Tuesday, June 14, 2011

[Video] ECRI’s Achuthan: Prolonged U.S. Slowdown Underway

While there are many pundits and economists out there making calls, what I've observed from the Economic Cycle Research Institute over the past half dozen years or so has been quite impressive.  Whatever quantitative tools they are using, they seem to be creating a very nice mosaic in terms of forecasting the future.  While many (hands up) thought we'd be heading relatively quickly into a double dip last year (totally underestimated the power of the federal government and Fed to flood the system with liquidity), the ECRI remained bullish on the economy - almost in arrogant fashion.  However, they seem to be changing their tune now as this 10 minute video shows.

Courtesy of WSJ, email readers will need to come to site to view

  • The U.S. economy is “not yet” headed for a double-dip recession, but a sharp and prolonged downturn is underway and may make jobs growth even tougher to come by, an influential analyst said Monday.
  • In an interview with The Wall Street Journal, Lakshman Achuthan, the co-founder of the Economic Cycle Research Institute, said that over the last few months key indicators of long-term economic growth have all begun pointing in one direction: downward.
  • We’re talking about a cyclical turn that’s pronounced pervasive and persistent, not a one or two month affair,” Achuthan said. He added that the slowdown is likely to last a couple of quarters at least — even as he stopped short of calling it a formal recession, which is defined by two quarters of economic contraction.
  • “This isn’t a story about one country driving [growth] down: China didn’t do this, and the U.S. didn’t’ do this,” he said. “It’s very big…and not something you can deny.”
  • “The broad economy is going to slow alongside the industrial sector starting in the middle of this year, so in that sense it may feel like last year,” Achuthan said, adding that closely watched gauges of economic growth will all begin slowing at the same time. “It’s all going to be synchronized.”
  • Achuthan told The Journal that even before Japan’s wrenching nuclear disaster and turmoil in the Middle East created tumult in the global economy, ECRI’s longer-term leading indicators had already begun to soften. Some of those factors may have led to a more pronounced pullback in global growth, he added, which may bode for a temporary rebound.
  • ECRI sees jobs growth as “slower” in the months to come, Achuthan says.  “You’re not going to see the quarter of a million jobs [created] on average anytime soon,” the economist said, referring to the figure of employment growth that many analysts cite as a benchmark for sufficient growth in employment. “We’re going to get back into that 100 plus or minus range through the summer.”

DANG Again!

Haha, what a roller coaster on this name.  Anyone who bought last Friday is still underwater.  But if you jumped in late yesterday, congrats on your 20%+ gain.

No position but a daytrader's dream

Watching S&P 1295 Again

Obviously this market was wickedly oversold, with 6 weeks in a row down and the previous week being especially painful on the long side.  Those who follow such things say the market has only been down 7 weeks in a row, three times in 40 years.  So it's certainly not something one would place odds on.

I'm looking at 2 levels to the upside, S&P 1295 and S&P 1303.  The former was the April low that we busted through - and served as resistance last Thursday.  The latter is obviously the 100 day moving average.  We didn't quite bounce exactly off the 200 day moving average yesterday but darn close.

Since those sort of support levels (i.e. 200 day) are so strong one would be apt to take their short chips off the table on a day like yesterday or Friday, and then put them back on after a bounce.  Or alternatively a close below the 200 day moving average.

Sniffing around individual equities, it appears there is a lot of dead cat bouncing as the hardest hit names (the 'momo' boys) are enjoying the biggest bounces.

For the near term the bulls should have the ball - we'll see what they can do with it.

Lots of Global Economic News this Morning

A flood of news this morning, highlighted by inflation figures in China and the U.S., along with retail sales domestically.

A few months ago, investors were wringing their hands over Chinese inflation*.  Overnight, China reported an even higher inflation figure yet investors applauded it.  Only in markets.  In theory this means China needs to continue to tighten, which would be a tax on growth, but the market doesn't seem to care today.  China's central bank immediately hiked bank reserve ratios after the news.  Industrial production was a slight beat.

*while I will report what the Chinese say inflation is, the reality of the number being accurate is low as it appears very understated compared to "reported GDP".

Via AP:

  • China's inflation rose to its highest level in nearly three years in May, thanks largely to stubbornly high food prices, adding to economic and social strains that have fanned recent protests.
  • The 5.5 percent rise in the consumer price index reported Tuesday was in line with expectations but higher than April's 5.3 percent and March's 32-month high of 5.4 percent. The National Statistics Bureau said the main factor was an 11.7 percent jump in food prices.
  • The spate of street demonstrations and bombings, from Inner Mongolia in the north all the way to Guangdong in the south, has highlighted the precarious balance the communist leadership is striving to maintain while keeping the world's second largest economy growing at a stable pace.  Surging prices for food and other basic necessities have added to the frustrations over inequality, abuse of power and suppression of legitimate grievances that drove recent turbulence.
  • On Tuesday, the central bank lifted the ratio of funds banks must set aside as reserves by a half point in its sixth such attempt this year to contain inflation. The latest increase, to a record 21.5 percent of deposits, will take effect June 20.
  • China's industrial output rose 13.3 percent in May, the statistics bureau reported, while investments in construction, factory equipment and other "fixed assets" rose 25.8 percent in January-May over a year earlier. Investment in property jumped a whopping 34.6 percent.

Inflation held firm at the high level of 4.5%.

Via BBC:
  • UK Consumer Prices Index inflation held steady at 4.5% in May, new data shows. It means the CPI rate has now overshot the Bank of England's 2% target for 34 of the past 40 months. 
  • The Retail Prices Index (RPI) measure of inflation - which includes mortgage interest payments - was also unchanged at 5.2%,  Fuel and food prices continued to be the main contributors, with both components up 1.3% from April.  
  • It follows a rise to 4.5% in April - the highest inflation rate since October 2008 - from 4% in March.  
  • Core inflation fell back to 3.3% from the record high of 3.7% set in April.

Inflation higher than expected

  • Indian inflation rose faster than expected in May, raising expectations of a further interest rate rise.  The wholesale price index rose by an annual rate of 9.06%, up from the April figure of 8.66%.  The rise was driven partly by an increase in the price of manufactured goods, with the rate of food and fuel inflation both falling. 
  • Analysts had expected a smaller rise in inflation as some global fuel and commodity costs fell in May. "The big surprise is mainly because of the sharp increase in manufacturing prices," said Nomura economist Sonal Varma.

Retail sales fell for the first time in 11 months, while producer prices came in lower than expected.  Obviously simply to keep up with the pace of inflation, retail sales should be up on a net basis, so the data is worse than it looks. That said it appears "better than expected".

