Wednesday, October 31, 2012

Investing for Survival

Investing for Survival
            The tax haven offered by Belize by Robert Bauman
Offshore, kayakers paddle among sandy, palm-dotted islets. Snorkelers explore the second-largest coral reef in the world.

A kaleidoscope of tropical fish, dolphins, turtles and manatees all share this Caribbean coast, which boasts some of the best deep-sea diving in the world. Hidden in pristine forests, jaguars, monkeys and 566 species of birds live among ancient Mayan cities.

In Belize, more than 40% of the country is protected as national parks, wildlife sanctuaries and marine reserves. But this lush ecological paradise is not just a haven for wildlife.

Belize encourages offshore business and welcomes foreigners as local residents, too. In fact, if you’re looking into your residency options, Belize should be high on your list.

The only English-speaking nation in Central America, its offshore laws ensure maximum financial privacy.
These laws allow asset-protection trusts, maritime registration and encourage international business and banking.

There are no local income taxes, either personal or corporate, and no currency exchange controls.
It’s a place where you can arrange your affairs so you gain residency—but pay no taxes locally.
I’ve been to Belize (formerly British Honduras) twice. The people are friendly, oceanfront real estate is still relatively cheap, and Belize’s parliament, courts and government are pro-offshore.

Designed to attract foreigners as residents, Belize’s “qualified retired persons” (QRP) program resembles Panama’s popular pensionado program.

The QRP offers significant tax incentives to those who become permanent residents of Belize, but not full citizens.

When you qualify, you’re exempted from all taxes on income from sources outside Belize.
QRPs pay no import duties on personal effects, household goods or on a motor vehicle or other transport, such as an airplane or boat.

You must be 45 years of age or older to qualify and be able to prove personal financial ability to support yourself and any dependents. The minimum financial requirements include an annual income of at least $24,000 from a pension, annuity or other sources outside Belize

Robert Shiller on the housing recovery

The economic headwinds

Morning Journal--Debt, deficits and growth

  News on Stocks in Our Portfolios
Ecolab (ECL): Q3 EPS of $0.87 in-line. Revenue of $3.02B (+74.1% Y/Y) misses by $50M.

Cummins (CMI): Q3 EPS of $1.86 misses by $0.04. Revenue of $4.1B (-11% Y/Y) misses by $50M.


   This Week’s Data

            The August Case Shiller home price index rose 0.5% versus expectations of a 0.7% increase.

            The International Council of Shopping Centers reported weekly sales of major retailers up 0.5% versus the prior week and up 2.7% versus the comparable period a year ago.

            Weekly mortgage applications fell 12% while purchase applications dropped 8%.


            This is a great piece on debt, deficits and growth. It is a bit long but is today’s must read:



Beware the coming regulatory tsunami (medium):

I like Chris Christie but he has this one wrong (medium):

George Will on the entitlement mentality (medium):


The Morning Call--Futures suggest all is well in stock land

The Morning Call


The Market


            Two secondary economic indicators were reported yesterday: the August Case Shiller home price index which was up though not as much as anticipated; the ICSC September weekly retail sales were also up but also not as much as estimated. Not great, not terrible and no impact on our forecast.

            Today could be wild and woolly with (1) two days of normal trading to catch up on, (2) several news events [see below] to digest not counting the effects of the hurricane and (3) it being last day of the month and the fiscal year for many hedge funds.
 That said, futures are up in premarket trading, though why I haven’t a clue.  Maybe its because the European September unemployment rate rose to 11.6% (Italy unemployment is now 10.8% up from 10.6% but it still has a way to go until it hits Spain's 25%) even as consumer prices kept inflation at a steady 2.5% rate, or that French producer prices rose more than expected even as spending missed expectations, or that Spanish housing permits collapsed by 37.2% in August from July, or that Greek retail sales plunged by 7.2% Y/Y and the Greek 2013 economic outlook was cut in the latest budget with the budget deficit now seen at 5.2% from 4.2% before and that Greece now sees 189.1% debt/GDP in 2013 up from 175.6% in 2012, or that Japan just cut its economic outlook last night after its manufacturing PMI came at 46.9, the lowest since 2009 excluding Fukushima, or that UK consumer confidence printed -30, vs. -28 last and the lowest since April, or that Taiwan slashed its 2012 GDP forecast from 1.66% to 1.05%, or that nothing has been resolved on the Greek labor reforms or the now two month overdue Troika bailout, or that insolvent Spain has still not requested a bailout, or that virtually every company that has reported revenues in the last two "dark days" missed expectations, or...............well, you get the point.
      Ruling Greek coalition falls apart (medium):

