Gold under Pressure (Reuters)
With the expected inflation thought to be coming after quantitative easing policies’ enactment in multiple economic zones failing to materialize, the value of gold appears vulnerable. “What has occurred in Japan and elsewhere has in effect made the opportunity cost of holding gold greater than it was,” Credit Suisse analyst Tom Kendall said.

I have to admit these are my favorite panels. It may be because of my history as an equity analyst covering a number of industries and even more companies. During those two decades, I spoke with numerous members of management, from business group leaders up to the CEOs. In each of those conversations, I found at least a few useful investing nuggets that I could put to work — the key was asking the right question or set of questions.

Now, you’re probably wondering if there were any such nuggets revealed during the two public company panels I hosted at the recent MoneyShow.

I can safely say there were more than a few. Let me share some of the best with you now.

Over the course of the two panels, featured companies included American States Water Company (AWR), BBVA (BBVA), Allete, Inc. (ALE), Royal Dutch Shell Oil (RDS.b), American Water Works (AWK), Brazilian electric company Companhia Energetica Minas Gerais or CEMIG (CIG), South African-based energy and chemical company Sasol Limited (SSL) and shopping center real estate investment trust company Kimco Realty Corp. (KIM). As you can imagine, with a few hours and given the diverse businesses among those companies, we covered a lot of ground.

Each of the presentations was upbeat, given good growth prospects rather than too much hype. Because I was running each panel, I did my best to discourage the bombastic statements in favor of what the audience should know. What I found encouraging from each company was the progressive dividend policies and the track record of returning capital to shareholders. Also, most of the companies had little U.S. equity research coverage. While some observers will say limited analyst coverage affects investor sponsorship, I like finding companies that have modest equity research ahead of Wall Street finding out about them. A case in point is Allete, which has five sell-side analysts covering the shares and at least a few other analysts in the wings.

Here are some of my key takeaways:

American States Water Company (AWR) has a history of paying and increasing its dividend — second only to Proctor & Gamble (PG). This California-based regulated water company is a water scarcity play, and it is expanding its footprint as the military privatizes its water and waste-water contracts for its bases around the United States. What’s interesting is that these contracts carry long lives (50 years or so) and that AWR can improve pricing. Although this business is not the key driver of earnings and cash flow for American States Water, with roughly 20 new bids on top of the nine bases it currently serves, this business offers long-term stability and predictable earnings, as well as cash flow to the company. No wonder AWR is able to be a dividend dynamo like PG.

American Water Works (AWK) shares also have had a solid move year to date, up more than 15%. Now, I like the nature of the company’s business — 90% of its revenues come from regulated water utilities in 16 states. If forecasts for a hot, dry summer come to fruition, it would drive incremental demand for water, and that’s a boon to American Water Works and its shareholders. The steady nature of the business, coupled with rate increases tied to capital spending to update and overhaul its water infrastructure, have allowed American Water Works to increase its quarterly dividend steadily to the current $0.25 per share, up from $0.20 per share in 2008.

Management shared that American Water Works spends between $800 million and $1 billion per year updating its water infrastructure — and it’s not the only company doing so, which confirms my thesis behind recommending shares of Xylem (XYL) in PowerTrend Profits. Even though XYL shares are up 18% before dividends since that recommendation, I continue to like the long-term outlook, given water infrastructure spending.

Royal Dutch Shell (RDS.b) reminded us that it’s evenly split between natural gas and oil. The company also discussed its forecast plans to generate $175-$200 billion in cash flow from operations between 2012 and 2015. The basis for that plan calls for Brent crude prices between $80-$100 and natural gas prices higher than in 2012. With the shares up just over 1% and the dividend yield at 5%, I would interpret that situation to mean Wall Street sees those plans as a little aggressive, even though Royal Dutch Shell has a decent track record of increasing its dividend over the long term.

BBVA (BBVA) was one company represented on the panel that I never heard of before, and it really caught my attention. It is a global financial services company that focuses on commercial and retail banking and has been growing its footprint not only in the United States but also in markets like Turkey, China and others that are benefitting from what I call the Rise of the New Middle Class. With a 5.6% dividend yield and BBVA shares lagging the stock market big time, this is one stock where I need to roll up my sleeves and do my homework before I come to a conclusion.

Kimco Realty Corp. (KIM) management discussed the nature of its more than 900 shopping centers that span 44 states, as well as Canada, Mexico and Latin America. The two big questions asked during the discussion centered on the company’s dividend, which is back on the rise, and the tenant composition.

Interestingly enough, Kimco’s exposure to Internet-sensitive areas — books, consumer electronics, office supplies and other — accounts for just 8% of the company’s portfolio. In other words, Kimco only has modest exposure to Best Buy (BBY), Barnes & Noble (BKS), Office Depot (ODP) and Staples (SPLS). Instead, some of its key customers include Home Depot (HD), Bed Bath & Beyond (BBBY), T.J. Max (TJX), Wal-Mart (WMT) and Target (TGT). From an investor perspective, KIM shares have had a strong run — up nearly 28% year to date — and on a technical basis, they have entered overbought territory.

