Europe's Large Banks - Are The Titans Crumbling?

Winds of confusion and despair swirl around Europe's largest banks. Bank stocks plunged sickeningly late last summer as the euro crisis worsened. Its been a skittish, rumor-driven market ever since.
Adding to the confusion Central banks (US Federal Reserve, European Central Bank, Bank of England, etc.), sovereign wealth funds, the International Monetary Fund (IMF) have all become involved. The European Financial Stability Fund (EFSF) is Europe's latest savior. Such an entanglement of financial entities. How can anyone know the truth?
Dexia (DXBGF.PK), previously Belgium's largest financial institution, has become the first (but probably not the last) casualty of the crisis. It is being nationalized.
Which institutions actually own European sovereign debt? Read more here

Investing In Small- And Mid-Cap North American Oil Producers

Light oil is the crème de la creme of crude. Why? You need look no further than your garage. It's simple: Nothing is better than high quality, low sulfur sweet oil for making gasoline.
Automobiles are everyone's favorite mode of transportation. But It's not just developed countries anymore. Newly prosperous Asian countries are quickly building roads. And, predictably, Asians are buying automobiles in droves, rapidly boosting gasoline demand. Think how the U.S. expanded auto ownership in the 1950s.
Chinese auto ownership is currently less than 2% of U.S. ownership. But, Asians can't wait to catch up - and they have plenty of U.S. dollars to do it. Read more here

7 High Yielding Stocks to Defend Against a Market Downturn

What to do? Dismal economic figures and soon to end government stimulus seems to finally have crippled the 3 year old bull market. U.S. markets are now faltering or declining and commodiites are stagnating.

A healthy cash position is warranted. I've previously written how inverse ETFs can help (see here). High yielding securities may also provide protection. The high yield (even if reduced) is a natural defense against disinflation. Consider the following: . . . Read more here

5 High Yielding Israeli Stocks

Looking for yield? Look to Israel -- a prosperous, democratic country, known for its innovative, high-tech companies.

When the Great Recession hit worldwide in 2008, Israel largely escaped. Why? Israeli banks had avoided toxic debt and the Israeli government wisely stimulated with tax cuts -- not money printing.

Yes, I know what you are thinking. Why invest in the most reviled (at least by its neighbors) country in the Middle East? Good question . . . stay with me . . . we will revisit the issue.

Consider these 5 high yielders:

Cellcom Israel Ltd. (CEL)

Israel's largest cellular communication company  . . . Read more here

Saudi Arabia Posts Major Production Decline

Saudi Arabia, the world's top oil exporter, posted an almost 10% monthly production decline in March says a Thursday Wall Street Journal Online article.

Saudi Oil Minister Ali Al-Naimi said Sunday that oil production from the kingdom was 8.292 million barrels per day in March, down about 800,000 barrels a day from 9.125 million barrels per day in February.

A Strange and Confusing Situation
Last February, with great fanfare, Saudi Arabia pledged to increase production -- making up lost Libyan exports. Now, we hear March production was actually down big time.  Read more here

Russian Oil: Investors Should Proceed With Caution

uick, which country produces more oil than any other? If you know that, can you name its largest oil and gas companies?
Odds are (unless you're an oil and gas enthusiast) you don't know.
Russia is the world's largest oil producer -- pumping 10.12 million barrels/day (mb/d) out of the ground. Saudi Arabia is second with 9.8 mb/d, the U.S. comes in third with 9.06 mb/d, and Iran a distant 4th with 4.1 mb/d (See complete list here).

The Russian company Rosneft (RNFTF.PK), producing 2.18 mb/d of Russia's 10.1 mb/d, is Russia's top producer while Lukoy (LUKOY.PK) holds the largest reserves. Russian oil flows . . . Read more here

5 Best Positive Cash-Flow Oil Companies

Millions of acres in oil shale prospects ... production continues to expand ... good times are just beginning ...
You've heard the stories. Almost every exploration and production company seems to have at least one. Here are 5 of the better ones. For this article, let's just stick with the stuff that really matters: Cash income, specifically free cash flow. I screened a dozen or more energy companies looking for those with the best market capitalization/levered free cash flow -- call it MC/LFCF -- over the last 12 months. This information is readily available in Yahoo Finance's Key Statistics. The lower the number, the more undervalued the equity.
Of the couple dozen energy companies I looked at, the following five had the best MC/LFCF -- all under 20. . .  Read more here