Tuesday, October 30, 2012

WalMart (WMT) 2012 Review

Wal-Mart Stores is the world’s largest retailer operating 629 discount stores,  over 3,000 super centers, 611 Sam’s Clubs, 210 Neighborhood Markets in the US and 5,651 foreign stores in Latin America, Canada, Europe and Asia.  The company has grown profits and dividends at a 12-16% annualized pace over the last 10 years earning a 20% return on equity.  The company should continue to turn in above average results as a result of :

(1) improvement in productivity resulting from expanding international markets, in particular China where it is growing at a 30% annual rate,

(2) a positive impact on costs given management’s ability to ‘buy for less’,

(3) growing on line business.


(1) difficulty in entering the Indian market,

(2) the potential for price inflation in consumer goods,

(3) its exposure to foreign laws and regulations as well as currency fluctuations.

WMT is rated A++ by Value Line, carries a 38% debt to equity ratio and its stock yields 2.2%.

Statistical Summary

                 Stock      Dividend         Payout      # Increases   
                Yield      Growth Rate     Ratio       Since 2002

WMT         2.2%           10%             32%             10
Ind Ave       1.5              9                 25                NA 

                Debt/                      EPS Down       Net        Value Line
               Equity         ROE      Since 2002      Margin       Rating

WMT       38%            21%            0                  4%            A++
Ind Ave    44                18             NA                3               NA


            Note: WMT stock made slow initial progress off its March 2009 low.  It quickly surpassed the downtrend off its September 2008 high (straight red line); however, it took almost three years to overcome the November 2008 high (green line).  Long term the stock is in an uptrend (blue lines).  Intermediate term, it is in an uptrend (purple lines).  Short term it is on a moon shot (brown line).  The wiggly red line is the 50 days moving average.  The Dividend Growth Portfolio does not own WMT, having Sold it (and reinvested the funds in Target) back in 2008 when WMT traded into its Sell Half Range.  The upper boundary of its Buy Value Range is $42; the lower boundary of its Sell Half Range is $61.


Morning Journal--Fixing Wall Street from Sheila Bair

 News on Stocks in Our Portfolios
Leggett & Platt (LEG): Q3 EPS of $0.45 beats by $0.06. Revenue of $980M (+4.4% Y/Y) in-line.


   This Week’s Data

            The October Dallas Fed manufacturing index was reported at 1.8 versus expectations of 2.0.


            An update on M2 (short/medium):

            Weekly update on gasoline (short):

            Update on ‘Dr. Copper’ (short):



Five steps to fix Wall Street from Sheila Bair (short and today’s must read):

US Markets are closed but Asia keeps printing money and Spain sinks into oblivion

The Morning Call


The Market

            As you know, the Market was closed yesterday and will be again today as a result of Hurricane Sandy.  Hence there is nothing to add to our prior comments.


            Yesterday’s economic news was reasonably good: September personal income was up (in line) as was personal spending (better than expected); the PCE price index was up slightly (in line); finally, the Dallas Fed October manufacturing index was up (less than estimates).  These datapoints fit our forecast; so there is little to add.

            It is important to note that Hurricane Sandy is going to play merry hell with the data for the next couple of month or so.  Initially, the impact will be negative as businesses close, individuals are homebound and power will be lost in many locations.  Later, activity will surge and people and businesses catch up and clean up. 

To make it all the more confusing, these effects will have  a rolling impact, i.e. the weekly numbers will first reflect these changes followed by monthly indices and then quarterly measures.  Then they will start to overlap, i.e. next week’s reports on weekly data will be negative while the monthly stats will appear fine, etc; then the whole process will reverse as the shortest term indicators will rebound as the monthly numbers will still be impacted by the storm.

Bottom line: this all goes to say that this period of disruption and recovery is going to make it difficult to draw firm conclusions about the economy’s progress---and any inferences to the contrary should be taken lightly.

            Update on this quarter’s earnings and revenues ‘beat’ rate (short):

            Investors ignore the perils of low rates---the latest from Gary Shilling (medium):

                Update on Europe (medium):

Overnight, China and Japan keep the printing presses running a Mach 3 and Spain and Greece race to the bottom (medium):

                Plan for Spanish bad bank emerges (medium):

                The latest from John Hussman (medium):

Monday, October 29, 2012

The Morning Call--Monday Morning Chartology

The Morning Call


The Market

      Monday Morning Chartology

             The S&P confirmed the break of the triple support zone (short term uptrend [brown lines], 50 day moving average [wiggly red line] and 1422 support).  Under our technical system, it must now set a trading range; and 1395 looks the most likely candidate.  However, that is a minor support level and the S&P may have to drop to the lower boundary of its intermediate term uptrend (purple lines) before it can stabilize.

