Wednesday, December 26, 2012

We could goto 1500 on the S&P500

 If investors continue to 'stick with what's working' and also bid up some oversold stocks, the market could rally. "We could go to 1450 or even 1500"

Monday, December 17, 2012

Capital preservation urged

Marc Faber has just released his latest newsletter the Gloom Boom Doom Market commentary for December 2012.

Marc Faber suggests that 2013 will probably not be the greatest year for asset holders and one should focus on asset, capital preservation. The reason being that the equity market has already had a very strong rally since March 2009.

Marc Faber is a famous contrarian investor and the publisher of the Gloom Boom & Doom Report newsletter.

Thursday, December 13, 2012

Ben Bernanke

I keep in my toilet a picture of Mr. Bernanke. And every time I think about selling my gold, I look at it and I know better

Marc Faber is a famous contrarian investor and the publisher of the Gloom Boom & Doom Report newsletter.

Wednesday, December 5, 2012

S&P500 could goto 1200

Stocks could correct to 1200 within a few months.

Marc Faber is a famous contrarian investor and the publisher of the Gloom Boom & Doom Report newsletter.

Thursday, November 29, 2012

Helicopter Bernanke

Ben Bernanke can drop as many Dollar bills as he likes into this room," he told the LBMA conference in Hong Kong, but what he doesn't know is what we will do with them. His helicopter drop will not lead to an even increase in all prices. Sometimes it will be commodities, sometimes precious metals, collectibles, wages or financial assets.


Marc Faber is a famous contrarian investor and the publisher of the Gloom Boom & Doom Report newsletter.

Wednesday, November 28, 2012

Gold not yet a bubble

Gold is not anywhere close to a bubble stage.


Marc Faber is a famous contrarian investor and the publisher of the Gloom Boom & Doom Report newsletter.

Monday, November 26, 2012

Commodities Will Continue To Fail near term

Marc Faber thinks that industrial commodities will remain under pressure due to the fact that the Chinese economy is slowing down considerably. If China were to cut its demand prospects from something like copper or steel, it could have devastating impacts on the commodities themselves, according to Faber's theory.


Marc Faber is a famous contrarian investor and the publisher of the Gloom Boom & Doom Report newsletter.



Tuesday, November 20, 2012

Corporate profits declining

The market is actually going down because I think that corporate profits will begin to disappoint, and that the global economy will hardly grow next year, or even contract.

Marc Faber is a famous contrarian investor and the publisher of the Gloom Boom & Doom Report newsletter.

Tuesday, November 13, 2012

Debt burden increase

The debt burden in the U.S. and other Western countries will continue to increase. The timeframe would be within five to ten years you have a colossal mess … everywhere in the Western world.


Marc Faber is a famous contrarian investor and the publisher of the Gloom Boom & Doom Report newsletter.

Monday, November 12, 2012

Sensex may not cross 21000 levels anytime soon: Marc Faber - EconomicTimes

Edited excerpts from ET Now interview with Marc Faber, Editor & Publisher of The Gloom, Boom and Doom Report, for his take on the global and Indian markets. Marc says that there can be a year-end rally, but he does not see new highs in the markets.

ET Now: Do we brace ourselves for a year-end rally or a year-end fall, given the risk from a fiscal cliff in the US?

Marc Faber: We have peaked out recently a couple of weeks ago and we are in a downtrend. Eventually, the markets will be down 20%, but will be oversold in about 10 days' time to two weeks' time. So there can be a year-end rally, but certainly no new highs in the markets.


ET Now: How real is the possibility of a Euro break-up considering that Spain and Greece are still looking as vulnerable as before?

Marc Faber: Yes, it is a possibility. I do not think it will happen right away because the politicians want to keep the Eurozone intact, but the situation in Portugal, Greece, Spain, Italy and even France is actually unsustainable in the long run because of the unfunded liabilities. So a Euro break up will probably happen sometime in future, but not for another three or five years.



ET Now: Has your stance changed on India because of the slew of reforms that we have seen and do you see the recent announcements call for a rerating of the region?

Marc Faber: Not necessarily. While the government has announced some reforms, there is a huge execution risk in India. A lot of implementation is still to happen, and it will be interesting to see as to what extent they will be implemented and their actual impact on the economy. At present, there is high level of economic activity in India as well as China and Southeast Asia, but India is not growing anymore. Hence, I will take a relatively cautious stance towards the Asian markets.



ET Now: How do you see emerging markets manage the inflation versus growth equation?

Marc Faber: Like in Western countries, Asian central banks will also ease over time and they have done that already in some countries. There are not many countries in the region that are as disciplined as Singapore. I believe that even though there will be some inflationary pressure, but because of the overall weakness in the global economy the energy prices will come down somewhat. Moreover, food prices are already somewhat down after having risen so much, and are currently not as high as they were a few years ago.



ET Now: What do you see in terms of the returns on Indian equities over the next one or two years? Should investors adjust their return expectations?

Marc Faber: I am not exactly a prophet, but we have rallied strongly from the 2009 lows and the outlook for large capital gains at this level is very limited. The high in 2008 and the high last year was around 21000. I do not think we are going above 21000. I would rather expect the market to ease again from here.



ET Now: What regions are you seeing as the most and least attractive for investment right now?

Marc Faber: The Chinese economy is slowing down rapidly. In my opinion, it is not growing at any more than 4% now. The market was at 6000 in 2007, and today we are down to around 2000. Clearly, the market has already discounted a lot of bad news and if a junk country like Greece could rally from the lows of 65%, we can expect a trading rally in China of 20%-30% over the next four or five months. Additionally, the Japanese Yen has begun to weaken and that should be a positive trigger for Japanese equities.


Marc Faber is a famous contrarian investor and the publisher of the Gloom Boom & Doom Report newsletter.


View the original article here

Monday, November 5, 2012

Markets could fall down 20 percent


By now all traders have heard of Dr Marc Faber and that he's a really smart investor/trader. This is why his recent comments will have shook us all up a little bit. According to Faber, there could easily be a 20 percent decline. “I believe globally we are faced with slowing economies and disappointing corporate profits, and I will not be surprised to see the Dow Jones, the S&P, the major indices, down from the recent highs by say, 20 percent.

Marc Faber is a famous contrarian investor and the publisher of the Gloom Boom & Doom Report newsletter.

Monday, October 1, 2012

100 percent chance of a recession

Marc Faber says there's a 100 percent chance of a global recession and that stocks could suffer a big sell off.
And he is bearish about  all assets near term I think we’re entering a correction time where there will be some disappointments, where stock markets, from the recent times can easily drop 20%.


Marc Faber is a famous contrarian investor and the publisher of the Gloom Boom & Doom Report newsletter.

Profit taking risk

Im bearish about practically all assets near term we’re entering a correction time. Faber further states that equities, gold, and other commodities “will face some profit taking.”


Marc Faber is a famous contrarian investor and the publisher of the Gloom Boom & Doom Report newsletter.

Wednesday, September 12, 2012

QE helps rich people

QE helps rich people whose asset prices go up and whose net worth then increases but it doesn’t flow to the man on the street who is faced with higher costs of living with price rises. You just have a small economy that is booming but the majority of the economy is damaged by QE.

Monday, August 13, 2012

Avoiding Philippines, Indonesian Stocks; Buying European stocks

On Phillipines and Indonesian stocks
“I don’t think there is particularly good value at present time. He says the Chinese slowdown and European recession will make it difficult for Asian nations to grow from present levels.
Will the Chinese be able to stimulate consumption? Faber says it depends on consumer confidence, which he does not think is very high.

For the first time in his life, Faber says he has been buying European stocks.


Marc Faber is a famous contrarian investor and the publisher of the Gloom Boom & Doom Report newsletter.

Monday, July 9, 2012

If I Were Germany, I Would Have Abandoned Eurozone Last Week – Faber -Wall Street Pit

Excerpts from Bloomberg

Faber on the eurozone crisis:
“If you put one or 100 sick banks in a union, it does not change the fact that they’re sick. In my view the markets are rallying because they were grossly oversold. When markets are grossly oversold, especially markets of Portugal, Spain, Italy, France, then any news that is not disastrous news propels stocks higher. I think that combined with seasonal strength in July, the rally has carried on somewhat. But it is another cosmetic fix, a quick fix that does not solve the long-term fundamental problem of over investment in the euro zone. And what it does, basically, it forces Germans to continue to finance people in Spain and Portugal and Greece that are living beyond their means.”
“If I were the Germans, if I were running Germany, I would have abandoned the eurozone last week…It is a costly decision, but losses are there and somewhere, somehow, the losses have to be taken. The first loss is the banks. In the case of Greece, one should have kicked out Greece three years ago. It would have been much cheaper.”

On whether he’s picking up European equities:
“Yes. In Portugal, Spain, Italy, and France, the markets are either at the lows of March 2009, or lower. Along with bad companies and the banks, there are also reasonably good companies. Stellar companies, but they have been dragged down. I see value in equities, regardless of whether the eurozone stays or is abandoned.”
“[I’m buying] anything that has a high yield, or what I perceive to have a relatively safe dividend. In other words, I do not expect the dividends to be slashed by 90%…I am not buying banks, but maybe they could rally. I am just not buying them because I think there will be a lot of equity dilution and recapitalization. I’m not that keen on banks.”

On whether he’s going long on the euro:
“No, I’m not going long on the euro because I’ve always maintained a diversified currency portfolio. I have U.S. dollars, euros, Singapore dollars, some Canadian dollars, and even some Australian dollars. And I have a lot of Asian currencies, Malaysia, Thai baht and so forth.”

View the original article here

Sunday, July 1, 2012

Gold Bullion "Has Bottomed" Says Marc Faber - BullionVault

The PRICE of Gold Bullion has now bottomed out, according to leading investment author and precious-metals advocate Marc Faber. "I'm not sure that gold will not make a new high this year," Faber told Bloomberg in an interview earlier this week, "but I think we've bottomed out. "Some Gold Mining shares have become very very inexpensive compared to the reserves they have."


Marc Faber is a famous contrarian investor and the publisher of the Gloom Boom & Doom Report newsletter.

Wednesday, April 11, 2012

Ease Up on Stocks, Gradually Accumulate Gold: Marc Faber - Yahoo!Finance (blog)

"Where investors were overly negative last year, they are now overly optimistic about the prospects for the U.S. economy," Faber says, pointing to the ''huge bull run'' we have had since 2009. "I think the (stock) market is very overbought."

While he still supports gold's long term opportunity, he feels the precious metal is "still in correction phase" and that "individual investors should gradually accumulate gold" because of the outlook for continued money printing by the Fed and other central banks around the world.

His advice to investors is ''to hold some cash, hold some precious metals, hold some equities, and hold some real estate," he says, adding that "if one asset class or the other declines substantially move money into that asset class."


Marc Faber is a famous contrarian investor and the publisher of the Gloom Boom & Doom Report newsletter.

Sunday, April 8, 2012

MARC FABER: Beware The Unintended Consequences Of Money Printing

Marc Faber worries about the unintended consequences of money printing. Beyond currency devaluation, it creates malinvestment that leads to asset bubbles that wreak havoc when they burst. And even more nefarious, money printing disproportionately punishes the lower classes, resulting in volatile social and political tensions.
In the short term, it has been working to some extent in the sense that equity prices are up and interest rates are down. And, so companies can issue bonds at extremely low rates. But every money printing exercise in the world leads to unintended consequences at a later point. And, this is the important issue to remember. We don’t know yet for sure what the unintended consequences are.

Wednesday, March 7, 2012

Gold Will Be Taken by the Government

Marc Faber still buys physical gold and warns that at one point the government will take the gold away from physical gold owner as it happened back in the 1970's.



Marc Faber is a famous contrarian investor and the publisher of the Gloom Boom & Doom Report newsletter.

We Will See QE3

QE3 depends on the S&P, if the S&P drops 100-200 points, then yes, for sure we will have QE3 but if the S&P stays here or even goes up, the likelihood of QE3 diminishes

“The S&P went up from 666 on March 6 2009 to 1,370 [currently] so it has more than doubled and that has to do with QE1 and QE2,” he said.

Faber expects to see high volatility in all asset classes over the next few years, says the ideal asset allocation for the moment is 25 percent each in equities, real estate or real estate related equities, cash and gold. “I don’t think (investors) should be shooting for huge gains, but rather for preservation in capital,” he said.


Marc Faber is a famous contrarian investor and the publisher of the Gloom Boom & Doom Report newsletter.

Tuesday, March 6, 2012

Investors target property tax deadbeats - CNNMoney


Jean Norton's first foray into tax lien investing was hands-down a lucrative one.
Norton, who was a marketing director at a tech firm at the time, had bought and sold real estate for years. She had heard about investors who were making nice profits buying liens on homes with overdue property taxes. So in 2009, she attended a seminar to learn how to put her own skin in the game.

Soon afterward, she bought more than $20,000 in liens at auctions in foreclosure-riddled Florida that were promising to pay 17% to 18% in interest. Within two years, she got her entire investment back, plus double-digit returns.