Japan: The Good, The Bad, and The Ugly

Japan is reeling from a devastating 9.0 earthquake and an accompanying 30 foot tsunami (a Japanese term meaning harbor wave). The tsunami tossed cars and ships around like toys, flattening towns and cities in minutes. The death toll is expected to top 10,000.
And now engineers are struggling to control radiation from damaged reactors -- a slow-moving nightmare that just won't go away.
The Good
The People. The Japanese are a hardworking, extremely resilient people. No matter how much destruction, how much suffering, how many deaths, they will bounce back. Remember, this country rose from the ashes of World War II (including losing two cities to nuclear bombs) to become the second largest economy in the world (only recently has China claimed the number 2 spot).
The Corporations. Can you think of anyone who makes cars better than Toyota (TM) or Honda (HMC)? Complete article on SeekingAlpha here

5 Reserve Rich Energy Companys at Bargain Prices

Oil is near $105 a barrel. Is it too late to invest in oil companies? I certainly don't think so! Consider these 5 reserve rich small caps. Three are bargains at current oil prices. Two, if not now, will be bargains when natural gas prices rise.
One company has $100/share in reserves, yet is priced at only $20/share. Another has 2,400,000 acres (3,750 square miles) of mostly unexplored oil shale prospects. A third, now getting into oil, is loaded with natural gas reserves . . . but sells for 7% of what it did in 2008.
Best of all, none of these companies' reserves is in volatile North Africa  Complete article on SeekingAlpha here

Using ETFs to Profit From Rising Interest Rates

Inflationary alarms -- increasingly loud -- are sounding worldwide. Europe, Canada, Great Britain, emerging markets such as China, India and Brazil have, or are contemplating, raising interest rates.

My recent article on crisis investing noted 4 sectors you should be in: oil, real estate, gold, and inverse interest rate ETFs. Here we will look at the fourth -- and most speculative -- sector: interest rate sensitive ETFs.

Walking the Edge of the Precipice

For now, the U.S. continues to pursue an easy money policy.  Read the Full Article Here

Crisis Investing -- 4 Sectors You Must be in Now

Spring comes early in central Florida. Wrens sing, wild jasmine flowers in the woodlands. Today, as I write this, I'm in a quiet, small town cafe. Both customers and the early-morning sun are slowly filtering in -- a peaceful, idyllic scene.
But ... reality is in the headlines. North Africa aflame. Dire warnings of fiscal catastrophe here at home. Conservative governors clashing with suddenly indignant public employees. One gets the feeling that things could spin quickly out of control.
So how does one invest in this environment?  Read the Full Article Here

Collapsing Bonds? Look at the Trends Now!

Did collapsing bond markets last November signal the end of the three decade-long bond bull market? Almost all bond ETFs peaked on or near November 4 of last year. Since then some (perhaps unexpected) trends have emerged.
ETFs are useful trend indicators. Since they are composed of dozens, even hundreds, of securities, individual security movements have little effect on price. Lets look at five ETFs to see what is happening.  Read the Full Article Here

Housing's 50% Off Sale -- Time to Buy the Home Builders?

Commodities are shooting up -- 20% or more -- in just the last 3 months. The most common explanation? Accelerating inflationary expectations. No sign of this in the U.S. housing market though. That market drags along near multi-year lows. Indeed, the one asset the Fed wants to inflate, housing, shows few signs of revival.
But, is the housing market now bottoming? Well, maybe. After falling over 50% the last 3 years Zillow says my central Florida house has actually increased in value two months running now. Nothing to get too excited about -- total increase is less than 3%. Nonetheless, it is welcome news.
Why It Is So Hard to Reflate the Housing Market   . . .  Read the Full Article Here

How Former Canadian Income Trusts Can Protect Bond Investors From Dollar Debasement

Bonds, especially Treasuries and municipal bonds (munis), are a major component of American retirement portfolios, be it pensions, IRAs, annuities, or mutual funds.
The recent sharp fall in bond prices, which started last November, has sent tremors through fixed income markets. With an apparent end to the 30 year old bull market in bonds, it may be time to look at alternatives.
How Safe Are Treasury and Municipal Bonds?
Treasuries, munis, and other bonds may have hit their highs early last fall. Since then -- about the same time Quantitative Easing 2 (QE2) kicked in -- things have been mostly downhill for bonds.
Treasuries have the full backing of the U.S. government,   Read the Full Article Here

Natural Gas: The Last Undervalued Commodity

The worst commodities of 2010 just might be the best in 2011. It often works that way. So, what was the worst of 2010? Natural Gas (down some 20%) and cocoa (down some 7%) take the loser's prize! And, sure enough, both are off to a roaring start in 2011.