            GLD broke through the lower boundary of its very short term uptrend.  Then broke through its interim support level.  It may try to stabilize but there is no visible support above the lower boundary of its short term uptrend (brown line).  In the meantime, it is developing a very short term downtrend.

             The VIX spiked last week and may be preparing an assault on the upper boundary of its short term downtrend.  It has traded through both its 50 day moving average (wiggly red line) and 200 day moving average; so it is carrying some momentum into that potential challenge.  The indicator is now neutral to negative; a break above the upper boundary of the short term downtrend would be very negative.

            Update on ‘the best stock market indicator ever’:

            The pain in Spain will not wane (medium):

            For those of you who think that you  are hiding in bonds (short):

            An early sign of trouble in bond land? (short):

            The latest from Barry Ritholtz (short):

            The immorality of QEIII (medium):

      News on Stocks in Our Portfolios

   This Week’s Data

            September personal income rose 0.4% in line with expectations; personal spending increased 0.8% versus estimates of +0.6%; the PCE price index came in at +0.1% as anticipated.


            The new debt to GDP ratio (short):



The truth about outsourcing (4 minute video):


            Europe is looking more like Japan (medium):

            Israel strikes Sudan missile factory (medium):

Friday, October 26, 2012

The financial peril facing the US---Must watch

Morning Journal--The austerity quandary

 News on Stocks in Our Portfolios
Sherwin Williams (SHW): Q3 EPS of $2.24 beats by $0.04. Revenue of $2.6B (+4.8% Y/Y) misses by $60M. Shares +0.5% premarket.

ConocoPhillips (COP): Q3 EPS of $1.44 beats by $0.31. Shares +1% premarket.

Reliance Steel & Aluminum (RS): Q3 EPS of $1.30 beats by $0.11. Revenue of $2.06B (+% Y/Y) misses by $40M. Shares +2.5% premarket.

Rockwell Collins (COL): FQ4 EPS of $1.32 beats by $0.19.

Quality Systems (QSII): Q3 EPS of $0.26 misses by $0.02. Revenue of $116.1M (+7.9% Y/Y) misses by $3M.


   This Week’s Data

            Initial third quarter GDP was reported at up 2.0% versus expectations of up 1.9%.

            The austerity quandary (medium):

            Household deleveraging is paying off (short/medium):

            Part of the deleveraging debt repudiation: charge offs and delinquency rates (short):



Why Romney is wrong on China (medium):

George Will on the current state of politics (medium and a must read):

Wall Street wins no matter who is elected (long but another must read):

  International War Against Radical Islam

            US policy on terror (medium):

The Morning Call--Up but not away

The Morning Call


I am going to fade the Closing Bell again this week.  OU plays Notre Dame at home.  So I leave after publishing this note for another party/football weekend.  See you on Monday morning.  Go Sooners.

The Market

            The indices (DJIA 13103, S&P 1412) tried to rally again yesterday with a bit more luck.  However, the assault on the triple support level (short term uptrend, 50 day moving average, 13302/1422 support) continued.  The Dow closed for the third day below 13302 and for the fourth day below its 50 day moving average (13346).  The S&P finished for the third day below 1422 and its 50 day moving average (1433).  Without more follow through to the upside, at the close today, the Averages will confirm the break of all components of the triple support level.  That’s not positive.

            As I noted yesterday, the task now is to identify the lower boundary of a newly re-set short term trading range.  The nearest candidate is a minor support level at 12973/1395.

            The indices remain well within their intermediate term uptrends (12627-17627, 1331-1929).

            Volume declined; breadth improved somewhat.  The VIX fell slightly but remains near the upper boundary of its short term downtrend and above both its 50 day and 200 day moving averages (not positive).  It is also above the lower boundary of its intermediate term trading range.

            GLD was up a bit but is trading below the upper boundary of a developing very short term downtrend.  On the other hand, it is well above the lower boundaries of its short term uptrend and its intermediate term trading range.

Bottom line:  stocks tried to rally again yesterday on the back of some pretty solid economic numbers reported early in the day.  Yet once again, even though the indices ended up on the day, they could not finish any where near their intraday highs nor did they recoup much of the ground lost since challenging all components of the triple support levels.  So the underlying strength of this Market deteriorated further. 

