Knowledge is Power: Zombie Theory Edition

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1. General Motors is preparing a fresh barrage of discounts and other promotions to coax Americans into buying more cars after an upcoming US government decision on further financial aid to the Detroit motor industry. The incentives will be designed to counter a slump in sales and GM’s market share, amid signs on both sides of the Atlantic that its financial woes are beginning to drive away customers. GM to cut prices to lure back US buyers

2.What exactly is wrong with the banks? A year and a half after the credit crisis started, this may seem a bizarre question. But there is actually still a lot of confusion about what’s the matter. Indeed, that confusion – displayed on endless television programmes and around countless dinner tables – is adding to the sense of crisis.Bank crisis: It’s confidence, stupid


3.China‘s economic growth will plunge in 2009. The United States is in severe recession. For the world’s economy to recover, these two economic powerhouses must cooperate and become the engine for the Group of 20. Without a strong G-2, the G-20 will disappoint.Recovery Rides on The ‘G-2’

 

4. n his testimony before the US Senate Committee on Banking, Housing and Urban Affairs on February 24, Federal Reserve chairman Ben Bernanke depicted a deepening economic recession with real output contracting at an annual 6.2% in 2008Q4 and unemployment rising to 7.6%.Time for prayer

 

5.Author Margaret Atwood suggests debt forgiveness could be one way to restart the world economy.Lenders should forgive debt

Many Japan ADRs Are Up This Month Despite Export Plunge

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The Japanese economy is a heavily export-drive economy. Japan imports raw materials such as iron ore, copper and other resources and makes many finished products using them for export. This was highly profitable to the Japanese as the world loved their products. however the demand for many Japanese products such as automobiles, consumer electronics, etc. have collapsed in the past few months.

In January Japan’s exports plunged 46%. During the first three quarters of 2008, the economy contracted by almost 13% from the same period last year. Echoing the problems , on March we learned that “Toyota Motor Corp.’s U.S. sales plunged 40 percent, while Honda Motor Co.’s sales dropped 38 percent and Nissan Motor Co.’s fell 37 percent.”

Despite the facts mentioned above, many of the Japanese ADR stocks are up this month. These stocks are being lifted by the overall market’s “irrational exuberance” with the news of Citibank(C) and Bank of America(BAC) making a profit after getting billions in tax payer money.

The following are some of the well known Japanese companies with the month-to-date performance:

1. Sony (SNE) – 17.03%

2. Nissan Motor (NSANY) – 16.50%

3. TDK (TDK) – 14.53%

4.Kyocera (KYO) – 12.11%

5.Fujifilm (FUJI) – 6.29%

6. Hitachi (HIT) – 6.26%

7. Canon (CAJ) – 2.27%

Honda (HMC) and Toyota (TM) are down less than 5%.

Knowledge is Power: Boom to Bust Edition

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1. While oil prices skyrocketed, Russia was flooded with cash. But with sinking prices and the economic crisis, hopes are diminishing and tensions are rising in this recently robust industrial city that finds itself grinding to a halt.A Russian City Goes from Boom to Gloom

2.Can 1,000 professors be wrong? That’s how many were asked for their estimate of the equity premium in a January survey by Pablo Fernández, a professor at the University of Navarra in Spain.On expected stock returns

3. Australia will close the gate on thousands of foreign workers this year to protect the nation’s jobs.Australian jobs protected by freeze on foreign workers

4. Latest figures from China suggest great strength in demand for copper, iron ore and steel in particular, but bankers Macquarie’s research suggests that all may not be as it seems. Strong copper, steel and iron ore data from China – are they sustainable? – Macquarie

5. Escalating cost of jet fuel in 2008 pushed up ticket prices while recession delivered a further blow to the air travel market. Air passengers fall for first time in 17 years

6. Diversion:

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The Callan Periodic Table of Investment Returns for 2008

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Callan Associates, famous for its Periodic Table of Investment Returns also called the Callan Charts, has published the chart for 2008.