"It was always a nice surprise to get a check in the mail," said Norton, now 55.
Now big institutional investors have joined individual investors. But like any investment offering tempting yields, the potential pitfalls of tax lien investing are pretty huge: Those who lose out could either end up saddled with a worthless property or with nothing at all.
Between $7 billion and $10 billion in property taxes go delinquent each year, according to Brad Westover, executive director for the National Tax Lien Association. For many state, county and local governments, the failure to collect on these debts weighs heavily on their already-overburdened budgets. In 29 states, plus the District of Columbia, they turn to investors for help.
In these states, investors buy tax lien certificates at auctions, effectively owning a claim against the property until the homeowner pays the county or municipality back or until they default on the debt entirely. In return, the county gets the money it needs to fund schools, pave roads and pay for other infrastructure and services.
Homeowners who pay back what they owe, pay the county, which then repays the investor the principal, plus whatever interest rate was set at auction.
The interest is where the real money can be made. States set rates that the counties can charge delinquent taxpayers on overdue taxes and they can range anywhere from 12% to 24%, according to Larry Loftis, an attorney, tax lien investor, and author of "Profit by Investing in Real Estate Tax Liens."
There are several different kinds of tax lien auctions. In one of the most common methods, the winning bidder is the one who will accept the lowest interest rate. That can lower the rate to far below what state laws allow, but it can still be much higher than other investments.
"I just [invested] $1 million last week and most of the liens I won were at 7%, with a handful at 8%, a few at 9%, two at 10%, and one at 11%," said Loftis.
The big gamble: Most homeowners pay off their back taxes within a year and nearly all of them pay what they owe eventually. According to local tax authorities in Colorado, about 95% of back taxes are paid off within two years, a rate that Donald Dinan, general counsel for the National Tax Lien Association, said generally holds true for the nation as a whole.
For the 5% of liens that don't get repaid, however, things can get pretty messy. Lien holders may have to pursue a foreclosure, and, if that doesn't get the homeowner to pay their taxes, then the investor will likely have to take possession of the property. That means going through a legal process that often includes getting a sheriff to evict the old occupants. If an investor fails to do either of those things, the lien will eventually expire and it will become worthless.
In a foreclosure, the tax lien holder usually has first claim on the property, even over the bank that holds the mortgage (should the homeowner still owe money on the home).
Foreclosures go through the county, which has to notify the delinquent taxpayer that a foreclosure sale is pending and advertise the sale, usually online and in local newspapers.
In many states, the tax lien holder can get full title free and clear on the property in a foreclosure: The bank gets nothing. However, to protect its interest, the bank will often pay off the back taxes, plus interest.
If there's no mortgage, the lien holder can repossess the home. That's not a bad deal if the home is worth more than the amount the lien buyer has already put into the deal. In fact, some investors look for that potential when they bid on the debt.
However, wading into tax lien foreclosures -- on purpose -- is a tricky and time-consuming business that can easily backfire.
"Risks come mainly from not knowing what you're doing," said Loftis. "The biggest risk is getting a lien on a worthless property. Contrary to what you see and hear on the 'Get rich quick' infomercials on tax lien investing, the county government does not guarantee your investment."
Almost all counties that sell liens sell hundreds of them on worthless properties each year. That's especially true in blighted inner-city neighborhoods where foreclosures have wrecked the housing market and many homes are selling for $10,000 or less. If the property owner doesn't pay, there's no way for investors to get back their money by foreclosing and selling the house.
Buyers have to make sure that the total amount of debt the house carries is less than its market value. You don't want it to total much more than 60% or so of the home's market value, said Westover, and, ideally, much less.
Other potential pitfalls include buying a lien on a home that also has an IRS lien on it (the agency also has a first claim on the assets), bankruptcy of the owner, which can delay a foreclosure even longer, and environmental hazards.
For intrepid investors, buying a tax lien can be a lucrative bet -- just be prepared for the fact that you may end up the unwitting owner of a home that could cost you your investment and then some.  To top of page



Monday, March 5, 2012

Market Still Suggesting That Investors Be Cautious, Though Not Bearish- Minyanville.com

Some people can have a lot of experience and still have good judgment. Others can pull a great deal of value out of much less experience. That’s why some people have street smarts and others don’t. A person with street smarts is someone able to take strong action based on good judgment drawn from hard experience. For example, a novice trader once asked an old Wall Street pro why he had such good judgment. “Well,” said the pro,“Good judgment comes from experience.” “Then where does experience come from?” asked the novice. “Experience comes from bad judgment,” was the pro’s answer. So you can say that good judgment comes from experience that comes from bad judgment!-- Adapted from "Confessions of a Street Smart Manager” by David Mahoney
Years ago I read a book that a Wall Street professional told me would give me good stock market judgment by benefiting from the bad experience of others who had suffered various hard hits. The name of the book was One Way Pockets. It was first published in 1917. The author used the non de plume “Don Guyon” because he was associated with a brokerage firm having sizable business with wealthy retail investors and he had conducted analytical studies of orders executed for those investors.
The results were illuminating enough to afford corroborative evidence of general investing faults that persist to this day. The study detected “bad buying” and “bad selling,” especially among the active and speculative public. It documented that the public tends to “sell too soon” and subsequently repurchase stocks at higher prices by buying more stocks after the stock market has turned down, and finally liquidate all positions near the bottom -- a sequence true in all
similar periods.
For instance, the book shows that when a bull market started, the accounts under analysis would buy for value reasons; and buy well, albeit small. The stocks were originally bought for the long term, rather than for trading purposes, but as prices moved higher on the first bull-leg of the rally, investors were so scared by memories of the previous bear market and so worried they would lose their profits, they sold their stocks. At this stage the accounts showed multiple completed transactions yielding small profits liberally interspersed with big losses.

In the second phase of the rally, when accounts were convinced the bull market was for real, and a higher market level was established, stocks were repurchased at higher prices than they had previously been sold. At this stage larger profits were the rule. At this point the advance had become so extensive that attempts were being made to find the “top” of the market move such that the public was executing short-sales, which almost always ended badly.

Finally, in the mature stage of the bull market, the recently active and speculative accounts would tend not to overtrade or try to pick “tops” using short-sales, but would resolve to buy and hold. So many times previously they had sold only to see their stocks dance higher, leaving them frustrated and angry. The customer who months ago had been eager to take a few points profit on 100 shares of stock would, at this stage, not take a 30-point profit on 1,000 shares of the same stock now that it had doubled in price. In fact, when the stock market finally broke down, even below where the accounts bought their original stock positions, they would actually buy more shares. They would not sell; rather, the tendency at this mature stage of the bull market and the public’s mindset was to buy the breakdowns and look for bargains in stocks.

The book’s author concluded that the public’s investing methods had undergone a pronounced, and obvious, unintentional change with the progression of the bull market from one stage to another -- a psychological phenomena that causes the great majority of investors to do the exact opposite of what they should do! As stated in the book:
The collective operations of the active speculative accounts must be wrong in principal [such that] the method that would prove profitable in the long run must be reversed of that followed by the consistently unsuccessful.
Not much has changed from 1917 and 2012, just the players, not the emotions of fear, hope, and greed, or supply versus demand, as we potentially near the maturing stage of this current bull market. Of course stocks can still travel higher in a maturing bull market, but at this stage we should keep Don Guyon’s insight about maturing “bulls” in mind. Verily, this week celebrates the third year of the Bull Run, which began on March 9, 2009, and we were bullish. With the S&P 500 (SPX) up more than 100% since the March 2009 “lows,” this is one of the longest bull markets ever. As the invaluable Bespoke Investment Group writes: Going all the way back to 1928, the current bull market ranks as the ninth longest ever. Even more impressive is the fact that of the nine bull markets that lasted longer, none saw a gain of 100% during their first three years. Based on the history of prior bulls that have hit the three-year mark, year four has also been positive.
Now, recall those negative nabobs who told us late last year the first half of 2012 would be really bad? W-R-O-N-G, for the SPX is off to its ninth best start of the year, while the Nasdaq (COMPQ) is off to its best start ever!
In seven out of the past 10 “best starts,” the SPX was higher at year-end, which is why I keep chanting, “You can be cautious, but don’t get bearish.” Accompanying the rally has been improving economic statistics, and last week was no exception.

Indeed, of the 20 economic reports released last week, 15 were better than estimated. Meanwhile, earnings reports for fourth quarter 2011 have come in better than expected, causing the ratio of net earnings revisions for the S&P 1500 to improve. Then, too, the employment situation reports continued to improve. Of course, such an environment has led to increased consumer confidence, punctuated by the February Consumer Confidence report that came in ahead of estimates at 70.8, versus 63.0, for its best reading in a year. And that optimism makes me nervous.

Nervous indeed because the SPX has now had 42 trading sessions year-to-date without so much as a 1% Downside Day. Since 1928 the SPX has only had six other occasions where the SPX started the year with 42 or more trading sessions without a 1% Downside Day. Worth noting, however, is that in every one of those skeins, the index closed higher by year’s end.

Still, in addition to the often mentioned upside nonconfirmations from the Dow Jones Transportation Average (TRAN) and the Russell 2000 (^RUT), seven of the SPX’s 10 macro sectors are currently overbought, but the NYSE McClellan Oscillator is now oversold, Lowry’s Short Term trading Index has fallen 12 points since peaking on January 25 (which interestingly is the day before the Buying Stampede ended), and the Operating Company Only Advance/Decline Index (OCO) has nearly 1,000 fewer issues than where it was on February 1 -- suggesting the rally is narrowing.

The number of new highs confirms the OCO (last April the index had similar readings right before a correction), and sticking with the April 2011 comparison shows a striking similarity to the December 2010 – February 2011 trading pattern for the SPX, and we all remember how that ended.

Marc Faber States Gold Far From Bubble Phase - The Market Oracle

After Standard & Poor's (S&P) downgraded a cluster of Eurozone countries in January, you came out saying that downgrades should have been even deeper, depending on the country's credit-worthiness. S&P did give below-investment-grade ratings to Portugal and Cyprus—BB and BB+, respectively—but you indicated that some of these countries warrant CCC ratings. Do you anticipate additional downgrades?

Marc Faber: If you accounted for the unfunded liabilities of most European countries, as well as the U.S., the quality of the government debt would be significantly lower. In other words, yes, I do expect to see more and more downgrades over time.

TGR: Could that happen in 2012?

MF: Yes, and some thereafter.

TGR: Have the markets priced in further downgrades already or should we expect a bigger impact in the next round?

MF: I don't think the market has priced it in because the yield today on U.S. 10-year government bonds is 2%, and 3% on 30-year bonds. If the market were priced properly based on the quality of these bonds, the yields would be far higher.

TGR: Did yields change much with these recent downgrades?

MF: Yes, particularly in the U.S., where investors perceive U.S. government bonds as safe. The U.S. will pay the interest as long as it can print money. But suppose you buy a 10-year government bond that yields 2% and inflation is perceived to be 5–7%. To what extent would investors still buy these bonds? That question will arise one day.

TGR: You've discussed investors leaving the European markets in favor of a "safe haven" in the U.S. Would U.S. bonds continue with such low yields with the European downgrades?

MF: For a while, yes, but at some point people will wake up and realize that the U.S. will default through a depreciating currency—in other words, through printing money—or by not paying the interest on the bonds. I don't think the U.S. will stop paying the interest, but printing more money will weaken the currency and produce higher inflation in consumer prices, asset prices and commodity prices. So being in U.S. government bonds will result in losses to investors through currency depreciation.

TGR: You've pointed out that negative real interest rates force people to speculate, which creates enormous market volatility. That seems to be happening now, but apparently investors are keeping a great deal of money on the sidelines as well. If that comes in, would it make the markets even more volatile? Or would you say the smart money will stay on the sidelines and the speculative money is in play already?

MF: I think there is a lot of money on the sidelines. Some will stay there, because people who don't trust the system anymore will just keep it there. Some will be invested, but it may not go into equities. It could go into some other asset class, perhaps hard currencies such as gold and silver, or real estate, which is now relatively inexpensive in the U.S.

As for volatility, it increased sharply last year, but has diminished over the last three-months. I expect we'll see increasingly very high volatility in all asset classes in the next few years. The money in an environment of negative real interest rates will flow. It might flow into fewer and fewer stocks, or into fewer and fewer assets that could go ballistic on the upside.

TGR: Which asset classes would you expect on the speculative upside?

MF: We had the NASDAQ bubble 12 years ago, the housing market bubble probably five years ago, and I would say also a bubble in commodities in 2007–2008, when oil spiked to $147. What's next, I'm not so sure. I could imagine some stocks, maybe some precious metals, in a bubble stage—not the entire market necessarily.

TGR: Could you delineate characteristics of stocks that will appreciate versus those that will stagnate or lose value?

MF: If we look at the market, we have some stocks where the outlook is perceived to be particularly bright, and then there are others—for instance, Eastman Kodak Company (EKDKQ:OTBPK)—that are at the opposite end of the spectrum. It depends on the fundamentals and the imagination of investors. I wouldn't necessarily buy up, so I'm not saying it will go down. Maybe it will go up further. But in general if you buy the company with the largest market capitalization in the world you're not going to make a lot of money.