Support exists at 12973/1395 (minor support), 12973/1375 (the 200 day moving averages) and the lower boundaries of their intermediate term uptrends.  If I had to guess, I would view the latter as the most likely area to provide stabilization---all other things being equal (i.e. no collapse in EU).


            The day started with some positive economic news: weekly jobless claims fell more than anticipated and, more important, September durable goods orders were stronger than expected.  The latter along with Wednesday’s solid new home sales continues the string of better growth among the primary economic indicators and helps to further the distance of the economy from recession---at least for the near term.  It also keeps me confident in our forecast.

            Nevertheless, it is important to point out that conditions could begin to change radically after the elections.  As I have noted, an Obama victory will likely raise the odds that we will experience the ‘fiscal cliff’, while a Romney win may improve the chances of some resolution to that problem.  On the other hand, if he gets tough on bringing the budget deficit under control and fires Bernanke, we will probably get a recession by mid 2013---though as I have said, that is really the good news scenario (take less pain sooner versus more pain later).

            David Einhorn on Bernanke and Fed policy (long but a must read):

            The point here is that as happy as an improvement in the readings that we are getting on the economy makes me, the country is nearing a policy crossroads that could profoundly influence (assuming Romney does what he has said that he is going to do) our forecast for 2013 and beyond.

Bottom line: ‘stocks are creeping back to Fair Value which is a positive; and the primary economic indicators continue to turn in a solid performance which makes our forecast right on.....but I continue to believe that in the absence of clarity on how the eurocrats are going to hold the eurozone together and maintain it as a viable economic entity, caution is essential for the principal reason that the economic downside for the US and its banking institutions is so great.  At the risk of being repetitious, I am not saying the EU will implode.  I am saying that the probability of such is high enough and the damage it would do to our economy is high enough, that an above average cash position is warranted at current price levels.

We also can’t forget about the ‘fiscal cliff’.  As I noted yesterday, the odds of it occurring have increased of late; however, I don’t think that it carries the magnitude of downside that an implosion in the EU does.  In addition, as I have also mentioned, a Romney victory is more likely to lead to more immediate economic pain than an Obama win---we should be so lucky.  Investors have to come to grips with this idea (Romney win, more immediate pain) and that could cause stock price heartburn while it is happening. 

All that said, a decline to the 1270-1330 zone would find me a buyer.’
            The latest from Hugh Hendry (medium):

            China as a leading indicator (short):

            Will France follow Spain into the crapper (medium):

    Subscriber Alert

            The stock price of Sigma Aldrich (SIAL-$70) has traded into its Buy Value Range.  Accordingly, it is being Added to the Dividend Growth and Aggressive Growth Buy Lists.  Both Portfolios own a full position in SIAL, so no new shares will be Bought.

Thursday, October 25, 2012

Walgreen (WAG) 2012 Review

Walgreen’s (WAG) is the largest drugstore operator in the US, operating over 7700 drugstores. The company has grown earnings and dividends 12-16% annually over the past ten years, earning a 15-16% return on capital. Like most retail firms, WAG experienced an earnings hiccup in 2009; but it should be able to sustain an above average earnings growth rate in the future because:

(1) the +60 year old population, which is the largest user of drugs, is growing faster than any other segment of the population; in addition, the improvement in the quality of drugs for the maintenance of medical conditions should drive enhance revenue growth,

(2) renewal of its contract with Express Scripts,

(3) acquisitions,

(4) an aggressive stock buy back program.


(1) it must still earn back customer losses resulting form Express Scripts dispute,

(2) a highly competitive industry,

(3) the sluggish economy impacts consumer spending that in turn hampers its growth,

WAG is rated A+ by Value Line, has a 14% debt to equity ratio and its stock yields 3.1%

   Statistical Summary

                 Stock      Dividend         Payout      # Increases  
                Yield      Growth Rate     Ratio       Since 2002

WAG         3.1%           16%            39%             10
Ind Ave      1.2               8*              21               NA 

                Debt/                       EPS Down       Net        Value Line
               Equity         ROE      Since 2002      Margin       Rating

WAG         14%           19%            1                 4%          A+
Ind Ave      30              14              NA               4            NA

*few of the companies in this industry  pay a dividend


            Note: WAG stock made good initial progress off its March 2009 low, quickly surpassing the downtrend off its August 2007 high (straight red line) and the November 2008 trading high (green line).  Long term the stock is in a trading range (blue lines).  Intermediate term, it has struggled to hold an uptrend (purple lines).  The wiggly red line is the 50 day moving average.  The Aggressive Growth Portfolio owns a full position in WAG.  The upper boundary of its Buy Value Range is $27; the lower boundary of its Sell Half Range is $43.