Seeking Alpha by Adding Beta

Markets are looking for direction and its good thing. After multiple weeks of ascent, markets finally took a pause and little slide as happened last week is good for health of rally. With Q3 results starting in 2 weeks, markets would trade in range between 9300 to 9800. So this is good time to identify some picks with great risk/reward ratios. With that in mind, let's look at preferred securities once more. Check out my previous blog on this topic which I wrote when DOW was at 7000. Here are some preferred which could offer great upside and quarterly returns in terms of dividend. SFI -D ($7.70), SFI -E ($7.5) and SFI -G ($7). All these are preferred of istar financial ( SFI ). Most probably istar would survive this downturn in which case these preferred should trade near their face value ($25). Even in these times, board has not cancelled dividends on these preferred. The yield on these preferred are about 25% IDG ($17), IGK ($18). These are preferred of dutch financial giant ...

Last couple of weeks both Gold and S&P crossed crucial 1000 mark with Gold at 1020 and S&P over 1060. Normally these two indicators go in opposite directions. People worried about inflation and economic turmoil rush to gold while people more optimistic about future rush invest in S&P. So it is kind of odd that both these are moving in same direction. So which would touch 1200 first and offers better opportunity over next 12 months. In my opinion, investing in gold is like not investing at all. You should buy gold only to make things you (or your other half) want to wear - rings, necklaces and so on. Gold as investment may be good hedge against inflation over short-run but over long-run it does not pay off. It does not pay any dividends and upside potential is very limited. S&P has lot of volatility but since it covers America's biggest 500 companies, offers lot of potential and 1-2% yield over long-run. So If you are looking for which one would touch 1200 first, I w...

Markets are at 11 month high and Lehman demise anniversary (Sept 15) approaching next week - after 6 month streak and 50% gains, markets seem to be running out of air and taking a pause waiting to figure out what lies ahead in 3rd quarter results. So how does one re-energize the portfolio for next few months ? Here are some thoughts. From recent reports, there are signs that major economies of the world are coming out of recession and many countries (except US and UK) have even shown surprise growth even in Q2. US and UK are most likely show a growth in Q3 picking up the pace in Q4. Consumer confidence is going up and reaching 70. Unemployment though very high seems to be stabilizing and not falling off the cliff. With holiday season approaching (Diwali in India, Christmas in western world), people are going to feel more positive than normal. So in summary there are quite a few positive events in front of us. One sector which has direct co-relation with GDP growth is energy sector. Gro...

Tomorrow when America would be celebrating late labor day weekend, there is another anniversary financial world would be watching - Government takeover of Freddie and Fannie which started the events which we can call as "Panic of 2008" Let's review some of the highlights: Vanishing acts by many financials stalwarts like Lehman, Merril , Wachovia and so on Major government stakes in many other stalwarts like Citibank, Bank of America, RBS , Wells Fargo and so on Generational low on S&P of 666 and an opportunity for generational long-term investment - I don't think we will see such a low again for another 5-10 years One of the best 6 month return on S&P since 1938 Return of financials with generational returns on big banks like C (from 1 to 5), BAC (from 3 to 18), GS (from 50 to 170), AXP (from 9 to 30) and so on What lies ahead ? Mar 2009 could be like 1982 which started a secular bull market. It is possible that we could see another bull market started in M...

Markets continued their summer ascend for one more week but it is becoming more frothy in short term. Most of the rally in last one week was due to major short squeeze in few zombie companies like AIG, FRE, FNM. Markets are due for a correction and could anytime take a dip of few hundred points. And that would be a great opportunity to revisit your "wish list of stocks" so keep some cash handy for our shopping list. It is almost given that DOW would close above 10000 by year-end but before that we have to cross months of Sept and Oct. Now let's visit to insurance sector which had been pretty good overall. Insurance companies have been on fire lately (and I am not counting AIG in that list which is pure speculative play and I won't touch it or recommend it). In my previous posts, I have mentioned and recommended XL capital, HIG , LNC , GNW , CNO - almost of of them have given multi-fold returns in last 6 months. Once you understand business model of insurance compa...

The sizzling summer rally continues for another week with all indexes reaching 10 month high. The rally gathered momentum this week due to surprise GDP growth numbers coming from German, Japan and France and even Bernanke mentioning that US economy will grow soon (but slowly). So that puts all stock markets at cross-roads. The recent rally has taken markets to yearly high in anticipation of GDP growth. However at same time, it is priced almost for perfection for Q3 results. Everyone was expecting worst results during Q2 but majority of companies gave positive surprises due to heavy cost-cutting. However consumers are still stretched and unless there is significant job growth, recovery cannot be sustainable. In recent weeks, good news is coming out for home sales, car sales (thanks to cash-for-clunkers program) but news on job front is not so rosy yet. So watch out for market sell-off in Sept. DOW is more likely to touch 9000 before it touches 10000 ! In anticipation of GDP growth and ...

Last few weeks have been pretty calm with many folks enjoying their 50% gains with summer vacations just before the school starts. It is almost exact replica of last year's August. But then dreaded Sept 08 came when the whole financial (and along with that real) world around us turned upside-down starting with Fannie/Freddie takeover and Lehman BK. I am not predicting that coming Sept would be anywhere close to last year's events but it is very likely that volatility is going to increase significantly. Currently VIX index (also called as wall street fear gauge) is hovering around 25 which is very close to its yearly low. I call it as "Calm before the Storm". Most likely it would touch 40s sometime in Sept/Oct. So how do one makes some money from this volatility ? There are few ways: Just stay away from market and cash in the gains you may have made in last 5 months since not losing money is equivalent to making money:-) Sell "out-of-money" covered calls for...

