Dave Landry's Market in a Minute - Monday, 12/2/13

[Thierry Martin]

The Chart of the Day is CNO Financial Group (CNO). I found the stock by sorting the New High List for frequency. The stock is a repeat and was the Chart of the Day back on 6/28. Since the Trend Spotter signaled another buy on 10/11 the stock has gained 15.09%.

It is a holding company for a group of insurance companies operating throughout the United States that develop, market and administer supplemental health insurance, annuity, individual life insurance and other insurance products. The Company serves America's middle-income consumers, with a focus on seniors. It manages its business through the following three primary operating segments: Bankers Life, Colonial Penn and Conseco Insurance Group. Bankers Life markets and distributes health and life insurance products and annuities to the middle-income senior market. Colonial Penn markets primarily graded benefit and simplified issue life insurance directly to customers through television advertising, direct mail, the internet and telemarketing. Conseco Insurance Group markets and distributes specified disease insurance, accident, disability, life insurance and annuities to middle-income consumers at home and at the worksite.

[Thierry Martin]

Markets were relatively flat on Wednesday as the demand for mortgage?s fell for the fourth straight week. The Mortgage Bankers Association announced that mortgage applications fell 0.3%. Over the last four weeks the index has sank nearly 7%. This data not only includes mortgages for new homes but also refinancing applications. The declines have slightly coincided with the news that the Federal Reserve is contemplating pulling in the spending on their monthly $85 billion in Treasuries and mortgage backed securities. Mortgage rates have also been creeping up. The 30-year rate was up 2 bases point in the most recent weeks to 4.48%. The purchase index was down 0.2%. The purchase index was is a leading indicator of home sales.

There was a decline in the number of Americans seeking unemployment benefits last week. The Labor Department announced that there was a drop of 10,000 to a seasonally adjusted 316,000 jobless claims. The four-week moving average, which is a more accurate gauge of the data, was down 7,500 to a total of 331,750. This was the first time that weekly jobless claims and the four-week average were below the pre-recession levels. The government said there were no significant driving factors behind the positive data. They did say that it can be hard to seasonally adjust data so late in November due to the Thanksgiving holiday landing on different times every year.

Shares of Hewlett-Packard Company (HP) were up significantly as the company beat out fiscal fourth-quarter revenue forecasts. The company has been taking steps to turn around their ailing computer sales and tried to boost personal computer sales, which were up 2% in the recent quarter. They also had a 10% rise in server sales along with a 3% boost in growth of their networking business. Chief Executive Meg Whitman has been leading the turn around efforts of the company since a little over a year ago and the recent data seems to be showing significant improvement. Bill Kreher, a technology analyst with Edward Jones, said, ?I saw better than expected performance out of the enterprise group, which we expected to be weak given the results from peers such as IBM and Cisco. There is some hope given that the company was able to jump over what was admittedly a pretty low hurdle.? Revenue was down across most of HP?s business division, minus the enterprise group. Sales were up to $7.5 billion there. Overall the company posted revenue of $29.1 billion, surpassing analysts? expectations of $27.9 billion. Whitman said, ?We have more to do on the margins but we are happy. We had a good quarter in networking, particularly in China and in Europe.?

That?s all for the day. Happy Thanksgiving, loyal readers; we?ll be back Monday!

[Thierry Martin]

Whaddaya think? Did the pilgrims believe in gold? When they came to these shores nearly four hundred years ago in search of religious freedom, did they also dig about Plymouth looking for metallurgically assayable ore bodies?

And you?

Are you still on the hunt for that junior gold company trading on Vancouver that?s about to bag you a fortune?

Hope not.

Here at Bourbon and Bayonets, we were the first to call the top in the precious metals over two and a half years ago, and despite the maggots we?ve become in the eyes of the goldphiles, we?ve stuck to our guns and prospered. We?ve played a few upside retracements successfully, too. But we remain bears.

Oakshirean Traditions

At this time of year it?s become our custom to rub the belly of the glorious golden turkey in order to better discern in which direction the pernicious metals are next headed.

Here?s a recent shot of the old gal. Isn?t she a doll?

[Thierry Martin]

Let?s play a game.

Imagine you could only have four positions in a portfolio between now and year-end, of equal size (25% each). Obviously this is nuts, call it a gun-to-your-head thing. No one would advocate doing this in real life but it?s a helpful exercise in determining your true highest-conviction investments at any given time.

Just for fun and completely hypothetically, mine would be:

25% Long Japanese stocks / short Japanese yen
25% US Financial Sector Stocks
25% Investment Grade US Corporate Bonds
25% European Stocks

These are asset classes / sectors where I see value and where I can picture the fund flows going to drive their prices higher into the end of the year. Just my guess, of course.

