The For-Profit Education Bubble? [more]
Last week, I purchased stock in U.S. Steel (X) at $28.50. My reasoning on this can partially be found in my CAPS pitch. Today, X announced 4th Quarter earnings with a huge positive surprise. They reported diluted earnings per share (DEPS) of $2.65. They beat estimates by over $1.20 per share. My own calculation also show Operation Cash Flows (CFOs) of $327 million (2.81 per share) and Free Cash Flows of $64 million ($0.55 per share). [more]
About a month ago, I was asked by someone to articulate my portfolio strategy or investing philosophy. I have had one for a little bit, but with a lot of things, you find that the ideas are not as clearly defined as you might believe once you start to explain them to others. I bumbled through my response mentioning one prong of my investment strategy dealing with "bankruptcy risks" and taking advantage of them. This was back in early December when the market was in the gutter so this topic was fresh on my mind. In hindsight, I realize must have sounded insane, but it lead me to articulate my views a little further. [more]
The outlook for corn is fairly dismal according to the article below. I wouldn't be surprised actually because I'd be willing to wager that ethanol has created a vast amount of excess supply in the market. Still, I wish I knew more about agricultural commodities fundamentals --- if corn is above production cost for a large chunk of farmers, it might be undervalued.
As far as ag goes, I've mostly limited myself to Syngenta (SYT), the potash producers (MOS, AGU, IPI), grains (JJG), and general agriculture ETFs/ETNs (JJA, RJA). [more]
With the current recessionary environment, perhaps it’s not such a bad time to take a look at investing in penguins and fedoras. When I say penguins, I mean Tux, the official mascot of the Linux kernel and when I say fedoras, I mean Red Hat, the Raleigh, NC-based provider of open source enterprise solutions. [more]
As the economic crisis drags on, it's time for us to start to giving a more thorough examination as to the causes and the potential remedies. How can we pull ourselves out of this and position ourselves for real economic growth again? Most economists have focused on things like leverage and the bursting of the housing bubble and these are indeed important issues to address. However, economists have failed to look at one of the key elements of growth that allowed us to experience such an unprecedented era of prosperity to begin with: Falco!
You see, what most people don't realize is that Falco was largely responsible for the economic growth of the '80s and the '90s. Of course, many people remember Falco's big American hit, "Rock Me Amadeus", but most people have forgotten his wide-spread influence all over the world. Falco was not only popular in his native Austria, but also in Germany, the Netherlands, Canada, the United States, Switzerland, and Norway, just to name a few nations. His influence allowed him to eventually cause major political and economic currents in much of the Western world. Falco set the stage for the end of the Cold War and an era of peace and he initiated an era of economic prosperity that would last for decades.
Falco was a unique artist who combined a charming, slick-hairdo, with quality music, and over-the-top silliness. There were others who had similarly successful musical formulas such as Adam Ant, but none were quite as remarkable as Falco. Not coincidentally, Falco's first single, "Der Kommissar", was released in Spring of 1982, during the height of the Early 80's Recession. It had been the worst economic downturn since the Great Depression, but by the end of the year, the economy was starting to recover once again in no small part due to the emergence of Falco.
One reason Falco's "Der Kommissar" had such a profound impact was that is quite possibly, the most awesomely bad music video of all-time! I mean, seriously --- it's Falco and he's pretending to run while standing in front of video footage of police cars chasing him in the background. Sometimes, he inexplicably stops yet the cars keep moving. It really makes no sense at all! That's why we loved it! Plus, the song was actually very catchy!
"Der Kommissar" managed to awake the pessimistic masses and made people realize, "hey, if a stupid music video can make me this happy, maybe we can get this economy going again!" "Der Kommissar" was so profound, it spawned an English-language knockoff almost immediately by the band After the Fire. This helped spread the wonders of Falco to those who did not speak the German language and were merely confused by Falco's video. Think of it this way --- if Falco was Jesus, After the Fire was the John the Baptist. Of course, all of this merely set the stage for the next great chapter in Falconomics: Rock Me Amadeus.
Falco's new miracle showed off his spectacular silliness as he walked through eclectic crowds of people dressed in 18th Century garb and rode his motorcycle to a biker bar dressed as "Amadeus" himself. So impressive was his effort, the song catapulted to #1 in charts across the world, including the United States. Of course, "Rock Me Amadeus" was only the tip of the iceberg --- it was going to take more than that to set the stage for an unprecedented era of peace and prosperity.