TGR: What captures the imagination of investors?

MF: Basically mania fed by excessive liquidity, with more and more people convinced that something is the Holy Grail. It was the NASDAQ in 2000, Asia before 1997, housing from 2000 to 2006–2007, or more recently China. Exactly what it is, I don't know. But when a market has been strong, the media write about it and people are attracted to it. Then some useless academics write books about why stocks, or real estate, always go up, and so forth. The media again write that up, and more people flow into that sector.

TGR: A couple of weeks ago James Turk told us that he thinks the low price for gold in 2012 was already established early in January. What makes you think it will pull back?

MF: The big rally into Sept. 6, 2011, took the gold price to $1,922/ounce (oz) and then it dropped until the end of the year, touching $1,522/oz on Dec. 29. It has rallied, and is now above $1,700 again, but I don't think the correction is entirely over. Corrections of 40% are nothing unusual in a bull market.

As an adviser, my duty is to always inform people of investment risk. I'm not saying I expect gold to collapse, but telling people the gold price will go up leads them to leverage up and speculate. If the gold price drops $50/oz, they're wiped out. All I'm saying is that, in my opinion, the gold price correction is not yet entirely completed. I see significant support around the $1,500/oz level, but it could drop lower. It depends on global liquidity and on money printing by central banks. We could have a big correction if global liquidity tightens or they stop printing money.

TGR: Over what timeframe are you looking at the correction?

MF: This year the gold price may not exceed the $1,922/oz high that we reached on Sept. 6. Maybe it will. I'm not a prophet. I'm just telling people that I'm buying gold and holding it. I don't speculate in gold. If you buy gold, you better understand that the price could always move to the downside. If you don't understand that, don't invest in gold—or in anything.

TGR: Investment show commentators have been talking about gold being in one of those mania bubbles you described because it's been increasing for 11–12 years. Do you agree?

MF: No, gold is not in a bubble. It wasn't in a bubble in 1973, either, but it still corrected by 40% then. I don't believe gold is anywhere near a bubble phase. A bubble phase is characterized by the majority of market participants being involved in a market space. I saw a gold bubble in 1979–1980, when the whole world was dealing—buying and selling gold 24-hours a day, globally.

TGR: But not since then?

MF: No. If you went to an investment conference in 1989, 90% of the people there would have told you they owned shares in Japanese companies. In 2000, 90% of them would have said they owned NASDAQ shares. Only about 5% of the participants at an investment conference today would tell you they own gold. Very few people in this world own gold.

I don't believe that we're in a bubble.

TGR: Should people who aren't yet in gold or want to add to their position wait for a correction?

MF: I have argued for the last 12 years that investors should buy a little bit of physical gold every month and put it aside without concerns about corrections. If you don't own any gold, I would start buying some right away, keeping in mind that it could go down.

For the last 40 years in my business I've seen people always lose money when they put too much money into something and then it goes down. They panic and sell, or they have a margin call to sell—and lose money. I own gold. It's my biggest position in my life. The possibility of the gold price going down doesn't disturb me. Every bull market has corrections.

TGR: What do you think about silver as an alternative precious metal to hold?

MF: Gold and silver will move in the same direction, up together or down together. At times, silver will be stronger relative to gold, and at other times gold will be stronger relative to silver. My friend Eric Sprott thinks that silver will go ballistic. I don't know. I own gold.

TGR: You're on record as recommending that investors maintain diversified portfolios, with 20% to 30% each in gold, real estate, equities and cash. Focusing on equities, as we've discussed, means tremendous volatility. What are your thoughts? High value? Large cap? Dividends? Something more speculative, perhaps gold mining shares?

MF: Because I live in Asia, I am quite familiar with the Asian markets and economies. I have a bias toward Asian equities, especially because I can find deals in places such as Malaysia, Thailand, Singapore and Hong Kong—stocks that give me 4–7% dividend yields. With yields at those levels, at least I'm paid to wait. Even if they're cut 5%, I'd still get better cash flow than I would from, say, U.S. government bonds. Consequently, I feel reasonably confident owning such shares.

Because I have allocated only 25% of my portfolio to equities, if the markets were to drop 50%, I would have funds elsewhere in my portfolio to buy more equities. That's not a prediction for a 50% market decline; it's just to say that I'm positioned in such a way that I could put more money in equities through a) my cash flow, b) my income and c) my cash position. And I do own some gold shares through stock options, because I'm a director of several exploration companies.

TGR: Given that you're satisfied to, in essence, being paid to wait with dividend-paying stocks, do you consider yourself a buy-and-hold investor?

MF: With my asset allocation of 25% in equities, I can afford to hold them. If I had 100% in equities, I would be more inclined to take profits from time to time.

TGR: Let's get back to Asia for a moment. Headlines in the U.S. have focused lately more on what's going on in Europe, with Asia basically relegated to page 2. What's your perception of the markets and economies there?

MF: We don't have recessions yet, although there have been slowdowns in economic activity and some corporate profit disappointments. The big question is whether we have a problem in six months to one year's time that results from a meaningful slowdown or even a crash in the Chinese economy. That may happen.

Second, it's not everywhere, but in some cases I see bubbles in the real estate market, as there are in everything that relates to luxury—luxury properties, paintings, collectibles, the luxury department stores and shops, the Swiss watch companies. They're all doing very good business. I think there's a bubble essentially in everything at the high end of the market. That concerns me a little bit. It may continue for another year or so but will not last forever, so I'm relatively cautious.

Having said that, lots of companies in Asia do not cater to the high-end consumers but to the rising middle class. I believe they are reasonably well positioned to weather even a recession.

TGR: If China's bubble in those luxury goods and real estate bursts, would the Asian markets go down in tandem?

MF: Yes, I think so. Last year the Chinese markets—by the way, also India—grossly underperformed the U.S., so maybe the market has already discounted a Chinese slowdown to some extent. But because I happen to think that it hasn't discounted the Chinese slowdown entirely, yes, I think the markets are still vulnerable.

TGR: Are your investments in the Asian markets focused on companies that are not catering to the high-end, like food and items that the middle class buys?

MF: Yes, I have a mixed portfolio of both industrial and residential real estate, healthcare companies, retailers, food companies, agricultural companies, finance companies and banks. So, it's fairly broad.

TGR: Are those financing companies and banks Asian-based or internationally based? That sector is certainly out of favor in North America.

MF: I have no Chinese banks, but I own banks in Singapore and Thailand and finance companies in Singapore, Thailand and Malaysia. Actually, I'm also positive about some financial stocks in Europe and America. Simply because of the money printing, these financial institutions are benefiting at the expense of honest people who have savings that yield nothing while their cost of living is progressing at 5–10% per annum.

I took a taxi the other day from New Jersey to Manhattan. The Lincoln Tunnel has raised its toll by 50%, from $8 to $12. But the government, brainwashed by incompetent academics at the Federal Reserve, will tell you that inflation is 2%.

TGR: You mentioned liking finance companies in Europe and America because of money printing. How does that benefit them?

MF: I don't like them. In investing, it's not a question whether you like or dislike something. It's a question of price. The best company or the worst sector may be overvalued at one price and undervalued at another. I happen to think that having weakened to around the 2009 lows last fall, when the S&P dropped to 1,074 on Oct. 4, the financial sector was very cheap. Since then, there have been big rallies for Citigroup Inc. (C:NYSE), Bank of America Corp. (BAC:NYSE) and other banks. I saw opportunities there, but with the market rallying so much, I believe it is now overbought and due for a correction. We will see whether it's just a correction or a resumption of a downtrend.

TGR: Which do you think it will be?

MF: I don't know. We haven't seen a correction yet. I think it's about to start. Then we will have to see the shape of the correction, which could last a month. After that, we'll have to look at the shape of the recovery—the number of stocks that will participate, the number of new highs and so forth.

TGR: You've indicated that your portfolio allocation includes real estate. Do you consider real estate a good value in North America now?

MF: I travel around the world all the time and I'm interested in the formation of prices so I have an idea about trends in prices. You have to consider real estate prices in the context of currency valuations. For example, five years ago, homes in Australia and Canada were inexpensive and now they aren't, but not necessarily because prices have gone up. Although prices don't necessarily track with whether a currency increases or decreases in value, in those two cases, the value of the currencies also has increased.

The U.S. does have areas where real estate is incredibly low relative to other parts of the world. I can buy homes in Atlanta and Phoenix for less than I'd pay in Thailand, and because the GDP per capita in the U.S. is of course much higher than in Thailand, on a relative basis, those homes in Atlanta and Phoenix would be attractive.

As a foreigner, I am not interested in investing in U.S. real estate for various reasons, including taxation, management and regulation. But if I were a U.S. citizen, I would say now is a relatively good time to buy real estate and rent it out and net a yield of maybe 6–8%. Many of my friends who own rental apartments do very well on rental income. Many of the people who no longer qualify for mortgages can rent.

TGR: In terms of asset diversification, to what extent ought the average U.S. investor focus on international equities or real estate?

MF: I think U.S. citizens should focus very much on diversifying their assets internationally. Only Americans still believe that America remains the most important economy in the world. Everybody else knows it has become relatively less significant over the last five years. Everybody, including Americans, should be global investors, and Americans should have at least 50% of their money outside the U.S. I would argue that a global investor should have maximum 40% in Europe and in the U.S., with the rest in Asia, Latin America, Africa, etc.

It's very difficult for Americans to open bank accounts overseas, but buying real estate overseas is one way to diversify, and that's not a problem. Maybe the U.S. will close this loophole one day, but for now U.S. citizens may buy real estate in South America, Europe or Asia—anywhere in the world. That's what I would do.

TGR: Do you consider investments in stocks that are based in international areas part of the diversification?

MF: Basically you want exposure to rapidly growing economies. This is best achieved by buying companies that have large exposure in the emerging economies rather than the U.S. and Europe. The Coca-Cola Company (KO:NYSE) is a U.S. company but the bulk of its business comes from outside the U.S.

TGR: You're scheduled to speak at the World MoneyShow, coming up in Vancouver March 27–29. We understand that in your presentation, entitled "The Causes and Investment Implications of Dishonest Money," you'll be discussing unintended consequences of large fiscal deficits and expansionary monetary policies. Would you give us some highlights of what you plan to cover?

MF: Basically I will try to explain that instead of smoothing out the business cycle, government interventions have created more economic and financial volatility and have had very negative consequences for the U.S. in particular. And as I pointed out earlier, these measures, such as some of the fiscal and monetary measures we've talked about, are based on erroneous economic sophism.

TGR: What do you think people will learn from listening to your presentation?

MF: That in this environment of money printing, cash and government bonds are not very safe and that you have to navigate through different asset classes. Under normal conditions, cash and government bonds are essentially the safest investments—not investments with the highest returns, but the safest. That is not the case today.

TGR: And we appreciate the pointers you've made about some of those different asset classes. Thank you very much.

Swiss-born Marc Faber, who at age 24 earned his Ph.D in economics magna ***** laude from the University of Zurich, has lived in Hong Kong nearly 40 years. He worked in New York, Zurich and Hong Kong for White Weld & Co., an investment bank historically managed by Boston Brahmins until its sale to Merrill Lynch in 1978. From 1978 to 1990, Faber served as managing director of Drexel Burnham Lambert (HK), setting up his own investment advisory and fund management firm, Marc Faber Ltd. in mid-1990. His widely read monthly investment newsletter,
Gloom Boom & Doom Report, highlights unusual investment opportunities. Faber is also the author of several books, including Tomorrow's Gold: Asia's Age of Discovery (2002), which spent several weeks on Amazon's best-seller list and is being translated into Japanese, Chinese, Korean, Thai and German. He also contributes regularly to leading financial publications around the world. Much also has been written about Faber. Nury Vittachi, one of Asia's most popular writers and speakers, published Riding the Millennial Storm: Marc Faber's Path to Profit in the Financial Markets (1998). The Financial Times of London described him as "something of an icon" and Fortune called him a "congenital contrarian and shrewd Swiss investment advisor."



