Tag - Hbc

Greed and corruption have a way of following precious metals - and so when silver was found virtually lying on the ground in the Sierra Madre mountains a flood of prospectors headed to the hills of Mexico to seek their fortunes.

At the time when J.R. Southworth wrote 'La Minas de Mexico', a book about mining silver in Mexico's Sierra Madre Occidental, the magic metal was trading for around $40 an ounce.

Decades later, the famous Hunt brothers were exposed for trying to corner the silver market. At that time, silver reached $68 an ounce.

As you know, it's Newsletter Advisors Wednesday.  This week we sit down with Carla Pasternak of High-Yield Investing and High-Yield International. Carla's a long time expert on dividend and income investing and today brings us keen insights on opportunities for short-term gains and longer term holdings. 

Ian: Are the markets safe now for dividend investors? 

Carla: Things appear to be calming, but some question marks remain. Standard & Poor's recently said that they expect 2009 to be an awful year for dividends. That said, there are still good values out there, especially in exchange traded debt and telecoms with predictable cash flow.  

Ian: What do you do to distinguish between safe and unsafe dividends? 

Carla: For funds, I look at the sources of the distributions. I examine the balance sheet, the tax records, the annual report, and notes to the financial statements. I want to see how much of the distribution comes from investment income and earnings, and what comes from currency gains -- which are less predictable. I also want to know how much comes from capital gains, like selling stock or options. Most importantly, I look to see how much comes from return of capital, which is the lowest-quality distribution because it grinds down the asset value. A couple that have pretty high-quality dividends right now are the PowerShares Emerging Markets Sovereign Debt (NYSE:PCY) ETF and the Templeton Global Income Fund (NYSE:GIM).

Ian: Where are you seeing the best values right now? 

Carla: I recently found some great values in exchange traded bonds that are either on the low end of investment grade or the high end of sub-investment grade. I featured AAG Holdings' 7.5% Senior Debenture (NYSE: GFW) in January when it was trading at $12.89. Today it's above $18, and it still pays a 10% yield. I also like exchange traded bonds from US Cellular (NYSE: UZV), Deutsche Bank (NYSE: DKT), and General Electric (NYSE: GEA).  

Ian: What do you think about Canadian trusts? Many are offering great yields right now.

Carla: They are, but you have to be careful. I know Canadian trusts very, very well. I live in Calgary -- its income-trust land right here. I've written their annual reports and know the CEOs well. Many Canadian trusts are gas plays, and gas prices aren't in good shape right now. You need to look at the oil/gas production mix and the reserves mix.  

Beyond that, you need to look at the quality of the oil--pure light crude is where you get the best money. You also need to look at the trust's hedging--how far out it is and what rate they've hedged at. Some trusts are smarter than others. Some hedged oil prices at $60, and some hedged it at $120. You have to look at all these issues, and you can't just go for the highest yield.

I've never just gone for yield. I look at the stability and the security of the yield. I end up in some remote corners of the income universe that most people, including institutions, don't bother with. For example, exchange traded bonds provide unusually high yields, but they don't have enough units outstanding to be liquid enough for a large institutional investor to move in and out of without affecting the price. 

Ian: Are there any strategies you use that can help investors gauge dividend safety?
Carla: Most of the safeguards involve taking a good, hard look at the financial statements and usually the notes to the financial statements as well. For example, I look at the balance sheet to see what kind of long-term obligations the company has and what kind of cash is available to pay these off. I also take a good look at the notes to the financial statements to find out when a company's debt is coming due. Then I can assess if it has ample cash flow and cash reserves to cover this debt plus continue paying out shareholders at the current rate.
I don't expect my readers to do that--that's what I'm here for. Before I present any investment idea, I scour through the financial statements to ferret out the details of the company's financial performance and liquidity. I then use my findings to size up how safe the dividend appears to be in the months and years ahead. 

(Put Carla's extensive research to work for you -- take a look at High-Yield Investing today)

Ian: What's your No. 1 focus when picking income investments?
Carla: I would have to say risk/reward is my main measuring stick. Generally, the more risk you are willing to take, the more potential reward you can expect.
Investors have to decide for themselves how much risk they can tolerate in return for the potential reward. Readers of High-Yield Investing are spread across the risk tolerance spectrum. That's why I like to present a range of opportunities, though I myself tend to be somewhat conservative. 
In fact, I'll reveal a little secret of how I write High-Yield Investing. In my spare time, I also teach writing. I always tell my students to imagine their audience sitting in front of them as they write. Well, one member of my audience is my mother. In fact, she's right in the first row. She lives off the income from her investments, which I manage. I ask myself, "Is this security suitable for my mother?" If so, I rate it as a conservative or reasonably safe investment idea. If not, I consider it suitable for more aggressive investors.
I conduct a lot of research to help me gauge the risk/reward potential of a security. The Securities and Exchange Commission's free website (http://www.sec.gov) is one of our favorite hunting grounds. It allows me to dig through current and historical financial statements and pore through the notes to the statements to get a good reading on the company's performance and liquidity.
Even so, the financial statements just show a point in time. That picture can change rapidly as management responds business conditions. The bottom line is that every investment carries some risk, even Treasury bills, money-market funds or even a bank or credit union CD. Investors must weigh how much risk they are willing to stomach in return for the potential reward. I see my job as helping them to see clearly the risk and the reward potential. In the months ahead, I look forward to providing my fellow investors with income strategies that offer exceptional value in a market that has become deeply oversold.

