by Paulo Caldeira

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Penny stock to watch: Magnetek Inc.

Global macro: Stock to watch – Magnetek (MAG) trading at NASDAQ.

The company, which provides electronic power solutions to automate heavy machinery,  have published an astounding 36% profit since last year’s report. And they have been solid in the earnings dept. One of the fields that Magnetek is pioneering, is renewable energy.

The stock is currently trading at $2.00 a share (after a 3.36% increase from last friday’s trading session). Currently, Magnetek’s market capitalization is of 62.62M.

I have a number of reasons to believe that the stock has enough grounds to develop. Additionally, Matt Schifrin, one of the Forbes ‘gurus’ and also vice president and investing editor for Forbes Media, have recommended Magnetek Inc. on the 17th of February as one of the good penny stocks to buy in 2011.

Read the Forbes full article here.

Please refer to the respective disclaimer @ the first post on the blog for details on the basis on which you may use the contents of this page.

Dangerous combination

I’ve been in my favourite bookshop last Sunday, and when I was paying for two books, the cashier looked at me astonished and said: “that is a dangerous combination!”. I’ve purchased one book about ‘history of advertising’ and one about ‘modern economics’.

Indeed, I had to agree. I’ve worked in the advertising industry before and I am an enthusiast of economics. Both channels, allied with politics, can surely imprint grievous aftermath.

Advertising media is often overlooked by left-wing theorists. But the advertising of politics is correlated with a country’s economics outcome (see Berlusconi’s ‘media ownership’). The power of media and the issuance combined with accessibility of information is colossal.

To date, consuming has become a religion with all the rituals alike. It is unbecoming. Long ago were the days where a product was built to last. That is what the guys from Madison Avenue (and everywhere else) are promoting with grace (and effortlessly, like Donald Draper in Mad Men). An average person living in a cosmopolitan environment is targeted daily with around 3,000 brands.

Producers such as China, have a massive input in today’s disrupted consuming behavior. The largest suppliers of almost all end-consumer products, their giant production capacity, the cheap labour, and a very small marginal profit. The rest of the world is buying, or, demanding it. Advertising agencies strike again.

Inevitably, its not hard to notice how imperative and bold today’s ads are. And indeed simplicity works. Copywriters are skipping the fluffy vernacular and going straight into you. Edward De Bono warned us.

‘Sound political thought and sound political life will be found only where [utopia and reality] have their place’ (E.H. Carr 1981, p10).


Witnessing the last drop of Black Gold

The scarcity of some of today’s ‘voguish’ commodities is greater than ever. Commodities, namely oil and natural gas, which has aggregate value built in almost everything these days.

I’d like to positively think that we are marching to a betterment in our economical dynamics (considering Adam Smith’s theory of the ‘invisible hand’) and that we are more concerned about the environmental impact of the world’s disordered growth. However the decay of our wellbeing is more than a consequence of our heedless, unplanned, uncalculated population surge and moreover, our consuming habits.

Because of this, we are recklessly exhausting our already limited resources. Steve Jobs releases a new gadget every 6 months or so, making the previous versions simply useless, outdated, building up the pile of trash.And this is it. Abusively disposable, as opposite to our grandparents’ ‘buy only long lasting’ products.

We are creating rubbish faster than ever. But to build something wasteful, we might use tons of energy. One example is a tire. To craft a standard truck tire, it is necessary 22 gallons (or 83 liters) of oil.

The world is approaching the Peak Oil production sometime in the next decade (hence the name of the phenomenon, the point in time where the maximum petroleum extraction is reached). Lucky enough there are unconventional reserves of oil, that may deliver the ‘Texas tea’ a little longer, but it still limited. The chart has a sharp bell curve and there is nothing we can do, except to stop usurping it.

But there is no surprise here. Experts are already considering this event when assessing the uncertainty associated with future monetary value of petroleum prices. Also Morningstar’s analysts already consider the terminal decline of oil production when projecting future cash flows and business positions.

Thomson Reuters published last year an interesting article about the issue and how the bankers from the energy sector are adjusting greater gains despite the shortage (actually, because of it).

The complex ecosystem of financial variables and  models, such as prices, interest rates and shares, as opposed to those concerning the real economy, is dealing with oil as a product only, not considering the extent of the impact and unbalance it may cause.

