What the Finance » Investment Ideas

Sucker’s rally to an end?

The What Girl — Wed, 17 Jun 2009 15:54:17 +0000

European stocks declined for a fourth day signalling fears that the first quarter’s sucker’s rally (as it is very nicely put) is coming to an end. For those who still haven’t understood what a sucker’s rally is, this is that!

Stock prices have risen substantially (some over 80%) over the past 3 months but was this rise justified? Theory says that prices go up when earnings expectations rise. As we are counting almost 2 years into the worst recession of the modern times, I really cannot see how anyone expects earnings to go up. What we do expect and hope is for their (and ours!) debt to go down! And this is what is happening. We have actually funded their debt repayments in a barely disguised stockmarket trap.

How? By being overly optimistic, even though millions of us recently lost their jobs. The strangest thing of all (I need a psychiatrist to explain this, please come forward if you are one!) is that while as taxpayers we still moan about governments using our taxes to bailout the same companies we blaim that bombed the whole economic system up with crap securities…. as investors we have used up any savings left to step our foot in the stockmarket so not to miss out all these eye-popping opportunities (yes, they are not seen or judged as companies anymore; little attention we pay to their balance sheet and other financial statements). So who is to blaim again?

So far so good. Companies are very happy with the results. According to data compiled by Bloomberg, it has been reported that over 165 companies (didn’t specify if they were all American) raised a record $87 billion since the start of the sucker’s rally (beginning of March 2009) in US secondary share sales. What they are doing with all these money is deleveraging, which means repaying as much debt as humanly possible at the earliest possible date. They know that without healthy balance sheets they cannot even start talking about profits!

Another reason, especially true for the banking industry, is that they do not enjoy the loss of control of their business affairs that they have had to agree to in order to get their dirty hands in the Troubled Asset Relief Program (TARP) funds. Who would?! Repaying similar debt would mean that they can go back to the way they are used to doing business.. more or less (supposingly they will be more closely regulated, but this is just in theory).

If you are one the suckers and got stuck in this rally don’t be too hard with yourself. Psychological research has proved that the poorer a person feels, the more likely he will be willing to undertake risk, his only true asset being his hope for a quick turnaround.

So the deeper the recession the more money companies make? I hope not…

Have you or are you looking to invest in stocks?

When do you think it’s the best time to invest?

What’s your exit strategy if any?

Technical Update for EUR-USD

The What Girl — Thu, 23 Apr 2009 09:38:12 +0000

EURUSD is higher at 1.3030 as the US Dollar lost a little ground against most currencies. Today sees the release of economic data that may give further clues on the need for another rate cut from the ECB.

Support & Resistance

Support at 1.2985 should hold to keep the short term uptrend intact and the outlook higher with 1.3060/70 as first, and 1.3130 as next target levels on the way up.

Resistance at 1.3150 should hold to keep the outlook bearish with 1.2750 ase the next target on the way down.

Bears have managed to contain price action below the retracement zone and the 200DMA to remain in medium-term control. The latest break under the 61.8% retracement of the latest up-swing should now increase optimism for a retest of 1.2834, which shields the key lows between 1.2455 and 1.2328.

Oscillators are pushing into over-sold territory but show no sign of an immediate reversal (or corrective bounce). Only a recovery above 1.3581 would start to question the latest decline for another attempt at the 200 DMA and the high at 1.3737. However, only above the latter would change the medium-term outlook for EUR/USD. Below 1.2328 would resume the down-trend towards 1.1832.

Forex Trading Investment Opportunity

The What Girl — Tue, 21 Oct 2008 15:32:00 +0000

Forex or Foreign Exchange Trading is an investment activity that has been around for a very long time. It is a worldwide market well known for its long trading hours (24 hours a day, except on weekends). It is also unique in terms of liquidity, a word so rarely heard in these credit crunched days… And this is probably the reason why it is becoming the most popular type of medium-term investment.

I hear many traders and brokers that have recently lost their jobs are now indulging themselves on online forex trading, “just to keep the dust and rust away”. Another good thing with forex trading is that it suits all types of sleeping patterns. So, for example, if you fancy working all night long and then snoozing the whole morning, with a grinning smile for you don’t have to get up and go to work, then it might bring you joy what I am about to say… You can trade currencies at any time you want. All the time if you wish (I’d better that you didn’t though! No, honestly… you’d better not.)!

And it’s easy in markets volatile like this. One day one currency goes up and the other one it comes back down. So, all you need to do is spend at least staring at your PC’s screen, when it becomes green, we lock the profit. If it’s red, we leave it for a little while longer and check back… but please not for too long! And always use the stop-losses orders. Actually, the stop-loss orders are the single most important thing for anyone (and everyone, including the professionals) to figure out before he even thinks of the idea of trading for whatever reason that might be (hedging, speculation, fun…).

I hope everyone that reads this post realizes that I was kind of joking, kind of being honest. Good luck and be very careful when choosing your online forex broker!

Put Carrefour in your Basket – strong sale figures for Q4

The What Girl — Thu, 24 Jan 2008 20:07:04 +0000

Carrefour announced strong sales figures for the fourth quarter and it is expecting a further 6-8% sales growth in 2008 and operating profit growth above that range. And that is excluding acquisitions – the retailer just bought a 75% stake in PT Alfa Retailandon in Indonesia for $72m!

On the grounds of this success, the French Goliath, which has almost 15,000 stores worldwide, is also planning to spin off its property (real estate) into a publicly traded company.

Despite the fact that the food retailer’s group sales rose as much as 7% last year, to almost 92.3 billion euros (£68.93 billions), the French food retailer, is still cautious about the consumer.

Carrefour’s management has very wisely decided to postpone the real estate IPO given the current market turmoil and stays open to alternatives. In my opinion, it is worth keeping on eye on the company’s next moves…

On a more detailed basis:

4th quarter sales rose 1.8%
4th quarter turnover rose 10%
sales up by 4% in France
3.4% in ROE
2.9% in Asia
and by- an outstanding- 10% in Latin America.

Target low… for high returns! – Low grade bonds

The What Girl — Mon, 14 Jan 2008 23:02:38 +0000

A recent research report from major US investment bank has shown that low grade bonds have outperformed high grade, not only for the month December, but also for the whole year. However, the Merrill Lynch Global High Yield & Emerging Markets Plus index plunged to 2.59%, which is the second worst full year performance, since the index was first introduced, nine years ago.

The worst ever performance of the index was in 2001, when the index plummeted to 2.27%, – which by the way is still… positive! None of the other global high grade indices offered a better downside track record than the Global High Yield & Emerging Markets Plus index over the same period.

The Index�

The Global High Yield & Emerging Markets Plus index is one of the most comprehensive market indicators of low grade debt, as it combines three different indices in one – the Global High Yield Index, the Global Emerging Markets Sovereign Plus Index, and the Global Emerging Markets Corporate Index.

Currently, the value of the composite low grade index, which combines all three markets of low grade debt, stands at over $1 billion.

The Bonds

Low grade bonds – sometimes referred to as: junk debt, high yield debt, non-investment grade debt, speculative grade devt, etc. – are bonds that carry low rating from one or all of the rating agencies (Moody’s, Standard & Poors, Fitch Ratings) because of their high probability of going into default.

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Investing in Mutual Funds

The What Girl — Fri, 14 Dec 2007 03:20:18 +0000

Far too often investment writers assume that their readers understand what a mutual fund is and they might be right; even if you don’t own any, you probably have heard so much about mutual funds already, that you might have an idea about what they are and how they work.
However, I would like to quickly go over a few of the basic terms, just to make sure that we are all starting on the same page. So, before I dive into the definition of a mutual fund, it is important that you have a basic understanding of stocks and bonds.

Stocks

Stocks represent shares of ownership in a public company. In other words, holding a company’s stock means that you are one of the many owners (shareholders), and stock itself represents a claim on the company’s assets and earnings.

Stocks, shares, and equity, are all different words describing the same thing.

Examples of public companies include IBM, Microsoft, Coca-Cola, EBay, British Airways, and Cadbury Schweppes.

Stocks are the most common ownership investment traded on the market.

Bonds

Bonds are basically a chance for you to lend your money to the government or a company. Such entities (companies, municipalities, states, U.S. and foreign governments) use the funds to finance a variety of projects and activities.

Your reward for lending them your money is an interest rate (coupon) payable over predefined periods of time. The loaned funds (bond principal) are returned on the maturity date of the bond (when the bond becomes due).

As there are quite a few different types of bonds, you might come across the following terms: corporate bonds, municipal bonds, U.S. Treasury bonds, notes and bills, “Treasuries”, “fixed-income securities” (a more generic term).

Bonds are the most common lending investment traded on the market.

There are many other types of investments other than stocks and bonds, but the majority of mutual funds invest in stocks, or bonds, or both.

Mutual Fund

A mutual fund is simply a financial intermediary that pools money together from hundreds and thousands of investors for the purpose of investing in securities such as stocks, bonds, and other securities with it.

Mutual funds are operated by fund managers (money managers) who construct a portfolio with investments in a group of assets according to the fund’s stated set of objectives (prospectus).

In return for the money the investors give to the fund, investors receive an equity position (shares) of the fund and, in effect, in each of its underlying securities. So when you invest in a mutual fund, you become a shareholder of the fund, much like when you buy stocks of a publicly traded company. The main difference is that when you contribute money to a fund, you get a stake in all its investments, offering a level of diversification, very difficult achieved by small investors.

Fund managers then take the money they receive from the sale of their shares (along with any money made from previous investments) and use it to buy securities, such as stocks, bonds and money market instruments in an attempt to produce capital gains and income for the fund’s investors.

For most mutual funds, shareholders are free to sell their shares at any time, although the price of a share in a mutual fund will fluctuate daily, depending upon the performance of the securities held by the fund.

Mutual funds are very often described as one of the best investments ever created because they are very cost efficient and easy to invest in (especially if someone doesn’t have the knowledge and/or the time to figure out which stocks or bonds to purchase). But of course, we also need to keep in mind that they charge fees and usually require a minimum investment.

Other benefits of mutual funds include lower trading costs due to economies of scale achieved by pooling funds together from many different investors, and professional money management, choice, liquidity and convenience. But, as we already mentioned earlier the biggest advantage to mutual funds is diversification.

And by this we mean, that a mutual fund offers small investors access to well-diversified portfolio of equities, bonds and other securities, which would be impossible to achieve with a small amount of money. For example, if you only have a couple of thousand pounds to invest, you can only buy a limited number of individual stocks and/or bonds, whereas when buying shares of a mutual fund (with the same amount of money) you receive a piece of the total pie of the fund comprising of numerous different investment vehicles. Based on the principle that when one investment goes down another might go up, diversification helps in reducing your overall risk tremendously.

The price of a mutual fund unit (share) is determined by the current net asset value per share (NAVPS or usually referred to simply as NAV), which is the total value of the securities owned by the fund divided by the number of shares outstanding. Each shareholder participates proportionally in the gain or loss of the fund depending on the number of shares he/she owns.

A fund’s NAV changes daily, according to the price fluctuations of the fund’s holdings. For example if a fund has a portfolio of stocks and bonds worth £100m and there are one million shares outstanding, the NAV would be £100.

Finally, let me stress out for once more that one should always take into account any charges, commissions (“loads”), and fees payable to the fund to calculate the real cost of purchasing/selling mutual fund’s shares. There have been a lot of occasions where investors were surprised to see their profits (after fees) shrinking to nothingness, despite the fund’s good returns.

Spread betting made simple…

The What Girl — Mon, 10 Dec 2007 02:31:06 +0000

It was an American gentleman named Charles K. McNeil that first incepted the concept of Spread Betting in the late 1930’s. This form of betting has gradually phased into the UK in the 1980’s.

Financial spread betting has accepted a lot of criticism but it’s definitely here to stay. Opponents of spread betting argue that it is a gamble and not an investment and that it robs the stock market of liquidity. Supporters on the other hand, point to the flexibility it offers to investors and traders to back their own judgment on the movement of individual shares and markets such as stock indices, currencies and commodities.

The best way to understand how a spread bet works is to look at an example.

Ordinary Share Spread Bet

Silverjet is currently trading within 86.5 – 87

Investor A believes that Vodafone is going to rise and places a buy bet at 87 for £10 a point.

Investor B has the opposite view and believes that Vodafone is going to fall and places a sell bet at 83 for £10 a point.

Scenario 1

Silverjet rises to 91.5 – 92

Investor’s A prediction is correct: Vodafone has risen and he closes his position with a sell bet at 91.5 and subsequently makes a £45 profit (4.5 points x £10)

Investor B decided to cut her losses and closes her position at 91.5 and makes a £50 loss (5 points x £10)

Scenario 2

Silverjet falls to 82.5 – 83

Investor’s A prediction is incorrect and he decides to close his position by placing a sell bet at 82.5 making a loss of £40 (4 points x £10)

Investor B’s position has moved in her anticipated direction and she decides to close her position by placing a buy bet at 83 making a profit of £35 (3.5 points x £10)

The theory of spread betting is exactly the same whatever instrument you wish to trade on. However the most popular type of spread betting is on world indices such as the FTSE 100 or the Dow Jones and that’s because it offers a very simple mechanism for individuals to bet on the movement of the markets. Historically, the only way an individual investor could benefit from a falling market was by selling shares “short” or maybe by investing in hedge funds.

The process of opening a spread betting account is straightforward, whether it is an online or a telephone account. Investors can hold a ‘credit’ account, where funds are deposited with your chosen spread betting firm, in your own designated account, and winnings or losses are added to or taken out of this account. A ‘debit’ account is where the investor provides credit or debit card details. The maximum agreed potential loss is taken out, up front, and winnings then credited back to the investor. Accounts may be closed at any time.

Interest will be added (usually monthly) on all funds held on deposit, and every account holder will be sent regular statements (usually daily) in an effort by the industry not only to meet but to surpass FSA regulatory requirements. The spread betting industry is fully regulated and supervised, and all client accounts are segregated from those of the firm with which you are undertaking transactions. And perhaps more importantly, there is no stamp duty to pay and no tax on capital gains.