Ian: You recently took over StreetAuthority's High-Yield International. Are there any international regions or sectors that you like right now? 

Carla: I'm looking at Europe, especially European Banks, because no one likes them. Credit Suisse (NYSE: CS), HSBC (NYSE: HBC), Banco Santander (NYSE: STD), Deutsche Bank (NYSE: DB), and National Bank of Greece (NYSE: NBG) are really turning around. With Citigroup (NYSE: C) crippled and Lehman Brothers and Bear Stearns gone, banks that have fixed their balance sheets quickly are set to gain market share. There will be a new banking elite group, and some of these European banks will be part of it. 

A big "thanks" to Carla for sharing her knowledge of high-yield investing and giving us some great investment ideas. I'll be sure to follow up some of them myself.  

You know I'm mostly a growth-story kind of guy, but I firmly believe that high-yield investments should also be an integral part of any investor's portfolio-and that's why I asked Carla to share her insights with us today. I truly hope you can take away some great investment ideas and give serious consideration to Carla's services. 

Carla's in-depth research on European banks appears in her August issue of High-Yield International. (Click here to find out more about it.) Carla also covers an Asian ETF yielding 11.9%. This fund is up +48% this year and is poised to keep going. Get the name of it in Carla's latest issue of High-Yield International. Go here to get your copy now.

Stocks reversed early gains today as the second quarter comes to a close with more of a whimper than a bang. Jobless rates remain high in major metropolitan areas with the Labor Department reporting today that rates rose for this past May against the year ago same period in all 372 metropolitan areas that it tracks. Areas hit hardest include those with major manufacturing centers that feed into housing construction. While overall U.S. unemployment climbed to 9.4 percent in May, hardest hit is El Centro, California with a 26.8 percent rate. |

Consumer Confidence Report numbers, as reported by the Conference Board, further the fear on Wall Street as investors had expected the numbers to hold steady from April and May gains, however the index for June stands at just 49.3, down from 54.8 in May.

All of the major U.S. markets were down today with the Dow closing at 8,448, the Nasdaq trimmed by half a percent to 1,835, and the S&P 500 giving up 8 points to close at 919.

The Russell 2000, a composite index of the 2,000 largest small-cap stocks, closed down today at 501, for a loss of 1 percent.

Bright spots among small-cap stocks were lead by Annapolis Bancorp (Nasdaq:ANNB) up 38% to close the day at $3.80; Novavax (Nasdaq:NVAX) up 31% on news that Spanish pharmaceutical company Rovi will use Novavax's "Virus Like Particle" technology in the development of a vaccine for H1N1, also known as "swine flu"; LightPath Technologies (Nasdaq:LPTH) up 27%; Plumas Bancorp (Nasdaq:PLBC) up 25%; and Jacksonville Bancorp (Nasdaq:JXSB) up 23%.

While small-cap financial showed leadership today, large cap financial stocks like Bank of America (NYSE:BAC), Citigroup (NYSE:C), HSBC Holdings (NYSE:HBC), and Wells Fargo (NYSE:WFC) were down or up less than one-tenth of one percent.

The leader in small-cap price decliners was Cubic Energy (AMEX:QBC), down 30% on ongoing debt concerns with Wells Fargo Energy Capital. Cubic Energy was followed by Raser Technologies (NYSE:RZ), down 27%; Sunrise Senior Living (NYSE:SRZ), down 23%; and Northeast Bancorp (Nasdaq:NBN), down 21%.

*****If today had a lot going on then yesterday was downright boring. On Monday, around 10:30 AM, the S&P 500 rose above 924. By 12:30 PM, it rose to 927.99. Ignore the first hour of trading (when the S&P 500 made a comparatively wild 8-point swing), and the S&P 500 was confined to a 4-point range for 5 ½ hours.

Days like this make watching paint dry sound exciting. And as I'm typing this note, it's down about 1.3%.

And TradeMaster technical analyst Jason Cimpl tells me it could be like this all week as we head into a holiday weekend. If you want to catch a replay of his video that gives insights into this week's market direction just visit here. (or go to trademasterstocks.com/videoreport)

Great. But that's summer trading for you…

*****The Case-Shiller home price index, which measures home prices in 20 U.S. cities, showed that home prices fell 18.1% in April. And that was better than expected!