Via Reuters:

  • Retail sales fell in May for the first time in 11 months, dragged down by a sharp drop in receipts from auto dealerships. Total retail sales slipped 0.2 percent, the Commerce Department said on Tuesday, after a downwardly revised 0.3 percent increase in April.  Economists polled by Reuters had forecast retail sales falling 0.4 percent from April's previously reported 0.5 percent rise.
  • Retail sales last month were depressed by a 2.9 percent drop in sales of motor vehicles, the largest decline since February 2010, as a shortage of parts following the earthquake in Japan left inventories lean and prompted manufacturers to raise prices.
  • Excluding autos, retail sales rose 0.3 percent last month, the smallest gain since July.
  • Economists pin much of the recent weakness on high gasoline prices and supply chain disruptions from the earthquake and tsunami in Japan and say a new recession is not in the offing.
  • Receipts at gasoline stations rose 0.3 percent after increasing 1.4 percent the prior month. Excluding gasoline, retail sales fell 0.3 percent after gaining 0.1 percent in April.
  • The report painted a generally weak picture of consumer spending, with sales at food and beverage stores falling 0.5 percent, while receipts at sporting goods, hobby, book and music stores dropped 0.4 percent. Sales of electronics and appliances fell 1.3 percent, the largest decline since March 2010.

PPI growth slowed, but year over year levels are now at 2008 levels.

Via Reuters:

  • The Labor Department said producer prices climbed 0.2 percent, double what analyst forecasts in a Reuters poll but down from April's 0.8 percent increase. Compared to a year earlier, prices surged 7.3 percent, the largest rise since September 2008.

Monday, June 13, 2011

Bespoke: Relative Performance the Past 6 Weeks

Bespoke Investment blog has an interesting ETF comparison of what has been (relatively) hot and not the past 6 weeks of the selloff.  I like to especially look at the lower left of this chart at the 10 major industry ETFs to see where the money is flowing.   As we mentioned in mid May the same sectors withstanding the selloff then [May 17, 2011: Two Recent Bull Markets - Consumer Non Discretionary and Healthcare], remain strong (relatively) now... obviously the defensive oriented ones.

[click to enlarge]

Americans' Equity in Homes at Lowest Point Since World War 2

No surprise from this AP story, considering the legions of Americans who utilized cash out refinancing during the 'good times', and the army of those underwater in the current era.  What is staggering is the magnitude drop in the past decade - 61% to 38%.  I've outlined the long term national concern in posts as long back as 2008.  Whereas many seniors today have their home paid off and hence can live on a lower income as their main monthly expense is paid for (sans property taxes and maintenance), many of the baby boomer generation will be saddled with a housing or rental expense in their golden years.  This is just going to put another squeeze on consumer spending and cause hardship for many who lived "for today".

  • Falling real estate prices are eating away at home equity. The percentage of their homes that Americans own is near its lowest point since World War II, the Federal Reserve said Thursday. The average homeowner now has 38 percent equity, down from 61 percent a decade ago.
  • Home equity is important for the economy because it has a lot to do with how wealthy people feel. If they feel swamped by a mortgage loan, they're less likely to spend freely on other things. Home equity also serves as collateral for some loans.
  • There are 74.5 million homeowners in the United States. An estimated 60 percent have a mortgage. Of the people who have mortgages, 23 percent are "under water," meaning they owe more on the mortgage than their home is worth, according to the private real estate research firm CoreLogic. An additional 5 percent are nearing that point.  (by 2013, one could expect 33% or more will be underwater - of course that number will be mitigated by those foreclosed on or who 'walk away'.)
  • The Federal Reserve report found that Americans' overall net worth grew 1.65 percent in the January-to-March period, to $58.06 trillion, mostly because of stock market gains. Most of those gains have been erased since March, though.
Now for what appears to be good news, but as we have outlined in previous posts is simply a reflection of defaults.  [Jun 15, 2010: WSJ - Default, not Thrift Pares U.S. Debt]
  • The report found household debt declined at an annual rate of 2 percent from the previous quarter, mostly because of a decline in mortgage debt, which has fallen for 12 straight quarters. (sounds good, people are shaping up!)  But the decline is deceiving. Mortgage debt is coming down because so many Americans are defaulting on payments and losing their homes to foreclosure, not just because people are paying off loans. (oops, had to look under the hood)  "A lot of this debt reduction is not voluntary," said Dana Saporta, director of U.S. economics at Credit Suisse.
  • The Fed report suggests the average household owes about $119,000 on mortgages, credit cards, auto loans and other debt.  Debt now equals 119 percent of the money Americans have left over after taxes. In late 2007, when the country was binging on debt, it was 135 percent. In the healthier 1990s, it was roughly 90 percent.
  • Auto loans, student loans and other consumer credit rose 2.4 percent during the quarter, a second straight gain. Analysts say more people, many of them unemployed, are borrowing money to attend school.

Dang! As in E-Commerce China Dangdang (DANG)

As I wrote in mid May after E-Commerce Dangdang's (DANG) first earnings report, people were paying up for growth not profits.  Now that "risk is off", it appears people are not willing to pay for even the revenue growth.  The stock is down 14% alone today and in 7 trading sessions, over 40%.

This is an example of catching a falling knife - one would have thought coming into the day, a stock down nearly 30% in six sessions would be ready for an oversold bounce.  One would have lost a finger or two.  As I said with RENN last week, some of these names are falling so dramatically they are actually going to be interesting from the long side.  But finding the right entry point is not easy.

We'll mark this down as another 'success' for Wall Street - an overbloated, overpriced stock that institutions were able to flip to retail, and leave the scene of the crime.  The stock IPO'd $16, opened at $24 and no one is above water at this point. Morgan did not even bother to put out coverage at the normal post IPO timeframe at the turn of the year - shows you what they thought.   Peggy Yu Yu might not be a billionaire anymore after this past week.  [Dec 8, 2010: Meet China's Newest Billionaire - E-commerce China Dangdang's CEO Peggy Yu Yu]

In a word.  Dang!

[Jan 18, 2011:  Morgan Stanley Does *NOT* Initiate Coverage on E-Commerce China Dangdang]

No position

Barron's Midyear Roundtable with 10 Investment Pros

Usually I don't pay much attention to a lot of these end of year or mid year investment predictions because much of the information is very cookie cutter, but Barron's midyear roundup has some interesting folks speaking who don't parrot the normal investment house speak.  Felix Zulauf is especially interesting. 

Barron's is offering the article for free so jump on over following this link if interested.

Roster of participants: Felix Zulauf, Scott Black, Bill Gross (were you expecting anything less?), Fred Hickey, Meryl Witmer, Oscar Schafer, Archie Macallaster, Marc Faber (doom! gloom! boom!), Mario Gabelli (always happy), Abby Joseph Cohen (still living off one call from 20+ years ago).

