Tag Archives: middle-east

Buy United States Oil – Discovery Of Support Here

United States Oil (NYSE: USO) seemed to discover support Monday after a week’s slide with energy commodity prices. After the disappointment from OPEC on the supply front, more recently we’ve received good news on the demand front. Fresh economic data from China appears to show the start of stabilization and data Monday on the Eurozone showed a pickup in growth. Given my view that supply side concerns are well-priced in and could be overdone if Iran fails to come to fruition as many expect, demand improvement should serve USO long-term. Finally, Russia’s foray in the Middle East and its tensions with Turkey also present a near-term upside catalyst I believe not incorporated in price today. The United States Oil (NYSE: USO ) had an important discovery Monday; it found support. Some are pointing to technical analysis for reasoning, but there are fundamental factors to point to. Energy prices have stabilized for now thanks largely to supportive economic data out of Europe and China. Still, given recent supply stubbornness, energy could require a geopolitical catalyst to really get going to the upside over the near-term. Because I give weight to that possibility, I can recommend immediate purchase for aggressive investors and a buy and hold strategy for all others on a positive change in demand dynamics. 5-Day Chart of USO at Seeking Alpha The United States Oil security suffered a serious setback with energy prices over the past several weeks. Most recently, the OPEC decision to keep production quotas unaltered was deflating to say the least. Energy prices still held that day thanks to the strong jobs report that lifted all ships, but the week that followed (see chart) reset a course for energy more in line with the bad news. However, with the new week Monday brought fresh data to look over. The news was very good from both China and Europe in recent days. From China : retail sales, industrial output and fixed-asset Investment all exceeded economists’ expectations. Industrial Output increased 6.2% in November, year-to-year, far exceeding the economists’ consensus view for 5.7% (by Bloomberg). Fixed-asset investment increased 10.2% through the first 11 months of 2015. Retail Sales soared 11.2%, marking the best rate of growth for all of 2015. It finally appears that China is stabilizing. From Europe, we learned Monday that eurozone industrial production increased by 0.6% in October, month-to-month, in line with expectations. It’s a level consistent with 1.9% growth year-to-year, versus 1.3% previously seen. Growth was broad-based, with capital goods growth at 1.4% and durable consumer goods growth at 1.8%. Most of the eurozone members produced growth, save for Greece. November may still present a challenge if there was a shock to the regional economy due to terrorism and concern about terrorism, but October’s data shows a regional economy that is improving long-term. Given the U.S. economy has been in growth mode, the recovery of Europe and the stabilization of China is welcome news for the demand side of the energy equation. Economic recovery in Europe would also lend to euro stabilization and as a result, dollar stabilization. If the dollar can give back some ground on such a result, then oil prices should find further fuel to stabilize and look toward better days. Obviously, the supply side of the equation remains problematic, and it has been the key factor in energy’s demise. OPEC did not allay any concerns on this front when it effectively took no action to cut production at its December meeting. However, the pickup in demand that the latest data seems to point to would help to allay concerns as U.S. production continues to come offline. Also, I’m not a pure believer in Iran’s long-term return to production, unless it strengthens its security and defense relationship with Russia. Otherwise, I wonder how far it will be allowed to progress with its nuclear program, despite recent agreement with the West. With regard to Russia, I believe it is more likely to be a catalyst for oil price rise than for decline, as it remains active militarily in the Middle East. This is made clear by its recent foray in Syria and its conflict with NATO member Turkey. I expect there is a greater chance of escalation than for calmer heads to prevail in this regard. A significant enough mistake should serve as an immediate boost to energy prices, given Russia’s importance to the market and its relationship with Iran. So, after the latest price revaluation, taking the United States Oil down to important historic lows, I see upside opportunity for buyers. Monday’s gain, however questionable after the last week’s trading, appears to illustrate stabilization. It comes on tangible footing, given the latest economic data from both China and Europe. The wildcard of Russia’s presence in the Middle East and its friction with Turkey present the possibility for swift upside reward, but I see a long-term case for purchase as well. Demand should increase as the economies of Europe and China stabilize and return to health, and that appears to be starting now. Supply remains at issue, but the issue appears well-understood and priced in enough so that any change, for instance with regard to Iran’s production, would also serve upside. Therefore, I favor long stakes in oil and the USO now.