The big question is not really when we will run out of oil, because eventually we will. The question is how much it will cost us (not talking about money here).

Will there be enough renewable energy to go around? Well, sadly it seems that we will have to see the last drop of oil before we start taking action.

Please refer to the respective disclaimer @ the first post on the blog for details on the basis on which you may use the contents of this page.

It’s the international equities turn!

Now the worst of the crisis is over. After making some careful research, I suspect that 2011 will be the year where commodities and international equities will be driving the results of institutional investors.

Equities across the globe rose high last week. Portugal’s bond sale (debt-easing) have built some confidence and the S&P 500 is on a new high after months. In late December, the US’s CPI have shown a 0.50% rise, which offers even more confidence that the inflation will not be around the corner very soon.

Australians can take advantage of the global recovery by ‘shopping’ for investment opportunities and bargains overseas. I don’t want to go on the countless offers of real estate in America because that is not exactly what I mean by opportunity. Although this can be a great idea if you are well-acquainted in the US, I’ve read somewhere that someone from Melbourne have purchased a property in Chicago for a few grand, but he was not aware that he would need a bulletproof vest and a two barrel shotgun to go collect his rental money. Hassle!

By opportunity, I mean Exchange Traded Funds (ETF’s), mutual funds, quality stocks (small, mid and large cap), and perhaps any undervaluated securities that can be found overseas after some research.

America is not the only one to be rising in 2011. Most European countries (after the debt resolution burden), plus the emerging Brazil, Russia, India and China (BRICs) are expected to have a solid growth, most likely in the second quarter of the year.

In Australia, the housing market is growing alongside with investments and consumer spending. China’s demand for Australian commodities is also contributing to our economical status. We are on the other end of the cycle. The world is coming out of the dark while Australia and a very few countries are on a ‘price consolidation’ territory.

There is a belief that the current strength of the Australian economy will have its costs. The Reserve Bank of Australia (RBA) will most certainly increase the interest rates, besides the strong Aussie dollar. High levels of foreign government debt in Japan, the US, UK and other European countries are going to make bank costs rise, leaving the RBA’s with the decision of making the cash tighter. So naturally, things are expected to be quite steady here in Australia throughout the year. Not to mention the plunge that the Queensland floods will cause in the medium term perspective.

To take advantage of the global growth, one good strategy (not suited to all investors) is to purchase ETF’s that tracks specifically international equities. Mutual funds are also a good option. Here is the 2011 CNN’s list of the 70 best ETFs and Mutual Funds, it’s worth a look. Most of the funds have a minimum investment amount.

Russell Investments and Vanguard Investments also offer a high-caliber range of solutions, such as mutual funds and US and Global indexes for benchmarking. Their products might not be suited to all investors, but leastways it is a good source of information.

By funding an account based in US dollars when the exchange rates are favourable is also a good measure to lock in the best rate, that you could use for future acquisitions. HSBC and Citibank offers this type of product but the appreciation will be minimal. The ‘dollar cost average’ might be a good approach.

In terms of super, you can talk with your FP/Superannuation fund manager about the possibility of switching some of your holdings to international equities. THe US economy could be a basket case at the moment but as one of the richest (still) countries in the planet, it won’t be forever. Look for hard assets. Large corporations hold more hard assets. Analysts calculate a company’s intrinsic value deriving a portion of this value from the value of its hard assets.

Powershares QQQ Trust (QQQQ@NASDAQ)- An ETF that tracks the 100 largest non-financial NASDAQ’s listed companies, based on market capitalization. The California-based giant Apple (AAPL), which represents around 20% of the fund will publish quarterly results tomorrow (Australian time). Let’s keep an eye on it!

Please refer to the respective disclaimer @ the first post on the blog for details on the basis on which you may use the contents of this page.

 

Speculating vs. Investing – Rules of Engagement

I am inclined to believe that the equity market will most of the times outperform any other type of investment opportunity available. Although the logic behind this statement comes from analysis of past performance, usually the history repeats itself.

Logic some times is not in line with the financial markets. If you ever traded during the American non-farm payrolls data release (the report card for the US  ‘financial health’), you will understand.

Why people still believe in the stock market? Because it is profitable! Even if you have a moderate-conservative approach, you will be rewarded over the years (if you can avoid the tempting Margin Loans).

Despite all that, I like to purchase equities, to analyse feasibilities, to trade ideas of business ventures and so forth. It sounds cheesy, but I have a passion for the business mechanics, and how that contributes to the society.

Environmentally savvy companies, long-lasting quality products, innovative ideas and prime-standard services. These are my initial guidelines to even consider a stock before the purchase.

It is the pride of being part of the growth in these companies that soothes my capitalistic being. Their potential to make good use of the money I have invested, and thereafter, send me dividends as a ‘thank you for your business’.

Bear in mind that equities, by all means are far more volatile than the average real estate opportunity or the cash products. Real estate are ‘safe as houses’, of course!

But there are also many people who believe that to start a new business is a much more viable and a less audacious activity, than investing in the stock market.

Opening a business, depending on the circumstances and your planning, could be tragic. Around 80% of the newly open businesses in the market, shut the doors in the first 3 years. Another 50% close down in the next 10 years.

But people also rather leave a hundred percent of their savings into a 5-6% yield savings account than investing. That is safe, conservative and ultimately boring.

The high-yield savings account is probably the backbone of every experienced investor. We all need to leave the bulk of our savings into a high-yield savings account but if you are clear of debts and have savings capacity, you should start thinking about redirecting a percentage of your income into a managed fund (indirect investing), purchasing shares via a full-time broker or via an online broker. I’d suggest the first two options if you are too busy or simply not interested in the financial markets. There will be a ‘servicing cost’, but it is the price to access the expertise of these vehicles.

In other words, you can make your money work for you. If you are not comfortable with equities, there are also other very interesting range of investments available these days.

The idea of wilderness and doom and gloom when it comes to buying stocks, is a dogma from the past. But a lesson we’ve learnt. Again, stay away from Margin Loans and have a plan outlined and you most likely start seeing your money grow. It won’t happen overnight, but the compounding effect will surely make a difference.

 

 

Often times I also like trading. The ‘speculative opportunities’. They are very short-term positions held to profit from a specific situation (if not, extremely short-term e.g., event-driven trading or the art of scalping).

You can’t beat the market (think HFTs) so don’t try to reinvent the wheel! I honestly think that speculating applies in special moments and hedging, only. Daytraders without financial education are a different class of gamblers (not to mention the number of people making money by teaching other people how to make money…ironic? not quite)

Speculating into the derivatives field involves a major financial risk, but some traders are very profitable. They practice educated trading. Using calculated methods and identification of movements, interpretation of patterns, and making volumetric projections.

It is not only about the numbers, it is also about psychology. It is about ‘what are the big guys doing? What is the ‘sentiment’? Warren Buffet (how cliché, I know!) used to say that you can’t win a baseball game watching the scoreboard. You have to watch the game! And some times I let the market freak out and just sit back and watch it.

Trading the financial markets require understanding the importance of a tactical ‘modus operandi’ when analysing data or other factor that could influence the overall expectations of a trade.

Almost everything can affect the price of an asset. The hurricanes season in the US can affect the price of a currency in Asia. If Curtis Jackson aka ’50 Cent’ talks about a company he is investing in, the price of that stock skyrockets 240% gain. It is fast!

The basic rule of engagement is to have discipline, patience and trade unemotionally. Cut the loss quickly, set up the trade beforehand, follow the briefing, report your trades (and learn from it), research like a rocket scientist attempting to win the Nobel, and so on. It’s knowing when is the ‘sweet spot’. The momentum. The breakout. The pullback. Is knowing when to go ‘techs’ when to go ‘fundies’. It is a diverse universe of psychology attached to mathematics.

This is the real inhospitable territory whereas the rule is to survive (preserve), to achieve the mission (acquire) and win the battle (aggressive targets, moving the stop-loss). But remember, just join a battle if you have something at stake, otherwise you can hurt yourself, badly. And every CTA and other pro-trader have a clear idea of risk management.

To analyse and plan your asset allocation and how this could benefit you, consult an accredited financial planner.

Please refer to the respective disclaimer @ the first post on the blog for details on the basis on which you may use the contents of this page.

 

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