You can hear more like this each week — for free. If you are interested in hearing investing data points like these each week, subscribe for free to PowerTalk, a weekly program in which I bring you my one-on-one conversations with key people in business and those areas that affect business. Better yet, if you’d like to profit from these data points, as do subscribers to my investing newsletter PowerTrend Profits and my trading service ETF PowerTrader, simply click on the name of each publication to learn more.

To read my e-letter from last week, please click here. I also invite you to comment about my column in the space provided below.

Sincerely,

Chris Versace
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Editor, PowerTrend Profits
Host, PowerTalk

– Jeremy Grantham, U.K. value investor and money manager

Has gold seen its better days?

The yellow metal is off 25% from its highs ($1,900 in late 2011), and investor sentiment is negative. The bubble appears to have burst in gold, just as it did in real estate. Gold is priced in dollars, and the dollar is rallying. Is it time to sell?

Actually, I recommended selling the gold and silver exchange-traded funds (EFTs) back in late 2011, a good call. I felt that gold had risen too far, too fast, and it was time to move into traditional stock and bond markets.

But does gold have any intrinsic value, or is it just a “barbarous relic” of the past? Warren Buffett expressed the following negative view of gold a few years ago, “I have no views as to where it will be, but the one thing I can tell you is it won’t do anything between now and then except look at you. Whereas, you know, Coca-Cola will be making money, and I think Wells Fargo will be making a lot of money.”

Buffett added that it is much better to have a goose that “keeps laying eggs” than one that sits, eats insurance, storage and other things. The idea of digging something out of the ground in South Africa or someplace else and then transporting it to the United States and storing it in the Federal Reserve of New York “does not strike me as a terrific asset,” Buffett explained.

Several years ago, I met Buffett in New York and showed him a Mexican 50-peso gold coin. “My dad owned a bunch of them,” he said, referring to the conservative Republican Congressman Howard Buffett. “I don’t invest in gold, I invest in businesses.”

I see gold as an insurance policy, a hedge against chaos, runaway inflation and bad government policies. Most of your portfolio should be in profitable businesses, as Grantham and Buffett suggest. But gold has several features worth noting. First, investors tend to squirrel it away in a safe deposit box, and thus it serves as a good long-term asset to fall back on in times of need. I’ve asked many audiences “how many of you have bought gold?” and maybe half the attendees raise their hands. Then I ask “how many of you have sold your gold?” and almost every hand goes down. Thus, gold is a great forced savings plan. It’s troublesome to sell it.

Second, gold and silver interestingly have proven to be superior inflation hedges since we went off of the gold standard in 1971. The precious metals are worth 2 to 3 times more in purchasing power since then.

Let me end with this quote I use whenever someone says that gold has no intrinsic value: “Every piece of gold jewelry or coin ever made still has value. Can you say the same thing about stocks or bonds?”

You Blew It! Why Can’t Academics Pick Winning Stocks?

“Nothing in the toolbox of economists makes us good stock pickers.”

– N. Gregory Mankiw, “What Stocks to Buy? Hey, Mom, Don’t Ask Me,” New York Times, May 19, 2013

In Sunday’s New York Times, Harvard professor Greg Mankiw wrote an op-ed about his 85-year-old mother who asks him from time to time, “O.K., Mr. Smarty-Pants, what stock should I buy now?” Being an academic, he admits he doesn’t have a clue, and ultimately, he copped out by urging her to buy the Vanguard Total World Stock Index Fund (VT) — an exchange-traded fund that has returned only 15% since 2008 (plus dividends). Talk about dismal. Professor Mankiw wouldn’t last as an investment newsletter writer if he only recommended broad-based funds like VT.

Professor Mankiw is a friend (he endorsed my book “The Making of Modern Economics” as “anything but dismal”), so I told him he could have done a lot better by doing a little research, or subscribing to my newsletter. We have a host of stocks since 2008 that have doubled and tripled in value. Even the conservative Aberdeen Asia Pacific Income Fund (FAX) has more than doubled in value since 2008, when you include dividends.

Basically, Professor Mankiw and most academics don’t understand the value of entrepreneurs in the financial marketplace and their ability to beat the market. Only a relatively small number of such elite investors exist, of course, like Warren Buffett, Peter Lynch and John Templeton. But they are around.

Nobody gets excited about investing in a broad-based index fund like VT. Stories about individual companies rule. I recommend both no load funds/ETFs and individual stocks. I guarantee you, individual stocks are where the action is. People love stock stories. Investors get excited about stocks that have the potential of doubling in a year or two years. They are difficult to find, but they are there, and I’ve had quite a few successful “ten baggers,” as Peter Lynch calls them.