Of course, the index was only half a percentage point better, which most likely falls within the margin for error. Still, the results prompted the senior economist at Wachovia, Mark Vitner, to say "It is looking a bit better…[t]he largest declines are probably past."

And David Blitzer, chairman of the S&P index committee said, "While one month's data cannot determine if a turnaround has begun, it seems that some stabilization may be appearing in some of the regions…"

*****At first glance, these comments might seem a little, um, out of touch with reality. After all, how can anyone think that an 18% decline in home values is good?

The reason is that its foreclosure sales that are driving the Case-Shiller Index lower. Close to 5 million seized homes may be sold this year. To add some color, according to Bloomberg, 73% of all home and condo sales in Las Vegas in May were foreclosure re-sales.

73% -- that is an amazing number. And because these homes get sold at fire-sale prices, the affect on the overall housing market is dramatic.

*****That foreclosed homes are finding new owners is what's prompting economists to say prices may be stabilizing. And once prices stabilize, then the erosion of household wealth stops. And, then, maybe consumer spending picks up.

At least that's how the story goes...

There are some problems with this rosy scenario. Falling home and stock values claimed around $13.9 trillion in household wealth since 1997. That means there's a long way to go just to get back to break even. But with unemployment expected to persist above 7% for the next couple of years, where is the buying pressure for homes and the earnings power for public companies going to come from?

It's easy to imagine investors buying foreclosed property at discounted prices. But that doesn't mean the same level of demand exists for regular home sales. In fact, I'd go so far as to say there's no way demand for homes will be sustained beyond foreclosure sales.

*****Banks are taking losses as they clear bad mortgage loans from their books. That means banks will have room to make more loans - but will people want them?

Again, I suspect not.

That means banks will struggle to make up the losses and keep earnings growing. And with earnings season right around the corner (Alcoa (NYSE:AA) kicks earnings season off on July 7) investors should be on their toes.

P.S. A reader sent in an email yesterday asking about China and whether it's a good time to get back in. After last year's sell-off Chinese stocks are moving back up. If you missed the first China bull, this is your second chance. I've just finished a stock research report on 3 China-based stocks that every investor should have in his or her portfolio. Find out more here.

Stocks continued their assent midday, as oil slipped, the greenback gained and investors shrugged off lackluster earnings news from bond insurer MBIA.

At 12:49 p.m. ET the Russell 2000 (NYSE:IWM) was up 1.34%, or 9.63, to 729.68 while the Dow had gained 0.79%, or 100.79, to 12,846.67.

Oil futures continued to slide midday as investors locked in gains from last week. A crude oil contract for the month of June was off roughly $1.21 midday to $124.75, down from the $126 level breached last week.

As oil futures sold off, the dollar rallied against other major currencies, quelling inflation concerns.

Just this morning Chicago Fed President Charles Evans said that housing was still a drag on the economy, and that growth risks were to the downside, but inflation risk was on the upside. Evans also said that U.S. growth should improve in the second half of the year, but that tight credit markets would crimp near-term GDP.

In corporate news, the financial sector is making headlines today. Investors shrugged off MBIA’s (NYSE:MBI) first-quarter results, as the bond insurer swung to a first-quarter loss on account of $3.58 billion unrealized loss on insured derivatives. Shares rallied.

The Russell 2000 (NYSE: IWM) and the Dow fell today on news of rising mortgage defaults and credit market losses. The small-cap index dropped 19.96 points, or 2.64%, to 735.07. The Dow Jones Industrial Average (INDU) let go 237.44 points, or 1.83%, to 12,743.44.

On a year-to-date basis, the Russell 2000 has shed 6.65%, while the Dow has added 2.16% and the S&P 500 is down 0.66%.

Stocks posted big losses today following news that HSBC Holdings PLC (NYSE: HBC) could face billions in losses and Citigroup Inc. (NYSE: C) is planning job cuts in a move to return to profitability.

London-based HSBC may have to absorb losses of up to $12 billion due to bets placed on securities backed by subprime mortgages, according to an analyst from Goldman Sachs Group, Inc. (NYSE: GS). HSBC, which is Europe’s largest bank, may also need to rescue two of its funds by putting $45 billion of their assets onto its balance sheet.

More bad news came from Citigroup, which announced that it is looking for ways to improve efficiency and cut costs in order to return to profitability after mortgage writedowns led it to report a loss in its most recent quarter

Although Citigroup, the largest U.S. bank, did not say how many of its over 300,000 employees will be getting pink slips, a news report from business news channel CNBC put the figure at between 17,000 and 45,000.

The fact that two of the world’s largest banks are in the crosshairs of the fallout from the subprime mortgage meltdown scared investors and put stocks on the downward trajectory.

The Russell 2000 opened in positive territory but reversed course within an hour after the start of trading, while the Dow stayed on both sides of the flat line until about 1 p.m. ET, when the bears established their dominance.