Thursday, March 1, 2012

UAE investors look to hold assets - gulfnews.com

Dubai: The number of UAE investors adopting a 10-year-plus strategy has significantly increased and that of investors choosing a short-term investment strategy continues to decline, according to the latest Friends Provident International (FPI) Investor Attitudes Report.
The study shows that UAE investors are adopting longer-term investment strategies, with the percentage of respondents opting for a ten-year-plus strategy almost doubling since the last survey conducted in the third quarter of 2011.
The trend suggests that consumers are taking responsibility for their future and saving over the longer term to achieve their financial goals, the study said.
Against the backdrop of the European sovereign debt crisis, and an unpredictable political landscape across the Middle East and North Africa (Mena), the latest FPI Investor Attitudes Report shows that the Friends Investor Attitudes Index for the UAE has fallen just two points and it now stands at 15 points.
Article continues below
This is the smallest decline across the three countries (Hong Kong, Singapore and the UAE) surveyed and the UAE still shows the most positive sentiment.
Cautious approach
UAE investors have demonstrated a cautious approach showing preference for ‘safe haven' investments such as gold, and a significantly increased preference towards risk-averse strategies.
"The slight fall in the Friends Investor Attitudes Index for the UAE is understandable given the continuing turmoil in global investment markets. However, the drop of just two index points reflects a growing maturity among UAE investors, who — it is clear from the report — are taking a longer-term approach to investing and consequently appear less concerned about short-term market fluctuations," said Matthew Waterfield, general manager, Middle East and Africa at Friends Provident International.
Compared with Hong Kong and Singapore, where the Investor Attitudes indices have dropped to new lows, the UAE index shows the most positive investor sentiment.
The index for Hong Kong, which was stable at 15 points in the previous two surveys, fell sharply to 11 points.
The sentiment in Sing-apore has continued its slide, with the index at 12 points having fallen from its highest level of 21 points and 16 points in the previous two surveys.
Interestingly, the preference for investing in collectables, such as works of art, classic/vintage cars etc has plummeted and this is now the least-preferred asset class in the UAE.
In the latest survey, only about 30 per cent of investors viewed the current market as improving, 11 per cent less than the previous survey.
Investors also view the prospects for the UAE investment market in six months' time less favourably, with 9 per cent more respondents having an unfavourable outlook than in the previous survey.
The report also shows that affluent respondents are more likely to invest outside of the Middle East to mitigate the impact of political changes in some countries in the region.
When choosing investment funds, 58 per cent of UAE respondents view past performance as the number one criteria for selecting a particular fund, followed by risk ratings (56 per cent) and fund charges.















Wednesday, February 29, 2012

Investors Can Benefit from High Yield in 2012 - MarketWatch (pressrelease)

 BETHESDA, Md., Feb 27, 2012 (BUSINESS WIRE) -- Investors may be well served allocating a portion of their portfolio to high yield bonds in 2012 to take advantage of attractive relative returns and to provide diversification to their investment portfolios, according to Matt Duch, Lead Portfolio Manager of the Calvert High Yield Bond Fund (CYBAX) at Calvert Investment Management, Inc. Mr. Duch cites the current low-growth environment in the US coupled with favorable fundamentals for domestic corporations as support for another year during which high yield returns may be attractive.
"Headlines, both political and economic, and trading technicals have led to increased volatility in the high yield market," said Matt Duch. "That being said, we believe a well- positioned, well- researched portfolio of high yield credits should outperform most other fixed income categories, albeit at lower than average historical yield levels. Our research is pointing to another year when high yield as an asset class should outpace most other fixed income categories."

"It continues to be an especially attractive area for investors looking for income at a time when interest rates will remain at very low levels," said James Lee, Fixed-Income Analyst at Calvert Investment Management, Inc. "The benefits of adding high yield credits to your portfolio can outweigh the added risks involved by providing higher yields, and the added value of having a well balanced portfolio."

"Several factors are pointing to a favorable environment for high yield in 2012," said Cathy Roy CIO of Fixed Income. "Historically low default rates bode well for the sector as does the generally sound condition of U.S. corporations. US companies also have been strengthening balance sheets by maintaining higher levels of cash and by refinancing debt, allowing them to withstand business or economic slowdowns. Another attractive aspect of investing in US high yield is the fact that the vast majority of issuers have little to no exposure to Europe and China, two areas of the economy that have been of concern to investors."

The Fund seeks high current income in addition to capital appreciation by investing in high yield issues in sectors that represent good relative values. These companies need to have strong cash flows, sound balance sheets and a history of paying down debt.

For more information about the fund and to obtain a prospectus, please visit www.calvert.com

Investment in mutual funds involves risk, including possible loss of principal invested.

High-yield, high risk bonds, which are rated below investment grade, can involve a substantial risk of loss because they have a greater risk of issuer default and are subject to greater price volatility than investment-grade bonds.

Bond funds are subject to interest rate risk and credit risk. When interest rates rise, the value of fixed-income securities will generally fall. In addition, the credit quality of fixed-income securities may deteriorate, which could lead to default or bankruptcy of the issuer where the issuer becomes unable to pay its obligations when due.


Monday, February 27, 2012

Thailand second to China as top investor market - Independent Online

During 10 turbulent years in Thailand, Kittiratt Na-Ranong tackled jobs ranging from president of the stock exchange to manager of the national soccer team, an underperforming outfit nicknamed the War Elephants.

Now, Kittiratt, 54, has taken on a task with significant implications for fund managers such as Templeton Emerging Markets Group executive chairman Mark Mobius, for market-leading companies such as Intel and Toyota Motor and for consumers of the world’s most important staple food, rice. Kittiratt said as deputy prime minister and finance minister his task was to convince investors the government could build defences to prevent the recurrence of floods that last year inundated thousands of factories critical to global supply chains as well as a swath of the paddies that supply 29 percent of international rice shipments. As the waters slowly receded, they laid bare this Southeast Asian country’s extraordinary economic importance to the rest of the world.

Thailand is second only to China among the world’s best emerging markets for investors. The ranking looks at a series of measures such as market transparency and prospects for growth over the next four years. Thailand’s tiny, $303 billion (R2.3 trillion) stock market as of February 22, accounted for just 0.6 percent of the market value of world equities. As of 2011, its gross domestic product per capita was a mere $5 281 less than half that of Mexico’s. The country is prone to disruptions, ranging from coups d’√©tat and civil strife to tsunamis and floods. Yet Thailand has developed such successful electronics and auto industries it now produces from 35 to 40 percent of all computer hard-disc drives and, in 2010, built more light trucks than Japan. In agriculture, besides being the world’s biggest rice exporter, Thailand ranks number one in rubber and number two in sugar. The country that brands itself the Land of Smiles has consistently remained one of the world’s top 20 tourism destinations, attracting more visitors in 2010 than Greece. Even as the government of Prime Minister Yingluck Shinawatra begins spending a promised 480bn baht (R121bn) on dykes and post-flood reconstruction, it’s working on a longer-term goal – the transformation of an economy heavily dependent on cheap-labour exports into a more consumption-driven model. Its populist strategy is to give 67 million Thais more spending power by raising urban wages by 40 percent to about $10 a day and guaranteeing farmers they will receive a price for their rice that’s as much as 44 percent above the market rate. Such government initiatives, on top of the chaos caused by the deluge, could inflict a big extra cost on Thai-based manufacturers, rice exporters and their customers worldwide. Hit by floods While Kittiratt predicted Thailand’s economy would grow 7 percent this year, Singapore-based Credit Suisse economist Santitarn Sathirathai said the rate might be only 3 or 4 percent. The Thai rice price surged 28 percent from July to mid-November, when it reached a three-year high of $663 a ton. Templeton’s Mobius is making a big bet on the government’s strategy paying off – and on the Thai economy.

Thai stocks comprised 21 percent of the $16.9bn Templeton Asian Growth Fund as of January 31 – second only to Chinese stocks. In the fourth quarter of 2011, despite the floods, Thailand’s SET index jumped 12 percent to become the world’s fourth-best performer. It has risen a further 11 percent this year as of February 22. As Kittiratt and Yingluck, Thailand’s first female prime minister, implement their reconstruction programme, Thai companies like cement makers and banks will cash in on a construction-led boom this year, said Aberdeen Asset Management, Scotland’s biggest fund manager. From 1971 to 2010, Thailand’s annual GDP growth averaged 6 percent despite coups and financial crises. As buoyant as the Thai economy is, the human and economic cost of last year’s floods has been immense. About 800 people died, economic growth in 2011 probably plunged to 0.1 percent from a forecast 4 percent, and total damage to the $346bn economy could reach $46bn, the government estimated. Spectacular comebacks In 1998, in the wake of the Asian financial crisis, its economy contracted 10.5 percent before rebounding to grow 4.4 percent the next year. Since then, the country has staged spectacular comebacks from a 2004 tsunami and 2006 coup – and the debilitating political protests that followed.

 While Kittiratt said recent flood-related damage would be short-term, Thailand will always be threatened by inundation. In July, torrential rains started falling in northern Thailand. An area larger than Greece became a world of water. Factories operated by companies such as Honda Motor and Canon were swamped. Even companies that stayed dry, like Toyota, couldn’t escape the impact as their parts makers went under. Although many companies predicted 2012 production would bounce back, the effect on their bottom lines was not easily erased. On December 12, Intel, the world’s biggest chipmaker, reduced its fourth-quarter revenue forecast by $1bn. On January 10, Ford said its Asia-Pacific and Africa operations would post a loss. Biggest investor Japanese companies fared even worse. In December, Toyota said the Thai floods would cost it $1.53bn as the car maker slashed its profit forecast for the year ending in March by 54 percent. But Toyota chief executive Akio Toyoda said in November the company didn’t consider reducing investment in Thailand. Selling the plan In January, the government announced its plan. It approved 350 billion baht for flood defences . Kittiratt, the man selling the plan, said in dealing with the floods, there’s no room for failure. Survival is a historical challenge for Thai governments. Since 1946, Thailand has been rocked by 15 successful or attempted coups and 28 changes of prime minister The last coup, in 2006, overthrew the elected government of Thaksin Shinawatra, Yingluck’s brother. Tensions culminated in 2010 in violent street protests in which 92 people died. Yingluck, a 44-year-old rookie politician, assumed office in August. Any new bout of revolving-door leadership could threaten flood-prevention efforts, Aberdeen’s Adithep said. A bigger risk to Thailand’s stability could be the royal succession. King Bhumibol is the world’s longest-reigning monarch, having ascended the lotus throne in 1946. As military and civilian strongmen came and went, Bhumibol remained Thailand’s sole stabilising presence.. By comparison, his heir, twice- divorced Crown Prince Maha Vajiralongkorn, 59, has had to fight off unwelcome publicity about his personal life. A more immediate concern is the performance of the present government. Yingluck, who has a master’s degree in public administration from Kentucky State University, entered politics last year after a career as an executive in her family’s companies. Abhisit Vejjajiva, opposition Democrat party leader and a former prime minister, questioned Yingluck’s qualifications as a head of government. But Jetro’s Iuchi said his meetings with Yingluck gave him confidence in her abilities. Yingluck declined to be interviewed. In 2010, Thailand was by far the biggest rice exporter, shipping 9 million tons. In the same period, its nearest rival, Vietnam, shipped 6.7 million tons. Overtaken by Vietnam At a waterfront warehouse on the Chao Phraya River, veteran rice exporter Chookiat Ophaswongse predicted that in 2012, Thailand’s rice exports would plunge by 30 percent. Apart from flood disruptions, the government’s willingness to pay above-market rates to farmers is making Thai rice noncompetitive, said Chookiat, 57. As of February 22, the price of Thai rice, an Asian benchmark, had fallen about 15 percent from its November peak. Investor Marc Faber is more optimistic. He said he didn’t expect the floods to have any impact on Thailand’s long-term prospects. In 2000, Swiss-born Faber, who oversees $300m at Hong Kong-based Marc Faber, moved his family home to Chiang Mai, a 1 000-year-old walled city 700km north of Bangkok. In October, floods seeped into the house he built on the banks of the Ping River. Faber, 66, publisher of the Gloom, Boom & Doom Report, said he’d continue to invest in Thailand. Similarly, US-born Bill Heinecke, who owns hotels managed by Four Seasons Hotels and Marriott International in Thailand as well as his own Anantara-brand resorts, has made a bigger bet on the country than most. Heinecke, 62, gave up his US citizenship in 1992 to take Thai nationality. Since then, his Minor International has been rattled by the Asian financial crisis, the tsunami and a political protest in 2007 that closed Bangkok’s two airports for a week, stranding 400 000 travellers. During the worst times, Heinecke’s hotel occupancy rates plunged to less than 20 percent, he said. And yet his business has grown from a single hotel to 70 resorts, 1 200 restaurants and 200 retail stores. Shares of Minor International, in which King Bhumibol owns a 2.2 percent stake, rose more than 12-fold in the 10 years ended on February 22 – five times the increase in the benchmark index. In November, Heinecke went ahead with the opening of his latest, riverside Anantara hotel. This was at the height of the floods, with the swollen Chao Phraya reaching the edge of the hotel’s lawns. “We weren’t going to change the plan,” Heinecke says. “Thailand has a habit of bouncing back.”

Saturday, February 25, 2012

Trade Deficit Will Prove to Be Good for Japanese Stocks - CNBC.com

Japan’s trade deficit surged to a record high in January underscoring the grim outlook for the world’s third largest economy. However, equity strategists believe the weak economic data will compel the Bank of Japan to further expand its asset purchase program, offering a boost to the country’s undervalued stocks.


“This trade deficit is a very good thing, it provides a lot of excuses and a lot of reasons for the Bank of Japan and the Ministry of Finance to come in with new policies and different ideas of what they are going to do with the economy,” Glen Wood, Partner & Head of Sales of equity research firm, Ji Asia, told CNBC.
Japan on Monday reported a worse-than-expected trade deficit of 1.475 trillion yen ($18.59 billion), more than 50 percent larger than the previous record of a 967.9 billion yen deficit seen in January 2009 during the midst of the global financial crisis.

Analysts say this a clear call for further stimulus by the BOJ, which unexpectedly expanded its asset purchase program by 10 trillion yen last week as part of efforts to weaken the yen and beat deflation. Since the announcement, the yen has fallen over 2.5 percent against the dollar and continues to hover near multi-month lows against other major currencies.
“(A weaker yen) is great for exporters and the whole investment in Japan theme and I think you are going to see capital shift back into Japan,” said Wood.
Market watchers expect further asset purchases by the BOJ, which will push the yen further down against the dollar in weeks to come, thereby benefiting the country’s exporter stocks that have been hard hit by the strength of the currency.
"At the end of the day if this weakness of the yen is engineered correctly, I think it’s the broad Japanese market that would actually have a substantial rally,” Clay Carter, Head of International Equities, Perennial Investment Partners, said.
Marc Faber, editor of the Gloom Boom & Doom Report, told CNBC last week that Japan was his favorite equity market based on the yen weakening past key levels against the dollar.
“I think there's a good chance that Japanese stocks will surprise on the upside," Faber said.
John Vail, Chief Global Strategist, Nikko Asset Management added, "We are overweight on Japanese equities for the next to 3-6 months, valuations are extremely low. Things are looking quite good in Japan right now especially as the yen is weakening."
While exporters are likely to be the main beneficiary of weakness in the Japanese currency, Wood says cyclical stocks in the shipping and steel sectors also look attractive on the back of an improving outlook for the U.S. economy.
“The yen sensitive sectors are obviously moving the fastest, but on top of that you will get tailwinds coming from U.S. (economic data) – that’s great for some of the cyclicals,” Wood said.

Friday, February 24, 2012

What To Look At Before Investing In That Rental - Business Insider

Lower home prices and mortgage rates are causing many people to consider taking the real estate investment plunge. But as with any big financial investment, what may be a good strategy for some, may be harmful for others.

Something to keep in mind: If you are planning on trading cash in lower risk CDs or bonds for real estate, you are trading into a dramatically higher risk asset. However, if if you do decide to jump into the investment property game, you should make sure to vet the property investments you plan to acquire to better increase the chances that the real estate you buy will increase your net wealth, not decrease it.
This is, of course, assuming you already understand the most important item in investing: making sure the property you are buying is cash-flow positive based on conservative estimates, and provides you a fair rate of return on your investment. Read more about estimating cash-flow on properties here
.
What other items and issues does a buyer need to review when buying an investment property?
Most people know to always have a home inspection done when they are buying property. While a competent home inspector will note all the items working or not, the inspector is not pricing out the costs to get all those items repaired, nor other items like painting, flooring, etc. that you might plan to have done. It’s your job to put together a list of all the work and get with your contractor to price them out. Put that number into your financial analysis and note that properties in poor condition rarely sell at a large enough discount to compensate for all rehabilitation work that needs to be done!
When you buy property, a title policy protects you in case there is a title problem, like the seller’s ex-fianc√©e was a part owner in the property but didn’t sign off on the sale. In this case, it is the title insurer’s problem and they will cover costs to defend you and settle any dispute, up to the policy maximum limit, unless the title issue was “Excluded” from the title policy.
The Schedule of Exclusions will note issues the title insurance policy will not cover, like recorded easements. It is vital to review the information there as well as in the title abstract. If there is a title issue that was “excluded” from coverage, it is your problem, not theirs.
Your land, lot, or condominium — plus parking spaces and storage — will also have a defined legal description of what you own. There may be a county plat showing it and/or you might want to have a survey done of the lot lines. Either way, you should walk the property and compare when you physically see to what is on the plat/survey to make sure you are comfortable that no neighbors’ fences, driveways, etc. are encroaching on your lot. If it is a condominium, make sure you review the recorded rights to your interior space, patios, parking spaces, storage, etc.
If you are buying a property in a common interest development like a condo or town home, you are not only buying your individual unit, you are buying into the larger entity. Thus, you are responsible for your share of the cost to pay for those, via HOA fees. There are many many risks related to HOAs, a few range from unfunded reserves for repairs and replacements to litigation and water issues. You can do analysis to better reduce your risk of buying into an HOA that is in a disastrous state, but you have to do the hard work of doing the proper due diligence.
You also need to make sure you are getting a fair deal on your mortgage financing. Just getting one bid from one lender is not good enough. Shop around to get pricing from at least two lenders and carefully compare those mortgage bids to determine which one gives you the best fees versus interest rate deal. It’s not easy to do as the Good Faith Estimate forms are quite complicated, but that’s no excuse for not doing the proper analysis.
Lastly, do you have the proper type and amount of insurance coverage in place? Make sure to sit down with your insurance agent and determine what you need to be adequately covered. Look into umbrella policies as well as earthquake, interior condominium HO-6 policies and any other coverage you need. Pick your real estate agent‘s brain so you have the proper coverage for your risks.
A real estate investment, whether rental property or a home, is the largest, most complicated, and riskiest purchase you will ever make. Experienced investors know how to better reduce their exposure with the proper due diligence; you need to make sure you know how to do the proper steps too!
It’s your money, and your retirement, at risk. You don’t want to find out, after disaster strikes, that you could have reviewed, analyzed, researched and done the hard work upfront to have protected yourself and avoided that issue from ever happening in the first place.
Leonard Baron, MBA, CPA, is a San Diego State University Lecturer, a Zillow Blogger, the author of several books including “Real Estate Ownership, Investment and Due Diligence 101 – A Smarter Way to Buy Real Estate”, and loves kicking the tires of a good piece of dirt! See more at 

Private equity firm bets on Asia's frontier markets - Moneycontrol.com

As investors chase yields by investing in high growth emerging markets, private equity firm Leopard Capital is looking beyond traditional economic powerhouses like China and India, to less talked about frontier markets including Myanmar, Bangladesh and Cambodia based on their future growth potential.

"Myanmar will be one of the great investment stories of 2013, it`s changing very rapidly now. This is a country, for 50 years that missed out on the whole Asian miracle," said Douglas Clayton, Founder and CEO of Leopard Capital, which is in talks to launch a fund there.

"It is going to catch up very rapidly as the reforms take place.... everything is being changed, (from) the foreign exchange regime to the foreign investment code, and so on," he added.

Cayman Islands-based Leopard Capital was set up in 2007 to invest in "pre-emerging" markets. The firm`s consulting partners include veteran investors such as Marc Faber and Jim Walker.

In terms of investment opportunities in Myanmar, Clayton says the firm is looking at sectors which represent the "essentials of life" including power, Internet, agriculture and financial services.

However, he notes that the lack of a stock exchange in the country means that it is difficult for institutional and retail investors to gain exposure to the market now. According to local media sources, Myanmar`s government has committed to developing a viable stock exchange in the country by 2015, and will start selling shares in state-owned enterprises this year.

Emerging manufacturing hubs

In addition to Myanmar, Clayton says Bangladesh and Cambodia, both of which are emerging manufacturing hubs and have growing consumer markets, look attractive.

"Bangladesh is one of the cheapest places to manufacture in, and as China gets more expensive, factories are rapidly moving down into places like Bangladesh and Cambodia," he said.

In Bangladesh, the potential lies in traditionally "Indian-dominated" sectors such as textiles, pharmaceuticals, technology and outsourcing, he said. "We have a chance to `relive` the now foregone India play."

According to Clayton, the best ways to invest in Bangladesh are via the stock market, the Dhaka Stock Exchange, which slumped over 35% in 2011, or private equity funds. Leopard Capital is currently putting together a USD 100 million fund for Bangladesh.

In Cambodia, where the company manages the country`s first private equity fund worth USD 34 million, sectors including financial services, consumer goods, power and telecom infrastructure and property, are the main focus, he said.

He said the 35 banks and 11 cell phone operators in Cambodia, most of which are international companies, illustrate the vast potential of the market.

While there is huge growth opportunity in these frontier markets, there are also risks to conducting business there, the most "daunting" being the lack of in-depth managerial experience within most of the local companies seeking capital, he said.

"Our team has to provide intensive operational support to help bring some portfolio companies up to international best practices," Clayton said.


Investing Mistakes: A Result Of Your DNA? - The Guru Investor

February 22, 2012 by The Guru Investor
How much of our investment success or failure is a result of our genetic makeup? An intriguing new study attempts to answer just that question, The Wall Street Journal’s
Jason Zweig notes on WSJ’s Total Return blog.

The study, performed by finance professors Henrik Cronqvist of Claremont McKenna College and Stephan Siegel of the W.P. Carey School of Business at Arizona State University, draws on “two sets of remarkable data” from Sweden, Zweig says. One data set is available because the Swedish government until recently collected data about each holding of taxpayers’ investment accounts, Zweig says, and the other is available because the Swedish government enters all twin births in a national registry. Cross-referencing the two data sets, the professors were able to track how similar or different twins’ investing behaviors were. They looked to see whether sets of twins demonstrated five main behavioral investing mistakes: inadequate diversification, excessive trading, reluctance to sell at a loss, chasing hot recent performance, and trying to get rich quick.
“Cronqvist and Siegel found, across the twins in their sample, that genetic variation explained between one-quarter and nearly one-half of the extent to which investors suffered from these biases,” Zweig reports. “Inadequate diversification scored the highest, with genetic effects explaining 45.3% of the variation across investors. At the low end, 25.7% of the degree to which investors traded too much was explained by their genetic variation.”
Zweig notes that there obviously is more to a person’s investing decisions than DNA. “But there’s good reason why Wall Street’s marketers invoke urgency, familiarity, temptation and a lottery mentality when they’re selling products and services,” he adds. “Millions of investors are probably born with the genetic predisposition to underdiversify, trade too much, chase hot returns and bet on longshots. … This new research hammers home how vital it is for us all to realize, in the immortal words of Benjamin Graham, that ‘the investor’s chief problem — and even his worst enemy — is likely to be himself.’”

Tuesday, February 14, 2012

Deal or No Deal? M&A Predictions for the Year Ahead - Wall StreetJournal (blog)

The Indian stock market has begun to rally of late and the rupee seems to have halted its free fall. Yet some say it’s too soon for investors and companies to heave a sigh of relief.

Investments into India could come from cash-rich companies in Japan and the U.S.
If 2011 was a tough year for companies across several industries, 2012 won’t be a whole lot better, industry insiders say.
In an attempt to curtail inflation, India’s central bank raised interest rates several times through most of 2010 and 2011. Apart from curbing inflation, the consecutive rate increases dampened the availability of credit across sectors. This has made several companies financially vulnerable –perfect targets for acquisitions.

Munesh Khanna, head of advisory and senior partner at Grant Thornton India, an accountancy and advisory firm which advises Indian businesses on their global strategies, says he expects several Indian companies to be financially stressed. This is because of a combination of reasons—a slowing economy, high interest costs, a surging dollar and increasing rates on the foreign currency convertible bonds. These are bonds issued by Indian multinational firms to raise money in the different currencies they operate with. One way to deal with these stresses is to join forces.
“A lot of Indian companies are beginning to see the value in consolidation,” he says.
The Wall Street Journal spoke with three firms to get their predictions for the M&A market for the year ahead. Here are some of the key trends.