3 Mutual Funds To Defy 4-Week Outflows In The U.S.

Cash draining out from the pocket is always hard to accept. On that note, spare a thought for the U.S. stock and taxable-bond mutual funds that have witnessed outflows for four consecutive weeks. For the week ended Dec 2, U.S. stock and taxable-bond mutual funds saw outflows of $6.6 billion, according to Lipper data. Amid this, the 1-month category return of funds is equally dismal. While the U.S. stock and taxable-bond mutual funds are witnessing continuous outflows, stock ETFs attracted $3.8 billion in the week ended Dec 2. Some may believe that this sector might be in for a Santa Claus rally. However, mutual fund investors need not lose heart. Some low-cost mutual funds, each carrying a favorable Zacks Mutual Fund Rank, have emerged out of the weakness over the past four weeks, and are expected to continue their uptrend. Before we pick these funds, let’s look at the recent fund flows and key events. What’s Taking the Cash Out? The outflows from the U.S. stock and taxable-bond mutual funds started from the week ending Nov 11. For that week itself, taxable bond funds in the U.S. saw outflows of $3.7 billion. This was the worst outflow of taxable bond funds from the week ended Sep 30. U.S. stock funds recorded $1 billion of outflows in the week ended Nov 11, reversing the five-week run of inflows. Since then, the rate hike expectations primarily caused investors to pull money out of these mutual funds. To add to the confusion about the direction of the Fed’s policy, geopolitical concerns and mixed economic data further kept the cash from flowing in. Investors hunted for clues on the Fed’s policy move throughout November. The markets remained hopeful that the U.S. central bank may finally embark on a rate hike in December. Backing this belief were multiple comments from key Fed officials and the FOMC minutes. Last Friday, a strong U.S. jobs report affirmed chances of the Fed raising rates in two weeks. Markets were also exposed to certain geopolitical concerns. Multiple terrorist attacks in Paris, heightened violence in the Middle East, news of the shooting down of a Russian fighter jet near the border of Syria and concerns about China’s economic situation dampened investor sentiment. The 1-Month Performance The broader markets struggled over the past one month. The Dow Jones Industrial Average lost 1.9% over the last 4 weeks, while the Standard & Poor’s 500 (.INX) and Nasdaq Composite Index are down 1.7% and 1%, respectively. Among the 12 S&P industry groups, only three have positive one-month return. While Consumer Staples (NYSEARCA: XLP ) leads with a one-month gain of 2.58%, Real Estate (NYSEARCA: XLRE ) is up 2.57%. Utilities (NYSEARCA: XLU ) scored a 0.8% gain. In comparison, the one-month losses are significantly higher. Energy (NYSEARCA: XLE ) slumped 10.8%, followed by a 2.5% loss in Financial Services (NYSEARCA: XLFS ). Coming to the mutual funds category performances, Equity Precious Metals currently leads the one-month gains and is up 3.1%. All the other sectors in the green have sub 2% gain. Here too, the one-month losses are sufficiently higher. Energy Limited Partnership and Equity Energy categories have lost 19.8% and 9.8%, respectively. Below we present the best and worst performing mutual fund categories over the past one month: 1-Month Fund Category Performance (as of Dec 8) Best Gainers 1-M Total Return Worst Performers 1-M Total Return Equity Precious Metals 3.11 Energy Limited Partnership -19.78 Long Government 1.81 Equity Energy -9.75 Foreign Small/Mid Growth 1.64 Natural Resources -6.96 Bear Market 1.64 Commodities Broad Basket -5.11 Japan Stock 1.56 Latin America Stock -4.56 Source: Morningstar 3 Funds Beating the 4-week Gloom Remember it is always not true that fund inflows or outflows will decide the performance of the funds. In certain cases, there is more arts than science. Fund flows may be just a fraction of a factor to help a fund’s uptrend. Inflows may not translate into gains for mutual funds. Investors do not necessarily have to buy funds that are seeing strong inflows and vice versa. However, amid the declining trend in broader markets, it is often tough for individual funds to outperform. So those managing gains even in a tough environment are worth the appreciation. Below we highlight 3 funds that have thrived, each from the best three performing fund categories, over the trailing 4 weeks. These funds carry either a Zacks Mutual Fund Rank #1 (Strong Buy) or Zacks Mutual Fund Rank #2 (Buy). Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on its likely future success. Equity Precious Metals American Century Quantitative Equity Funds Global Gold Fund A (MUTF: ACGGX ) seeks total return that is consistent with investments in companies related to mining, processing, fabricating or distributing gold or other precious metals across the world. ACGGX has gained 5.8% over the past 4 weeks. ACGGX carries a Zacks Mutual Fund Rank #2. However, ACGGX has lost 21.2% and 22.6% over year to date and the last 1 year, respectively. Annual expense ratio of 0.92% is lower than the category average of 1.43%. Long Government Vanguard Long-Term Treasury Fund Inv (MUTF: VUSTX ) invests a major portion of its assets in long-term bonds whose interest and principal payments are backed by the full faith and credit of the U.S. government. At least 65% of VUSTX’s assets will always be invested in U.S. Treasury securities. VUSTX has gained 2.3% over the past 4 weeks. VUSTX carries a Zacks Mutual Fund Rank #1. However, VUSTX has lost 0.8% year to date and gained just 2.9% over the last 1 year, respectively. Annual expense ratio of 0.20% is lower than the category average of 0.62%. Foreign Small/Mid Growth Oberweis International Opportunities Fund (MUTF: OBIOX ) seeks to maximize capital gains over the long term. Most of its assets are invested in companies located outside the U.S. OBIOX has gained 2.9% over the past 4 weeks. OBIOX carries a Zacks Mutual Fund Rank #1. OBIOX has jumped 14.7% year to date and gained 13.8% over the last 1-year period. The 3- and 5-year annualized returns are respectively 20.1% and 14.7%. Annual expense ratio of 1.60% is higher than the category average of 1.53%. Original Post

BRICs, PITs, And PIGS: Go Ugly

In my research and investing, I stress three things: people, structure and value. I look for companies that are controlled and managed by quality people, have corporate structures that align minority and majority shareholder interests, and trade at valuations that are below fair value if not outright cheap. This blog is somewhat aligned with valuation and yet another example of how investing in beaten down, unpopular and ugly markets can lead to better returns. Usually, valuations are low in markets that are not very attractive. Stocks can look very inexpensive, and prices seem to reflect all the negative news, but who knows when the news can get even worse? And it can take even greater will power to stay invested when nobody around you sees your point of view, friends and peers are calling you crazy, and well-educated, respected and slick I-bank analysts and traders are negative (think negative of your point of view?). It’s a lot easier to invest in markets when (where) there’s a lot of good news and the future looks very bright. The problem is that these markets tend to be expensive and future returns tend not to be as good. To contrast these two points, let’s look at two emerging market acronyms – BRICs and PITs that originated about the same time. BRICs stands for Brazil, Russia, India and China. The acronym is attributed to Jim O’Neill in a paper he wrote for Goldman Sachs in November 2001. In it, he argued that these four countries should be included in high-level government groupings such as the “G7” because their size and growth would make them increasingly influential. The acronym came out not long after the tech crash. Wall Street was ripe for a new story, and over the next few years, the term became more popular. Goldman Sachs and many others launched BRIC funds and ETFs. There are now over 200 of them, according to a very expensive database. The term took on a life of its own and the four appear to like the grouping. Just a few months ago the four countries and South Africa formally launched the BRICS Development Bank ( link here ). About the same time BRICs was coined, traders and analysts who survived the late 1990s Asian financial crisis were referring to the ASEAN countries as PITs. The term stood for Philippines, Indonesia and