There’s an old saying on Wall Street, “Go big or go home.” I quote it in my latest book, “The Maxims of Wall Street.” Warren Buffett loves it. You can order a copy by clicking here.

To read my e-letter from last week, please click here. I also invite you to comment about my column in the space provided below.

In liberty, AEIOU,

Mark Skousen
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SPECIAL NOTE: At this year’s FreedomFest, July 10-13, Caesars Palace in Las Vegas, we are going to have a debate, “Which is the Best Asset Class: Stocks, Bonds, Gold/Commodities, or Real Estate?” with experts making their case for each. Don’t miss it. Go to www.freedomfest.com, or call Tami Holland at 1-866/266-5101.

Jobless Claims Data Shows Improving Labor Market (Reuters)

The labor market continues to prove its resiliency as the number of Americans filing claims for unemployment benefits fell more than expected last week. More specifically, last week’s claims data on nonfarm payrolls for May dropped 15,000 between the April and May survey periods, which suggests steady gains in employment for this month.”The recently lower initial claims readings have continued to suggest improvement on the layoff side of the labor market equation and should prove marginally positive for the May nonfarm payroll report,” said Gennadiy Goldberg, U.S. strategist at TD Securities in New York.

Overdue Student Loans Reach Record as Graduates Seek Jobs (Bloomberg)

Overdue student loans have been catching up to college graduates, which have hit an all-time high, according to a government report released today. The U.S. Education Department also notes that eleven percent of student loans were seriously delinquent in the third quarter of 2012, and almost 30 percent of 20 to 24-year-olds aren’t employed or in school. Borrowers have been indicating that the burden is affecting their choice of jobs and their ability to buy homes and get married. “Today’s economy puts young graduates in a difficult position,” Jack Buckley, commissioner of the National Center for Education Statistics, which published the report, said in a statement. “A college diploma no longer guarantees a direct pathway to the middle class, making it harder to justify the expense of a degree.”

Stocks Drop on Chinese Data, Stimulus Speculation (Bloomberg)

Stocks fell today, giving benchmark indices their first back-to-back drops in a month, as a contraction in Chinese manufacturing offset American housing data and investors weighed the Federal Reserve’s stimulus comments. “The market is struggling with conflicting language from Fed officials as to the timing of potential tapering of asset purchases, slowing growth in China and after Japan’s decline in equities,” Ryan Larson, the Chicago-based head of U.S. equity trading at RBC Global Asset Management (U.S.) Inc., said in an interview.

The Japanese stock market’s single-largest, one-day loss since the 2011 tsunami featured a 7.3 percent plunge yesterday that was blamed on lower-than-expected Chinese manufacturing figures for April, the Federal Reserve’s lack of a clear message on continuing quantitative easing and spiking Japanese bond prices. Elsewhere in the Far East, markets generally pulled back. The only exceptions were Sri Lanka’s index and the S&P Asia 50 CME, which both showed gains for the day.

Europe and U.S. Indexes Dip after Japanese Nosedive (Bloomberg)

Following on the heels of Japan’s 7.3 percent market loss earlier today, European markets and U.S. market index futures also lost ground. At the time of this writing, England’s FTSE 100 was down more than 1.8 percent, while Germany’s DAX and France’s CAC 40 had slipped more than 2.4 percent and 2.1 percent, respectively.  In the United States, DJIA, S&P 500 and Nasdaq all traded down this morning but were trimming their losses late this morning. How the rest of the day plays out remains to be seen.

JPMorgan Voters Keep CEO Dimon (NewYorkTimes)

In a somewhat unexpected, one-sided vote, JP Morgan Chase shareholders overwhelmingly backed Jamie Dimon as both CEO and chairman of the world’s largest bank. Roughly 70 percent of those voting backed Mr. Dimon’s continued role, despite one of the most expensive trading gaffs in market history (the so-called Whale Trade) occurring on his watch. With this vote behind them, Mr. Dimon and associates now can set their sights on rebuilding JPMorgan’s damaged relationship with the regulating community. As part of that effort, Morgan is set to hire 1,000 new employees by year’s end to bulk up the staff of its compliance department. With this situation settled for the moment, Morgan investors can get back to counting profits.

Strong demand and limited supply have been boosting home sales to hit a pace that is nearly three times as fast as normal. Maryland real estate agent Jane Fairweather said homes in her market are selling at an average of 23 days because inventories are down and demand is strong. But don’t expect any volatility within the housing market from interest rates. “I don’t think it’s a boom we have to worry about because this is all about low interest rates and low inventory,” noted Fairweather. “This is not about easy money.