In 1986, sensing that more needed to be done to ensure the livelihood of the Western world, Falco released the video for "The Sound of Musick." Indeed, the video was so great, it would be nearly impossible for an observer like myself to articulate it into words and one can only experience the sheer wonder goodness of it by watching for yourself:
Of course, one man can only do so much and economic events are often years in the making. Falco had helped reversed the Early 80's recession, but it would take many more thoroughly ridiculous music videos to set the world up for the Internet boom and the prosperity of the 90's. Despite a 1987 market crash, Falco refused to quit fighting and released the video for his song "Emotional":
This was followed in short order by the groundbreaking video and completely inexplicably awesome "Wiener Blut" in 1988:
"Wiener Blut" ended up being the last needed impetus that led to the Fall of the Berlin Wall in 1989 and helped set the stage for the collapse of the Soviet Union. This ushered in an era of peace that lasted until 2001, when Americans decided to vote into office George W. Bush.
Falco's videos were a source of inspiration, helping achieve optimism and a renewed spirit amongst the people of the Western world, which then led to the boom of the Internet era. Unfortunately, tragedy struck in 1998 when Falco suffered fatal injuries from an auto crash in the Dominican Republic.
A mere three years after Falco's death, the Internet boom came to an abrupt end. Without the inspiration provided by Falco, companies used increased leverage and financial institutions came up with increasingly exotic instruments in order to boost their earnings. All of this ultimately culminated in one of the worst busts in world history, beginning in 2007 and dragging on through the entirety of 2008.
As we struggle to clean up the mess created over the past decade, we must ask ourselves, how can we get back to the basics and create real economic growth? How can we end this age of neverending pessimism and make people enthusiastic about creating the economic growth we need to get back on our feet? While we can't bring Falco back from the grave, we can remember all that he taught us.
Instead of throwing more money at financial institutions, perhaps policymakers should set out to discover an artist that can inspire us like Falco! It will be a difficult task, but we can all do our part by engaging in completely silly activities like dressing in 18th century garb, wearing pirate hats, singing ridiculous songs aloud in our everyday life, failing to make sense in front of our peers, slicking our hair back, and of course, entertaining the masses. This will bring back our prosperity!
Just like Renaissance artists inspired Renaissance thinkers, thereby, creating an unprecedented era of rational thought, science, and progress --- economists would be wise to not forget the influence of the great Falco on the economic boom of the '90s! [more]
I actually don't agree with some of the things the author argues; in fact, I probably disagree with most of it to be perfectly honest, but I'm a big believer that all valid perspectives should be listened to and I think John Cassidy articulates his case well: [more]
The Satyam scandal has provided a stark reminder to many about the dangers of investing. There are, however, diverging trains of thought on what to take away from this. One school says that this goes to show that the rest of the world is not that much unlike America and that an Enron or Madoff scandal can happen anywhere. Underlying this belief seems to be the idea that these sorts of scandals are somewhat random and unpredictable. [more]
The Huney's Investment Ideas for January '09
As we enter into a new year, it's time to re-examine the best investments out in the market right now. Last month, steel, dry-bulk, agriculture, gold, and silver miners all seemed to offer screaming buys to me. I bought in heavily for my fantasy portfolio on Facebook's Kaching and gave the thumbs-up to numerous stocks here on Motley Fool's CAPS, but unfortunately was not able to take advantage as much I would have liked to in real life, with the exception of getting in on Titanium Metals (TIE) at $7.00.
Now that stocks in all the aforementioned industries have experienced a significant run-up, they look considerably less appealing. But while there is nothing out there that seems like an obvious screaming buy to me any more, there are still a lot of good investments out there.
The Case for Commodities
I'm in agreement with Jim Rogers on the fundamentals of commodities. There are a lot of dissenting voices out there who think that demand destruction will continue and commodity prices will continue to go down. However, it's important at the actual fundamentals of most of these commodities. For a significant chunk of metals and other commodities, the production costs are now lower than the spot market prices. That sort of situation never lasts too long as no one is willing to continue producing for a loss. Hence, supply goes down and prices go back up.
There's also a few more interesting dynamics out there --- many people were ultra-bullish on commodities back in the summer of '08, but vast demand destruction resulting from the worldwide recession destroyed prices. Yet, the difficult deleveraging process that we are undergoing right now actually makes commodities much more appealing from my perspective. For one, the current players in many of commodity industries are lowering production and secondly, there's less capital out there for new entrants to enter the market. The likely end result of these dual dynamics is that commodity prices will go through the roof once there is any sort of demand recovery.
