Gold Correlation With Commodities and Stocks

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Gold is considered as a “safe haven” asset. This implies that the yellow metal’s performance should be inversely related to risky assets such as stocks and commodities. However the expected divergence is decreasing in recent years and gold’s correlation with stocks and commodities is reaching historic highs, according to a research report by Germany-based Commerzbank(CRZBY). This is another reason for investors to hold diversified portfolio and not over-weight one class of asset over another.

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Source: CityWire Money, UK

Related ETFs:

SPDR Gold Shares ETF (GLD)
iShares COMEX Gold Trust (IAU)

Disclosure: No Positions

UK Fund Manager: RBS and Llyods Bank Are Worthless

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The banking market in UK is dominated by a handful of major banks similar to Canada, Australia and the super-banks in the U.S. Of the five large banks, Royal Bank of Scotland (RBS) and Lloyds Banking Group (LYG) have been the worst performers since the credit crisis.

In a recent interview FE Alpha Manager Jan Luthman said that RBS and Llyods are worthless due to their astronomical debt levels and rising social and political pressure. Some of the specific points Mr.Jan noted include higher taxation and harsher regulations on the sector, the current bank-bashing culture and the inability of banks to repossess (foreclose) many thousands of homes as in the past.

I agree with Mr.Jan’s view on the UK banking sector. RBS and Llyods took on huge unnecessary risks before the credit crisis and almost failed. But instead of allowing them to fail, the state bailed them out based on the mistaken belief in the “Too-Big-To-Fail” theory. As a result of this action and other policy failures, the British economy is in a much worse shape than the U.S. economy with the real estate industry in both countries still in doldrums.

The following chart shows the 5-year performance of the five British bank stocks on the US markets:

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Source: Google Finance

Despite the state bailout, RBS and Llyods have been disasters for their equity investors with both of them off about 97% in the past five years. Only Standard Chartered Bank (SCBFF) has fared relatively well during the same period.

From an investment standpoint, it is better to avoid British banks now especially RBS and Lloyds. Investors holding RBS and Llyods stocks can dump them and take any losses.

Disclosure: Long LYG

Is Gold A Better Performer Than Stocks and Bonds in the Long-Term ?

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Gold is widely known as a safe haven asset by most investors. During the credit crisis gold prices reached record high levels. Last year gold prices hit an all-time high on the heels of the U.S. debt downgrade by Standard & Poor’s and the European debt crisis. As the hype over gold continued many experts predicted that prices would fly past $2,000 an ounce. But that hasn’t happened yet and today gold futures for Februray delivery settled at $1,620.10 on the New York Mercantile Exchange.

Instead of blindly seeking shelter in gold during economic distress, investors may want to ask themselves if gold as an asset class has delivered positive real returns over longer periods and if the performance of gold is better than stocks and bonds. A research report by Alliance Bernstein last year noted that gold is not a better performer compared to stocks and bonds.

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Source: What’s Safe?, Alliance Bernstein

From the report:

Looking at the longer-term safety track record of various asset classes reveals some big surprises (Display 1). After adjusting for inflation, gold has delivered negative real returns in 58% of all rolling 10-year periods since 1971, far worse than stocks or bonds. Even more astonishing, gold’s purchasing power declined 20% or more in 47% (nearly half!) of all rolling 10-year periods.

Meanwhile, 10-year Treasuries have lost purchasing power in 12% of the 10-year periods since 1971, and in half of those cases, the loss in purchasing power was 20% or more.

Maintaining a balanced mix of stocks and bonds has provided somewhat better protection against drops in purchasing power over the long term than Treasuries, and far more protection than gold. Adding additional asset classes can provide even more protection.

Related ETFs:

SPDR Gold Shares ETF (GLD)
iShares COMEX Gold Trust (IAU)
Global X Gold Explorers ETF (GLDX)
Market Vectors TR Gold Miners ETF (GDX)

Disclosure: No Positions

Akzo Nobel ADR Split

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Amsterdam, The Netherlands-based Akzo Nobel(AKZOY) is the world’s largest paint and coatings company and a major producer of specialty chemicals. The company’s portfolio includes Dulux, Sikkens, International and Eka brands.

Last year the company had a total revenue of 14.6 billion Euros with North America and Europe accounting for about 60% of the sales .

From the corporate website:
“Five reasons to invest in AkzoNobel:

  1. Number 1 paints and coatings company worldwide and a leader in specialty chemicals
  2. Balanced portfolio and clear strategy
  3. Strong brands and customer focus
  4. Excellent growth opportunities through our strong positions in high-growth markets, acquisitions in core businesses and excellent innovation platform
  5. Sustainable value creation and attractive shareholder return.”

On Jan 3rd, 2012 the ADR closed at $50.25. Yesterday Akzo Nobel(AKZOY) implemented a 3:1 stock split on its ADR. As a result of this split, the ADR opened at $16.59 and closed the day at $16.55.

Disclosure: No positions

Five Asian Bank Stocks To Consider

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Asian banks are relatively in a better position than European and US banks. Having stayed strong during the credit crisis, Asian banks continue to maintain high Tier 1 Capital Ratios and follow their conservative business models. In addition, state regulators have played a key role in strengthening the banking systems by formulating sound policies and implementing stricter standards on lending. For example, the Monetary Authority of Singapore requires domestic banks to hold a minimum Tier 1 capital adequacy ratio of 6% which is higher current Basel II standards. By 2015 the Central Bank will raise the minimum Tier 1 capital adequacy ratio to 8% which is also higher than the Basel III requirements.

Investors looking to add some bank stocks from Asian countries can consider the following five OTC-traded sponsored ADRs having over 5% dividend yields:

1.Bank:Hang Seng Bank Ltd (HSNGY)
Current Dividend Yield: 5.52%
Country: Hong Kong

2.Bank:Malayan Banking BHD (MLYBY)
Current Dividend Yield: 6.56%
Country: Malaysia

3.Bank:DBS Group Holdings Ltd (DBSDY)
Current Dividend Yield: 8.25%
Country: Singapore

4.Bank:United Overseas Bank Ltd (UOVEY)
Current Dividend Yield: 5.79%
Country: Singapore

5.Bank:BOC Hong Kong (Holdings) Ltd (BHKLY)
Current Dividend Yield: 6.41%
Country: Hong Kong

Note: Dividend yields noted above are as of market close Jan 4, 2012.

Disclosure: No Positions