What would your four slots be?

[Thierry Martin]

You can keep up with all of our posts by signing up for our daily e-mail. Thousands of other readers already have. Don?t miss out!

Quote of the day

William Bernstein, ?When the intelligent investor does some trimming back, he usually feels like a dummy for the next year or two.? (IndexUniverse)

Chart of the day


VNQ Total Return Price data by YCharts

The case for REITs. (John Authers)

Markets

Howard Marks says markets are rich but not bubbly. (Pragmatic Capitalism)

The two biggest worries for investors: the Fed and growth. (Business Insider)

Discounting the talk of a stock market bubble. (Servo Wealth)

The 1990s stock bubble was much crazier than you remember. (Slate)

The risk of the stock market never went away, it just seems like it did. (Price Action Lab)

Companies

Whoever said ?television is dead? has not checked the charts. (Howard Lindzon)

What will the newly spun-off Time Inc. look like? (Term Sheet)

Finance

CLOs are once again a (big) thing. (WSJ)

More signs that risky lending has returned. (Dealbook)

Private equity is sitting on nearly $800 billion in ?dry powder.? (FT)

When activist investors take board seat their loyalties are split. (SL Advisors, Dealbook)

Business development companies (BDCs) are growing and getting riskier along the way. (Dealbook)

Funds

A look at Pimco?s rough year, performance-wise. (Rekenthaler Report)

Why active managers have outperformed of late. (Horan Capital)

How to buy gold and silver at a discount. (The Short Side of Long)

Global

Goldman says sell the Canadian dollar. (MoneyBeat)

Why gold continues to pile up on China?s balance sheet. (FT Alphaville)

Economy

Temp employment continues to rise. (Value Plays)

Some decent economic stats. (Calculated Risk, Capital Spectator)

Can you still have bubbles amidst a balance sheet recession? (Business Insider)

Markets are no longer freaking out about Fed tapering. (Wonkblog)

Remember all those HELOC loans? (smithy Salmon)

Earlier on Abnormal Returns

What you may have missed in our Tuesday linkfest. (Abnormal Returns)

Mixed media

Why are CNBC?s ratings continuing to fall amidst a roaring bull market? (Zero Hedge)

Can you really trade part-time? A look at Ryan Mallory?s The Part-Time Trader. (Reading the Markets)

Charting Bitcoin vs. the South Seas bubble. (Mebane Faber)

Thanks for checking in with Abnormal Returns. You can follow us on StockTwits and Twitter.



The post Wednesday links: trimming back blues appeared first on Abnormal Returns.


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[Thierry Martin]

You can keep up with all of our posts by signing up for our daily e-mail. Thousands of other readers already have. Don?t miss out!

Quote of the day

William Bernstein, ?When the intelligent investor does some trimming back, he usually feels like a dummy for the next year or two.? (IndexUniverse)

Chart of the day


VNQ Total Return Price data by YCharts

The case for REITs. (John Authers)

Markets

Howard Marks says markets are rich but not bubbly. (Pragmatic Capitalism)

The two biggest worries for investors: the Fed and growth. (Business Insider)

Discounting the talk of a stock market bubble. (Servo Wealth)

The 1990s stock bubble was much crazier than you remember. (Slate)

The risk of the stock market never went away, it just seems like it did. (Price Action Lab)

Companies

Whoever said ?television is dead? has not checked the charts. (Howard Lindzon)

What will the newly spun-off Time Inc. look like? (Term Sheet)

Finance

CLOs are once again a (big) thing. (WSJ)

More signs that risky lending has returned. (Dealbook)

Private equity is sitting on nearly $800 billion in ?dry powder.? (FT)

When activist investors take board seat their loyalties are split. (SL Advisors, Dealbook)

Business development companies (BDCs) are growing and getting riskier along the way. (Dealbook)

Funds

A look at Pimco?s rough year, performance-wise. (Rekenthaler Report)

Why active managers have outperformed of late. (Horan Capital)

How to buy gold and silver at a discount. (The Short Side of Long)

Global

Goldman says sell the Canadian dollar. (MoneyBeat)

Why gold continues to pile up on China?s balance sheet. (FT Alphaville)

Economy

Temp employment continues to rise. (Value Plays)

Some decent economic stats. (Calculated Risk, Capital Spectator)

Can you still have bubbles amidst a balance sheet recession? (Business Insider)

Markets are no longer freaking out about Fed tapering. (Wonkblog)

Remember all those HELOC loans? (smithy Salmon)

Earlier on Abnormal Returns

What you may have missed in our Tuesday linkfest. (Abnormal Returns)

Mixed media

Why are CNBC?s ratings continuing to fall amidst a roaring bull market? (Zero Hedge)

Can you really trade part-time? A look at Ryan Mallory?s The Part-Time Trader. (Reading the Markets)

Charting Bitcoin vs. the South Seas bubble. (Mebane Faber)

Thanks for checking in with Abnormal Returns. You can follow us on StockTwits and Twitter.