To make things even more appealing, we are seeing the United States and several other major world players throwing a lot of money at this economic crisis. Here in the US, I would be surprised if the end result is not double-digit inflation at some point in the future. Commodities provide real value that will help protect against inflation. I'd much rather have my money in commodities than in the US Dollars, bonds, or fixed return investments. Keep in mind, that commodities are traditionally considered a more "high-risk" investment than the other investment vehicles I mentioned, but in all honesty, I would be more afraid to hold those supposedly "safe" investments right now than commodities.
General Commodity ETFs and ETNs
You can buy into the stocks of companies that produce commodities, you can buy into the commodities themselves, or if you want a simpler and easier investment, you can buy into commodity ETFs and ETNs. As there has been a run-up in commodity stock prices over the past month and I believe ETFs and ETNs are simpler investment vehicles for the average person, I'm advocating that approach right now.
Personally, I'm considering buying into the Commodity Double Long (DYY) ETN soon. This is a levered fund and potentially can produce higher returns than a non-levered ETN, so that means higher risk and potentially higher reward. I don't necessarily recommend this for most people, but if you want to take a bigger chance, it's an option.
However, if you're more risk-averse but want to make a play on commodities all the same, there are lots of options out there for you. A few to consider:
DB Commodity Long ETN (DPU)
PowerShares Commodity Index ETF (DBC)
iPath DowJones-AIG Commodity Index ETN (DJP)
The commodity indexes will include agricultural commodities, but if you're looking to go solely with agriculture, there are also a lot options:
Rogers Internat'l Commodity Agriculture ETN (RJA)
Power Shares DB Agriculture ETF (DBA)
E-TRACS UBS Bloomberg CMCI Agriculture Index ETN (UAG)
iPath Dow Jones AIG-Agriculture ETN (JJA)
Also, if you wanted to invest in particular areas of agriculture, there is an iPath Grains ETN (JJG) and an iPath Livestock ETN (COW) to consider.
There are some individual companies I would consider, but I believe the upside is less pronounced than it used to be. Syngenta (SYT), I believe, has considerable growth prospects and still seems reasonable to me under $40. Agrium (AGU), Intrepid Potash (IPI), and Mosaic (MOS) are other decent ag bets, but I like all three significantly less than I did a month ago now as all have experienced gains of over 40% from their lows. There still might be some decent returns left in them, but they would look considerably more attractive if they were to drop another 10-20% again.
Gold and Silver
Last month, I thought all the gold and silver miners were good buys. However, my own discounted cash flow analysis of most of these companies now shows most of these miners to be only slightly undervalued at this point in time. I think Goldcorp (GG) might be fairly valued at $35, Barrick Gold (ABX) at around $40, and Silver Wheaton (SLW) looks like it should trade in the $7-12 range. Those estimates might be low-balling it or maybe they're about right, but either way, from my perspective, they don't appear to be all that significantly undervalued any more. Of course, this does not necessarily mean that the stocks won't overshoot those values for a period of time, so they still can turn out to be decent investments.
Yamana Gold (AUY) is the only one of the bunch that I can find that might still be "significantly undervalued". I set a target for it at $12, but maybe I'm just being overly optimistic on it. We'll see. One way or another, I think buying into physical gold and silver, or for simplicity's sake, buying into gold and silver ETFs and ETNs might be a better bet.
I do not foresee gold prices upwards of $2,000 per ounce like some analysts are predicting. Nor do I think gold is where you want to be if you're looking to make a huge return in the market. Gold is a safe-haven and a store of value. It's a guard against runaway inflation and can help protect your current wealth. Sometimes, it will even allow you to grow your wealth if you buy in at the right moment.
I bought a very small clip in the DB Gold Double Long (DGP), which is one way to actually try to play gold for a significant return. Of course, the leverage means that this is not a "safe haven" investment with minimal downside, too. If you're looking for a more conservative gold play, there are some good ETNs:
streetTRACKS Gold Shares ETF (GLD)
iShares COMEX Gold Trust ETF (IAU)
E-TRACS UBS Bloomberg CMCI Gold Total Return ETN (UBG)
E-TRACS UBS Bloomberg CMCI Silver Index ETN (USV)
Even if I'm not as aggressive on gold as others, I see it as much safer than the US Dollar and treasury bonds right now and would not be surprised if it soared over $1,200/ounce. You might ask if I believe this, why not buy into gold miners still? The primary reason is that while gold miners will make better revenues, if gold really spikes up that high, it's probably because inflation is driving it. Hence, production costs for miners will also rise. The gold miners still might not be a bad bet, but I see them as more risky and not having a return desirable enough to entice me any more. [more]