The Reformed Broker: Stockpicking is Hard

Josh Brown, over at The Reformed Broker blog, has an excellent post out this morning on the difficulties of "the game" in reference to struggles of some high profile mutual fund managers.   The original Bloomberg piece is here, and focuses on 3 managers - Bill Miller, Bruce Berkowitz, and Ken Heebner.  Miller once had a steak of 15 calendar years where he beat the S&P 500, but has struggled the past half decade.  Heebner had far and away the best 3-5 year records in the entire mutual fund universe up through 2008 (and still has some of the best results over 10 years).  And more recently Berkowitz has been the star, only fading in 2011 year to date, which is a very short time frame to judge anyone.  Ironically the latter two both had cover stories in Fortune Magazine that literally marked the top of their performance within a month or two!  [May 28, 2008: Ken Heebner - America's Hottest Investor] [Dec 10, 2010: Bruce Berkowtiz of Fairholme Funds - the Megamind of Miami]  Not unconnected the assets in these funds swelled at an incredibly fast pace as the crowd chased performance.  To show how fickle investors are nowadays - one bad half year and huge sums of money are being liquidated out of Fairholme.
  • Investors pulled $2.3 billion from Fairholme Fund (FAIRX) in April and May, according to Denver-based Lipper. The fund attracted deposits of $11 billion in the four years ended Dec. 31. 
Miller was also being paraded on a lot of magazines back in the day.


Here is what Josh had to say about the piece:

  • Every market cycle creates a new crop of stockpicking heroes.  And often as not, the next cycle puts those heroes to the test.  And just as often, that test finds our pop-star stockpickers wanting.
  • The tragedy in all this is that humans get emotional about aligning themselves with winners, with managers who appear to know what they're doing or have some kind of sixth sense about stocks.  As a result, the assets under management flow in just as the stockpicker is coming off a peak run.  But intuition and catching on to a good story is not a repeatable process and every generation ends up finding this out the hard way.
Bloomberg reminds us of this lesson in a story about three of our generation's most lauded stockpickers and their performance of late:
Bruce Berkowitz, Kenneth Heebner and Bill Miller, three of the best-known U.S. stock pickers, are competing for last place this year after their bets on an economic expansion backfired.   Funds run by Berkowitz of Fairholme Capital Management LLC, Heebner of Capital Growth Management LP and Miller of Legg Mason Inc. (LM) are the three worst performers among large diversified U.S. mutual funds in 2011, according to data from Chicago-based Morningstar Inc. The funds lost 11 percent to 12 percent through June 9, compared with a gain of 3.4 percent for the Standard & Poor’s 500 Index.
“People assume because certain managers have had good streaks that they are always going to be a step ahead of the market,” Russel Kinnel, director of mutual fund research at Morningstar, said in a telephone interview. “It never works out that way.”

A few things to keep in mind...
    1.  The three managers mentioned here are brilliant and will go into the stockpicking hall of fame regardless of a tough start to 2011.
    2.  Brilliance, unfortunately, does not equal success.  If only it were so simple to just turn your affairs over to the smartest guys you could find...
    3.  Not every manager's skills translate into performance in every market atmosphere The holy grail is to try to figure out which manager or strategy makes the most sense given the mood and action in the tape or the economy.  Easier said than done.
    4.  Famous fund managers are not brands of cereal or classic rock bands.  They do not always taste the same or put on consistent live shows.  Stockpickers, even legendary ones, are working under conditions that they themselves cannot dictate.  They are not doing their thing in a vacuum.  There are too many variables outside of their control for us to regard them as being automatic like a Swiss watch.

Stockpicking is hard.  Even for the best stockpickers who've ever played the game.


I think item 3 is especially important.   While I've ceased trading in 2011 to concentrate on fund launch, I can tell from the market action I'd be struggling a lot more this year than the previous few years since the movement is much less linear and choppy, and some of my favorite names had run up so much by February 2011 there were few options that were interesting on the long side.   Also so much of the moves this year have come in the overnight session it is hard to keep up on the upside with the type of cash I'd be carrying.  Only in the past few weeks would I have seen myself outperforming due to caution.  But no one operates in a vacuum and different market conditions fit different strategies....

It should also be noted that all of these managers run concentrated funds.  Hence its much easier to OUTperform or UNDERperform, versus the majority of equity mutual funds which are investing in 150-250 stocks and mostly are index funds in drag.

Sunday, June 12, 2011

[Video] Jim Rogers - An Even Worse Financial Crisis is Coming

I have not posted much Jim Rogers the past year, since he is basically repeating the same line items in various forms.  That said, it's been quite a while since the last Rogers post - so here is his latest from CNBC Wednesday.

8 minute video

  • The U.S. is approaching a financial crisis worse than 2008, Jim Rogers, chief executive, Rogers Holdings, warned CNBC Wednesday.  "The debts that are in this country are skyrocketing," he said. "In the last three years the government has spent staggering amounts of money and the Federal Reserve is taking on staggering amounts of debt.  "When the problems arise  next time…what are they going to do? They can’t quadruple the debt again. They cannot print that much more money. It’s gonna be worse the next time around."  (well that is exactly what they are going to do, because that is all they know how to do)
  • The well-known investor believes the government won't shut down in August if agreement isn't reached on raising the debt ceiling, but he did say "draconian cuts" are needed in taxes and spending, especially military spending.  "We’ve got troops in 150 countries around the world. They’re not doing us any good, they’re making enemies. They’re costing us a fortune," he said.
  • Rogers said he is "not long anything in the U.S." and short on American tech stocks. He owns Chinese stocks as well as commodities and would love the world price of silver and gold to come down so he could "pick up the phone and buy more."  He said he owns Chinese stocks, currencies and commodities, adding the Chinese yuan will be a safer currency than the dollar.
  • "The U.S. is the largest debtor nation in the history of the world," he said. "The debts are going through the roof. Would you keep lending money to somebody who's spending money and not doing anything about it? No you wouldn't."
  • The pound sterling lost 90% of its value when it was no longer the world's reserve currency, he said, and the dollar will, too. In keeping with his philosophy he said he owns the U.S. dollar and is waiting for a rally. "If it doesn't happen I'll have to sell and take my losses."
  • He called Federal Reserve Chairman Ben Bernanke a "disaster" who has "never been right about anything" since he's been in Washington. "I hope he doesn't come back with QE3 but that's all he knows. The only thing he knows is to print money."
  • He predicted that after the Fed ends its quantitative easing program, known as QE2, this month, it may come back under another name.  "They're gonna bring it back because [Bernanke will] be terrified and Washington will be terrified," he said. "There's an election coming in November 2012. Washington's gonna print more money."

Nouriel Roubini Getting ... Well, "Roubini-ish" about 2013

I've been speaking of late of how there are increasing risks to the out years - especially as a debt binge of 2009-2010 hits China [Jun 2, 2011: China Now Beginning to Feel Hangover from Lending Boom] combined with a cyclical downturn in the U.S. economy - which never was that strong to begin with and simply is running full of steroids.  As for all the kicking of the cans seemingly going on in every corner of the developed world, one really knows when those slam flat into a wall.  But other than central banks simply monetizing a new wall of debt, the U.S. going from 10% structural deficits to 20%, and China pulling off another 2009 debt binge - I am not sure what the policy response is going to be during the next global downturn, which should not be that far off.

