels. Not bad for a company that actually saw sales shrink in 2009.

  It’s tempting to buy the stock, even after its nearly +30% spike in this morning's trading. But shares are not cheap at around 60 times likely 2010 profits. Some investors are likely to sell this winner once they see this quite-high price-to-earnings ratio(P/E). Any sell-off may create a better entry point for investors looking to get into this high-growth story.


Shares of First Solar (Nasdaq: FSLR) also posted double-digit gains after the thin-film solar vendor posted solid first quarter results. (In a story last month we noted that First Solar was one of a number of companies that was heavily shorted at the time.) The results were boosted by robust demand for solar power equipment in Europe. Trouble is, those subsidies are winding down, and future results may not get the same tailwinds as cash-strapped governments throttle back their support for clean energy. Then again, any carbon-taxing legislation to come here in the United States could provide a tailwind. For now, you may want to book profits, especially since some of the gain is attributed to short-covering that won’t last. And a new set of cynical investors may look to add fresh short positions now that shares have risen so quickly over the last few weeks. And that would add fresh selling pressure on the shares.


What Options Are Telling Us About Gold And Silver

Sometimes the options markets offer clues about the market’s “mood." Right now, when it comes to gold and silver, the mood isn’t so glum as it was during 2011.

For clues, I took a look at open interest on both the SPDR Gold Trust (GLD) and the iShares Silver Trust (SLV).

For SLV, the number of open contracts open surged into earlier 2011 then fell rather rapidly along with the metal itself.

As for GLD, the open interest has been a lot steadier.

You can see that the red line representing puts seemed to drop off in the second half of 2011. How much? Well the put/call ratio shows that a bit more clearly.

The put/call ratio has fallen to its lowest level in two years for GLD, which I interpret as a bullish sign – or at the very least a non-bearish sign.

For silver, the put/call ratio has also dropped – not as low as in early 2010, but at fairly low levels nonetheless.

As for the ETFs themselves, the size of each trust shows that there’s about 15% less silver in the SLV Trust than there was at the beginning of 2011. Holding in the GLD ETF have been a lot steadier, although what looks like a tiny drop in GLD holdings in the last quarter of 2011 represents about 2 million ounces of gold.

Precious Metal Headwinds

One issue with the market for both gold and silver is the debacle caused by the MF Global fiasco. There was certainly significant net selling as futures traders were left scrambling to move their existing positions to new firms.

The European debt crisis isn’t helping matters much, as the dollar has gained significant strength against the euro – and that’s not great for gold and silver denominated in U.S. dollars.

But the options market offers another clue that these markets are settling down. Implied volatility dropped a lot in the last quarter of 2011.

Here’s a look at the 90-day indexed implied volatility for both ETFs. This represents the relative pricing of options on these ETFs – essentially traders’ predictions for future price movement.

The dashed red lines are my attempt to draw some sort of a trend line encompassing the last two years. Based on this I would say that SLV options start to get “cheap” if implied volatility gets below 40%, while GLD options become attractive at IV levels of below 20%.

I’m long both ETFs and from what I see here, I see no reason to make any changes to my GLD and SLV positions.

Disclosure: I am long GLD, SLV.

5 Stocks With "Bomb Shelter" Qualities

There's a tried-and-true maxim on Wall Street: Stocks fall a lot faster than they rise. There are myriad examples, and the sharp plunge of 1987 is just one.

The economy was growing at a nice clip, corporate profits were on the rise, and investors were pouring into the market. And then, "Black Friday" came on October 19, 1987, pushing the S&P 500 down more than 20% in a single day. The fact that stocks had risen 250% in the previous five years led to a great deal of complacency, as few potential land mines stood on the horizon.

Looking back, we still don't even know what caused the crash. Some think it was due to computer-driven trading programs that fed off each other in a cycle of negativity, or that maybe underlying derivatives had lost enough value to cause a cascading effect of unwinding contracts. Others simply suggest that the market was due for a breather and a mild sell-off turned into a panic-driven rush for the exits as they day wore on.

