Doral Financial: RIP

Doral Financial (DRL) was shutdown by the FDIC on Friday Feb 27th, 2014. It was one of the largest banks in Puerto Rico and struggled to survive for many years.Bank closures have declined substantially since the financial crisis and so far this year only four have failed according to data by the FDIC.

When its stock price plunged in the past, Doral implemented reverse stock splits two times. Obviously this did not help the bank but only helped delay the inevitable. On Friday after the news was released during market hours by the FDIC, the stock crashed by over 46% and Doral equity became worthless closing at $0.72 a share.

The following chart shows the dramatic life of Doral over the years:

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Doral Stock Dead

Source: Google Finance

After closure, Doral was taken over by its competitor Popular, Inc. (BPOP) whose shares surged over 5% on Friday.

Disclosure: No Positions

Crumbling U.S. Infrastructure Needs Huge Investments

Most of the infrastructure in the U.S. are in desperate need of an upgrade. Highways, bridges, water and sewer systems, electrical grid, railroads, etc. were built long time ago – some 50 years or more – and could use a makeover. The following is a summary of key points from a research report on the U.S. infrastructure by Christine Todd and Daniel Marques of Standish and my comments.

  1. State and local governments, not the Federal government, have fund over three-quarters of the nation’s water, roads, bridges, power transmission systems. etc.
  2. Infrastructure spending during the Great and Depression and the 1950-60s when the interstate highway system was built.
  3. The U.S. government estimates about 70,000 bridges (or) one in nine are structurally deficient.
  4. Among Developed countries, the U.S. lags in infrastructure investment as the chart below indicates. Countries like Japan and Australia have excellent infrastructure as they spend substantially more. For example, Japanese transplantation infrastructure such as their high-speed rail network and the ease of commuting between two places puts the U.S. passenger rail “network” to shame.

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Infrastrcture Expenditure of Select Countries

5. U.S. public spending on infrastrcure has dropped since the global financial crisis of 2008. It has dropped by 30% to reach a decades-low of -1.55%.

US Public Infrastrcture Has Declined

6. Globally U.S. infrastructure is rated very low when compared to other developed countries. In the past six years, the U.S. has dropped five spots to reach the 12th in the world.

Global Infra Ranking

7. The American Society of Civil Engineers(ASCE) gives a grade of D+ for the state of U.S. infrastructure.

It should be noted however that certain areas of infrastructure are good. For instance, toll roads are generally in good shape as private firms that build and operate these roads are able to invest and generate high revenues from them. Thats the case with public spending. Though primarily only two parties are in this democratic country, political fighting between them delays policy making decisions.As a result the general public suffers. Americans waste billions of hours each year sitting on traffic-clogged roads. Unlike the politicians in the past, nowadays every politician seems to lack a vision for the country and instead are selfish to the nth degree and is constantly thinking about holding on to power growing his/her own glory……

Source: Aging U.S. Infrastructure Drives Opportunity for Muni Bond Investors, Feb 15, Standish

Africa’s Electricity Deficit

Africa requires massive investments in power generation to meet its demand. According to an article by Dr.Mark Mobius  the continent has only 7% of the power generating capacity of the U.S. This fact is astonishing since Africa is blessed with plenty of natural resources such as water, solar energy, oil, etc.

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Africa Electricity Deficit

From the article:

Using per-capita data, a US citizen on average uses 12,461 kilowatt hours of electricity per annum; a citizen of Ethiopia uses 52. On average, only 30% of Sub-Saharan Africa citizens have any access to electric power,2 and even where power is available, provision can be sporadic, with frequent power cuts and “brown-outs.” One of my trips to Nigeria was enlivened by a power cut that unexpectedly left us stranded in the elevator at one of Lagos’s most prestigious hotels. For factories and hospitals, such interruptions can be more than inconveniencing.

If the challenge posed by Africa’s electric power deficit is monumental, so is the effort currently going into addressing the problem. Many of the most dramatic projects relate to harnessing the potential of Africa’s great rivers. Chinese firms utilizing skills built up during China’s program of dam building and electricity generating-plant expansion are prominent in many of the schemes. The Ethiopian government has been particularly active in this area, with major projects involving most of the rivers flowing through the country, headed by a plan to dam the Blue Nile that could potentially generate six gigawatts of power. Uganda, Mozambique and Ghana are also among countries that have major hydroelectric schemes under way or planned. But the largest of all is the Inga Falls Number Three project on the Congo River in the Democratic Republic of Congo, initially intended to generate 4.8 gigawatts, but with a potential ultimate generating capacity in excess of 40 gigawatts.3

2. Source: ©OECD/IEA, 2014, Africa Energy Outlook, A Focus on Energy Prospects in Sub-Saharan Africa, World Energy Outlook special report, IEA Publishing. Licence http://www.iea.org/t&c/termsandconditions/

3. Source: International Rivers.Org, Grand Inga Dam, DR Congo.

Source: Africa’s Electrifying Future, Jan 16, 2015, Mark Mobius, Franklin Templeton Investments

Five Facts about the FTSE 100 Index

On Tuesday Feb 24th, UK’s benchmark Index the FTSE 100 closed at 6949.63 surpassing the peak it last reached 15 years ago during the dot-com boom. It took the index an astonishing decade and half to regain this level.

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FTSE 100 Record High Chart

Source: As FTSE Hits a Record, Scratch Beneath the Surface, Moneybeat, The Wall Street Journal

Here are five interesting facts about the FTSE 100:

  1. The index is made up of the 100 largest companies by market capitalization listed on the London Stock Exchange.
  2. Though the index is highly popular it is not a good barometer of the British economy since companies in the index earn 75% of their revenues from abroad.
  3. According to research by Hargreaves Lansdown, the same companies lead the index now as in 1999:FTSE Leading Companies
  4. Mining and oil companies make up about a fifth of the FTSE 100. These firms earn most of their revenues from emerging markets.
  5. The FTSE 100 index is calculated excluding dividends. Germnay’s DAX includes dividends. The chart below shows the performance of FTSE 100, DAX and Japan’s Topix including dividends:

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FTSE DAX including dividends

 

Sources:

After 15 Years, FTSE Climbs to a Record, The Wall Street Journal

FTSE 100 hits 15-year highs, but it’s no time to sell, MoneyWeek

Five How to play Footsie, FT Alphaville

Related ETF:

  • iShares MSCI United Kingdom (EWU)

You can also check out the list of British ADRs trading on the US markets.

Disclosure: No Positions

Update:

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FTSE100-FTSE-250

Despite its wide acclaim, the FTSE 100 index has actually been a pretty poor performer over this 15 year time period. Most other major stock market indices such as the S&P 500 in the U.S. have outperformed the FTSE 100. The FTSE 250 index which consists of smaller market capitalisation companies has trounced the FTSE 100, rising nearly 170% over this period. Part of the underperformance of the FTSE 100 can be explained by its higher dividend yield, but even adjusting for this there is no getting away from the conclusion that the index has been a laggard.

Source: A tale of three sectors, Feb 24, 1015, Allianz

Updates: