matisse capital management

Dollar Cost Averaging the Recession

Dollar cost averaging can be your ally during a recession.  If you think stocks will go down over the near term, i.e. the next one to two years, or that they will be range bound, this can be a good way to buy.  Dollar cost averaging means spending a fixed sum at regular intervals over time, for example $300 per month for company X's stock over three years.  Your return on any investment is dictated by the price at which you buy, so a low basis creates a defensible position.  If you are in a market that is generally rising, you would of course fare better if you took the lump sum and invested it sooner rather than later.  However, if you believe, as I do, that the Dow will go down further (and who really knows for sure) then it can be better to buy a bit at a time.  It's impossible to predict the bottom.  There are several brokerage firms that provide a service through which you can buy a fixed amount of stock every month, including fractional shares.  Some companies will pay all the broker's fees as an incentive to buy their stock, and some of these are excellent companies.  But others don't pay the fees and these can substantially diminish your returns.  Brokerage firms that allow you to buy stocks this way and some excellent companies that will pay the fees for you are listed after the jump.

Analysis Brief: Emerson Electric

Emerson is a diversified blue chip with a market cap of $41 billion.  It’s the world’s leading maker of power equipment for oil companies, and its businesses include automation systems, climate control, power technology, and electric motors.  Recently, EMR posted another stellar quarter: sales were up 12%, and earnings per share 20% over last year. So far, so good, but let’s dig deeper. (chart above is the last three years)

Comments From Super Return 2008

Super Return is a conference being held in Munich, Germany this week.  It is a gathering of top private equity managers from around the world, discussing today's issues.  To say the least, the speeches have been cautious about the prospects for 2008:

Private equity failures predicted, because of overly aggressive buyouts using questionable analysis: John Moulton, Alchemy Partners

One-third of US homeowners will have negative equity, and US has already been in recession for two months.  Its not "if," but how long it will last: Jonathan Nelson, Providence Equity Partners

Around the World

German Bank sues UBS to recover losses from mortgage backed securities it bought. UBS writes down $18 B to date. New York Times

Countrywide cancels Ritz Carlton ski trip after criticism.  This extravagance from the same Countrywide that laid off 11,000 employees. New York Times

Yale University to invest $50 million in China IPO.  Share in China Railway Construction start trading March 10.  Sydney Morning Herald

National Grid (NGG) utility fined $85 million. Regulators allege restriction of competition in gas meter market. Telegraph

Germany investigates 'massive' tax evasion scheme.  Involves banks in Liechtenstein and Germany. Liechtenstein called "rogue state." Deutsche Welle 

Stagflation: History Repeating

Earlier this week, the New York Times ran an article entitled: That 70's Look: Stagflation.   The gist of it?  The US is experiencing slower economic growth that requires a rate cut by the Fed.  This is coupled with rising commodity prices.  Sounds like, seems like stagflation.  Similar stories have appeared in the Telegraph (UK), Guardian (UK) and Wall Street Journal.  For those who remember, the 70's were a difficult economic period.  As you can see below, in a chart of the Dow, during the '73-'75 recession (indicated by the gray area) the index declined 28%.  So what do I think will happen this time?

Brazil Decoupling from the Dow?

Is Brazil decoupling from the US markets?  It certainly seems that way.  This year, to date, the Dow is down 4.7 percent.  The Bovespa, the index of Brazil's stock exchange is up 1.4 percent.  Take a look at the performance of some of Brazil's large cap stocks year to date, below.  Only the banks are negative.  The picture above is from the Sambodromo parade in the Carnival held this year, February 5-8.

SID, Companhia Siderurgica Nacional, +36%

RIO, Companhia Vale do Rio Doce, +7%

ABV, Bebidas das Americas, +6%

GGB, Gerdau, S.A., +5%

PDA, Perdigao, S.A., +2%

SDA, Sadia S.A., +2%

ITU, Banco Itau, -2%

BBD, Banco Bradesco, -6%

More Sculpture as Architecture

To the left is the proposed renovation of Barcelona's Camp Nou Stadium by Foster and Partners, the London firm that designed the famous, and to some infamous, "Gherkin" (the Swiss Re Building) in London.   

Below, left is a rendering of the addition to the Royal Ontario Museum that recently opened.  It is a cubist face attached to the traditional body of a gallery.  The design is a collaboration of Daniel Liebeskind and Bergman + Haman Architects.  The exterior is aluminum and glass.  I have seen this building in person and it is quite impressive, from a distance and up close, a very positive addition to the City of Toronto.

Around the World

It's Credit and It's Crunchy, hilarious video about subprime from UK comedy-news team; see the video here: Youtube

Business ethics changing in Germany? From Siemens to VW, the old ways are out of style: New York Times

As art prices soar, so does theft.  New York Times has a slide show of the biggest art heists in modern history.

Barclay's reveals potential subprime problems have doubled.  Estimate is now £11.4bn.  Telegraph

Inflation in China hits 7.1%. Food prices up a staggering 18% despite government action: Telegraph

Mining companies seek 71% increase in iron ore price.  Rio and BHP hold out against China.  Sydney Morning Herald   

 

Analysis Brief: Royal Bank of Canada

On November 30, Royal Bank of Canada (RY) reported net income for the final quarter 2007 of $0.97 a share, well under Wall Street’s expectation of $1.07.  This negative earnings surprise sent shares tumbling 4.0 percent in one day. Royal, the largest bank in Canada, missed its target because of a $152 million subprime write down (CDOs and mortgage-backed securities).  Of course, this pales in comparison to write downs at other major banks, such as UBS ($17.6 billion) and Citigroup ($18.2 billion this quarter alone).  Royal Bank's CEO, Gordon Nixon, has gone on record saying it has no more than $1.0 billion linked to the U.S. subprime market. So what's in store for 2008? (Chart of the last three years above). 

Sculpture is the New Architecture

It seems like it all began with Frank Gehry's Guggenheim Museum in Bilbao, Spain.  It was a sculpture first and a building second.  Ask anyone who has been there.  But, it was a fascinating design and the start of architecture as sculpture around the world, although Gehry did take cues from Oscar Niemeyer, the designer of Brasilia.  At any rate, the "new sculpturism" is here.  I think it is an interesting contrast to the equally great Mies van der Rohe idiom of "less is more" that dominated a lot of the 20th century.  Above is BMW's very sculptural headquarters in Munich, designed by Coop Himmelblau.  More buildings as sculpture after the jump.