Cross border investments
“There’s definitely a stress in the [Indian financial] system,” says Ashok Wadhwa, the group chief executive of Ambit Group, a Mumbai investment bank. Companies have been feeling the pinch and are in need of cash, he says.
Mr. Wadhwa says cross-border investments into India could come from cash-rich companies in Japan and the U.S. Japanese companies, across sectors, are typically prudent and have a lot of cash on their balance sheets. With limited opportunities for growth at home, and having already invested in the U.S. and China, India is the next frontier for these companies, he says.
On the American side, many of the large U.S. companies, like Apple Inc. and PepsiCo Inc., already get a good chunk of their revenues from outside the country and are eager to take part or expand their presence in the consumption-driven Indian economy.
Mr. Wadhwa also expects Indian companies to go overseas to make acquisitions, partly driven by a need to hedge themselves against the slowdown in the Indian economy as well as the policy paralysis in the government. The Indian government has been hit by a string of corruptions scandals for more than a year and critics have accused the government of not passing many major initiatives since it was elected to a second term in office in 2009.
Which sectors will see the next set of deals?
Mr. Wadhwa expects to see mergers between equals or acquisitions by bigger rivals in telecom, power and financial services. A common theme across these sectors is that there are too many players as a result of which margins to make profits are significantly thin.
He is also predicting a consolidation in the infrastructure side of media and entertainment including in direct-to-home satellite service and cable TV. These require a lot of capital, which has been generally tight because of high interest rates.
Apart from telecom, Grant Thornton’s Mr. Khanna expects to see some deals in steel and mining sectors, insurance and the airline sectors. All these areas are overcrowded with several unprofitable, small to medium sized players who will be bought out by larger players, he says.
Mr. Khanna is expecting a shakeout in the insurance sector as well as this is another sector with too many players.
Mr. Wadhwa agrees on the airline sector and has been predicting a change in legislation before the budget session to invite foreign direct investment. (Earlier today a panel of Indian ministers recommended allowing foreign airlines to invest in the aviation sector)
“I don’t see why global strategic companies should not be allowed to invest in Indian companies,” he said. Middle eastern airlines like Etihad, Emirates, Qatar, for instance, would have a strategic interest in investing in Indian firms as a significant number of Indians work in the region, he says.
What will be the role of public markets?
Grant Thornton’s Mr. Khanna says the domestic capital market is pretty shallow. Large parts of several of the big corporates that trade on the Indian indices are owned by the promoters of those companies and by financial institutional investors, leaving very few shares to freely float and be bought by retail investors. As a result, stock markets go up when foreign institutional investors and foreign funds come in but “that won’t be happening in a hurry” because of the political deadlock.
Apart from that, despite its recent gains, the stock market continues to be pretty choppy and many privately held companies are putting on hold their plans to go public because of which the IPO market will be tepid, at best. Companies that were hoping to go public to raise cash may instead fall back on the private equity firms.
Where, then, are private equity firms likely to invest their money?
Darius Pandole is a partner at New Silk Route Advisors Pvt. Ltd., an Asia-focused private equity firm that was co-founded by former McKinsey & Co. head Rajat Gupta that now has $1.4 billion under management.
The good news in the current gloomy economic environment, he says, is that valuations of companies are down anywhere from 15% to 25% from a year ago. This means promoters are willing to sell their companies at a lower price, making several companies a lot more attractive for investors like him.
However, he has no doubts that it will be a tough year and investors will have to tighten their belts and maintain an investment discipline. His advice is to look at well-managed growth companies that can deliver results through cycles.
“As we look for companies to invest in, we look for management teams that possess competence and integrity, business models that are scalable and sustainable through cycles,” says Mr. Pandole.
Another key criteria for Mr. Pandole as he makes any investments is the “visibility of exit options,” he says. Most private equity firms that made investments in India in the past five to six years haven’t had much success in exiting those investments. One typical exit route for firms like Mr. Pandole’s is to take the company public—a dim option for this year with a rocky stock market.
Some of the sectors that are high on his list of possible opportunities include infrastructure, consumer services (anything that has a play on India’s growing young and middle class), manufacturing in technically-oriented sectors like high-end pharmaceutical and auto ancillaries.
Within infrastructure, Mr. Pandole says he will be focused on construction companies, renewable energy, ports and logistics.

Monday, February 13, 2012

Profit From Singapore's Growth With EWSS - TheStreet.com

NEW YORK (TheStreet) - In Barron's annual roundtable issue recently Marc Faber was very upbeat on Singapore for its valuations and dividend yields. For many years the only ETF to access Singapore was the iShares MSCI Singapore Index Fund (EWS). In the last couple of weeks iShares launched the MSCI Singapore Small Cap Index Fund (EWSS).

Similar to the large EWS the small cap Singapore ETF is very heavy in financial stocks at 48% of the fund, followed by industrial stocks at 18%; industrials have a similar weighting in the large cap EWS. The new fund has mid-single digit weightings in the other sectors like energy, tech and consumer staples.
The fund has 37 holdings and will charge a 0.59% expense ratio. It is unlikely that the stocks owned in the fund will be familiar but with such a large weighting to financials what that really means is the fund owns a lot of real estate companies.
Singapore is very difficult for the extreme volatility of that country's stock market. In the last 10 years EWS has had four years where it was up or down 30% or more and three of those four years the move was actually 40% or more. Fundamentally the country is on very firm ground; GDP growth is consistently strong, the unemployment rate is in the low single digits and its housing market did not experience anywhere near the kind of meltdown that occurred in the U.S.
In 1997 there was a market event that has been labeled the Asian contagion which caused a fast panic in all global markets. And although the actual crisis was centered in Thailand EWS was down 43% for that calendar year. This type of volatility should be expected to continue.
Despite the volatility the long-term annualized returns have been outstanding. The annualized 10-year return for the index underlying EWS has been 11.46% compared to 2.92% for the S&P 500. According to data from iShares the 10-year annualized return for the Singapore small cap index has been 17.09%.
Faber mentioned in Barron's that yields in Singapore can be found in the 5% to 7% range. EWS has always been a high-yielding ETF with the trailing yield at 4.05%. While it is too early to know what the small-cap EWSS will yield it is likely to be fairly high given the large exposure to financial stocks.






Sunday, February 12, 2012

Barron's 2012 Roundtable: Yielding to Reality - Barron's

Barron's 2012 Roundtable Part 1

Tireless as well as prescient, Marc Faber has warned Roundtable readers repeatedly that the Federal Reserve would keep interest rates unnaturally low "as far as the eye can see." Well, the eye has just seen to the end of 2014, given the Fed's disclosure last week that it will pin short-term rates near zero at least
until late in that distant year, in its anxious attempt to juice the laggard economy.
What is bad for savers, however, is manifestly good for gold, and great for shares of companies that pay fat and rising dividends. And, as luck would have it, both get top billing in this week's third and final installment of our 2012 Roundtable, which took place Jan. 9 in Manhattan. Sure, our 10 experts hungered for grub by the end of our 10-hour session, but that's nothing compared with investors, who are starved for yield.

Up first this week is Brian Rogers, a Roundtable newcomer, though he is a familiar presence at T. Rowe Price, where he serves as chairman and chief investment officer, as well as manager, for nearly 27 years, of the $23 billion T. Rowe Price Equity Income Fund. As Brian tells it, he looks for companies whose success has gone unnoticed by the market. Plenty fit that bill these days, especially financials such as JPMorgan Chase (ticker: JPM).
Brad Trent for Barron's From left, Fred Hickey, Abby Joseph Cohen, Brian Rogers and Scott Black.

Abby Joseph Cohen, the learned head of Goldman Sachs' Global Markets Institute, deftly grabs the baton next, to show how dividends and stock buybacks in tandem can deliver effective yields of 7% or 8%. That is surely the case with ExxonMobil (XOM), one of Goldman's top picks, and several other stocks beloved by the bank's analysts and illustrative of her point.

Scott Black, the boss at Boston's Delphi Management, always burns the midnight oil boning up on his Roundtable picks. And it showed, once again, in this year's masterful analysis of four big-cap stocks with puny price/earnings ratios, and two intriguing and high-yielding real-estate plays.

Fred Hickey, down from New Hampshire and up on all things tech, closed the proceedings with a rousing endorsement of gold, and the cheery news that the 12-year bear market in technology stocks is coming to an end. Microsoft (MSFT), he predicts, will finally get the respect it deserves, as will some lesser-known names in tech land.

To learn why, please read on.

Barron's
: Brian, you seem to be surviving well so far. What do you make of the market these days?
Rogers: I now realize why I didn't have as much fun last year as I thought I would. As Bill describes it, due to near-zero interest rates, I have been suffering from financial repression, which I didn't realize was an affliction. But now I have come to view it as such.

That's the next step.

Rogers: And the step after that is medication. Everything I see tells me the U.S. is getting a bit better. Last year we had a sloppy market globally. The U.S. was a nice place to be. India, China and some parts of Europe were rugged places to be. The asset class that outperformed all was 30-year Treasury bonds, which very few people foresaw 12 months earlier. Even within the U.S. market there were pockets of relative strength, and pockets of weakness. Almost anything with cyclicality was penalized.

Now it is early 2012, and I look at the carnage that has hit some good companies in the past 12 or 18 months. Companies have performed better fundamentally than they have been rewarded in the market. I look for situations in which there is a disconnect between a company's performance and the market's response. Emerson Electric [EMR] is an example. It is a great American company.
Jennifer Altman for Barron's Brian Rogers (left): Companies have performed better than the stock market has acknowledged.

What makes it so?

Rogers: You have to love a company that states on the cover of its annual report, in bold letters, that it has increased dividends for 55 years. Its stock was down 18% last year despite the fact that earnings were positive in the fiscal year that ended in September. The stock yields 3.5%—not as much as some of the companies in Singapore and Hong Kong that Marc mentioned, but a healthy yield in today's world. Also, when a company says it has raised its dividend for 55 years, the odds it goes up in years 56, 57 and maybe 58 are good.

Emerson is a leader in electrical equipment, factory automation and climate technology, or air conditioning. It earned $3.27 a share in fiscal 2011. It will probably earn something in the $3.50-ish range for the year ending this September, and on the order of $4 for fiscal 2013. In a year when earnings, the dividend and cash flow were up, and the company bought back a ton of stock, you paid a multiple of 14 times earnings. The stock trades today for $47, and we see it in the high $50s in the next year. Add a $1.60 dividend and the total return could be attractive.

Where does Emerson's output go?

Rogers: The majority of sales are outside the U.S. One reason Emerson's order activity slowed was due to the impact of flooding in Thailand. About 45% of sales are in the U.S.

Cohen: U.S. companies have been affected by significant shocks to their supply chains overseas, including the floods in Thailand and the earthquake and tsunami in Japan. With lean inventories almost everywhere, supply disruptions have caused a rethink by companies that are now relocating some manufacturing back to the U.S.

Rogers:I'd like to tell David Farr, chairman and CEO of Emerson, that he can open a big plant in Baltimore and attract a lot of workers.

You just did.

Rogers:Emerson has been penalized because it is a cyclical company. Ingersoll-Rand's [IR] stock suffered last year because of cyclical concerns. Its shares were down almost 40% last year. It is in some of the same businesses as Emerson. It has a big climate-solutions business, and makes Schlage locks and Ingersoll-Rand tools. The yield is a little light at 2%. The balance sheet is good. The stock is $32, down from a high of $52, and we estimate the company bought back about 30 million shares last year. They should buy back more in 2012. The stock sells for 10 times 2012 earnings, so the selloff has wrung a lot of excess valuation out. Ingersoll could earn $3 a share or $3.10 this year, and as much as $5 two or three years out. Put a 10 multiple on it, which isn't heroic, and you have a $50 stock.

Black: The company bought Hussmann, a refrigeration company, at the top. They took a major loss years later because it wasn't strategic. They destroyed a lot of capital. Also, earnings are untaxed. Ingersoll-Rand is run from New Jersey but is registered in a tax-free zone [Dublin]. The P/E [price/earnings ratio] isn't real, if you apply a 35% tax rate to earnings.

Rogers: The guy behind the Hussmann deal has left the company. Now there is a slightly different cast of characters. But it isn't without controversy, which often creates opportunities. Ingersoll has real snapback potential.

Financials were the worst-performing market sector last year, in the U.S. and probably globally. One has to look at companies that have been hit hard in that sector but will be around for a long time, and where you can believe in management. That is the case with JPMorgan Chase, which is selling around $35 a share. It was down 20% last year. It performed as weakly in 2011 as it did in 2008, which really surprised me, because 2008 felt like a much more difficult period than 2011. The company raised its dividend last year and yields 3%. It also bought back about $9 billion of stock.

It is tough being a financial-services company now, because you need Federal Reserve clearance to do anything. But the Fed will approve JPMorgan's capital plan, and they may raise the dividend again this year and buy back more stock. The financial sector has been the most traumatized in the past few years, and you might as well bet on the strong horse in a field of weak ponies. Sentiment is so bad that you can't find anyone looking at financial stocks. But the headwinds are well known, so you have to ask, what is the stock price? JPMorgan's tangible book value is $34 a share. Stated book is $46. Some day they are going to earn between $5 and $6 a share.

What do you think they'll earn this year?

Rogers: They will probably earn $4.50 to $4.75 a share in 2012, versus $4.50-ish for 2011. [JPMorgan reported on Jan. 13 that it earned 90 cents a share in the fourth quarter, below analysts' estimates, and $4.48 per share for the full year.] No one hit me for recommending a bank stock, so that is a good sign.

Witmer: You're new.

Rogers: Thermo Fisher Scientific [TMO] is a combination of the old Thermo Electron and Fisher Scientific, which merged in 2006. The stock is at $47.60, and it was down about 20% last year. The company serves just about every pharma and biotech company, every life-sciences research institute and governmental agency involved with health care. They provide the guts of everything that goes into medical and scientific research. Whether it is a simple microscope used in high-school biology or a fancy molecular spectroscope, they make it.

Thermo was hit hard in the fall amid Washington's budget debate and fears that funding for the National Institutes of Health would be cut. This is a clean company financially. It should be a high-return-on-capital business when you look at what they make and who they sell it to. It is a pretty good company from a cash-flow standpoint. They bought back about $1 billion of stock last year. The market capitalization is roughly $18 billion, and they will buy back another $750 million of stock this year. Balance sheet is pristine. You just have to make a bet that long-term health-care research will be a fertile field.

Schafer: The large pharmaceutical companies are merging because they don't have much growth because of generic competition. After merging, they reduce duplicative research and development. These companies are buying bio-technology companies and will then cut R&D, as well. So it is possible Thermo's end markets aren't expanding, but shrinking.

Rogers: Even in a shrinking market, they probably earned $4.14 a share in 2011 and will earn $4.75 in 2012. The stock sells for $47.62, or 10 to 11 times earnings.