[Thierry Martin]

The transportation sector is the lifeblood of the global economy -- but a glance at a chart of the highs and lows of this cyclical sector can look a lot like the surface of a stormy sea.

Take the Baltic Dry Index, for example -- it began the year at record lows but has more than doubled in the past few months.



Out-of-favor industries attract value investors who are looking for a bargain and this upswing in the index could be the beginning of a trend reversal, as the transportation sector is often seen as a leading indicator. A classic value story is beginning to take shape, and investors are climbing aboard.

Global trade is suffering due the widespread downturn, and the shipping sector has taken a dive from its highs less than a decade ago. Nervous businesses have curbed trading activity, keeping demand for shipping lines low. For 2013, global container trade growth is expected to be around 4.7%, rising to 5.7% in 2014.

That growth is what makes a company that's lowering costs and increasing revenues by 6.4% from the same quarter last year worth a closer look. TAL International Group (NYSE: TAL) is a lessor of intermodal containers used to transport freight by ship, rail or truck.

In an industry where utilization rates average around 95%, TAL stands out with rates over 97%. This means very little capacity is left unused, which gives TAL an impressive return on equity in excess of 20%.

The company is improving margins as well by refinancing several credit facilities in the past quarter. TAL's interest expense fell by $3.3 million, lowering its effective interest rate nearly a full percentage point to 3.8%. Gross margins are in excess of 88%, improving from last quarter's 79%.

TAL prides itself on its high-quality lease portfolio. More than three-quarters of the containers it leases are under long-term contracts averaging 42 months. This gives the company a higher than average utilization rate while also limiting its exposure to potential defaults. Management's strategy of higher quality over quantity has given the company an edge in softer markets where defaults threaten its competitors.

TAL's biggest competitor, Textainer Group Holdings (NYSE: TGH), is similar in many respects and should also benefit from improving international conditions. There are slight differences in valuations and utilization rates, but TAL is currently the better company.

Textainer missed earnings last quarter by an extraordinary 29% mostly due to a number of lease defaults by several clients. That debt will keep Textainer from posting better earnings for the foreseeable future, but the stock should improve considerably when the debt is paid.

TAL trades at just 12 times earnings and has had earnings per share (EPS) growth of around 27% for the past five years. The stock offers a dividend of $2.80 a share, an increase of 172% since 2010. The dividend yield of 5.1% is supported by a payout ratio of just 44%, giving the company plenty of capital to continue to invest in the business.

[Thierry Martin]

The head-and-shoulders (H&S) top is one of the best-known patterns in technical analysis. This pattern was first written about in 1930 by a financial editor at Forbes magazine who described how the H&S forms and how it can be traded.

Many readers are familiar with the H&S pattern. On a price chart, there will be three peaks in price at the end of the uptrend, with the center peak (the head) being higher than the other two. The peaks on the sides (the shoulders) should be about equal in height.

Connecting the bottom of the peaks gives us the neckline, and breaking the neckline is the sell signal. Real H&S patterns rarely resemble the precise line diagrams seen in books, and the chart below shows one that occurred in real market conditions. The shoulders are nearly, but not quite, the same height.

[Thierry Martin]

If demographics is destiny, then America?s future looks bleak. At least, that is the inevitable conclusion if demographics is your only consideration.

I have long been a fan of demographic investing, which creates opportunities for traders to execute on what I call ?intergenerational arbitrage?. When the numbers of the middle aged are falling, risk markets plunge. Front run this data by two years, and you have a great predictor of stock market tops and bottoms that outperforms most investment industry strategists.

You can distill this even further by calculating the percentage of the population that is in the 45-49 age bracket, according to my friend, demographics guru Harry S. Dent, Jr.

The reasons for this are quite simple. The last five years of child rearing are the most expensive. Think of all that pricey sports equipment, tutoring, braces, first cars, first car wrecks, and the higher insurance rates that go with it.

Older kids need more running room, which demands larger houses with more amenities. No wonder it seems that dad is writing a check or whipping out a credit card every five seconds. I know, because I have five kids of my own. As long as dad is in spending mode, stock and real estate prices rise handsomely, as do most other asset classes. Dad, you?re basically one giant ATM.

