Value-Stock-Plus: US bull market coming to an end: Rakesh Jhunjhunwala

Value-Stock-Plus: US bull market coming to an end: Rakesh Jhunjhunwala



Rakesh is a widely respected billionaire who has an uncanny knack for catching global macro trends. The Dow somehow has pushed past 14,000 despite major banks' warnings about earnings that will be off more than 50% from last year. Obviously, the Street thinks that the worst is over. It seems unlikely to me that we've gone from knowing very little about the extent of the damage to knowing everything and discounting it within a month.

David F. Swensen has done it again

The Yale endowment returned 28% for the fiscal year ending June 30th. It's now over 20 billion!. That's an amazing return for that amount of money. It shouldn't be that big a suprise though. In the endowment world, no one is better at allocating capital than Swensen. So how does he do it? This guy is the most astute picker of outside managers there is. Secondly, he is diversified beyond all belief. I highly recommend both of his books, Pioneering Portfolio Management: An Unconvential Approach to Institutional Investment and Unconvential Success: A Fundamental Approach to Personal Investment. They are a bit pedantic; this is not the breezy, conversational style of Peter Lynch, but they are definitely well worth the read.

A cheap, fast-growing Chilean stock

Administradora de Fondos de Pensiones de Provida SA(PVD) is a Peruvian pension benefit administrator. It is the rough equivalent of a Prudential. It has a P/E of 7.8 with a 5.8% dividend yield(additionally, the dividend has been growing at a 12% annual rate for the last five years). The margins are enormous for this business. Return on Assets is 15.8%: return on equity is 26.4%. The margins are very healthy( operating margin of 35.6%), it's sitting on over $300 million in cash and has no debt. Oh, and let's not forget that year over year profits have nearly quadrupled. I usually don't like to recommend stocks that have just hit a 52-week high, but this stocks is just too cheap.

If you must buy a bank, look to the Great White North

Canadian banks are as solid as they come. They are a bit more expensive than their U.S. counterparts, but paying extra is worth avoiding subprime exposure. They have decent yields and great margins. This is also a good play on the strength of the Canadian dollar. Check out Toronto-Dominion Bank(TD), Bank of Nova Scotia(BNS), Bank of Montreal(BMO), Canadian Imperial Bank of Commerce(CM), and Royal Bank of Canada(RY).

How to benefit from petrodollar recycling

The massive amounts of money being made in the Middle East will eventually(at least some of it) make its way back to the West These guys won't be buying Rockefeller center like the Japanese did or other trophy properties. So what are they going to buy? How can you benefit? Unlike the massive petrodollar recycling of the 70s and 80s, it won't end up in Treasuries. Some of it will be in gold. As we've recently scene, some of it will go into private equity firms and the exchanges. Alot of wealthy Arabs have been investing in the U.K. For there purposes, it's seen as a much more tolerant place than the United States. This is part of the reason that London real estate is some of the most expensive on earth.
I think that you should take a look at luxury manufacturers, which will also be getting tailwinds from the rise of rich Asians. The easiest way to do this is buy buying the Claymore/Robb Report Global Luxury Trade Index ETF(ROB). The index is made up of financial services companies, upscale retailers, hoteliers, resorts, and other companies that cater to the wealthy.
The company in this index that I like best is Embraer(ERJ). Embraer makes commercial jets, private jets, and has a defense segment.

Penny stocks advertising in Forbes and Fortune

Why are these august publications displaying ads for bulletin board stocks like PetroSouth Energy? Or Fox Petroleum? It's not just these magazines. Fast Company runs ads for Sun Cal Energy. Is this appropriate? Are the publications paid as they would for any other full-page ad or or they given an equity stake?

The dollar under assault and how to benefit

The Canadian dollar has reached parity with the American dollar. The euro is at an all-time high vs. dollar. What should you do? Buy the currency ETFs like DBV, FXC, FXA. Also, don't forget gold. You can also buy U.S. multinationals that do most of their business overseas. Here's a list of some other Currency ETFs and ETNs:

PowerShares DB G10 Currency Harvest Fund (DBV)
PowerShares DB US Dollar Bullish Fund (UUP)
PowerShares DB US Dollar Bearish Fund (UDN)


CurrencyShares British Pound Sterling Trust (FXB)
iPath GBP/USD Exchange Rate ETN (GBB)
CurrencyShares Euro Trust (FXE)
iPath EUR/USD Exchange Rate ETN (ERO)
CurrencyShares Japanese Yen Trust (FXY)
iPath JPY/USD Exchange Rate ETN (JYN)
CurrencyShares Mexican Peso Trust (FXM)
CurrencyShares Swedish Krona Trust (FXS)
CurrencyShares Swiss Franc Trust (FXF)

Enjoy the Fed Rally while it lasts

So the market got a bigger cut than it expected and now everyone's singing Bernanke's praises. All he has done is stave off the inevitable. This problem is bigger than the Fed or even all the world's central banks put together. The system needs a painful cleansing, sooner or later. Bernanke's hair of the dog that bit you cure for the hungover U.S. financial system works in the short-term, but doesn't address the bigger issue which is our drinking problem.

Bill Miller's latest letter to investors

Has Bill MIller been needlessly contrarian? He still has refused to put any money into energy stocks. Not only, is he not buying energy stocks, he's buying housing stocks nad has large exposure to financials. Consequently, on the year, he is trailing the S & P 500. He explains his reasons in his quarterly letter to shareholders of Legg Mason Value Trust.
I am not saying that Bill Miller has lost it. He is doing exactly what great value investors do; he's buying extremely cheap companies that others don't want and being patient. He readily admits to being very early on his housing stock buys. Also, he isn't convinced that we're in the midst of a secular bull market for energy. He shouldn't buy energy stocks because they've been the market leaders for the last five years. He should buy them because they are still cheap and are throwing off record amounts of cash.

Slow news day

The biggest story this morning is that Microsoft(MSFT) has raised its dividend. McDonald's(MCD) has hit an all-time following, following a 50% dividend increase. No big earnings news. Crude is down a bit. Gold is down a smidgen. The unemployment numbers were better than the abysmal ones analysts were expecting. The UAW might establish a trust fund for its members healthcare costs. These are not big, market-moving stories. Still the market is up huge. Perhaps buyers are desperate that they are looking for any hit of good news. This is a great example of how it makes absolutely no sense to try to parse meaning from the daily fluctuations of the market.

Festival of Stocks

The 53rd Festival of Stocks can be found at CollegeAnalysts.com this week.

Traders and the poor

Michael Lewis' irreverent take on the subprime mess. Lewis pens his latest piece for Bloomberg from the perspective of a burned sub-prime credit trader. As always, Lewis is insightful and funny. I wish that he wrote more often for national publications.