Dollar Rallies to Highs on Bernanke’s Comments (Reuters)

The dollar rallied to a 4-1/2- year high against the yen and a near three-year high against a basket of currencies yesterday after Federal Reserve Chairman Ben Bernanke stoked speculation that the central bank could begin slowing its asset buying in the coming months. “The U.S. dollar has been on a tear since the beginning of the month and should extend its gains now that Bernanke green-lighted the rally,” said Kathy Lien, managing director of FX Strategy for BK Asset Management in New York.

Stocks Fall on Concern Fed will Scale Back Stimulus (Bloomberg)

Stocks fell by the end of trading yesterday, with benchmark numbers regressing from their previous highs, as concern grew that the Federal Reserve might begin to taper off its stimulus efforts if the labor market continues to improve. The future of how the stock market will act in the coming months rests upon how the Fed reacts to the oncoming data. “The key takeaway on whether the Fed does more or does less all depends on the data,” said John Canally, investment strategist at Boston-based LPL Financial Corp., which has $373 billion in advisory and brokerage assets. “Stocks have been up so much year to date. Largely, people are looking for an excuse to sell.”

In last three months, Fannie Mae’s share price has gone up more than 400%. According to James Fenker, a long-time investor, “This year, Fannie and Freddie Mac are likely to post combined net income of over $100 billion — more than both Exxon (XOM) and Apple (AAPL).” And shares of the twin government cash cows? Well, should both government-owned agencies return to pre-2008 highs, preferred shares would probably rise another five-fold and junior-preferred, eight-fold. It is not a bad payday, if you can get it. Unfortunately, you can’t. All profits derived by the company are paid directly into the Fed. In light of the government bailing out both troubled lending entities, it seems fitting that taxpayers get a little of the money back, even if it goes to directly to debt-ridden Uncle Sam.

What Sequester Pain? Government Execs up for Millions in Bonuses (Business Journal)

Unless the law is changed quickly (not a specialty of the government), members of the Senior Executive Service (SES) will remain eligible to receive millions of dollars in bonuses during the federal government’s sequester when many of their lower-ranking colleagues face furloughs. While the Office of Management and Budget (OMB) ordered a freeze on most bonuses for federal workers during sequestration, current law provides an exemption for members of the SES, who are among the most highly-paid government employees. Legislation by Sens. Tom Coburn (R-Ok.), Claire McCaskill (D-Mo.) and Ron Johnson (R-Wisc.) would close the exemption loophole to ensure both non-SES federal employees and SES employees are treated equally and do not receive bonuses during sequestration. From 2008-2011, this group of senior government executives received more around $340 million in bonuses, on top of salaries ranging from $119,000-$179,000. The three senators expressed outrage at the practice and are trying to gather support among other lawmakers to enact a change swiftly. Taxpayers likely would agree with the trio, so let’s watch if other lawmakers become backers.

Samsung and LG Dump Millions into Faulty Tech (Bloomberg)

Investors in either Samsung or LG have to be wringing their hands at the expensive gaff their companies have made, chasing the wrong technology. These two Korean tech giants have been pursuing organic light-emitting diode television screens. Unfortunately, neither can get them to market for under $10,000 per set.  Conversely, that news is music to companies like Sony, Sharp and Skyworth Digital Holdings, which are producing televisions with the same quality resolution for less than half the price by using conventional liquid crystal displays (LCDs). Both Samsung and LG now are scrambling to boost their own LCD-equipped TV resolution — while their investors wait to see whether they feel any financial fallout.

Mortgage giant Fannie Mae reported a record net income of just more than $58 billion for the first quarter, causing its share price to surge over 500 percent during the last three months. But do not expect Congress to take Fannie Mae out of government conservatorship and recapitalize it anytime soon. “This is a Congress that needs and wants a lot of money. Why would they ever give up this revenue stream, especially if it’s going to speculative bets on Wall Street?” asked Ed Mills of FBR Capital Markets.

Dollar Dips vs. Euro on Fed Official’s Remarks (Reuters)

The dollar fell against the euro today, as St. Louis Federal Reserve President James Bullard said the Fed should continue quantitative easing, which would affect the pace of bond buying. This policy raises concern among investors about the valuation of the dollar. “The fact that he supports continued easing is seen as a negative for the dollar because Bullard is one of the more hawkish members of the Fed’s voting committee,” said Eric Viloria, senior currency strategist at Forex.com.

Stocks Rise as Official Says Stimulus Should Continue (Bloomberg)

Stocks rose today and sent benchmark indexes to new highs, after Federal Reserve Bank of St. Louis President James Bullard said the central bank should continue buying bonds to boost anemic economic growth. Investors apparently see no reason for stock growth to cease anytime soon. “We have a long stretch now with no significant decline and I think that’s going to continue until there is some significant concern about the Fed stopping,” said Jason Thomas, chief investment officer of Los Angeles-based Aspiriant.