Thailand: the three of the hardest economies and markets. Unlike BRICs, I don’t think anybody has come forward to claim responsibility for it. Calling your home market a degrading term soon after your clients lost money would not likely make one popular. Investing in the four BRIC countries when the phrase was coined would have been smart. The four countries’ headline indexes are up 302% since late 2001 for a CAGR of some 10.5% (return figures are based on equally weighted headline indexes, in USD, dividends not included). In contrast, and despite the acronym’s negative connotation, one would have done considerably better by investing in the three PITs markets than the four BRICs markets. An equally weighted investment in the three grew by 675% over the same time period, which means the PITs investor would have made more than double the money than the BRICs investor. All three PITs indexes did better than even the best performing BRIC index. Thailand, the worst performing PITs country, rose by 229%, a bit more than the best performing BRICs country, which rose by 611% from November 2001 to November 2015. The outperformance of the PITs countries continued after the expression was coined. In July 2006, Goldman Sachs launched a BRIC fund. From launch to close, the fund’s performance was just under 20% and almost exactly in line the four countries’ equally weighted performance. Over the same time period, the three PITs indexes increased by 157%, meaning that one would have made almost eight times more money by investing in the markets that were unloved rather than the ones that were popular by investment funds and advisors. Are PIGS Today’s PITs? PIGS stands for Portugal, Italy, Greece, and Spain and was supposedly coined by traders. These are of the world’s worst performing economies and equity markets since the 2008 global financial crisis. Like PITs it is not a flattering grouping and member countries have reportedly renounced the term (more information on PIGS is here ). I suspect PIGS could be an up-to-date version of PITs. The origins of both are the same and they describe markets that are having problems and are out of favor. Also, like PITs, the countries in the grouping are geographically close and have a lot in common in terms of economic integration, language, and culture. This is more than can be said of BRICs. Except for their size, I don’t really see much that binds them like PITs and PIGS. Since July 2012, the four PIGS headline indexes are up 9% on average. Not very impressive for two-and-a half-years. However, these could be some of the better performing markets in the next 10 to 15 years if similar to the PITs. Back to BRICs Ironically, now may be a good time to consider investing in BRIC equities. Russia has some of the world’s least expensive large companies and is one of my biggest exposures. Brazil is starting to look interesting with its currency down some 40% in the last two years. There are some exciting and inexpensive companies in China, and at 7x PE, the Hang Seng China Enterprise Index does not seem very expensive. Weren’t US equities trading at the same level in the early 1980s just before that market’s 18-year bull run? There’s also a good contrarian signal. Big banks have a good habit of closing operations and products just when things start turning around. HSBC closed its South East Asian equity research offices in 2001 – just before those markets went on a multi-year bull run. Goldman’s closing of its BRICs fund may be a similar signal. Go Ugly This short piece is meant to show that going against the grain and doing what is uncomfortable and unconventional many times leads to higher returns. The best place to find value is typically in ugly sectors and geographies. Are there other places that appear to be ugly and warrant catchy phrases such as PIGS? How’s “RUKs”, for Russia, Ukraine and Kazakhstan, three ex-Soviet countries whose currencies are down and some of the highest interest rates in the world. Or “PCB”, for Peru, Columbia and Brazil, three of the worst performing equity markets this year for US dollar investors? Or “JOBQE”, for Jordan, Oman, Bahrain, Qatar and Egypt which are amongst the world’s least expensive equity markets likely due to the large amount of uncertainty in the Middle East?