We have reports that Dr. Doom, Nouriel Roubini is painting a quite dire picture in a similar time frame - 2013.

(Oh yes, Roubini also thinks there is a chance for QE3 by end of year - ding ding)
  • In an interview with CNBC on Saturday, the head of Roubini Global Economics said the probability of QE3 will become “significantly higher” if U.S. economic weakness persists and the stock markets correct 10 percent or more.

Via Bloomberg:

  • A “perfect storm” of fiscal woe in the U.S., a slowdown in China, European debt restructuring and stagnation in Japan may converge on the global economy, New York University professor Nouriel Roubini said.
  • There’s a one-in-three chance the factors will combine to stint growth from 2013, Roubini, who predicted the global financial crisis, said in a June 11 interview in Singapore. Other possible outcomes are “anemic but okay” global growth or an “optimistic” scenario in which the expansion improves.
  • “There are already elements of fragility,” he said. “Everybody’s kicking the can down the road of too much public and private debt. The can is becoming heavier and heavier, and bigger on debt, and all these problems may come to a head by 2013 at the latest.”
  • World expansion may slow in the second half of 2011 as “the deleveraging process continues,” fiscal stimulus is withdrawn and confidence ebbs, Roubini also said.  
  • In Europe, officials need to restructure the debt of Greece, Ireland and Portugal, and waiting too long may result in a “more disorderly” process, Roubini also said.  The risk in Japan is “if growth fizzles out after a short-term reconstruction stimulus,” leading to a renewed struggle to maintain expansion around 2013, Roubini said.  
  • China's economy may face a “hard landing” after 2013 as government efforts to boost growth through investment cause excess capacity, Roubini told reporters. “China is now relying increasingly not just on net exports but on fixed investment” which has climbed to about 50 percent of gross domestic product, he said. “Down the line, you are going to have two problems: a massive non-performing loan problem in the banking system and a massive amount of overcapacity is going to lead to a hard landing.”(bingo)
  • A record $2.7 trillion of loans were extended in China over two years, pushing property prices to all-time highs even as authorities set price ceilings, demanded higher deposits and limited second-home purchases.  The nation’s current challenge is to maintain growth and curb price gains ahead of a leadership change next year, Roubini said. Officials may use administrative steps and price controls, as well as raising rates further and allowing currency appreciation, if inflation becomes a bigger problem, he said.
  • After next year, the bigger challenge in China is “to reduce fixed investment and savings and increase consumption. Otherwise after 2013, there will be a hard landing,” he said.
  • Roubini in July 2006 predicted a “catastrophic” global financial meltdown that central bankers would be unable to prevent.

[Aug 20, 2008: Roubini - "Told You So"]
[Mar 13, 2008: Scary Stat of the Day: Roubini Calling for $1 Trillion - $3 Trillion in Losses]

New Triple A Rating System for Mutual Funds Rolling Out of Morningstar

Morningstar is definitely the de facto go to standard for mutual fund investors; for two decades their star system has dominated the psyche.  They appear to be making a quite dramatic change with a new evaluation system which appears to be a bit more qualitative rather than purely quantitative.  Let the jockeying begin.

Via AP:

  • Investors familiar with Morningstar's 5-star system for rating mutual funds will soon see ratings based on an "AAA" scale as well. It's an addition to give investors a sense of a fund's prospects, rather than just its past performance.
  • The company on Thursday announced plans to assign "Analyst Ratings" to supplement star ratings beginning this fall. It's an acknowledgment that star ratings aren't a good tool to predict a fund's future results, a frequent criticism from fund managers as well as financial advisers.
  • Star ratings are based on quantitative measures of a fund's past performance. Those include investment returns measured against the performance of similar funds, and the level of risk the fund took to achieve those returns. The analyst ratings will assess qualitative factors, such as judgments by Morningstar analysts of the strengths of a fund's managers and parent company, and whether they have a well-designed system to select investments.
  • "The star ratings are an achievement test," Phillips said. "We view these new ratings as more of an aptitude test."
  • Morningstar has assigned star ratings for more than two decades, and advertisements frequently tout those mutual funds with 4- and 5-star ratings. Such high ratings can entice investors to choose a fund that has enjoyed recently strong performance, compared with one that's been subpar. But a run of strong results can often be fleeting. All too often, the stock or bond picks that produced standout performance eventually drag on returns when the market shifts and those investments fall out of favor. That can lead to disappointing returns for those who invested in the fund too late, and turn a 5-star fund into a 4-star fund, or lower.
  • On the flip side, historically strong-performing funds backed by solid managers can end up losing a star or two after a bad stretch of performance. But such funds often come back, rewarding investors who stuck with them."We want to give people some conviction to stay with the quality fund," Phillips said.
  • Like the star ratings, the new system will use a five-level scale. Top-rung "AAA" funds are those Morningstar believes are in best position to deliver strong returns. "AA" and "A" funds are seen as less likely to do well, but are still considered to have positive ratings. "Neutral" ratings will be assigned to funds that aren't likely to deliver standout returns, either for the better or worse. A "negative" rating signifies a fund that Morningstar considers inferior.
  • The ratings will be based on five factors: quality of the fund manager; quality of the investment process; quality of the fund's parent company; evaluation of long-term returns; and evaluation of the expenses the fund charges.  Investors researching a fund on Morningstar's web site will see the fund's analyst rating above its star rating.
  • Morningstar plans to assign analyst ratings to as many as 200 funds beginning in October, starting with funds that draw the most investor interest and assets. Over the next year, Morningstar hopes to rate more than 1,500 funds, holding more than 80 percent of fund industry assets.
  • The analyst ratings will be assigned to funds that are new and old. That differs from the star ratings, which Morningstar assigns only to funds with performance records of at least three years.

Friday, June 10, 2011

Lululemon (LULU) - No Recession in Yoga

Lululemon (LULU) is one name I've watched from afar the past few years, and never taken a part of - mostly due to valuations.  Very similar to Chipotle (CMG).  In retrospect a bad decision - highly valued stocks can remain so for quarters if not years.   Something I am trying to incorporate more in my framework the past 6 months.

Based on today's results, there appears to be no recession in the yoga set.  Obviously investors the past few weeks thought otherwise as the stock sold off sharply. Always a bull market somewhere.

The gross margin levels and expansion for a retailer, is very impressive.

Via AP:

  • Net income rose to $33.4 million, or 46 cents per share, for the three months ended May 1 from $19.6 million, or 27 cents per share, a year ago. Excluding a one-time adjustment related to recognizing input tax credits, earnings came to 44 cents per share. That was far higher than the 38 cents per share analysts expected, according to FactSet.
  • Revenue rose 35 percent to $186.8 million from $138.3 million a year ago. Analysts expected $180.1 million.
  • Revenue in stores open at least one year rose 16 percent.
  • The company raised its guidance for the year. It now expects net income of $2.10 to $2.16 per share on revenue of $915 million to $930 million.  That's up from prior guidance of net income of $1.90 to $2 per share on revenue of $885 million to $900 million. Analysts expect earnings of $2.04 per share on revenue of $915.2 million.
  • During the recession, many company increased mark downs to clear out excess inventory. But Lululemon, which carved out a niche for itself by selling "yoga-inspired" workout gear, is facing the opposite problem: it is scrambling to increase inventory to keep up with demand.  Its inventory at the first quarter was up about 27 percent year-over-year.
  • "This is consistent with management's prior commentary that they would be in inventory `chase' mode for the first half of the year due to its successful Christmas selling season," said RBC Capital Markets analyst Howard Tubin.
  • For the second quarter, it expects net income of 42 cents to 44 cents per share on revenue of $200 million to $205 million. Analysts expect net income of 39 cents per share on revenue of $196.5 million.

Via Barron's

  • The stock had been down 12% in the two weeks before earnings.
  • ...gross margins grew to 58.7% from 53.8% in the previous year.
  •  “Another beat and raise — not the magnitude the Street is accustomed to but solid considering light inventories limited upside,” wrote Weeden & Co. analyst Amy Noblin, who rates the shares at Hold. “The growth opportunities here are unique but we think largely reflected in the valuation with the stock trading at 35 times [next fiscal year's estimated earnings]. We would look for a better entry point and would have hoped for more on the recent pullback in the group.”

Short CNBC video on the report below - 2minutes

No position

[Video] Minyanville's Todd Harrison: "This is the Best Chance for Bears"

Todd Harrison, founder of Minyanville.com, and a very astute commentator on the 'big picture items' in the U.S. economy and markets as a whole, speaks on his near term views of the market with Yahoo's Aaron Task.

5 minute video

New Lows, 6 Weeks of Losses

S&p 1295 continued to serve as excellent resistance yesterday after being the bottom in April.  If one were playing fast and nimble, a position in TZA or a few SPY puts would have paid of handsomely yesterday afternoon, in less than 24 hours.

The S&P 500 has now fallen to new lows of this selloff, and that 200 day moving average at 1262 seems like the obvious target.  At minimum there should be an oversold bounce, but frankly valuation is not that bad down at those levels even in a slowing economy.   If that level breaks with conviction we have a different conversation to deal with.

Believe it or not, some of the news outlets say the "market" (not sure if that means "the Dow") has not been down 6 weeks in a row since 2002.  Considering the carnage in second half 2008 through February 2009 that seems hard to believe.

May Chinese Exports to U.S. and EU Fall to Lowest Levels Since November 2009, Bolstering Case for Global Slowdown

Blame Japan, blame the weather, or blame higher oil prices but it appears the bond market nailed it again (yields peaking in April) - the past few months have seen a significant slowdown in economic activity.  As the world's largest exporter, [Jan 6, 2010: China Passes Germany as the World's Largest Merchandise Exporter] China's monthly data is watched closely as a gauge of demand; May's data for the EU and U.S. were the weakest since November 2009.  On the positive side, Chinese imports were strong, potentially signaling their economy is not weakening as quickly as feared of late.  But much of that import strength came via coal and oil, as the country deals with energy shortages.

Via Reuters:

  • China posted a smaller-than-expected trade surplus in May of $13.1 billion because of soaring imports and weaker global demand growth, giving mixed signals about how the economy fared when some of its best export customers faltered.
  • China's sales to the United States and the European Union slumped to their weakest since late 2009, excluding Lunar New Year holidays, underlining the view that the world economy is stumbling.
  • Still, as an engine of growth, import figures suggested China's economy is expanding at a healthy, if not stellar, pace. Crude imports stayed at elevated levels and coal volumes rose by more than a fifth from both April and a year earlier.  "The overall strength in imports suggests that China's domestic demand has not slowed as much as the market may have feared," said Wang Tao, an economist with UBS in Beijing.
  • With inflation running above its comfort zone, Beijing has taken steps to cool the economy. Economists are monitoring the economy to see whether those inflation-fighting efforts can thread the needle -- cool overheating areas such as property without smothering overall demand.
  • Exports to the United States rose by a modest 7.2 percent from a year ago, well off the 25 percent growth pace in April. For the European Union, exports rose 13.2 percent, less than half the rate recorded in April.
  • Chinese factory activity expanded in May at the slowest pace in at least nine months, two purchasing managers' indexes showed earlier this month.
  • May coal arrivals rose 20.7 percent from the month before, evidence of China's huge power demand. Power shortages have constrained growth, and utilities stepped up coal orders to prepare for summer demand.

David Tepper Tells CNBC QE3 Will Come Only if Stock Market Falls Substantially

It is quite pathetic that along with their supposed dual mandates of price stability and employment, the new era Federal Reserve believes manipulating the stock market upward is their new responsibility.  Rah rah free markets.   Appaloosa's David Tepper, now infamous for his QE2 rally call, [Sep 24, 2010: [Video] Appaloosa David Tepper - Ben Bernanke Will Make Everything Go Up in the Can't Lose Environment] says QE3 will come if the market falls far enough.   There are so many things wrong with this sort of actions and bowing to Wall Street, it begs about 10 posts, so I won't bother.

Of course being a smart guy, he can see as I have pointed out, the QE's are punishing Main Street at the expense of Wall Street.


The head of Appaloosa Management and source of the "Tepper Rally" that generated a huge run in the market last September said in an email to CNBC that stocks would have to fall considerably more before the Fed would start another round of quantitative easing, or QE.

"If (the S&P 500 falls) a couple hundred points and financial conditions tightened maybe they would reconsider," Tepper wrote. "But there is no logic to QE3 now and the only result might be more food and energy inflation."

Tepper made his influential call in a September CNBC appearance in which he said stocks were in a win-win situation: Either the economy would improve and drive a rally, or the economy would drop and the Fed would undertake another round of easing.

Two months later, the central bank announced the second round of its large asset purchases—known as QE2 in market jargon—that helped spark a 27 percent surge in the S&P which finally started to sputter in early May.

The market has been rife with speculation since a 6 percent drop in stocks on whether the Fed, faced with persistently high unemployment and a double-dip in housing prices, would step in with more easing.

But Tepper told CNBC that the fall in stocks since the May 2 post-financial crisis high was "not enough of a drop" to bring the central bank in off the sidelines. QE2 is set to expire at the end of June with the last of $600 billion in Treasurys purchases.