Some key points from last year’s chart:

  • The US markets performed better than the international developed markets
  • While the S&P was down 37%, the MSCI EAFE Index which measures the developed markets of Europe, Australasia and the Far East was off 43.38%
  • The BC Agg (Barclays Aggregate Bond Index) which includes US Government and Corporate with maturities of at least 1 year was up by 5.24%
  • Small Cap value (-28.92%) performed better than large cap stocks
  • After double digit growth in the past 5 years, developed market equities fell in 2008 with a loss of 43.38%

You can download the complete pdf version of “The Callan Periodic Table of Investment Returns (Key Indices: 1989-2008)” by clicking here.

For “The Callan – Equity Return of Developed Markets Chart” which gives returns by individual countries upto 2007, go here.

Considering the collapse of equity markets worldwide since 2008 many investors are wondering if diversification is dead. According to a research paper released by Allianz Global Investors, diversification is still important. However diversification has to be done among various asset classes such as stocks, bonds and includes cash.

“The Importance of Diversification” Chart (click to enlarge):

The Importance of Diversification Chart

Source: Allianz Global Investors

Some observations from the chart:

  • In 2008, long-term bonds were the best performers with a return of 24%
  • Commodities fell about 36% and Real Estate was off 39%
  • While long-term bonds did well, high-yield bonds fell by about 26%

Related: The Callan Periodic Table of Investment Returns 2016: A Review

Six European Blue-Chip Stocks Under $10

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Since the credit crisis began last year many of the former blue-chip stocks have been crushed to very low levels. Companies such as General Electric (GE), Citibank(C), Bank of America (BAC) are now trading in the single digits. Some of the European blue-chips are also down heavily with some losing over 90%.

To identify the European blue-chips that are now trading under $10, I used the DJ Stoxx 50 and the DJ Euro Stoxx 50 Indices. Both of them contain the blue-chips of Europe with the former including blue-chip companies of the UK. DJ Euro Stoxx contains the top companies of the Eurozone. I have listed only those stocks that are listed in the US exchanges.

List of European Blue-Chips Under $10 :

1. The Royal Bank of Scotland Group PLC (RBS)
Current Price: $6.22

After a 20 for 1 reverse stock split back in November, the stock is now trading in the $6 range. When the split went effective the price was around $20. RBS is now mostly owned by the British Government.

2. Aegon NV(AEG)
Current Price: $3.24

This European life insurer said last month that it expected a loss of 1.2 billion euros in the 4Q 2008 due to 350 million euros in impairments on its bond portfolio. Life insurers on both sides of the Atlantic are hurting now due to the problems with the annuity contracts they sold. As the equity markets cratered annuity contracts are affected since they promised a high fixed return from stock investments.

3. Allianz SE (AZ)
Current Price: $7.35

This German P&C insurance company offers “insurance, banking and asset management products and services to more than 60 million customers in over 70 countries”. The bond giant PIMCO is part of Allianz.

4.Banco Bilbao Vizcaya Argentaria S.A (BBV)
Current Price: $7.27

This Spanish Banking group reported heavy losses in 4Q,08 due to exposure to Madoff scam and non-performing assets. The booming property market ended in Spain with the global crash in real estate market.Spanish banks such as BBV are negatively impacted due to this collapse. For the last quarter of 2008, the bank reported a 62% loss in net income.

5.Banco Santander SA (STD)
Current Price: $6.44

Another banking giant from Spain with operations in the UK, Latin America,USA and Europe. In the UK, Santander owns Abbey National bank. Santander bought the Sovereign Bank in the US last year.

6. Societe Generale (OTC: SCGLY)
Current Price: $6.10

SocGen lost $7.1B in a fraud committed by a rogue trader last year. Late last year the bank also announced a dividend increase. Unlike SocGen, its main competitor BNP Paribas (OTC: BNPQY) has held up relatively well.

When the market recovers some of these fallen angels will come back strongly. Until then it may be a good idea to keep an eye on these blue-chips.

Long: SCGLY, RBS