Last week was another up week for markets with all indexes reaching 10 month high. The positive mood was reinforced by better than expected unemployment report with unemployment dipping to 9.4%. Looks like investors are becoming ready for GDP growth and willing to pay next year's prices now. In last 4 weeks, markets have gone up significantly. While this momentum could continue, it is better to take some profits and keep cash in hand because famous "Fall" months of Sept/Oct are nearby and if history is any guide, these months do bring some excellent opportunities if you have dome dry-powder ready. Here are few steps you can take: If you are up by more than 50% or so, take some profits and keep those profits in cash If you do not want to sell your long-term holdings (for tax reasons), sell "out of money" covered call against these stocks. So even if stocks went down, you would keep the premium. If stocks went up, you would get additional 10-20% upside. Keep a lis...

Last week capped the good news which was coming over last few weeks with GDP contraction at 1% which was better than expected. Here are some of the snippets of good news: GDP contraction slowing considerably and coming at 1% Housing showing some life at last with prices in some areas increasing in 3 years Inventories down significantly More than half the companies which have reported beating profit expectations Durable sales increasing Consumer confidence holding steady Car sales increasing (thanks to Cash-for-clunkers) China/India still showing enviable growth Stock markets across the world showing significant increases with S&P having its best 5 month run since 1938 All these factors are indications that we are on our way to slow and gradual recovery. I won't be surprised if economy/GDP shows a growth of about 0 to 0.5% in Q3CY 09 and 1-2% or more in Q4CY09 Last week was pretty good for many of my earlier recommendations especially FIG, ACAS , PCX , CENX , HIG and LNC . I e...

As I predicted about DOW reaching 9000 by summer end  back in Apr, it did cross that milestone right in the middle of summer. So now what to expect ? It's kind of tricky situation - on one side, DOW had its best 2-week run since 2000. But then we know what followed. On other side, it is still 30% plus down from its high of 14000 in Oct 2007. Here are some of the macro-trends I am watching: Emerging stock markets have started getting into bubble territory with many of them up by 70-100%. Is economic recovery justify this or is this China govt fueled bubble ? Natural Gas prices are still 60% below their peaks so industrial demand has not really picked up significantly Companies are beating analyst forecasts by cutting costs and not by increasing revenues - this cannot sustain unless revenues pick up Consumers have started opening their wallets but that may be cyclical effect of rising stock market wealth. If stock market tanks again, consumer demand would vanish once more Summer is e...

What a difference week makes - last week things were pretty gloomy with markets tanking over 7-8% in previous 4 weeks. With unexpected good earnings from GS, INTC , IBM and JPM , things suddenly looks promising again. In one week, S&P is up by 7% and recovered almost all losses over previous 3-4 weeks. If good earnings streak continues next week, it may cross Jun 11 high. Even Government felt compelled to ignore the "bailout" plea from CIT - hope they are not making same mistake Paulson did in Sept 08 when he rejected bailout plea from Lehman. With summer mid-way, I am still hoping that my prediction of Dow hitting 9000 before labor day weekend would come true. However right now I have started looking past labor day weekend when dreaded months of Sept/Oct come - almost all crashes have come in these two months (except one which we saw in Mar 09). So we need to make the portfolios by adding some crash-proof strategies. One way to do is to rotate into stocks which are pa...

It has been exactly 2 years since much hyped Blackstone IPO at $31 which marked the peak of credit bubble. I myself got carried away in the hype and in fact bought into blackstone IPO only to have significant losses - since then I have learned my lessons not to believe in hype. So why am even writing and considering "private equity" companies again ? In last two years since BX IPO , much of the hype has been gone along with bubble time excesses. There are almost no private equity deals in last 12 months (as against at least one deal getting announced every Monday morning in 2006-2007). In a way this is good for PE industry so they can focus on their portfolio companies and make some real decisions to help them survive and thrive when economy recovers.  The flood of redemption seen 6 months back have slowed down considerably and in fact there are new funds being raised (albeit smaller in size). Many of the PE companies have significant "dry-powder" (aka cash re...

First of half of 2009 is over and its time to look back and see how "stock of week picks" did.  Assuming that one invests approx $1000 on recommended buy price which was reached at some point after the stock was recommended, portfolio of "stock of week" would have returned 62.5% till now. Not bad considering DOW and S&P are still hovering around negative returns for the year. Winners are: BCS (265%), IDG (219%), XL (184%), BCS -PD (127%), DDR -PG (138%). There are many other stocks which have already crossed their target prices Laggards are: DRYS (-36%), XTEX (-22%) and HIG (-2%) Here is detailed scorecard for each recommendation: Symbol Name Trade Date Price Paid Trade Holdings Value Gain/Loss Notes ACAS American Capital, Ltd. 13-Apr-09 2.30 3.21 $1,284.00   $356.00   38.36% Target:$3.60 BCS BARCLAYS PLC ADR 7-Feb-09 5.00 18.44 $3,688.00   $2,680.00   265.87% Target: $10 BCS-PD BARCLAYS BANK PLC 7-Feb-09 9.00 20.65 $2,065.00   $1,157.00   127.42% Target: $1...