Analyst Recommendation and Stock Performance: Performance Nov (Pt. 04)

Welcome to part 4 of the series, this time with graphics!

This is the November performance month-to-month (mtm):

• Total Best 12 Basket                                                374,61         0,7%       377,28
• Total Worst 12 Basket                                             353,75         -0,6%      343,55
• DAX 30 Perf Index                                                  7335,67       1,0%       7405,5
• Dow Jones Industrial Average Index (Price) (USD)  13232,62      -1,6%    13025,04

Everything very similar to last month: Perfomance decline in both Baskets stronger than DJIA. DAX stronger than DJIA.

Overall performance since setup (August-Nov):

• Total Best 12 Basket                                                 3,4%
• Total Worst 12 Basket                                              6,7%
• DAX 30 Perf Index                                                   9,6%
• Dow Jones Industrial Average Index (Price) (USD)    1,1%

So overall the worst basket is still stronger, like last month. German DAX clearly outperformes the DJ and baskets.

Greece debt buyback

In June this year i received a comment on my OPAP analysis. The commentator expressed that the Greek state could buy back his own debt at a discount of over 80%.
In my reply i dismissed this idea because of a) the lack of money to repurchase and much more important b) the price increases of the bonds since capital market participants would start accumulating Greek government securities themselves.

I haven't changed my opinion, still think its bogus, however according to recent media reports this idea is becoming popular with influential politicians.

Now, after the agreement on further payments for Greece, on part of the deal seems to give Greece time to implement a buyback program.
This article states that the new cash will be used to repurchase bonds. The program is to be completed until December 13 (although i would be careful with Greek time scheduling)
Obviously it finally became clear to all politicians that Greece will not be able to meet its targeted debt levels (how should they?). A further haircut is politically not wished (Merkel ala "saving Greece will cost German tax payer no cent"), so a buyback is the way to go.

Winners: Hedge-Fonds, Speculative Investors making huge gains in short time.
Looser: Greek people and economy not receiving any (or less) aid money; EU still to coward to execute real solutions.

Update 28/11: Greek banks will suffer too since if they accept the buyback, they will take the loss resulting from nominal amount (that is in their books) - buyback offer.
This articel (German) states a range between 30%-35%  as a buyback offer, depending on mark to maturity. The offer is said to be lower than the last quotes on the 23. of November. By then a lot of Hedge Funds already got involved, as on can clearly see in the increasing prices.


/Edit 17.07.2013: Now the 10 bn used in the buyback seem to be missing, funding gap. Frustrating...

Analyst Recommendation and Stock Performance: Performance Oct (Pt. 03)

Welcome to the third follow up on my little empirical study.

This is the October performance month-to-month (mtm):

• Total Best 12 Basket                                                380,84        -3,2%      374,61 
• Total Worst 12 Basket                                             360,51         -4,9%     353,75 
• DAX 30 Perf Index                                                  7.322,08      0,2%      7335,67
• Dow Jones Industrial Average Index (Price) (USD)   13.494,61     -1,9%   13232,62  

Perfomance decline in both Baskets stronger than DJIA. DAX stagnated however most shares in the baskets are American listed securities anyway.

In the Best Basket only Lynas Corp took a hit above ./.10% decrease (-15,7%).
However in the Worst Basket centrotherm had a lot of problems, declined again by -48,3%. KPN (-20,3%) and Dendreon (-18%) declined as well. On the bright side First Solar (+11,3%) and Sprint Nextel (+12,7%) increased.
So far it seems like the Worst Basket is more volatile than the counterpart. It sure would be interesting this, however i might add Beta values for the stocks since this should give some guidance as well.

Overall performance since setup (August-Nov):

• Total Best 12 Basket                                                2,8%
• Total Worst 12 Basket                                              7,2%
• DAX 30 Perf Index                                                   8,6%
• Dow Jones Industrial Average Index (Price) (USD)    2,7%

So overall the worst basket is still stronger, despite its strong decline in value in October.