He also said that further easing might only spur more energy and food inflation, meaning the Fed has to "let it ride" for now.  As such, he expects tough sledding for stocks ahead.  "We (are) in a difficult investment environment," he wrote. "Short and Sweet."

Thursday, June 9, 2011

[Video] CNBC - PIMCO's Bill Gross Talks Everything

Will be out of pocket for most of day...

See Bill Gross wide ranging interview with Kudlow last evening.

Wednesday, June 8, 2011

Chinese Internets Getting Crushed

It looks in retrospect that RenRen (RENN) was the top of the "chinese internet/ social media" bubble, at least this time around.  [May 2, 2011: RenRen IPO Appetite Seen as Huge, but Red Flags Abound] [Apr 19, 2011: RenRen Set to IPO May 4th] That broken IPO has been a disaster, as we warned.  (IPO Priced at $14, first day mark at $24!) At this pace it may actually go low enough where I'd be interested!

With lots of scandals - frauds (purported or real) in Chinese stocks of late the discount on any Chinese stock has grown.  But today is an especially frightful day as in a relatively quiet day in markets, the Chinese stocks - many IPOs of the past 6-7 months - are being taken to the cleaners.

RENN - 13%
YOKU -10%
SINA -9%
QIHU -8.5%
HMIN -8%  (not an internet stock)

amongst others...

I mentioned about 2 months ago I was no longer backing Sina (SINA) at that valuation and price, after banging the drum in late 2010.  It also may soon be approaching a level that makes it interesting once more.  But obviously on a technical level it is broken badly.

Much like the silver trade - once the momo lemmings leave a trade, you just have to get out of dodge! When a sub sector is in a fervor there is no valuation people will pay.  But when the momentum reverses, old school metrics sort of matter again.

No positions

[Video] CNBC: Meredith Whitney Updates Her Views on Muni Debt - Same Song but Timing Difficult

There has been a lot of criticism about the alarmist type of talk that came from Meredith Whitney in a 60 Minutes interview on the topic of muni defaults back in December 2010.  [Dec 19, 2010: 60 Minutes - States the Day of Reckoning]  Most of the criticism has been leveled at the amount Meredith assumes will eventually be defaulted on, and the timetable.  She seems to have backed off on the timetable in recent remarks but still seems to be sticking to her guns on the amount.  While it seems doubtful any U.S. state will be allowed to go into default (read: white horses from D.C. will arrive), the issue is more at the local level.

Whitney was guest host on CNBC this AM and we have two videos on this topic and her broader views as well

Video 1 - 21 minutes

Video 2 - 6 minutes

Bernanke on White Horse a No Show - Markets Sell Off

As I wrote yesterday, I expected nothing new from Mr. Bernanke and nothing new is what he delivered.  I am unclear why market participants expected said Chairman to ride in on a white horse, other than they have become Pavlov dogs, conditioned for the Fed Put (first with Greenspan, next with Bernanke) to be delivered at any sign of weakness.  Even more 'dumb' is we see what QE2 has brought (a transitory manipulation upward in prices in assets, and a penalty to the real economy) yet these people want QE3.  While I do believe they will get it eventually, it's not going to be anytime soon. [May 19, 2011: Prepare for a Fed Rate Hike... in 2018?  So Says Goldman Sachs]

The Fed's economic modeling continues to be overly optimistic, as has Wall Street's.  As I predicted when the 2% 2011 payroll tax holiday was announced at end of 2010, the first whispers of extending it for another year have now surfaced.   Essentially, we're Japanified.
  • In a speech Tuesday, Bernanke acknowledged that U.S. economic growth remained "frustratingly slow" but said nothing to suggest the Fed was about to take any bold new action to shore it up.  "Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established," Bernanke said.

Yesterday the S&P 500 sold off sharply in the closing 40 minutes, dropping 10 points as it became clear there was no immediate new monetary stimulus coming.  This morning futures are being pressured again, and despite an oversold condition prone to oversold bounces, things remain in downtrend.  It remains a time to be cautious and small, and increasingly likely our downside target appears to be the 200 day moving average of 1262.  That would essentially wipe out the entire year's gains. An efficient use of $600B eh?  Of course if you are an American, coupled with dollar losses (in no small part due to QE2), you will be sharply in the red for 2011 in real terms at that level in the market.

Tuesday, June 7, 2011

TA is Actually Working Again

Most of us who use technical over an intermediate term have been thrown for a loop for much of the past few years as a lot of old rules seemingly have become irrelevant.  (insert grassy knoll here)  However the past few weeks, things have been a lot like last spring and early summer (ex May 6th!) which was the only time a lot of the old rules seemed to work, and trading was a 'pleasure'.  I am not sure exactly why we've reverted back but it's making me feel suddenly smarter.

This morning I wrote:

S&P 1295 was the pivot point yesterday and whatever knee jerk reaction upward should be stymied there, short of something out of the blue. 

Thus far all day, 1295 has been the stymie point.  In fact, we are sitting there as I type.  Nice to see something normal for a few hours at least. This is the old "support becomes resistance" idea, that used to work like a charm pre 2009.  The past few years its been "resistance is futile".

S&P 1306 is a lot more important for the intermediate term - it is the 100 day moving average, and unless my eyes are deceiving me it is begging to take on a downward slope.  The 50 day is firmly in downward slope way up at 1323.

Still would be staying small and cautious until we get substantially higher... or lower.  This is part of the cursory oversold bounce I mentioned yesterday, until proven otherwise.  We're quite oversold still.

Fusion-io (FIO) Ups Pricing from $16 to $18 per Share, from $13 to $15 - Great Analysis by Tech Insidr

I mentioned Fusion-io (FIO) last week as a potential hot IPO.  [Jun 2, 2011:  The Hot IPO of Next Week? Data Storage Company Fusion-io] Looks like institutional demand is still running hot despite a market that is deteriorating, as the offering price was upped significantly.
  • The technology IPO rush continues this week as Fusion-IO, the developer of flash- memory technology for companies, increased the price of its IPO to $16 to $18 per share. The company had previously priced its shares at $13 to $15 per share, which valued the company at as much as $1.17 billion. The increase announced today puts Fusion-io’s total value at $1.4 billion.

Sometimes you can snag an IPO at a much better price if it prices on a particularly poor day in the general market, so we shall see what Thursday brings.  Now again the next quarter reported might be choppy as the Facebook account (about half of last quarter's sales) is supposed to drop significantly but I don't think that will matter for the first weeks it trades.

Tech Insidr blog did a great background story on the company, so if interested see here.

Fusion-io has plenty of star power too:  Apple and Facebook are major customers, cult figure and Apple co-founder Steve Wozniak is their Chief Scientist, and they are bankrolled by legendary tech investors Michael Dell and Marc Andreessen.