Witmer: Did management pay a lot more than the current stock price to buy back shares? Companies buying back shares at too high a price is a pet peeve of mine.

Rogers: Any shares they bought back in 2011 would have been higher than the year-end price.

Schafer: Meryl, they can't be in the business of predicting the stock price.

Witmer: Right, but they can be in the business of allocating capital carefully.

Schafer: Was last year's $4.14 a share up or down from 2010?

Rogers:It would be up from $3.57 in 2010.

Schafer: It doesn't sound like a shrinking market.

Rogers: For 10 times earnings, you're getting interesting products serving important health-care customers. Despite the issues surrounding health-care spending, people want to get better and live longer. Thermo will have the wind at its back.

In our research meetings, we talk about companies that grow at 15% a year long term. They should have a sustainable competitive advantage because so few companies do that year in and year out. If I told you Microsoft had grown revenue at 11% and earnings at 16% compounded over the past 10 years, that would be better than all but probably 5% of the companies in the S&P 500.

Microsoft's stock is another story.

Rogers: The stock was probably 40 times earnings 10 years ago and now is nine or 10 times earnings. It was one of those companies, like Intel [INTC], Wal-Mart Stores [WMT] and General Electric [GE], that sold for 35 to 45 times earnings in 2000. You have had 12 years of value compression. Microsoft, at $28, with roughly $6 a share in cash and a yield of almost 3%, earned $2.69 a share for the year ended last June. In the current fiscal year it could earn $2.70 to $2.80. The company is in the midst of a $40 billion stock-buyback program.

Culturally, Microsoft is a little tired of being sneered at. You never want to criticize anybody for 16% compound earnings growth. They were hit hard for acquiring Skype. As a corporation, they don't get the respect they deserve. The stock sells for three multiple points less than some utility stocks.

What will change the market's attitude?

Rogers: A new Windows 8 product cycle is coming later this year. What is the downside risk? Maybe $2 or $3 a share. And what is the upside? If you put a 12 multiple on fiscal 2013 earnings per share, you theoretically could get a $35 stock sometime in the next year, with the dividend yield on top of that. They raised the dividend in the fall. Their pattern of capital return to shareholders is another catalyst. Will they continue to take the dividend up aggressively? Will they continue to buy back shares? Will Windows 8 be a success? There are all sorts of ways to win.

Juniper Networks [JNPR] is a bit dicier. It has had some execution issues. The shares were down 45% last year and trade at $20.50. It has $6 a share in cash. The market value is $10.5 billion, and revenue is $4 billion a year. The balance sheet is good. Debt to total capitalization is about 13%. Juniper is best viewed as a little Cisco Systems [CSCO] in the type of networking equipment it provides. It is a very important company to IBM [IBM].

There is a chance a lot could go right here, primarily because a lot has gone wrong in the past year. The short term looks murky, but in 2013 they could earn $1.80. Put a 14 or 15 multiple on that and add back the cash, and you could see the stock rising to $30 to $35. There has always been a small chance Juniper would become an acquisition target. You aren't paying a lot for that possibility.

Thanks, Brian. Let's go to Abby.

Cohen: Economic growth in the U.S. will be OK but not great in 2012. We expect global GDP [gross domestic product] to decelerate to 3.2% from 3.5%, owing to the recession in Europe and deceleration in China. In the U.S., momentum was good at the end of 2011, and we will be watching carefully to see whether that continues. Even so, the market's valuation isn't unappealing. The S&P is selling today at a level that implies an annual 13% decline in the five-year path of earnings growth. Long-term valuation is attractive, but we expect short-term volatility.

Last year we saw extremely high correlations. At year end, the correlation among sectors was 0.88 in the U.S. Among stocks it was 0.64, which ought to make any stockpicker a little concerned about doing a lot of homework on companies and stocks and not getting the benefit from it. Despite the near-term head winds, there is an opportunity later in the year for valuations to improve. Carefully selected equities could generate good performance.
Jennifer Altman for Barron's Abby Cohen: "The market's valuation isn't unappealing."

What is the biggest risk to your view?

Cohen: Will Europe have the political will needed to resolve the situations in the euro zone? In addition, a recession in Europe has a direct and negative impact on U.S. companies. Then there is political risk here. We talked earlier today about the inability of Congress to deal in a policy-friendly way with some of the decisions that need to be made, instead of making more political decisions. This is a presidential election year, so it isn't likely this is going to improve before the end of the year.

Edwards Lifesciences [EW] isn't all that sensitive to the economy. It closed Friday [Jan. 6] at $72.88. The company designs and manufactures products that treat late-stage cardiovascular disease. It is the leader in heart valves, catheters, hemodynamic monitoring devices and so on, and recently received Food and Drug Administration approval for a product that will give it a commanding position in the U.S.

Can you give us some numbers?

Cohen: We estimate the company earned $1.98 a share in 2011. This year they will earn $2.75, and in 2013, $3.60. While the P/E is a high at 26 times 2012 earnings, this has been a fast-growing company. The expectation is earnings growth can compound by 25% to 30%. Margins could expand from 21% to 25% in the coming year.

My next two stocks are much more cyclical. I recommended Boeing [BA] in the midyear Roundtable ("Buy Low, Stay Nimble," June 13, 2011), and we still like it. Boeing trades for 14 times our 2012 earnings estimate of $5.20, versus the consensus of $4.95. It yields 2.3%. The company is benefiting from the end of the development of the 787 Dreamliner. They are done with the R&D and other spending, and they are seeing orders come in. We also like Brazil's Embraer [ERJ], a dominant maker of regional jets. These are highly desired not just in North America, but increasingly in emerging markets because many have short air routes. The ADR [American depositary receipt] trades in New York.

Black: What is your assumption on the Brazilian real versus the dollar? Sales of Embraer jets primarily are denominated in dollars. If the real goes up, they get killed on labor costs in Brazil.

Cohen: The dollar will be a stronger currency in the next several months, in particular. The Brazilian market was down in 2011, which is one reason the stock's valuation is cheaper. Demand for regional jets has been good. Embraer won almost every new order in the past two years. If you compare them to their primary competitor, Bombardier [BBD/B.Canada], Embraer has sold 200 planes versus 12 for the Bombardier. The aerospace industry in general has record backlogs.

We estimate Embraer earned $1.82 a share in 2011. We are estimating $2.70 for 2012, compared with the consensus forecast of $2.42. Our S&P 500 earnings estimates are below consensus. Our GDP numbers are below consensus. When we find companies about which our analysts feel better than the consensus, we are increasingly comfortable with those names. In addition to a reasonable P/E of 9.6 times 2012 earnings, Embraer yields 3%. The stock is $25.99.

Black: There is another kicker for Boeing. It just made a huge sale of F15s to Saudi Arabia.

Cohen: I recommended ExxonMobil last year and we still like it. Shares trade for $85.12. There is some question about aggregate demand for oil, given the deceleration in economic growth in Europe and China. But the supply situation is tight, and crude prices could rise. Brent crude could trade in a range of $120 to $130 a barrel in the next two years.

Our earnings estimates for ExxonMobil are above consensus, as is our crude-oil forecast. In 2011 Exxon likely earned $8.75 a share, compared with a consensus forecast of $8.35. Our 2012 forecast is $9.60 a share. The consensus expects a decline in profits. As a consequence, the stock trades for 8.9 times earnings. It yields 2.2%. Much of Exxon's attraction, and that of some other stocks we like, has to do with the way shareholders are treated and capital is allocated. If you look not just at the dividend yield but the yield in terms of a stock buyback, both contribute to shareholder return. If you add back the cash returned to shareholders in the form of share repurchases, the effective yield would be a much higher 7% or 8%. That is the right way to look at it.

Exploration and production growth could be in the low single digits. Yet Exxon has new projects, and scale in terms of shale in North America. In choppy markets for equities and crude oil, we would rather stick with super-majors like ExxonMobil.

That makes sense. What else do you like?

Cohen: JPMorgan, as it also is on my list. It will continue to return cash to shareholders in rising dividends and share repurchases. The dividend-payout ratio is 25% of earnings. The estimated payout ratio in terms of share buybacks is 28% this year, so the total payout to shareholders is 53%, for an effective yield of 7.8%. In addition, JPMorgan and some other major U.S. banks will benefit from the stress in Europe. As European banks shrink their balance sheets, well-positioned banks elsewhere will have an opportunity to buy assets at a discount.

There is a reason financial stocks are trading at a discount to book value. Investors are nervous. There are questions about the performance of equity and credit markets in the future, and some ongoing losses from mortgage banking. But the valuation and the return to shareholders look good. JPMorgan estimates that in the case of "disaster" in Europe, they stand to lose about $3 billion, which in the context of the size of the company is manageable. The bank is doing well in private-client asset management.

American Express [AXP] closed Friday at $48.27. Like many other U.S. financials, it looks good on Basel III Tier 1 capital requirements. [The Basel Accords are global regulatory standards on bank capital adequacy.] Tier 1 is currently at 12% of total capital. They have a strong ability to do additional buybacks. The dividend yield is 1.5%, but they can add to that with share repurchases, which could result in an effective yield of 7.5% in 2012. American Express' credit losses this year are expected to be 3%, well below peers'. They seem to be benefiting from improving consumer trends, especially among the relatively higher-end consumers they deal with. They are also experiencing good growth outside the U.S., with the exception of Europe. The credit losses are moving lower, and they are acquiring more merchants. American Express will benefit from the convergence of online and offline markets.

My last company is Domino's Pizza U.K. and IRL [DOM.U.K.]. That's Domino's in the U.K. and Ireland. As a proud New Yorker, I always like the local pizzeria. But having traveled recently and tasted the Domino's product outside the U.S., it is surprisingly good.

This is a new form of securities analysis.

Cohen: Shares trade for 437 pence [4.37 pounds]. The U.K. economy will grow about 1%, which is modest but better than Europe. In the U.K. there is a structural trend toward home delivery. We see that in some other places, as well. Domino's has 48% of the U.K. pizza-delivery market. Since 1997 there has been 20% annualized growth, half from new stores. We forecast 19.11p in earnings for 2011 and 22.35p for 2012, versus this year's consensus estimate is 21.38p. The stock yields 2.8%.

Rogers: How big is the market cap?

Cohen: It is £703 million [$1.1 billion].

Gabelli: If the stock does well, which I expect, I also expect Abby to bring in Domino's Pizza for lunch next year. You can have it delivered.

Thanks, Abby. Scott, what did you bring us this year?

Black: I assume the U.S. economy will grow 2.3% in real terms, so there is no recession. Corporate profits in the U.S. will grow only around 6.5%, but balance sheets will remain solid. Global growth is slowing to 2.7%. I have four stocks with sustainable earnings and real revenue growth, free cash generation and low P/Es. The other two are yield plays—REITs [real-estate investment trusts].

Apache [APA] trades for $97 a share. There are 400 million fully diluted shares, and the market cap is $38.8 billion. The company will have record earnings this year of $12.50 a share. Daily production is about 750,000 barrels of oil equivalent, up dramatically year over year. Organic drill-bit growth [production gains from drilling] is 6% to 12%. Reserves are 70% oil, 30% gas. Apache is getting $4.44 per Mcf [thousand cubic feet] for gas worldwide, and $101 a barrel for oil. Gas prices in the U.S. are $3 per Mcf, but the bulk of their production is overseas. Operating margins are 48.5% on projected revenue of $18.39 billion, giving you operating income of about $8.92 billion. Taxed at 44%, you get to $12.50 a share. Shares sell for 7.8 times earnings, which is cheap. Adding back depreciation and deferred taxes gets you $26 a share of discretionary cash flow. Shares sell for 3.7 times discretionary cash flow.
Jennifer Altman for Barron's Scott Black (left): "Some macro trends are working for FedEx. One is e-commerce."

Why is that?

Black: About 10% of reserves are in Egypt, which also contributes 25% of revenue. Investors are worried about political risk. Apache's return on equity is 16%. The ratio of net debt to equity is 0.24. The company will step up capital spending next year from $8 billion to a minimum of $9 billion, and still will generate $1.2 billion of free cash flow. Apache is diversified around the globe, with 70% of reserves in the U.S. and Canada, some reserves in Australia and some deep-water plays that could be home runs. Every one dollar change in the price of oil means an 18-cent change in earnings per share, and every 10-cent switch in the gas price means a 10-cent change in earnings. Apache has a 12% hurdle rate [minimum required rate of return] on projects, based on $80 oil and $3 gas. With oil around $100 a barrel, they have a margin of safety.

Next, CBS [CBS] doesn't get much respect, but Les Moonves, the CEO, has done a good job. Revenue in 2011 was an estimated $14.4 billion, and earnings per share were $1.89, versus $1.11 in 2010. Revenue is increasing by 3% a year, but there are some kickers this year. They will generate $200 million from streaming content to Netflix [NFLX], Amazon.com [AMZN] and Hulu. Retransmission fees will total $200 million to $250 million, and political adverting on owned and operated television stations will be another $180 million. Total revenue will rise 5.3% this year. Operating income is 19.1% of revenue, and earnings per share will be $2.25. The P/E multiple is 12.3. Margins are rising because streaming revenue is incremental and drops to the pretax line. The same is true of retransmission fees.