Interesting Reads: End of October

Here some interesting articles I found this week:

FT: Chinese banks flee London to avoid tough regulation of their business, moving to Luxembourg.
WSJ: Spanish region Catalonia has been the engine of the countries economy. Call for independence intensives. A move we can see in different countries as well (Scotland-UK; North Italy-Italy; Flanders-Belgium).

In German (sorry):
BZ: Record high in suspected money laundering in German, esp. in the real estate sector.
FTD: Germans keep their cash very liquid, deleting long-term deposits. Parallels to the dot-com crash?
WSJD: Failed broker MF Global lost total oversight of its financial situation well before  its 700 million disaster.

Analyst Recommendation and Stock Performance: Performance Sept (Pt. 02)

The performance for September was overall positive, for both portfolios as well as indexes.

Please note that -due to holiday- i could only get the stats from 03.10.2012, so results are a bit distorted, however in my opinion impact should be minimal.

This is the September Performance month-to-month (mtm):

• Total Best 12 Basket                                          374,22        5,2%      380,84  
• Total Worst 12 Basket                                        343,47        5,5%     360,51  
• DAX 30 Perf Index                                            6.970,79     5,0%    7.322,08
• Dow Jones Industrial Average Index (Price) (USD)   13.090,84    3,1%   13.494,61  

The baskets with the 12 most favorable/disfavorable analyst estimates were both outperforming both indexes. Each basket had three stocks with mtm performance of above 10% (CeWe,Lynas, Gran Tierra//Commerzbank,centrotherm,Rangold).

This is the total performance August and September :

• Total Best 12 Basket                                            5,6%
• Total Worst 12 Basket                                         13,4%
• DAX 30 Perf Index                                             8,4%
• Dow Jones Industrial Average Index (Price) (USD)    4,8%

The Worst Basket has a strong overall performance, however a some stocks in this basket are German companies (three), while most of the Best Basket are US stocks. So a diverging performance of DAX/DJ might as well affect the underlying values of the baskets.

Credit Default Spreads (CDS): Portugal, Spain, Italy, China

DB Research has a very interesting Website on Credit Default Spreads, which you can find here.
It features CDS for most countries as well as a calculated annual probabilty of default (PD) rate. The datasets are frequently update and downloadable as .xls files (I had to rename the ending of the files to make them work).
The page also includes a graphic, which you can customize with your own recovery rate assumption to come up with the annual PD rate from 5Y CDS spreads.

This is the PD for Italy, Portugal and Spain with a 40% chance of recovery.

The recent impact on CDS by the actions of the ECB are quite strong, at least for now.


Here we see the Chinese against the US PD, again with 40% chance of recovery:

Interesting to me was the strong and clear downward trend in the Chinese spreads, depite (it even seems a bit contrarian) public worries about slowing growth and missmanagement of state run companies and districts/states and the huge media coverage.

For me the lesson is that its always better to double-check the influence/impact of media coverage on the hard economy, since CDS spreads are a reliable figure at least for me, since they signal that other parties are ready to give me insurance against the default of a specific company.

CDS spreads are esp. important  to contrarian investors, which might be looking for countries in a crises (=high CDS) with companies bearing a low domestic (=high foreign) revenue exposure.

Links of the week: Short MANU, Black Swans, Damodaran Valuation Class

1. Shorting Manchester United (MANU): Good write-up of reasons and risks in shorting MANU, in my opinion a good shorting target. High CapEx, combined with limited growth opportunities, bad track record of listed football clubs. However Soros Fund desclosed a stake in MANU after IPO, what makes me wonder.
2. Latest Oaktree Memo: On Uncertain Ground: 15 page memo on the sluggish recovery, longer term economic outlook and problems, black swans. Best to download as pdf-file.
3. The US fall semester started recently. Prof. Aswath Damodaran started his online valuation class again. There are different ways to follow him, via special learning platform Lore, Youtube, iTunes or his School website. I am taking his class too and its a pleasure to follow and learn. Currently we are in the 3rd lessons, so its still easy to begin and catch up! Contents will cover intrinsic (DCF)/relative/option valuation.