We all love (and maybe even dream of investing in) cocoa -- aka chocolate. But, for now, let's ignore that tempting choice and look at natural gas.

Why Is Natural Gas So Cheap?
Natural gas prices are low for good reasons.  Read the Full Article Here

Peaking Bond Markets: The Reversal of a 30 Year Trend

Is the three decade long bull market in bonds over?  It certainly seems that way.  Bonds have been retreating across-the-board since early November.  QE 2, which was supposed to bring rates down, simply isn't enough -- even in the targeted middle range of the yield curve.

So what happened in early November?  I don't know. Maybe it was the announcement of QE 2.  Look at Vanguards Total Market ETF: BND.




Consider:

• Treasuries are in an downtrend across the spectrum:  See the 2 year here, the 5 year here, the 10 year here, and the 30 year here.  All show declines after early November peaks. The benchmark 10 year in particular shows an alarming drop.
• Municipals suddenly collapsed  and show no sign of recovery.  PCK, a leveraged California Closed End Municipal fund is down almost 20% since November 7.
• Corporates (LQD) mirror the declines.  Surprisingly, junk bonds (JNK) have held up somewhat better.
• Emerging Markets (EMB) are not immune.

Pundits have long touted the debasement of the U.S. dollar but now the unease is spreading.   Perhaps last month's precipitous drop in munis was a wake-up call.  It will take a lot to change the public's view of bonds as a "safe" investment, but that may now be starting.

The Fed seems to be losing control.  Former Fed Reserve Chairman Alan Greenspan warns that on going deficits will lead to a bond crisis.   Mr Bernanke is between a rock and a hard place.  Tightening may crash markets.  But . . . QE contributes to the perception (reality?) of dollar debasement -- driving interest rates up anyway.  To make matters worse, QE's newly printed dollars flee U.S. shores, contributing to overseas inflation which may precipitate currency wars.

All fixed income instruments will follow treasuries down if rates rise.  You may find a possible haven in convertible bonds.  Blue-chip, dividend paying, stocks may be your best bet for a "safe" investment from here on out. Do your own due diligence.

The bond market is huge ($91 trillion worldwide) -- more than twice the size of equity markets.  If prices continue to decline, some this money will flow into equities and commodities, pushing up inflation.  Commodities are arguably in a bubble while blue-chips are probably not (yet).  Once inflation gets started, it is very difficult to stop. You can argue over what is inflation but precise definitions of inflation are meaningless to most people.  If the price of fuel goes up . . . it is inflation to them -- even if wages are stagnant or falling.

Keep an eye on the Fed.  It seems QE is needed on a ongoing basis to prop up the economy.  At the slightest sign of tightening (such as the pending expiration of the Build America Bond program) markets head south fast.  Bernanke says he is not going to allow deflation, yet the Fed has to pump harder and harder just to stay even.

The ground world economies are standing on is getting steadily narrower, sooner or later we will fall either into the pit of deflation or the excesses of inflation.  Either way it won't be fun.

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

Are Municipal Bonds Cracking?

Look at last week's price action in PIMCO's Municipal Income Fund ETF (PML).  Municipal bond markets plunged.  Not surprisingly, the California ETF (PCK) shows the most precipitous drop.

It might be argued that muni markets are merely reflecting similar declines in treasuries (TLT).  Fair enough. Bond holders, though, are probably are more interested in the fact that their bonds have declined rather than why they are declining.

Warren Buffet warned back in June on the Muni Bond market. Defalt, so far, have been rare but local and State municipalities are struggling to meet their obligations.

There was a time -- before the 2008 crash -- when triple AAA rated, insured munis were seen as the safest of safe investments.  Times have changed.  Only Assured Guarantee (AGO) still insures municipals but the company has been recently downgraded from AAA to AA.  Ambac (AMBK) is  in bankruptcy. MBIA (MBI) is entangled in litigation and no longer writes new policies.  The financial guarantee business today is but a shadow of its past.

Even though defaults in the muni markets have been rare so far the Feds zero interest rate policy has thrown a cloud of uncertainty over all bond markets.  Declining tax revenues, rating downgrades, loss of insurance, rumors of bailouts, all contribute to uncertainity and suspicion that all is not as well as claimed.

It may be wise lighten up on all medium to long term bonds at this juncture.  Greece, Ireland and Portugal may not be as far removed from New York, Illinois, and California as we might wish.

QE2 or the Titanic?

