matisse capital management

Artists Outperforming the Dow

Over the last week or so, Christie's and Sotheby's both held auctions and judging by some of the prices paid, you wouldn't know there was a recession.  Several records were set.  An Edvard Munch painting from 1902, entitled "Girls on Bridge," pictured left, sold for $30.8 million.  It had previously sold for $7.7 million in 1996.  This equals a compound annual rate of appreciation of 13.1 percent.  During the same time period, the Dow grew at an average rate of 8.2 percent. 

Buffett's First Quarter Buys and Sells

According to Bloomberg (see full article here), Berkshire Hathaway Inc. has changed its position in several companies over the last quarter.   These changes are as follows:

Added More Shares of:  KFT, WFC, UNH, WLP, IR

Sold Shares of: AMP, IRM

Money Quotes of The Week - May 14

"At this year’s meeting of the Mortgage Bankers Association in Boston last week, attendance was down by half and speakers delivered presentations with titles such as 'How to stay off the implode-o-meter.'"

      -Financial Times Article, "Value to Unlock," 5/11

"If the United States were any other country, these would surely be days of panic and austerity in Washington."

       -New York Times, "The Dollar: Shrinkable but (So Far) Unsinkable," 5/11

“These central banks know that holding these low-yielding Treasury bills is just an aid program to the United States, and they want to get out of that business...”

       -Kenneth S. Rogoff, a former chief economist at International Monetary Fund

"The nice decade is behind us..."

       -Mervyn King, Governor of the Bank of England, on inflation report, 5/14

Around the World - News You Need to Know

The dollar is slipping as a reserve currency.  From 2001-2007, its share of the world’s foreign exchange reserves declined from 73% to 64%. New York Times

More inflation problems in China as CPI hits 8.5%.  Food prices are up 22%: Telegraph

HSBC takes $3.2 billion charge on US subprime.  Bank says 5% of mortgage customers are 2 mos, or more, past due. Guardian

Since 2006, 257 US lending companies have "imploded;" check out the list at the web site Implode-O-Meter

Are banks finally finding buyers for mortgage securities?  Blackrock to buy a slice of subprime debt from UBS at $0.75 on the dollar. Financial Times

Where's the bottom in housing?  According to an excellent article in the Financial Times, "The market has an 11-month backlog of unsold homes to clear, the largest inventory since 1981, and the number of foreclosed properties continues to grow." Also in this story are the following home price statistics: "The index of single-family house prices in 10 cities was down 13.6 per cent year-on-year, the steepest fall since records began in 1987. The broader 20-city index fell 12.7 per cent, the biggest drop since the index was launched in 2001. Worst affected were Las Vegas and Miami, where home values have respectively fallen 22.8 per cent and 21.7 per cent in the past year."  Case-Shiller indices to the left, click to enlarge. 

Canada's Dividend Aristocrats: The Dividend Growers

Standard & Poor’s now compiles a list of Canadian Dividend Aristocrats.  These are companies listed on the Toronto Stock Exchange that have a record of consistently increasing their dividend for each of the last seven years.  According to S&P: “Since 1956, dividends have notably contributed 30% of the total equity return of the S&P/TSX Composite index, while capital gains accounted for the remaining 70%.”  While S&P’s criterion is seven years, most of these companies have increased their payout for over 10 years.  With this in mind, what are the top dividend growers on S&P’s Canadian Aristocrats list over the last decade?