Although the story has captivated investors, Fusion-io didn’t get to where they are at by being popular or being associated with prestigious companies in the technology world.  Behind the glitz and glamor is a nuts-and-bolts technology story.

No position

U.S. Funding for Future Promises Lag by Trillions

Sometimes the numbers are so large that you cannot wrap your head about them, but this USA Today piece does a good job by breaking down the data on a "per household" basis.   While the federal deficit increased by a monstrous $1.5 Trillion, that only tells a part of the story.  Future entitlement liabilities skyrocketed even further.   It makes all this haggling of $4T in cuts over a decade (or $400B a year) seem like a joke.

Via USA Today:

  • The federal government's financial condition deteriorated rapidly last year, far beyond the $1.5 trillion in new debt taken on to finance the budget deficit, a USA TODAY analysis shows.    
  • The government added $5.3 trillion in new financial obligations in 2010, largely for retirement programs such as Medicare and Social Security. That brings to a record $61.6 trillion the total of financial promises not paid for.
  • Medicare alone took on $1.8 trillion in new liabilities, more than the record deficit prompting heated debate between Congress and the White House over lifting the debt ceiling.  Social Security added $1.4 trillion in obligations, partly reflecting longer life expectancies. Federal and military retirement programs added more to the financial hole, too.
  • Corporations would be required to count these new liabilities when they are taken on — and report a big loss to shareholders. Unlike businesses, however, Congress postpones recording spending commitments until it writes a check
  • The $61.6 trillion in unfunded obligations amounts to $534,000 per household
  • That's more than five times what Americans have borrowed for everything else — mortgages, car loans and other debt. It reflects the challenge as the number of retirees soars over the next 20 years and seniors try to collect on those spending promises.
  • The government has promised pension and health benefits worth more than $700,000 per retired civil servant. The pension fund's key asset: federal IOUs
  • "The (federal) debt only tells us what the government owes to the public. It doesn't take into account what's owed to seniors, veterans and retired employees," says accountant Sheila Weinberg, founder of the Institute for Truth in Accounting, a Chicago-based group that advocates better financial reporting. "Without accurate accounting, we can't make good decisions."

[Video] Stephen Roach Revisits U.S. & China, Plus the Debt Connection

One of the more sober market strategists, Morgan Stanley's Stephen Roach opines on the U.S. slowdown and the situation in China in these 2 videos from CNBC this morning.  Actually that's the same subject matter he touched on last time around =)

Email readers will need to come to site to view

U.S. & China situation, mostly U.S. - 9 minutes

China, and the Debt Connection to the U.S - 5 minutes

[Jan 14, 2011: [Video] CNBC - Stephen Roach Talks U.S. & China]
[May 31, 2009: Stephen Roach on Asia - No Sail]

Pavlovl Dogs Run Futures Up in Anticipation of Magic from The Bernank

For some reason Bloomberg economic calender has Bernanke's speech at 3:45 PM yesterday, but instead it will be today.  As well trained speculators, the Pavlov Dogs of Wall Street are running up futures imagining more pixie dust from the Fed.  There is no way he is going to announce any QE3 action now, but certainly he could appear more dovish did than in his last comments.
  • The Fed's current $600 billion monetary stimulus is due to expire this month and the prevailing view in the markets until recently was that the central bank would drop the program and possibly start raising interest rates by the end of this year.
  • However, the recent soft batch of economic data has led some in the markets to speculate that the Fed may consider more monetary stimulus and keep interest rates at the record low of near zero percent well into next year.  Bernanke's speech later at the International Monetary Conference in Atlanta, Georgia could have a huge impact on markets.

Technically the market closed awful yesterday, out almost on the lows of the day.  S&P 1295 was the pivot point yesterday and whatever knee jerk reaction upward should be stymied there, short of something out of the blue.

Monday, June 6, 2011

Turned into an Exciting Day After All

Looked like we were going to sit in the 1292 to 1297 range all day, but near 2 PM the damn finally broke.  Some nice cliff diving since 2:30 PM.  Barring a Bernank stick save post 3:45 PM, looks like April lows will be broken on a closing basis today.  Another win for the bears. 

118 Stocks Withstanding the Correction

On days like today where its a virtual snoozer, it's a good time to do some research & screening.

With the market correction over 5 weeks long, and plenty of high beta names down 10-20-30% (the S&P 500 down 5.5% in that space) it's always interesting to look at relative strength.  Which names are either making new 52 week highs or showing small losses in a time of market turbulence.   If the names are in non-defensive sectors you can often glean a company that institutional buyers want to hold onto - and a potential market leader during the next bounce.

Below I've listed 118 names that have a market cap of $300M+, stock price of $10+, and average daily volume of 100K+.  They are either at new 52 week highs, or 0-3% below their 52 week high. I've sorted it by industry rather than market cap, to see if there are patterns in terms of sub-sector strength.  On first glance, outside of the normal defensive stalwarts, I notice quite a few are foreign ADRs.  And REITs of all varieties are showing impressive strength.  (Before you ask about Netflix, it is down more than 3% as I type - hence not on the list)

