matisse capital management

Brazil Has Decoupled

Many analysts are of the opinion that emerging financial markets around the world will not, or can not, decouple from US markets and the Dow.  However, I Brazil already has.  The evidence is clear: the Dow began 2008 at 13,261and is now at 11,346, a decrease of 14.4%.  The Bovespa, Brazil's stock index, began the year at 63,885 and is currently 64,321, an increase of 0.7% and a difference of 15.1% from the Dow. See the chart below, after the jump, comparing the Bovespa to the Dow and S&P.  And listed below are some Brazilian ADR's and their year to date performance.  The only sectors that are down seem to be airlines and financial, but their declines are far less than those of their US counterparts.

SID, Companhia Siderurgica Nacional, SA, +45.9%

TCN, Tele Norte Cel, +30.2%

TNE, Tele Norte Leste Participacoes, SA, +27.9%

SDA, Sadia, SA, +24.1%

PBR, Petroleo Brasileiro, +17.8%

It's Official; It's a Bear Market

The technical definition of a bear market is a 20% drop from the high, generally over the course of a few months.  The Dow (DJIA) hit a high of 14,198 last year and ended this past week at 11,346.  This means the index has declined by 20.1%, as illustrated in the chart below, right.  The S&P 500 Index seems to be headed for the same territory.  The high last year was 1,576; the index currently sits at 1,284, a decrease of almost 19%.  So, where do we go from here?  All the indicators seem to point further downward.  However, despite the gloom and doom, there are some stocks that are still climbing higher, and the key, of course, is to find these.  So where exactly are these companies?  Here are some stocks from my watch list that   closed higher on Friday, even though the market closed down 107 points. 

More Dividend Slashers

According to several financial news sources, Goldman Sachs (GS) and Bank of America (BAC) may be cutting dividends.  And reportedly, there is the possibility of a dividend cut at Regions Financial.  Here are some other businesses that have already cut or plan to cut their dividends:

ABK, Ambac Financial Group, from $0.21 to $0.07 and recently to $0.01

BYLK.OB, Baylake Corp., from $0.16 to suspended

FRE, Freddie Mac, from $0.50 to $0.25

Dividend Slashers: Companies Cutting Dividends

The following companies have cut, or plan to cut, their dividend payout in 2008.  This is only a partial list, but features some of the more prominent "dividend slashers:"

C, Citigroup, cut from $0.54 to $0.32

CC, Circuit City, from $0.04 to suspended

FITB, Fifth Third Bancorp, cut from $0.44 to $0.15

Around the World - Economic News You Need to Know

IMF forecast: US economy will stagnate in the second half of 2008.  Says US interest rates should be kept on hold. Financial Times

FBI arrests 406 in "Operation Malicious Mortgage." Charges include mortgage fraud, mis-statement of assets.  BBC

Fund managers pulling money out of India and China at record pace.  Will it be time to buy there soon? Telegraph

UK Home prices will fall 9% and sales by 45% this year.   Prediction by HBOS.  Guardian

Circuit City will suspend dividends.  Loses $164.8 million last quarter; sales at US stores down 8.8%. Financial Times

Fifth Third Bancorp - a dividend aristocrat no more.  Bank will cut dividend and seeks to raise capital.  Financial Times

Will Bank of America (BAC) cut its dividend?  A full analysis of the prospects: News & Observer

Mexico imposes price controls on food.  Inflation at 4.5%, food prices are up 8% this year.  Financial Times 

Rating agency downgrades Jordan to "frontier" equities market.  May do the same with Argentina and Colombia next year. Financial Times

Where's the fund money going?

According to a survey of Merrill Lynch fund managers, it's flowing into Russia, Brazil, Indonesia, Thailand and Turkey.  Funds are exiting the other BRIC countries, China and India, at a rapid pace as well as Israel and Mexico.  The fear is that central banks in these countries may have to raise rates to fight inflation, which has been surging. The full story is in the Telegraph.  Money is also reported to be moving out of European equities, as it is widely expected the ECB will raise rates to fight inflation at its next meeting.

Inflation Data Renews US Stagflation Concerns

The US Labor Department said prices increased by 0.6% in May (7.2% annualized). One-year inflation expectations are 5.1% and are near their highest level in 26 years.  At the Group of Eight finance ministers meeting, Joaquín Almunia, the European Union economic commissioner, said the US was at risk of 1970s-style stagflation.  The stagflation years are illustrated below in a chart of the Dow:

Money Quotes of The Week

"Eighty-five million barrels of oil a day is all the world can produce, and the demand is 87 million.  It’s just that simple,”

      -T. Boone Pickens

“The price is going to go up until governments that subsidize oil consumption in Asia and the Middle East can no longer afford it.”

      -Adam Sieminski, Deutsche Bank

It is an ”illusion that one country, even the most powerful, can act as a global government”

                                                  -Russian President Dmitry Medvedev

“We like Bank of America but I wonder if they went for the franchise much too soon. It’s a deal that we hope won’t bite them too badly over time.”

                                                  -David Dreman, on B of A's Countrywide acquisition

Analysis Brief: Syngenta AG (SYT)

Recently, Forbes posted the following headline: “Food Crisis Spurs Calls for More Research.” The article raised questions about agricultural sustainability and food shortages around the world.  Because of these shortages, many countries are increasingly looking to agribusiness for ways to increasing productivity, so the long term prospects for this industry are bright.  In fact, Syngenta expects the global seeds industry to grow 60% in the next 10-12 years.

Around the World - Economic News You Need to Know

Are speculators the cause of high oil prices?  The prices paid by refiners seems to indicate not.  The story is in the Financial Times.

Russia blames US for global financial crisis.  Per Medvedev, the ruble should be a global reserve currency. Financial Times

Lehman tries to raise $6 billion ahead of its earnings announcement the week of June 16; a large loss is expected. Financial Times

Barclays seeks £3 billion in fresh capital from sovereign funds.  Will try to raise its tier one ratio to 5.25%. Telegraph

From tires to plastic packaging, oil is an ingredient; its cost is impacting margins for companies from Proctor & Gamble to Dow Chemical.  New York Times

There's no recession in Australia.  The economy surges 3.6% on emerging market demand for Australian products. Forbes 

Bank of America will proceed with its Countrywide takeover. New York Times They're either geniuses or they're crazy; time will tell. 

UK home prices are in 'vertical' decline;  expected to be 20% down by 2009.  Guardian

Finally, The New York Times has, in my opinion, provided some of the best coverage of the US housing downturn.  Below is a graphic from a recent story reporting that 1 in 11 homeowners are past due or in foreclosure, as of the beginning of June.  The link to the full story is here.

    

Trichet and the ECB: Which Way Now?

The Irish Times just reported that Eurozone inflation increased to 3.6% in May. This certainly  reduces the chance of the European Central Bank (ECB) cutting rates on June 19, when it meets again in Frankfurt. Why? The ECB’s primary stated objective is to maintain price stability by keeping inflation at or below 2%. Its secondary goals are promoting a "high level of employment" and "sustainable and non-inflationary growth among the member states.”  So what does this mean for the euro; will it hit new highs against the dollar?