Around the World - News You Need to Know

"Worst three months of the company's 89 year history."  AIG loses $7.8 billion; will sell new stock: New York Times 

ECB holds main rate at 4%.  Trichet: fighting inflation is the first mandate: New York Times

Bank of England holds rate at 5%.  Governor Mervyn King vows to fight inflation:  Telegraph UK

South Korea's central bank leaves rate at 4.5%.  Inflation is stable: International Herald Tribune

London home prices start downward slide.  Demand for office space also down.  Telegraph UK

Strong yen, weak US economy sink Toyota sales.  Company expects 27% drop in net income for 2008: Sydney Morning Herald

The Fed maps US home price changes for 2006-7.  Only tracks Fannie Mae and Freddie Mac loans; is the worst data left out?  Map below, story at: Economist

 

Analysis Brief: Companhia de Bebidas Das Americas (ABV)

Are the shares worth the price? No doubt you recognize many of the beer brands pictured to the left:  Bohemia, Labatt’s, Brahma, Stella Artois.  They are all products of AmBev (ABV), the world’s fifth largest brewer and the leader in Latin America.  In 2004, AmBev joined forces with Interbrew of Belgium, creating InBev, the world’s largest brewer, or brewing "cooperative."  I have considered buying ABV shares for some time and decided to do some research.

Money Quotes of the Week - April 28

“In this market, if an investment bank doesn’t report $20 billion of write-downs, you tend to be quite relieved.”

           -Analyst with Helvea, London, on Credit Suisse write downs.

“Rising energy prices are one of the few factors that can drive a wedge between the performance of the two economies.”

          -Dale Orr, of Global Insight Canada, on Canadian and US economies.

"It is clearly feasible for us to take 10, 15, 20% off our cost base, especially in information technology and operations..."

          -Citigroup's Vikram Pandit on cutting 9,000 jobs.

"They approached me and said I'd get trail [trailing commissions]. We'd just jack up the margin loan for my clients..."

           -Australian broker after failure of firm Opes Prime.

"I've been conducting a 70-year taste test since I was about seven years old on the products."       

           -Warren Buffett on his Wrigley's takeover.

Wrigley's Takeover - by Buffett and Mars

This one was on my watch list.  Wm Wrigley Company has agreed to be taken over by Mars Candies and Warren Buffett. The price tag is reported to be $23 billion or $80 per share. Wrigley's (WWY) was one of the companies on Standard and Poor's list of Dividend Aristocrats.  It was also one of the top Dividend Growers on the Dividend Aristocrats list, having raised its dividend 263% over the last 10 years.  Wrigley's was founded in 1891 and makes the famous chewing gum brands Spearmint, Doublemint, and Juicyfruit, as well as Lifesaver Candies and Altoid Mints, which it acquired from kraft Foods. On Friday, Wrigley shares closed at $62.45, or a P/E ratio of 27; today they are trading at $76.79 or a P/E ratio of 34 times earnings. Wrigley's net income grew 19% in 2007 and the company had $752.5 million in free cash flow.  There is $278.8 million in cash of the balance sheet.

The Top Dividend Growing REITs

Many income investors have looked to REITs (Real Estate Investment Trusts) as a source of dividends.  REITs are pass-through entities and to qualify for this status, they must pay dividends equal to 90% or more of their taxable income.  Because many REITs are now trading far below their 2007 highs, their yields appear very attractive.  For example, National Retail Properties (NNN) currently pays a 6.6% dividend, while Realty Income Corporation (O) is paying 6.1% (the author is long O).

Around the World - News You Need to Know

Court rules UK banks to refund £1 billion to customers; cites excessive fees.  Overdraft charges as high as $70. Telegraph

Durable goods orders fall for third consecutive month.  Last time this happened was the 2000-2001 recession.  New York Times

Potash profits up 186%.  Shares up 150% over past year on increasing fertilizer demand. Globe and Mail

UK mortgage availability is lowest in 30 years.  Builders cut prices, new construction postponed.  Telegraph

Credit Suisse writes down $5.3 billion.  First quarter loss is three times worse than expected.  New York Times

Shanghai market soars 9.0 % in one day.  Government cuts tax on trades and eases regulations to help shares.  New York Times

