A long weekend with the Barron’s Roundtable, here summarized: they’re all bulls. And they have no idea what makes stock markets go up. They think the US government bought shares on Wall Street and will continue to do so, which is an urban myth. Wall Street went up not because of direct intervention by the government, but because it had created liquidity which flowed into stocks. Anyway, they are all bulls:
Felix Zulauf (Swiss asset manager): “Cyclical forces are bullish. The market probably has 10% upside from here. My next recommendation is to short government bonds.”
Abby Joseph Cohen (Goldman Sachs senior investment strategist): “We think global growth won’t be too bad in 2010. We’re forecasting S&P 500 earnings of $75 to $76 this year and $90 next year.”
Fred Hickey (ed., The High-Tech Strategist): “The stock market will likely be up this year, unless the dollar collapses.”
Scott Black (pres. Delhi Mgm.): “I figure S&P 500 earnings will be closer to $66, which puts the market at 17.3 times earnings, about the historic norm.”
Oscar Schafer (partner, O.S.S. Capl. Mgm.): “Liquidity and another stimulus package will keep the market up.”
Meryl Witmer (partner, Eagle Capital): “Fifteen times earnings seems about right for the market, and earnings could grow a little this year. Fair value isn’t so different from where the market is now.”
Archie MacAllastar (chair, McAllaster Pitfield MacKay): “I’m an optimist, I expect the S&P to earn $75 to $80 this year. Public participation will increase.”
Mario Gabelli (chair, Gamco Investors): “You’ll be up 5% to 10% in the first half of the year. Interest rates at some point will top 4%.”
And even The Boom, Gloom, and Doom Report‘s Marc Faber, who did best of the panelists last year: “We are all doomed. If you let prices fall sufficiently, you get a re-stimulation of demand. That is why we are all doomed. I am inclined to think 50% of tax revenue will go toward interest payments on government debt in 10 years. Then you are bankrupt. There is only one way out — the Zimbabwe way. You will have to print and print and print.
Bill Gross (co-CIO, PIMCO) then asked: “what form does printing like crazy take?”
Faber: “The government will buy up more bonds – and stocks.” Neither Gross, who said almost nothing in the session or any of the other participants questioned Faber’s false conspiracy theory view that Uncle Sam has been buying stocks on the market.
Then Faber spoiled his tirade by adding: “The S&P 500 won’t revisit the March 2009 low of 666 in nominal terms ever again. In real terms it’s another story.” Another bull.
Note that Pimco is now launching exchange-traded portfolios invested in stocks as well as its traditional bonds. Does Mr. Gross really believe that Uncle Sam supports the market via common share buying as Marc Faber asserts? See below.
I was surprised at how many readers are addicts of ‘Spengler’ writing in Asia Times Online. From Thailand to Canada they e-mailed.
Here is the reply from Spengler (David Goldman) to my reproach for his not commenting on China hacking Google:
“I wish China would leave Google and the Internet alone, given that I believe in free speech and access to information.
“I pick my shots as best I can. China does some deplorable things in the field of human rights, and not only human rights; I once mentioned the sad commerce in the fur of companion animals. How will that change? Only, in my view, through some very fundamental changes in the culture. That is why I have commissioned articles in First Things about religious freedom in China. There is a field where some progress has occurred and more might be made.
“I am not in the habit taking an official position on every issue of note in the world, nor is it my responsibility to do so. If asked, I will happily volunteer an opinion, as in the Google matter you cite.
“I have not taken a position on the possible canonization of Pius XII. As I do not believe in sainthood in the Catholic sense, I have no view as to who should be a saint. You appear to refer to a blog post in which I described Pius XII as an essentially well-meaning man caught up in circumstances beyond his control and perhaps also beyond his comprehension. I see him as a tragic figure but not an evil one. That is not the same as supporting his sainthood, and it is certainly not the same position as my Catholic colleagues might take. To suggest that I modify my views, or their expression, because I am an editor at a magazine the majority of whose staff is Catholic is false, and somewhat insulting. First Things is published by an ecumenical foundation whose board includes several Jews.
“I have no editorial responsibilities at Asia Times and often take exception to articles published on the site.
“It’s been 25 years since I had anything to do with the despicable Lyndon LaRouche. In the interim I’ve done a number of other things, such as run global fixed income research at Bank of America, a business with 140 professionals and a budget of $60 mn.
“You would do well to check facts before jumping to conclusions.
“Does Ms. Lewis think the US should take steps to retaliate? And if so, which? I don’t think the US can do anything about it.”
It is not a government-to-government matter and it is grotesque that Mr. Goldman thinks I want to mobilize the Administration to “retaliate”. For the record, I checked Goldman’s bio using Google which led me to Wikepedia where I learned about the LaRouche link.