We'll never know.

Fast-forward to 2012, and the skies are again seemingly clear. In fact, we've just emerged from a risky phase for the global economy, and the economic backdrop holds few land mines in the near-term. But still waters run deep, and you have to always think about the risks of a seemingly benign market mood. So it's simply prudent to make sure that, at this phase in the market cycle, your portfolio also contains a handful of deeply defensive stocks that will more likely hold their own if the major indices slump badly.

Here are five stocks that have "bomb shelter"-like qualities...

1. Abbott Labs (NYSE: ABT)
While many health care-related companies tend to focus on one core strengths such as insurance, hospital ownership, niche drug development or specialized medical devices, Abbott plays the field by selling hundreds of products to a range of customers. This will never be a fast-grower. Then again, sales have never fallen in any of the past 20 years. The current $40 billion revenue base benefits from a huge degree of recurring revenue and, thanks to modest annual price increases, management is always able to maintain 20% to 25% EBITDA margins regardless of any cost pressures the company may face.

2. Archer Daniels Midland (NYSE: ADM)
The agricultural titan has its share of challenges. Profit margins can fluctuate as input prices and end-market prices gyrate back and forth. But because ADM controls so much of the agro-industrial complex, it is better insulated from the booms and busts that would rock its smaller rivals in the farm belt.

The timing for this stock is good. Analysts think margin trends will soon swing back in ADM's favor, which is why they think earnings per share (EPS) will rise from around $2.50 in fiscal (June) 2012 to around $3 in fiscal 2013 and $3.50 in fiscal 2014.
3. Verizon (NYSE: VZ)
No company has handled the migration from wire-line to wireless phones as adroitly as Verizon. Management has been steadily reducing expenses at the legacy wire-line business, freeing up resources to further cement its gains in the industry-leading wireless business. Even in adverse economic times, consumers would be loathe to cut back on their need to stay connected. Indeed today's smartphones are a lot like an addictive drug. Try going a week without one. The fact that Verizon currently sports a 5% dividend yield means shares have ample downside protection. Any sell-off in the stock would simply boost the yield, making it newly attractive to a fresh base of investors (whose buying would presumably push shares back up.)

4. Loews (NYSE: L)
There are plenty of insurance stocks that would represent safety in a plunging market. But Loews is so broadly diversified that it is insulated from the vagaries of any one particular insurance niche. Not only is Loews involved in all kinds of insurance, it also owns a hefty slate of energy assets, such as offshore drilling rigs and natural gas rigs and pipelines. The fact that the stock's current market value of $15.7 billion is actually lower than the book value of $18.8 billion just underscores the relative safety of this stock.

5. Southern Co. (NYSE: SO)
I could mention almost any power utility, but Southern Co. is an exemplary industry play. The company's 4.6% return on assets (ROA) and 12.3% return on equity (ROE) are among the best in the business. The fact that the company's dividend grows about 4% every year would surely be noticed by investors as they made a flight to safety. If you buy shares today, you'll be getting a yield of about 4%, but thanks to the power of compounding, you could be scoring double-digit annual yields (based on your original cost) if you hold this stock into the next decade. 
Risks to Consider: These stocks are unlikely to fall nearly as much as the broader market in a major sell-off, but would likely take a moderate hit as investors pull funds.

Action to take --> Building a portfolio around these kinds of stocks is suitable for the most conservative investors, especially those nearing retirement. For more aggressive investors, you need simply to think about having a degree of exposure to these safer stocks, even as you remain more squarely focused on high-beta stocks that are leveraged to a growing economy.

*Post courtesy of David Sterman at Street Authority. 

David Sterman has worked as an investment analyst for nearly two decades. He started his Wall Street career in equity research at Smith Barney, culminating in a position as Senior Analyst covering European banks. While at Smith Barney, he learned of all the tricks used by Wall Street to steer the best advice to their top clients and their own trading desk.