Comparing Private Debt to GDP in US, UK and Australia

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The chart below shows the private debt to GDP in the US, UK and Australia:

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Source: The Absolute Return Letter February 2012, The Unlikely Bull Market

Absolute Return Partners, LLP

British households are more leveraged than households in the U.S. Private debt peaked at over 450% of GDP in 2008 in UK compared to over 300% and 150% in US and Australia respectively. While households have started the de-leveraging process after the credit crisis they still have a long way to go before reaching manageable debt levels. As consumers reduce debt consumption of goods and services is bound to suffer. Hence any recovery in the  consumer-driven economies of US and UK will be modest. Accordingly investors may want to be cautious of the recent rally in global equity markets.

Related ETFs:

  • iShares MSCI Australia Index (EWA)
  • SPDR S&P 500 ETF (SPY)
  • iShares MSCI United Kingdom Index (EWU)

Disclosure: No Positions

A Note on BG Group PLC ADR Stock Split

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UK-based oil and gas company BG Group (BRGYY) split its ADR stock 5 for 1 last week. Some details from the corporate site:

Effective 13 February 2012, the new BG Group ADR represents one ordinary share (previously one ADR represented five ordinary shares). As a result of the ratio change, ADR holders of BG Group plc will receive 4 additional ADRs for every ADR held as of the ADR record date.

New Ratio: 1 ADR: 1 Ordinary Share
ADR Record Date: February 10, 2012
ADR Payable Date: February 12, 2012

As a result of the ADR split after closing at $115.65 on Feb 13, 2012 the stock opened at $22.91 on Feb 14th. Yesterday the share price closed at $23.56.

A Brief Overview:

BG Group is a dynamic and growing energy firm with operations in more than 25 countries. Though headquartered in UK, over 60% of the employees of BG Group operate outside of the UK. The company has a solid history in the energy sector especially in the natural market where it is engaged in the entire chain from exploration to distribution to consumers. At the end of 2010, BG Group had ” had 11.67 trillion cubic feet of estimated net proved reserves of natural gas and 945.8 million barrels of estimated net proved reserves of crude oil, condensate and natural gas liquids. ”

Multi-year Performance Chart comparing BG Group with US oil giant Exxon Mobil:

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Source: Yahoo Finance

The difference in returns between the companies is highly significant as the above chart shows. Currently Exxon Mobil (XOM) has a $410.0 B market cap and a 2.20% dividend yield while BG Group (BRGYY) has a $80.0 B market cap and a dividend yield of  0.96%. Investors looking to add some foreign oil stocks to their portfolios can consider looking into BG Group.

Disclosure: No Positions

Can European Countries Afford Liberal Pension Benefits ?

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Many countries in Europe are struggling with huge deficits. In the past few years Portugal, Ireland, Italy, Greece and Spain (PIIGS) have had severe economic issues with Greece requiring multiple bailouts to avoid a default on its debt. One of the reasons why many of the European countries are suffering with debt problems is that they pay lavish pensions to workers when they retire and also the retirement age is low in most countries. A recent article I read noted that citizens in Western Europe receive the most liberal pension and other social benefits anywhere in the world. Obviously with stagnant to no economic growth these countries cannot sustain paying these public benefits without taking on mountains of debt.

The following chart shows the public expenditures for pension benefits as a % of GDP:

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Source: Retirement, AXA Financial

Italy ranks the top in this list followed by Austrian and France. Greece, Spain and Portugal also have above average public expenditures on pensions.

Some interesting facts from the AXA report:

The deterioration of the dependency ratio places a direct burden on active workers. Overall, in 1950 there were over seven active workers on average for a single retiree in the OECD (source: OECD 2009). This ratio fell to six to one in 1963 and five to one in 1976. Currently, it stands at four to one. From 2023, for one person over 65 years there will be three active-age people, and only two after 2050. Japan holds a particular record in this regard: since 2005, it has the highest rate of elderly people. Currently, those over  65 represent 22.6% of the population (source: World Population Data Sheet 2010 – Population Reference Bureau). Projections for 2050 show 1.2 active Japanese workers for each retiree, against 1.9 on average in the OECD countries.

15 Investment Opportunities in the MidStream/Infrastructure Industry

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Companies operating in the midstream and infrastructure category perform some of the vital functions in the global energy industry.While the infrastructure firms provide the required infrastructure facilities for the industry the midstream companies process, store, market and transport commodities such as crude oil, natural gas, etc. Hence investors looking to add some exposure to the energy sector can consider investing in the midstream & infrastructure firms.

This year the energy consultancy PFC Energy included a separate  ranking for this category in its annual ranking of top energy firms. This list offers an excellent starting point for further research into this industry.

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Source: PFC Energy 50

The Top 15 Midstream/Infrastructure companies are listed below with their tickers and current dividend yields:

1.Company: Enterprise (EPD)
Current Dividend Yield: 5.16%
Country: US

2.Company: TransCanada (TRP)
Current Dividend Yield: 3.97%
Country: Canada

3.Company: Enbridge (ENB)
Current Dividend Yield: 3.04%
Country: Canada

4.Company: Kinder Morgan (KMP)
Current Dividend Yield: 5.43%
Country: US

5.Company: El Paso (EP)
Current Dividend Yield: 0.15%
Country: US

6.Company: Williams Companies (WMB)
Current Dividend Yield: 3.63%
Country: US

7.Company: Snam (SNMRY)
Current Dividend Yield: 7.52%
Country: Italy

8.Company: Oneok Partners (OKS)
Current Dividend Yield: 4.34%
Country: US

9.Company: Plains All American Pipeline (PAA)
Current Dividend Yield: 5.35%
Country: US

10.Company: Energy Transfer Partners (ETP)
Current Dividend Yield: 7.27%
Country: US

11.Company: Megellan Midstream Partners (MMP)
Current Dividend Yield: 4.87%
Country: US

12.Company: OGE Energy Corp (OGE)
Current Dividend Yield: 2.92%
Country: US

13.Company: Buckeye Partners  (BPL)
Current Dividend Yield: 6.55%
Country: US

14.Company: Boardwalk Pipeline Partners (BWP)
Current Dividend Yield: 7.66%
Country: US

15.Company: MarkWest Energy Partners (MWE)
Current Dividend Yield: 5.30%
Country: US

Note: Dividend yields noted are as of Jan 30, 2012

Disclosure: No Positions