Witmer: What is the stock price?

Black: The stock is $27.79. CBS pays a 40-cent dividend and yields 1.4%. The market cap is $18.7 billion. The company will earn $1.5 billion this year and free cash flow could be $1.8 billion. Capital spending is mostly for outdoor billboards, including digital billboards. They also have a big presence in the U.K., home of this year's summer Olympics. The CBS television network has dominated in the ratings. They have 20 of the top 30 shows. It looks like this will be a banner year for the network.

Gabelli: Will Les monetize the outdoor business, or buy something?

Black: He just got authorization to buy back an additional $1.5 billion of stock. That pushes earnings per share up. The bottom line is growing faster than revenue.

FedEx [FDX] is doing well, and earnings will accelerate this year. The company will generate revenue of $42.8 billion in the fiscal year that ends in May. Operating margins are about 7.5%, and interest expense is nominal as there is more cash than debt on the balance sheet. FedEx is the only airline company in the world that is essentially debt-free. Pretax profit of $3.2 billion, taxed at 36%, will translate into $6.45 a share in earnings for fiscal 2012. For fiscal '13 we see revenue growth of 6%, but profit growth of 10%. FedEx bought a bunch of Boeing 767s, and will replace their 727s and old MD 10 planes, which were energy-inefficient. Earnings could rise to $7.30 for the May 2013 year. The stock is $85.49, and on a calendar basis, the company will earn $6.80 a share in 2012. It sells for 12.6 times calendar-year earnings, and 11.7 times fiscal 2013 earnings. Return on equity will be 13% for the next year, versus 17% to 18% at prior peaks. They think they can get back to peak levels.

Will higher oil prices clip profits?

Black: Fuel as a percentage of revenue has gone up this year. But they have more efficient planes coming on, and they impose fuel surcharges. They are strict on capital budgeting, with all projects surpassing an 8.5% after-tax hurdle rate. And some macro trends are working for them. One is e-commerce. Also, companies like Apple [AAPL] that make high-value-added goods depend on quick mobility and global sourcing, which helps FedEx. United Parcel Service [UPS] is also a beneficiary but shares trade for 15 to 16 times forward earnings.

What else do you like?

Black: One of the few sectors that has done well and will see terrific long-term growth is agriculture. Deere [DE] is one of the few domestic companies still doing well in Europe. If Europe's economy stays flat, Deere could have revenue of $33.6 billion in the fiscal year ending in October, up 14% from fiscal 2011. The company could make $3.2 billion after taxes, or $7.80 a share, up from $6.63. For fiscal 2013, assuming the world economy slows, we see a 5% increase in revenue and $8.30 in earnings per share. Based on calendar 2012 earnings, Deere has a P/E of 10.

Free cash flow, excluding a financial subsidiary, will be $2.85 billion in the current fiscal year. The company says it is hellbent on keeping its single-A rating, since it has an active commercial-paper program to finance customer receivables. Credit losses are a negligible .04% worldwide. Last year Deere had a headwind on margins because it had to roll out more fuel-efficient engines. By next year, margins will improve. Also, they will be able to knock out a total $700 million of costs, with $300 million already cut.

Gabelli: Are there opportunities for Deere beyond construction and farm equipment?

Black: Agricultural equipment is 71% of the business. Construction and forestry equipment is 18%, and commercial and consumer, 11%. The real opportunity is diversifying by region and selling to India and China and Brazil, especially for the sugar cane harvest in Brazil.

What are your yield plays?

Black: Normally at Delphi we can't own biotechnology stocks. Someone once said there is never an earnings disappointment among biotech companies because there are no earnings. However, BioMed Realty Trust [BMR] is a surrogate play on the industry. It is based in San Diego and trades for $18.14. There are 155 million shares, and the market cap is $2.8 billion. The company builds suites of biotech facilities. Its strongest aggregation is in the Boston-Cambridge area, which brings in 34.4% of the rent. San Francisco accounts for 16.2%; San Diego, 14.7%; Maryland, 15.1%, and so forth. We look at the implicit capitalization rate [net operating income divided by total capitalization] based on net operating income, not funds from operations. The run rate is $80.9 million in NOI per quarter. Annualized, that's $323.6 million. Enterprise value, including the market cap and net debt, is $4.189 billion, so the implicit cap rate is 7.7%.

BioMed is growing same-store net operating income by about 10% a year, so the cap rate is 8.5% based on next year's pro forma NOI. The trust pays an 80-cent dividend and yields 4.4%. The stock sells for 1.16 times book. The companies they lease to are high-quality tenants—universities like Harvard and big drug companies like Pfizer [PFE]. About 20% of their space is used by mid-sized and smaller companies. Their average rent per square foot is about $38.28. These are triple net leases [the lessee must pay real-estate taxes, building insurance and maintenance]. In the next five years, only 18.4% of rents will roll over. Biomed has almost $750 million of untapped credit lines. They are an investment-grade credit, rated triple-B-minus. It is an interesting play and you get paid while you wait.

Schafer: If there is consolidation in the industry, what happens to the real estate?

Black: Schools like MIT and Harvard are expanding. Companies are moving from Europe to the U.S. because of our research centers.

Digital Realty Trust [DLR], based in San Francisco, is a play on hosting data centers. It sells for $66.72 a share and has a $6.8 billion market cap. It pays a $2.72 dividend and yields 4.1%. Eighty-nine percent of its space is in North America—in New Jersey, northern Virginia, Silicon Valley and so on. Only 9% by square footage but 11% by rent is in Europe. They are contemplating moving into Hong Kong and Shanghai. They have major customers like Facebook, Morgan Stanley [MS], AT&T [T] and Amazon. Their top 10 tenants pay 36% of the rents.

Witmer: What is the price-to-book value?

Black: It sells for 3.6 times book, which is hefty. But the implicit cap rate is 6.9%. Net operating income probably will rise 12% or 13% next year. The balance sheet is strong, and interest coverage is 4.1. The dividend coverage is 1.32, and the payout has room to rise. They have $1.1 billion left in credit lines, and only 6.4% of their rents roll off next year. They seem to be disciplined on capital usage, and again, you get paid while you wait for the stock to rise.

Thanks, Scott. Fred, you're up, at last.

Hickey: I remain overweight gold. The secular bull market in gold isn't over. A negative interest-rate environment is bullish for gold, and rates keep getting more negative as central banks keep cutting rates that aren't yet zero-bound. Where interest rates are close to zero, as in the U.S., the U.K. and Japan, they engage in quantitative easing.

Why have gold-mining stocks been weak?

Gabelli: Some governments expropriate lucrative mines. Also, mines are subject to strikes and floods.

Hickey: Newmont Mining [NEM], which I recommended last year, outperformed. [The stock rose 5.5% through Dec. 30.] The driver is gross margin expansion. Gold prices are up by a factor of six through this bull market, yet costs have roughly doubled. The company has had tremendous cash flow, leading to dividend increases. Newmont has tied its dividend policy to the gold price. If the price rises, you are guaranteed more dividends. The money won't be wasted on bad acquisitions. In 2008 Newmont earned under $2 a share. It could earn $4.82 for 2011, and $5.96 in 2012. There's no reason these stocks should be so cheap.

As Felix has said, owning physical gold is important. In addition, you can own gold through exchange-traded funds, such as the GLD [ SPDR Gold Shares]. They are audited. The U.S. government's gold holdings haven't been independently audited in decades. The GLD charges fees of 0.40% of assets. The IAU, or iShares Gold Trust, charges only 0.25% of assets. It trades for about a hundredth of the price of gold, so it is selling for $15.76 a share. It has been around since 2005 and has $9 billion in assets and 171 tons of gold. It stores its gold in vaults around the world. Last year I recommended stocks. This year I like the GDX, or Market Vectors Gold Miners ETF. It gives you diversification with 31 names, including a few silver stocks. Barrick Gold [ABX], Newmont and Goldcorp [GG] account for 41% of assets. At some point gold stocks will outperform bullion.

What do you favor in tech these days?

Hickey: I have been bearish on tech for a long time, but the secular bear market has been very long. I have played the cyclical rallies, but now I want to be bullish in a significant way. Tech stocks are starting to get attractive on a valuation basis. If Felix is right, as I expect, the stock market could turn down sharply in the second half of this year, and that could be the bottom for tech stocks. We might finally get to the point of capitulation. We're almost there. I have started to add to some positions.

Last year the Morgan Stanley High-Tech 35 Index dropped another 11%, and some stocks fell much more. At this point even the highfliers are having trouble. Salesforce. com's [CRM] chart looks dismal. You want to see all the enthusiasm wiped out at the end of a secular bear move. I am picking through the 52-week-lows list every week and looking for solid companies I have known for years. Some are at multiyear lows.
Jennifer Altman for Barron's Fred Hickey: As a value investor, "! am picking through the 52-week-lows list every week."

For example?

Hickey: BMC Software [BMC] could becomea takeover target. It used to be a mainframe-software developer, but now provides back-end systems-monitoring and performance-management software for servers, networks and databases. It has also become established in cloud computing. The stock was higher in mid-2011 on this notion. BMC offered a poor outlook in the latest quarter and blamed part of it on Europe. Also, government spending on tech was weak in the U.S., as Oracle [ORCL] noted when it issued its shocking earnings warning in December. Oracle has grown through acquisitions and has been rumored as a buyer for BMC. I don't want to wait for BMC to go lower. It is $32 a share now.

What could it be worth in a takeover?

Hickey: It could go out in the $40s, or higher. Cisco has a close relationship with BMC and has also been mentioned as a potential buyer.

Black: What could BMC earn this year?

Hickey: Analysts are looking for $3.24 a share, so the stock is selling at 10 times estimated earnings. The forecast for the fiscal year ending in March 2013 is $3.50 a share. Utility-like, the company throws off tremendous amounts of cash. It would have to be a pretty significant recession before they would have any slips. They have been buying back shares over the years, and have $6 a share in net cash. Gross margins are high, ranging from 75% to 80% in the past couple of years. They had 241 million shares outstanding in 2002 and now have 170 million, down 30%. They buy back shares every year. They have had one insider purchase recently, which is interesting, as well.

On the bombed-out list of semiconductor companies, I like Marvell Technology Group [MRVL]. The stock was hit because of flooding in Thailand. They make hard-drive storage controllers and supply the big disk-drive makers, which reported there would be a significant shortfall in the number of drives produced at the end of the fourth quarter and in this quarter. Almost any company that had anything to do with the disk-drive market got hit. In addition, Research In Motion [RIMM], a Marvell customer, isn't the best customer to have in the wireless-phone area. Marvell lowered revenue and profit guidance in both storage controllers and wireless, and the stock fell.

Black: All the mixed-signal chip companies are rolling over. It isn't only Thailand, but the business itself is declining.

Hickey: This is a second-half play. The disk-drive market will rebound in the second half.

Marvell trades for $15.72, down from the low-20s and up from a recent low of $11 and change. It has a market cap of $9 billion and is expected to earn $1.29 a share in the year ending Jan. 28. It trades for 12 times future earnings. The company generates a lot of cash. It doesn't have its own factories but uses Taiwan Semiconductor's foundries, so it has high gross margins.

Black: Marvell historically sold for more than 20 times earnings, so this is the lowest multiple in years.

Hickey: Marvell is developing a semiconductor chip that will be used in the Chinese smartphone market. The acronym for the technology is TD-SCDMA. They just got a significant design win from ZTE, a major Chinese phone maker. The demographics in China are tremendous.

Black: How does their chip compare in power usage and speed with the ARM chip used by Apple?

Hickey: This is a lower-end chip.

Finally, Brian recommended Microsoft, and I'm sticking with it, too. The stock has been penalized because we are in a bear market, but there have been concerns about technological obsolescence, too. There have been worries that Office and Windows would lose share as we moved into cloud computing. Microsoft Office 365 is the company's response to the cloud market. It was shipped in June. EWeek, one of the premier trade magazines in the tech business, named Office 365 one of the top five new products in 2011. The iPad was No. 1. CRN Magazine named it the top cloud application of the year. Microsoft's primary competitor in this market is a Google [GOOG] app, but Google suffered a blow last month when Los Angeles abandoned plans to give 13,000 law-enforcement personnel access to Google's system software due to security concerns.

Tell us about Windows 8.

Hickey: The Windows 8 Metro interface has been well-received in the Windows phone world. It will be on new ultrabook PCs, and drive an upgrade cycle late in the year.

Toshiba and others are excited about Windows 8 on tablets. They think the Metro interface will allow them to succeed against Apple. In the phone market, all the carriers would like to see a third alternative to Apple and Android. Lots of things are positive for Microsoft this year. The only negative is the economy, and the disk-drive business at the beginning of the year.

Gabelli: What is [Microsoft CEO] Steve Ballmer's status at the company?

Hickey: Some people in the financial industry would like to see a change in management because they think the stock would rally, and it likely would. But Ballmer isn't threatened right now.

Thanks, Fred, and everyone.


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