Someone has awaken the band, found the girls, and broken out the drinks!  Thanks to Ben Bernanke's Quantitive Easing 2 (QE2) November 3rd announcement the risk asset party is in full swing again.

The Fed's planned purchase of $600 billion in Treasuries and QE1 rollovers over the next 8 months already has it fleeing into equities, commodities, and emerging markets -- before the QE even starts!
The elections put Congress out of the stimulus business.   Not to worry . . . .  The Fed's QE2 ship, captained by Mr. Bernanke, is launched and steaming off into dark, uncharted waters -- with or without congressional support.
Since the U.S. dollar is the world's reserve currency, you might say Mr. Bernanke is Captain of the World.  Worldwide FOREX, bond, equity and commodity markets all soar or fall on the slightest nuances from him.  To argue if it right for one man to have so much power is, at this point, moot.  He simply has it.
Who wins with QE?

• Banks:  They get liquidity and more time to repair their balance sheets.  The interest free money is reinvested where it earns more (rate arbitration -- profits come from the spread).  Why risk loans to the private sector when you get a risk free return from Uncle Sam?  According to Shahien Nasirpour in the Huffington Post U.S. banks own $1.6 trillion in taxpayer-backed assets such as Treasuries and Fannie and Freddie debt.
• Some of the public:  Rising markets benefit those who have the foresight be invested in them.  The hope, of course, is that inflating asset values will eventually spread to the increasingly desperate real estate sector.  No sign of that happening yet though.
• Corporations:  They are floating bond issues while interest rates are low -- get while the getting is good.  The stock market recognizes this and is rising.  High unemployment allows corporations to keep wages low and employees working on over drive.

Who loses with QE?

• Savers and other frugal people:  Interest rates are at record lows.  I didn't even bother listing the $2 interest income I made last year from a savings account.  The Fed is forcing us into risk assets and anyone who holds cash in U.S. dollars or cash equivalents such as treasuries loses.  If bond markets crack and interest rates skyrocket (as they will if inflation picks up) anyone holding fixed income denominated in U.S. dollars takes big losses.
• The U.S.:  Dollar devaluation sparks up commodity prices and exports inflation world-wide.  The recession stricken U.S., however, does not have the room to increase wages to compensate increasing fuel and food prices.  You already see the signs -- more people walking or bicycling (that may actually be good), more gardens, more roadside produce stands, empty malls, shuttered businesses, large numbers of homeless, etc.  The bottom line: One way or another, the U.S. standard of living is declining.

Other QE risks.

• Currency war:  QE in the U.S. raises all kinds of red flags abroad.  Both European and Japanese Central Banks may be forced to intervene (retaliate?), precipitating a "currency race to the bottom".  No wonder precious metals seem to be rising nonstop --  a certainty in a world of uncertainty.
• Capital outflows from the U.S.:   It flees to friendlier shores.  Badly needed domestic investment shrivels and the U.S. economy languishes.
• Never enough QE:  The $1.6 trillion QE1 did not revive the U.S. economy, so how will QE2's $600 billion?  Additional QEs will probably be implemented.  The Fed is independent and can buy whatever it wants, mortgage backed securities, bonds of all types, equities, you name it.  Eventually the U.S. will be forced to give up these futile attempts at stimulus; rates will go up and markets down as reality is faced.  The unfortunate fact is that QE has never worked in the long run.  Maybe this time will be different but don't bet on it.

Investment ramifications.

• Real assets:  Maybe stay with ETFs to avoid single issue risk. Precious metals (GLTR), agriculture (DBA), and energy companies (VDE) are but a few.  Click on the ETF tab on the Seeking Alpha website for additional ideas.
• Minimize fixed income investments (bonds): Upside risk is limited while the downside risk is infinite.  If you have safe treasury bonds and the incomes covers a fixed rate mortgage . . . maybe keep those -- some hedging is always a good strategy in times of uncertainity.
• Go with the trend:  As long as the Fed keeps its Zero Interest Rate Policy -- ZIRP-- you might consider some high dividend REITS such as Annaly Capital Management (NLY) and Chimera Investment (CIM) which benefit from ZIRP.  This is a risky area though as things can change quickly.
• Protection: You can protect yourself from rising interest rates with TBF and TBT but be aware of daily rebalancing erosion .

As always, do your own due diligence in picking investments.  Everyone's investment strategy and needs are different.  Only you can decide what is best for you.  This article only presents my thoughts on macro trends and is not a recomendation to buy or sell.   But, whatever you do, watch the bond market and Mr. Bernanke closely in the coming months and year.