Petroleo Brasileiro (PBR): Another New Discovery

Petroloeo Brasileiro (PBR), may have made another large discovery.  The head of Brazil’s National Petroleum Agency has referred to “unofficial reports” of another offshore find (see the map, left) that could contain as much as 33 billion barrels of oil.  If true, this would be the world's third largest oil field.  PBR shares jumped 9% on the news and now trade at $121.  But are they worth the price?  Reserve replacement is critical for any oil company; below, PBR's reserves are compared to those of other companies, without the recent discoveries:

Around the World - News You Need to Know

Bank of Canada injects $2 B into the money market.  Tries to improve Canada-specific liquidity problems.  Globe and Mail

Barclay's mortgage backed SIV in receivership.  The investors are "mostly financial institutions." Telegraph

UK supermarket Tesco unveils record profits despite economy.  Sales up 11%, but questions remain about US expansion.  Guardian

Chinese sovereign fund buys £1 B stake in British Petroleum.  Another Chinese fund has bought a stake in Total SA. Guardian

US retailers facing bankruptcy. Banks unwilling to extend credit; impact felt across the economy. New York Times

Wal-Mart plans expansion into Russia and Eastern Europe.  Growth of overseas stores to exceed that of US.  Financial Times

Lukoil VP: Russian oil production has peaked.  The era of production growth is over. Financial Times

London's financial district could lose 40,000 jobs.  Fallout from credit, subprime problems.  Globe and Mail

UK changing the design of its coins. Royal Mint will put new coins in circulation this year (below).  Square Magazine

Some Shares Setting New Highs

Although the Dow and the S&P are struggling to hold their ground lately, there are some companies and sectors that are reaching new highs, like the company above, graphed over the last 10 days.  So what are these companies and sectors?

Earnings Reports This Week - April 14

I suspect this may be a tough week for the market.  Earnings reports will come from three sectors that have not fared well of late: banks, big pharma, and industrials.  There will also be a number of reports that could be considered recession indicators.  The Producer Price Index will be released Tuesday, the CPI and Industrial Production Report are on Wednesday and Jobless Claims on Thursday.  Below are some of the major companies that will report earnings this week:

Monday: Eaton (ETN), Philips (PHG), WW Grainger (GWW), Wachovia (WB)

Tuesday: Intel (INTC), J&J (JNJ), M&T Bank (MTB),Wamu (WM), US Bancorp (USB)

Wednesday: Abbot (ABT), Gilead (GILD), Chase (JPM), Coke (KO), Wells (WFC)

Thursday: BNY (BK), Comerica (CMA), Merrill (MER), Pfizer (PFE), United Tech. (UTX)

Friday: Caterpillar (CAT), Citi (C), Honeywell (HON), Schlumberger (SLB), Xerox (XRX)

European Dividend Aristocrats: The Dividend Growers

If you are an income investor, you want to buy companies that are increasing their dividends.  Given the slowdown in the US economy and the trend toward globalization, you may want to diversify your portfolio with some European dividend payers.  You might be interested to know that S&P publishes a list of Dividend Aristocrats for Europe.  The list consists of "large cap, blue chips" that have increased their dividends every year for the last 10 years.  There are presently 31 companies on this list; however, some have grown their dividends at a much faster rate than others.   Here are the top European dividend growers using S&P's European Aristocrats as a starting point:

Around the World - News You Need to Know

US non-agricultural jobs fell by 80,000 last month.  This was the largest drop since 2003: Guardian

Brazil's job creation up 5% in first two months of this year.  Real growth in industry revenues up 1.5%.  Brazzil Magazine

Number of UK mortgage products has dropped 63% over the last year.  Further reductions are expected next quarter. Guardian

Canada's job report shows gain of 15,000.  Despite gains, future job growth is expected to slow. Globe and Mail

Brazil's Petrobras to spend $2.4 B in Argentina offshore exploration.  (NYSE ticker: PBR)  Will finds be similar to Brazil's offshore Tupi field?  Brazzil Magazine

IMF says Ireland's economy is less vulnerable to the housing downturn.  Irish consumers did not rely on equity to boost their spending.  The Independent