I too don’t think the US government has a role to help GOOG over Chinese hackers and their victims, Chinese dissidents, any more than buying common stocks. But I think journalists do have a role. Especially now that it has been learned that two foreign correspondents in China had their G-mail accounts tracked by Chinese hackers.
Like Harry Geisel, on leave to work for the State Dept., Billy Joel, and me, David Goldman is an American born in the 1940s to Jewish refugees from Hitler’s Germany or “yeches” (a possible Yiddish term for Jews who wore jackets instead of kaftans).
We’re odd. Goldman and I (and Harry so Gott will) are in financial journalism. Goldman and Joel are musical. I am musically tone-deaf. But like Billy Joel and Harry (currently the Dept of State’s acting Inspector General, surely a credential) I am not ethically tone-deaf.
I don’t believe much in modern-day saints. I wonder why Abba Baruch (Pope Benedict) wants to canonize Pius XII. I am not sure religion will stop Chinese eating puppies or making hats from their pelts.
As for old saints, read right to the end of this screed where I mention a saint who might help Google.
Announcement: We offer a new report by Vivian Lewis. Your editor has just published a ground-breaking critical report on Exchange Traded Products (or Exchange Traded Portfolios, ETPs, formerly called Exchange Traded Funds.) Based on original research, her report covers trends in the ETP world ranging from managed ETPs to ones holding bullion and other physical precious metals, from commodity funds to target funds, from yield funds to PIMCO’s new stock funds offered by co-CIOs Bill Gross (quoted above) and Mohammed El-Erian.
And Vivian writes (of course) about foreign country or regional ETPs. This is supposed to be the year of the ETF. But the investment vehicle is flawed, Vivian asserts.
She examines the marketplace and media work on ETPs and signals some of the risks from the proliferating rival ETPs from competing managers, brokers, and distributors. She spells out dangers when institutional investor “authorized participants”, supposed to close the gap between the market prices of ETPs and their net asset value, don’t always do it.
She also looks at other disparities in pricing and tracking errors which the general press, lured into ETP boosterism by ads and novelty, ignores.
This key investing information is available exclusively from our website, www.global-investing.com, at $49.95. While a high price, the risks of not reading the report are higher. And Vivian’s explanations and material can be found nowhere else.
More company specific news for paid subscribers follows.
*Today we sell a troubled Australian drug firm and its warrants which we got free. We are starting 2010 with a loss to buy a new speculative stock. Sell Progen common and its warrants, PGLA and PGLAW, even though they are trading below their cash. They’re burning it.
*Brazil’s Vale (our only double-weight stock) is expected by analysts at Barclays Capital to gain market share at the expenses of smaller Oz iron-ore mining companies like BHP Billiton and Rio Tinto because it can more quickly increase exports as Chinese steel demand surges. Analyst Leonardo Correa says VALE will take 28% of the market this year, a 3-yr high. In ’07 its share rose 88% when it produced more than 25% of total world iron ore output. Also bullish on Vale is Pedro Galdi of Brazil’s SLW Corretora, interviewed by Bloomberg. Credit Suisse, also upbeat, expects VALE will boost its output this year by 24% to 313 mn metric tonnes.
With higher demand from China, VALE may also increase prices. CS’s Ivan Fadel expects that VALE will be quicker to boost output thanks to having continued to invest in the high-grade Carajas iron mine. It will win an edge despite Rio Tinto and BHP having a shorter distance to move iron ore pellets. Last year Vale produced only 26% of world iron ore, vs. 31% in 2008. Vale cut its output more than the Australian ore miners but now will be able to boost output more quickly without major investments.
*Even after China raised bank reserve requirements, imposed a higher real estate flip tax, and started cracking down on buyers trying to put up less than 40% of purchase prices of buy-to-let apartments, China still needs steel, for infrastructure like roads, bridges, and railroads. It must import iron ore. And it needs steel. I think that is why Warren Buffett told Posco that he wishes he had more than 4 mn shares in the Korea steelmaker. PKX, which we own too, expects demand to rise 10% this year after a 77% jump in Q4 profits. It will invest $30 mn in overseas expansion this year, mainly in India.
*Goldman Sachs yesterday raised its Keppel Corp. target price in Singapore by 9% to S$9.80 citing a recent target price hike for its property sub Keppel Land. Goldman says the outlook for Singapore residential real estate is positive because of firm underlying demand and new drivers like foreign buying. (Every fund manager I know in Asia now is based in Singapore.) Goldman upgraded KPELY’s FY10 and FY11 earnings forecasts by 10% each to factor in higher property earnings while maintaining its “neutral” rating. It warned about key downside risks including a pullback in oil prices, poor execution, lower-than-expected new contracts, and weak property market recovery. On the upside, it cited possibly significantly higher contracts, and higher property selling prices and volumes.
*Citigroup rates QBEIF ‘buy, medium risk, and our source is buying more for his daughters’ dowries. QBE is a down under insurance co. Citi has upped its ’09 eps estimates by 1% and its ’10 estimates by 2%. The source of its optimism is insurance margins CI pegs above the QBE guidance and consensus at 18.5%. This ultimately comes from an investment yield projected as beating what QBE predicts, 4% vs the forecast 3%. Another factor is how Oz’s QBEIF books claims, CI says done more conservatively than necessary, because it may plan to increase premium rates. Citi considers a higher premium rate one driver for better earnings to come, along with foreign exchange and interest rates reverting to the mean. The big ‘if’ is an acquisition. Meanwhile you get 5.4% yield and a p/e of 12 from the Australian co.
*The latest consensus for GSK according to Nelson’s: Strong Buy: 10, Buy: 5, Hold: 14, Underperform: 9, Sell: 0. GSK is a British drugmaker. Thomson says the consensus estimates are up 4.8% for ’10.
GSK will be the only bidder on a major sale of universal antivirals for the Dept. of Homeland Security’s stockpile. It will sell Relenza, licensed from Biota of Australia.
*From Australia too, Computershare (the investing world backroom) forecast that the market recovery would boost its H1 sales by 20% year over year. The share price rose to A$12.34. CMSQF.PK makes money with dividend and interest distribution systems, proxy solicitation, stock lending, and the like with systems that spread throughout the capitalist world.
*Here is Nelson’s latest om ICICI Bank: Strong Buy: 13, Buy: 8, Hold: 10, Underperform: 2, Sell: 1. IBN agreed to finance a major real estate project with Hindustan Construction in Lavasa, a new Indian hill city competing with Simla. Apologies to readers offended by my citing CEO Chanda Koshhar’s gender over her bank’s activism in consumer credit cards. It’s not because she’s a woman but because she knows the market.
*Exceptionally, the EU will allow Teva and Gamida Cell, jv partners is the trials of GamEx enhanced stem cells in treatment of leukemia and lymphoma, to run combined trials for children under 17 and those older. The EMA will not require separate pediatric trials for a target group of patients, adolescents. The trials are planned in Italy, Hungary, Spain, Israel, and the USA. Enrollment contact www.stemexstudy.com
*Paul Renaud writes from www.thaistocks.com in Phuket, Thailand, about Demco pcl, a Global Investing Pro stock:
“Demco just got new jobs for 3 electrical substations at 414 mm Baht, 90% of which will come in this year. The current backlog is 2.9 bn, considerably higher then the 2.3 bn I reported to our members here in Q3 2009. Demco, viewed very favorably at Thaistocks.com for some time, now believes its revenues this year will pass 5 bn Baht, a record for the company.
“The price of 5 Baht/sh as of [yesterday] morning, shows a 25% increase this year alone, hugely outperforming the MAI index by a factor of 5 YTD.
“Shorter-term-oriented investors can take some profits here, but be careful as this is their big year. Remember Demco issued free warrants twice last year, which now are soaring in value… adding to the superb return of late.
“It shows again how smaller cap investing here has been hugely successful and what advantages members have.” Bravo Paul!
*Another Global Investing Pro stock was in the news too. Trade mag Fertilizer Week reports that Israel Chemicals (TASE: ICL; ISCHL.PK) signed a potash contract with China Monday. ISCHF sold 300,000 tons of potash at $350-360 per ton, giving the contract a value of up to $108 mn. Israel’s Migdal Capital Markets analyst Amir Adar says this was a mistake because signing a China potash contract before the cartel manager, Potash Corp. of Saskatchewan (POT) means Israel Chemical got a lower price than it would have won if it had waited. I think this is a sign that the potash cartel is breaking up. It is run by Canada’s POT through minority shareholdings in ICL, Jordan Potash, and SoQuiMich (SQM) which we also own in the main buy and hold portfolio.
Pro stocks are ones it is hard to buy in retail amounts from the US. To invest in Bangkok or Tel Aviv you need a specialized broker, why pro shares are not in the Model Portfolio. But your editor and her readers own lots of Thai and some Tel Aviv shares.
*Momentum trackers Zacks raised Cognizant Tech earnings projections for 2009 to $1.75, up 22%, because of an earnings surprise, and for this year to $1.98, up 15%. CTSH is a bonus stock pick since while it does its work in India it is US incorporated.
We got our first subscriber from Czech Republic although he lived in the USA. While like David Goldman I am not a fan of saints, I am devoted to St. John Nepomuk, the Czech martyred for protecting the secrecy of the confessional against a not very Holy Roman Emperor trying to get the dirt on his possibly cheating empress. It is a bit like Google suffering for trying to protect Chinese dissidents.