As soon as kids flee the nest, this spending grinds to a juddering halt. Adults entering their fifties cut back spending dramatically and become prolific savers. Empty nesters also start downsizing their housing requirements, unwilling to pay for those empty bedrooms, which in effect, become expensive storage facilities.

This is highly deflationary and causes a substantial slowdown in GDP growth. That is why the stock and real estate markets began their slide in 2007, while it was off to the races for the Treasury bond market.

The data for the US is not looking so hot right now. Americans aged 45-49 peaked in 2009 at 23% of the population. According to US census data, this group then began a 13-year decline to only 19% by 2022. This was a major reason why I ran huge shorts across all ?RISK ON? assets six years ago, which proved highly profitable.

You can take this strategy and apply it globally with terrific results. Not only do these spending patterns apply globally, they also back test with a high degree of accuracy. Simply determine when the 45-49 age bracket is peaking for every country and you can develop a highly reliable timetable for when and where to invest.

Instead of poring through gigabytes of government census data to cherry pick investment opportunities, my friends at HSBC Global Research, strategists Daniel Grosvenor and Gary Evans, have already done the work for you. They have developed a table ranking investable countries based on when the 34-54 age group peaks?a far larger set of parameters that captures generational changes.

The numbers explain a lot of what is going on in the world today. I have reproduced it below. From it, I have drawn the following conclusions:

The US (SPY) peaked in 2001 when our first ?lost decade? began.
Japan (EWJ) peaked in 1990, heralding 20 years of falling asset prices, giving you a nice back test.
Much of developed Europe, including Switzerland (EWL), the UK (EWU), and Germany (EWG), followed in the late 2,000?s and the current sovereign debt debacle started shortly thereafter.
South Korea (EWY), an important G-20 ?emerged? market with the world?s lowest birth rate peaked in 2010.
China (FXI) topped in 2011, explaining why we have seen three years of dreadful stock market performance despite torrid economic growth. It has been our consumers driving their GDP, not theirs.


The ?PIGS? countries of Portugal, Ireland (EIRL), Greece (GREK), and Spain (EWP) don?t peak until the end of this decade. That means you could see some ballistic stock market performances if the debt debacle is dealt with in the near future.

The outlook for other emerging markets, like Russia (RSX), Indonesia (IDX), Poland (EPOL), Turkey (TUR), Brazil (EWZ), and India (PIN) is quite good, with spending by the middle age not peaking for 15-33 years.

Which country will have the biggest demographic push for the next 38 years? Israel (EIS), which will not see consumer spending max out until 2050. Better start stocking up on things Israelis buy.

Like all models, this one is not perfect, as its predictions can get derailed by a number of extraneous factors. Rapidly lengthening life spans could redefine ?middle age?. Personally, I?m hoping 60 is the new 40.
Immigration could starve some countries of young workers (like Japan), while adding them to others (like Australia). Foreign capital flows in a globalized world can accelerate or slow down demographic trends. The new ?RISK ON/RISK OFF? cycle can also have a clouding effect.

So why am I so bullish now? Because demographics is just one tool in the cabinet. Dozens of other economic, social, and political factors drive the financials markets.

My theory is that Ben Bernanke got a hold of the best selling book, The Great Crash Ahead: Strategies for a World Turned Upside Down, by Harry S. Dent, Jr. and Rodney Johnson, and thought to himself, ?Yikes, I better do whatever I can to offset this demographic drag or we?ll all be toast.? Thus followed his ultra low interest rate policy and unending waves of quantitative easing. So far, Ben has been pretty successful.

What?s more, Ben?s replacement, my friend Janet Yellen, will carry on Ben?s mission to stave off a demographic disaster until 2022. Then the demographic headwind veers to a tailwind, setting the stage for the return of the ?Roaring Twenties.?

To buy Harry Dent?s insightful tome at Amazon, please click here. By the way, Australian readers should take note that we will be touring the Land Down Under to debate exactly these issues in February, 2014. Dates and times will be forthcoming.

In the meantime, I?m going to be checking out the shares of the matzo manufacturer down the street.

[Thierry Martin]

The Chart of the Day is Elan Corp PLC (ELN). I found the stock by sorting today's New High List for frequency and the stock advance is 21 of the last 21 sessions! Since the Trend Spotter signaled a buy on 8/16 the stock gained 20.63%.

It is a specialty pharmaceutical company focused on the discovery, development and marketing of therapeutic products and services in neurology, acute care and pain management and on the development and commercialization of products using its extensive range of proprietary drug delivery technologies.