"The Global Economy is Better Off Without the US"
2008-12-22 18:05:44
In our special focus on Gold & Precious metals, we spoke with analyst Peter Schiff of Euro Pacific Capital. While Mr. Schiff is a gold analyst, he talked to us a little bit about the current economic crisis in broader terms and what it's going to mean for the world at large. According to Mr. Schiff, "the global economy...is going to be better off without having to support the US economy." He claims that whole idea of countries lending resources to the US and supplying the US with resources was predicated on the idea that the health of global economy depends on the strength of the American consumer. According to Mr. Schiff, the current financial crisis is going to prove this to be a fallacy- which will lead to a boom in global markets, that begins- unfortunately- with inflation in the US and around the world. Schiff sees this outcome as inevitable, and that the US is going to have to "learn what it means to save and produce and save and it's going to be a very difficult transition." that will be fought tooth and nail by the government. When asked about whether the shift to the new administration was going to help the US economy, Mr. Schiff had this to say:Mr. Schiff: No. They've just made it worse. As far as I can tell, Barack Obama is committed to a course of total economic destruction. He doesn't realize that. He doesn't understand what the problem is, and he doesn't know what the solution is. He thinks that this collapse is the problem. However, this is the consequence of the problem; this is the tough medicine working. The problem is the bubble economy that we lived under for many, many years and any attempts to try to re-inflate it are not only destined to fail, but they're going to make the situation much worse.For the complete Gold and Precious Metals issue, including a complete overview of this sector and how its performing in this turbulent climate, as well as stock picks, click here.
Top Picks from The Mexico Fund
2008-12-17 18:39:16
For our top picks this week, we're looking somewhere many investors overlook: our neighbor to the south, Mexico. This week here at TWST we did an interview with Juis Luis Gomez Pimienta, as well as other portfolio managers involved in managing The Mexico Fund. They recommended the following companies, all of which are core holdings in The Mexico Fund:- Grupo Televisa (TV)- "[Grupo Televisa is] the most important Spanish-speaking media company in the world and we believe that even in this tough environment, this company, with relatively low leverage and steady cash flow, represents a good opportunity. If you compare the portfolio on July 4 to the portfolio on October 16, you'll see that the cash position was significantly increased to around 17% of its assets versus 3% to 5% for the last five years."
- America Movil (AMX)- "It is the most important Latin American wireless company with an important operation in Mexico, Argentina and several others in Latin America."
- Kimberly-Clark de Mexico- "A subsidiary of the Kimberly-Clark (KMB) in the US, represents 2.6% of the Fund's portfolio. We are now looking at companies with strong balance sheets, with steady cash flows and low leverages; that's the focus of the portfolio right now."
"The Buying Opportunity of Our Generation"
2008-12-10 18:26:47
While many economic experts foresee a tough climate for the foreseeable future, others are taking a more contrarian position. Christopher Zook of CAZ Investments, LP "officially turned bullish" on Thursday, November 27 and sees the current valuations in the market as "the buying opportunity of our generation." We talked to him a little bit about how he came to this conclusion:Mr. Zook: Valuations. Obviously the economy is going to continue to be very weak. We expect the economy to experience the worst recession since World War I. We expect that housing is not going to bottom for at least another two quarters, but will bottom probably in the second half of 2009 for a lot of reasons...What people have an incredible tendency to do is to totally forget the fact that the market is a discounting mechanism and the market has now discounted the worst...It's hard to find anything that's not undervalued at this point.For the complete interview with Mr. Zook, including a wide range of stock picks and an overview of his investment process, click here.
Advice for Investors
2008-12-02 18:20:07
Yesterday, a study by the National Bureau of Economic Research determined that the U.S. has been in a recession since December of 2007. Though this is hardly news, it is certainly an official validation of what has happened over the past year. Investors are no doubt uncertain about what to do, having never seen a market like this their lifetime. Here at TWST, we asked several portfolio managers to give some general advice to investors in this uncertain time:Kevin Charlebois, Brookfield Soundvest Capital Management: We are advising our clients that, although there has been a material downturn in stock market prices, in the neighborhood of 40% or so from their peak, we believe we are through most of the downturn, though we may not be through all of it. The next three to nine months may continue to be choppy, but for a long-term investor, this is the time to be investing available cash in the shares of good companies. In other words, your time will be more productively spent if you stop the fruitless search for the bottom and expend your energy on finding the true long-term bargains available in today's marketplace. Gerald Seizert, Seizert Capital Partners: We are going to be in a very challenging equity environment. Returns are likely to continue to be very volatile for the next 12 months and maybe longer. However, valuation levels of the broad market are becoming attractive to the long-term investor. We are at levels that have typically been associated with early stages of a bull market. For those with a holding period that is longer than a year or two, the market is at a level that is compelling. Significant absolute returns will be made by those who stick to a disciplined focus on companies with strong fundamentals, selling at attractive multiples of cash flow and that have sustainable dividends. As always but particularly now,the key virtue for the equity investor is patience.For the complete investing strategies report, including full interviews with a variety of portfolio managers and stock picks, click here.
Big Bonus - Yes, Please
2008-11-20 12:49:32
Interesting article in the NY Times today about the impact of large bonuses on performance. Conclusion of psyche tests - for complex cognitive tasks large bonuses led to no improvement in performance versus smaller bonuses. Worse - it showed inferior performance. Hypothesis - stress induced by the higher expectations led to lower performance.
Of course this leads to questions about executive pay - at the C level, and at investment banks. According to the article, its conclusions were immediately challenged by banking executives when referring to their own firms. Duh! Any senior executive is going to challenge anything that would suggest he or she is overpaid. The executive pay issue is exactly the same as that faced in baseball. A-Rod performs no better now he is paid $30m per year, than when he was in Seattle. The reason senior banking executives at bulge bracket banks are paid so handsomely is that they have convinced their bosses that they are rare and special talents. Their bosses are easily convinced, because they are generally poor people managers, and because they are using the same arguments themselves to their boss. Boards of directors bring in compensation consultants to assess fair pay for the top guys. These consultants are like house appraisers - easily replaced if they provide the wrong answer. The reason executives are so highly paid, is that they have successfully framed the market environment for their skills. Scott Boras on one side, with no Theo Epstein on the other. How have sports teams countered competitive inflation in salaries? Generally not well. Salary caps - how about that NASD? Deep farm systems. Long terms contracts. Depth in every position is the best hedge.