Ticker Company  Market Cap  Industry
UAN CVR Partners, LP Common Units r              1,484 Agricultural Chemicals
SWI SolarWinds, Inc.              1,742 Application Software
SMP Standard Motor Products Inc.                  322 Auto Parts
FMX Fomento Econ          112,267 Beverages - Brewers
HANS Hansen Natural Corporation              6,433 Beverages - Soft Drinks
KOF Coca-Cola FEMSA S.A.B de C.V.            15,904 Beverages - Soft Drinks
PEP Pepsico, Inc.          109,017 Beverages - Soft Drinks
DEO Diageo plc            52,924 Beverages - Wineries & Distillers
GNOM Complete Genomics, Inc.                  553 Biotechnology
CEPH Cephalon Inc.              6,073 Biotechnology
SGEN Seattle Genetics Inc.              2,155 Biotechnology
TLCR Talecris Biotherapeutics Holdings Corp.              3,629 Biotechnology
LSTZA Liberty Starz Group            59,469 Broadcasting - TV
MCO Moody's Corp.              8,982 Business Services
SVVS SAVVIS, Inc.              2,259 Business Services
SQM Chemical & Mining Co. of Chile Inc.            16,187 Chemicals - Major Diversified
MO Altria Group Inc.            57,778 Cigarettes
BTI British American Tobacco plc            89,854 Cigarettes
ECL Ecolab Inc.            12,551 Cleaning Products
NTGR Netgear Inc.              1,542 Communication Equipment
TLVT Telvent Git S.A.              1,164 Computer Based Systems
NOC Northrop Grumman Corporation            18,588 Conglomerates
RURL Rural/Metro Corp.                  436 Consumer Services
SLM SLM Corporation              8,597 Credit Services
ECPG Encore Capital Group, Inc.                  782 Credit Services
NDN 99              1,425 Discount, Variety Stores
DPL DPL Inc.              3,525 Diversified Utilities
EXC Exelon Corp.            27,462 Diversified Utilities
CNP CenterPoint Energy, Inc.              8,121 Diversified Utilities
AZN AstraZeneca PLC            70,576 Drug Manufacturers - Major
NVS Novartis AG          145,664 Drug Manufacturers - Major
JNJ Johnson & Johnson          181,162 Drug Manufacturers - Major
FRX Forest Laboratories Inc.            10,559 Drug Manufacturers - Other
WPI Watson Pharmaceuticals Inc.              8,024 Drugs - Generic
GXP Great Plains Energy Incorporated              2,799 Electric Utilities
D Dominion Resources, Inc.            27,149 Electric Utilities
BIP Brookfield Infrastructure Partners L.P.              3,809 Electric Utilities
AT Atlantic Power Corporation              5,250 Electric Utilities
CIG Cia Energetica de Minas Gerais            13,641 Electric Utilities
CEG Constellation Energy Group, Inc.              7,341 Electric Utilities
PPL PPL Corporation            16,027 Electric Utilities
ST Sensata Technologies Holding NV              6,191 Electronic Equipment
BUCY Bucyrus International Inc.              7,471 Farm & Construction Machinery
UL Unilever plc            96,557 Food - Major Diversified
SBS Companhia de Saneamento Basico              7,135 Foreign Utilities
OKE ONEOK Inc.              7,466 Gas Utilities
NJR New Jersey Resources Corp.              1,853 Gas Utilities
XG Extorre Gold Mines Ltd. Ordinar              1,025 Gold
NPO EnPro Industries, Inc.                  927 Industrial Equipment & Components
ICO International Coal Group, Inc.              2,975 Industrial Metals & Minerals
SRX SRA International Inc.              1,784 Information Technology Services
MMC Marsh & McLennan Companies, Inc.            16,602 Insurance Brokers
WSH Willis Group Holdings Public Limited               7,261 Insurance Brokers
LQDT Liquidity Services, Inc.                  598 Internet Software & Services
GIB CGI Group, Inc.              6,227 Internet Software & Services
SAVE Spirit Airlines, Inc.                  859 Major Airlines
OFIX Orthofix International NV                  731 Medical Appliances & Equipment
AMMD American Medical Systems Holdings               2,312 Medical Appliances & Equipment
DGX Quest Diagnostics Inc.              9,164 Medical Laboratories & Research
CMO Capstead Mortgage Corp.              1,016 Mortgage Investment
CGV Compagnie G              5,644 Oil & Gas Equipment & Services
SODA SodaStream International Ltd.              1,122 Packaging & Containers
UN Unilever NV            97,212 Processed & Packaged Goods
PEET Peet's Coffee & Tea Inc.                  645 Processed & Packaged Goods
PLCM Polycom, Inc.              5,295 Processing Systems & Products
PRA ProAssurance Corporation              2,093 Property & Casualty Insurance
CB The Chubb Corporation            19,051 Property & Casualty Insurance
WRB W.R. Berkley Corporation              4,627 Property & Casualty Insurance
FCE-A Forest City Enterprises Inc.              3,159 Property Management
LOOP LoopNet, Inc.                  598 Property Management
MIM MI Developments Inc.              1,421 Property Management
ENL Reed Elsevier NV              9,833 Publishing - Periodicals
CYS Cypress Sharpridge Investments, Inc.              1,068 REIT - Diversified
RYN Rayonier Inc.              5,348 REIT - Diversified
RLJ RLJ Lodging Trust Common Shares              1,889 REIT - Hotel/Motel
AHT Ashford Hospitality Trust Inc.                  855 REIT - Hotel/Motel
DLR Digital Realty Trust Inc.              5,881 REIT - Industrial
PDM Piedmont Office Realty Trust Inc.              3,553 REIT - Office
MAA Mid-America Apartment Communities              2,466 REIT - Residential
SNH Senior Housing Properties Trust              3,388 REIT - Residential
ELS Equity LifeStyle Properties, Inc.              1,946 REIT - Residential
EQR Equity Residential            18,099 REIT - Residential
ESS Essex Property Trust Inc.              4,420 REIT - Residential
HTS Hatteras Financial Corp              2,174 REIT - Residential
ACC American Campus Communities Inc.              2,350 REIT - Residential
AGNC American Capital Agency Corp.              3,909 REIT - Residential
AVB Avalonbay Communities Inc.            11,460 REIT - Residential
BRE BRE Properties Inc.              3,230 REIT - Residential
CPT Camden Property Trust              4,489 REIT - Residential
SPG Simon Property Group Inc.            33,834 REIT - Retail
DTG Dollar Thrifty Automotive Group Inc.              2,423 Rental & Leasing Services
MCD McDonald's Corp.            83,567 Restaurants
OCN Ocwen Financial Corp.              1,262 Savings & Loans
LB LaBarge Inc.                  303 Scientific & Technical Instruments
FEIC FEI Co.              1,563 Scientific & Technical Instruments
CPHD Cepheid              1,935 Scientific & Technical Instruments
BEC Beckman Coulter Inc.              5,922 Scientific & Technical Instruments
CHKP Check Point Software Technologies Ltd.            13,501 Security Software & Services
NSM National Semiconductor Corporation              5,966 Semiconductor - Broad Line
TSM Taiwan Semiconductor Manufacturing            70,675 Semiconductor - Integrated Circuits
OSIS OSI Systems, Inc.                  754 Semiconductor Equipment & Materials
VSEA Varian Semiconductor Equipment               4,637 Semiconductor Equipment & Materials
GMLP Golar LNG Partners LP              1,050 Shipping
BAK Braskem S.A.            12,852 Specialty Chemicals
LZ Lubrizol Corporation              8,637 Specialty Chemicals
VSI Vitamin Shoppe, Inc.              1,170 Specialty Retail, Other
SUR CNA Surety Corp.              1,194 Surety & Title Insurance
CDNS Cadence Design Systems Inc.              2,837 Technical & System Software
TYL Tyler Technologies, Inc.                  802 Technical & System Software
CHT Chunghwa Telecom Co. Ltd.            32,155 Telecom Services - Domestic
CNSL Consolidated Communications Holdings Inc.                  560 Telecom Services - Domestic
BCE BCE, Inc.            30,498 Telecom Services - Domestic
MICC Millicom International Cellular SA            12,454 Telecom Services - Foreign
VLCM Volcom Inc.                  598 Textile - Apparel Footwear
TSP Telecomunicacoes de Sao Paulo S.A.             15,223 Wireless Communications
TSU TIM Participacoes S.A.            12,430 Wireless Communications
TU TELUS Corporation            16,815 Wireless Communications
VIV Vivo Participacoes S.A.            18,697 Wireless Communications

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