“Surely you can’t be serious … Don’t call me Shirley.” ~ Frank Drebin
We lost one of the greats this weekend. Yes Ireland was a casualty but Leslie Nielsen passed away at the ago of 84. He stared in some of the great slapstick comedies such as The Naked Gun and Airplane. He may be gone but his delivery will always be remembered.
“This woman has to get to a hospital. A hospital? What is it? It’s a big building with patients, but that’s not important right now.” ~ Dr. Rumack
Alright, enough of the walk down memory lane. There was a significant announcement this weekend in the form of an EU and IMF bailout of Ireland. Yes US taxpayers, we are on the hook for nearly $4 billion as we represent ~17% of the IMF bailout package. Go out and have a Guinness!
Moral hazard is still alive and well as their will be no haircut to senior Irish bank bondholders as they have been given a three year lifeline to recapitalize. Unfortunately this will not be the last bailout. The spreads of bonds in Belgium, Portugal, Italy and Spain have seen yields rise and credit default swap protection rise to record levels. Now on to The Week In Review from FT Advisors. Stay tuned! TJM
- In October, 198 companies raised profit estimates above analysts’ projections, while 130 companies cut them, according to Bloomberg Businessweek. It represented the biggest gap since Bloomberg began tracking the data in 1999. The last time executives were this optimistic stocks rallied 39% over the next 3½ years. From July 2 through November 12, corporations getting at least 50% of their revenue from foreign sources rose about 11 percentage points more than American-focused stocks.
- Moody’s Investors Service reported that commercial property prices in the U.S. rose 4.3% from August to September, the biggest gain in the last 10 years, according Bloomberg. Property values had been on the decline throughout the summer months. Demand is beginning to rise for the best office buildings in major markets such as New York. The dollar volume of September’s transactions doubled from August to $3.7 billion. Office prices in the top 10 metropolitan areas rose 22% (y-o-y) in Q3’10. The Moody’s/REAL Commercial Property Price Index, however, remains 43% below its October 2007 peak.
- The best-performing high yield corporate bond fund manager (Mark Notkin at Fidelity Investments) over the past five years now believes that stocks represent a better value than junk bonds, according to Bloomberg. High yield corporate bonds are up around 80% since the start of 2009. Investors poured $55.1 billion into high yield funds from the start of 2009 through September 2010, while over the same span redeeming $129.9 billion from U.S. equity funds, according to EPFR Global. The S&P 500 is now trading at 13.9 times forward-looking earnings. That is well below the 16.4 average price-to-earnings ratio since 1960, according to Bespoke Investment Group.
- A recent report from Ladenburg Thalmann noted that closed-end funds that invest in master-limited partnerships (MLPs) are undervalued despite posting strong returns, according to Barron’s. Eduardo Seda, analyst, is looking for MLP closed-ends to post average annual total returns of 10-13% over the next five years. He sees yields ranging from 3% to 6.5% over that span. Seda believes MLPs will benefit from new discoveries of oil and natural gas as well as the economic recovery underway in the U.S