Disclosure: Small positions in CIM and TBT

7 Speculative Chinese Small Caps

Looking for investments outside the U.S.?  You are not alone. With the dollar plummeting almost daily money seems to be fleeing U.S. shores faster than the Fed can print it.

Check out the Wild West . . .  err, I mean Wild East of stocks. East as in China, the elephant of emerging markets.  Now look at small-caps.  Scared yet?  After the Tuesday's action you should be!  Some Chinese small-caps fell 9-10%.  But wait . . . Yes, you can  find value and growth in Chinese small-caps.

Consider China Sky One Medical (CSKI) -- PE under 4, no debt, yoy revenue growth of 27%, and a Price/Sales ratio of 1.  Look at Duoyuan Printing (DYP) with its PE ratio of 1.4.  Then there is  Fuqi International (FUQI) which you can buy for only slightly more than its $6.27cash per share.  Both sell for less than 70% of annual sales and have P/E ratios less than 4.  Similar Chinese  small-cap values exist in CELM, CSR, LLEN, and UTA.

With those numbers how can you not like these stocks? . . .  I know!  I know!  Mr Market can be quite ingenious at finding ways of torpedoing the most obvious "buys".  But, like I said, this is the Wild East and anything can happen.  What goes down fast can go up just as fast.

Risks?  Where do we start?  Jim Chanos says China is the next Enron.  Sudden currency changes, an unpredictable government (I hesitate to use the word communist), and accounting irregularities are but a few of the potential negatives.   Volatility is frightening -- the smallest rumors can rocket up or torpedo prices.

Wealth management firms such as Northern Trust (NTRS), burned by the 2008 crash, play it conservative. They will never recommend these Chinese small-caps for their clients -- it would violate their fiduciary responsibility.  Individuals can, however -- if played right --, tap into some of the fastest growth markets in the world with these stocks at what by most standards are currently bargain prices.

Do you own due diligence -- small cap stocks are volatile everywhere, especially so in China.  My approach is to take small positions in several companies, sell those that fall 10% or so, but let the winners run.  Who knows?  You may tap into a Chinese superstar.

Think positive to avoid the Chinese market's Dr. Loveless like twists and turns.  James West and Artemus Gordon protected and won the day for the U.S. Maybe you can't protect the U.S. but you may be able to protect and enhance your portfolio with these stocks.

Trashed Real Estate, Soaring Gold

The prop wash from Ben Bernanke's helicopters has yet to spread dollars on the struggling U.S. real estate market.  Gold, though, up over 30% in the last year, is a major beneficiary,

Three years ago a typical Florida house (Tampa area) sold for $240,000 and gold was around $450/oz.  Now the house value has been cut in half to $120,000 while Gold has tripled and is closing in on $1,350/oz.   It took 535 ounces of gold to buy the house in 2006, today it only takes 90 ounces.  Why such a large about face?

Since both houses and gold are "real", non-printable assets one might conclude either houses are extremely undervalued and/or gold is extremely overvalued.  Is it just a matter of time before the pendulum swings back and the gold/house ratio rises again?

Gold is very much a global commodity, of course, while houses are the quintessential local asset.  You can easily move a pound of gold or more around around the world.  The real estate goes nowhere.

U.S. real estate has very low liquidity right now.  Loans are difficult to get.  Anyone can buy gold in vaious amounts easily, either through ETFs such as GLD or SLV.  Physical gold is available in the form of bullion or coins at the local coin store or numerous web sites (Be careful)!  In 2006 all you needed was a pulse to get a real estate loan while precious metal ETFs were just coming on the scene.

Years ago I went to a real estate seminar.  One of the things we learned was how to value houses using the income approach.  The "rule of thumb": A good middle class 3 bedroom/2 bath/2 car garage house in a good (not great) neighborhood is a buy if it sells for less than 100 times the monthly rent.  For example, if the house rents for $800/month a price of $80,000 (or better) makes it a good buy.

So, with that in mind, how do things look today?  The above central Florida house, renting for $800/month, can again be had -- with some negotiation -- for about $80,000 or less.   In 2006 the house was valued at about $160,000 -- way above the "rule of thumb" above -- an obvious red flag to those who paid attention.

I believe real estate is now in the process of bottoming and will eventually follow gold higher.  Inflation, as evidenced by increasing commodity prices, now seems to be edging out deflation.  Real Estate appreciation will follow.  However, it will be slow due to liquidity issues and the poor U.S. economic recovery.

Disclosure: I own real estate, no positions in ETFs mentioned