US Stocks Climb for 3rd Week as Fed Avoids Stimulus Cut – Bloomberg 09-20-13

Salient to Investors:

Tim Hartzell at Sequent Asset Mgmt said the underlying data may turn weaker despite 5 years of easy money, and stocks are dependent on this monetary stimulus.

Economists predict the US will expand 1.6 percent in 2013 and 2.7 percent in 2014. 24 of 41 economists expect a December tapering.

Stephen Wood at Russell Investments said near-term, risk assets like no tapering.

Tom Mangan at James Investment Research expects yelling and screaming but would be very surprised if they actually shut down the government, and the market impact will be limited.

Economic bellwether FedEx stock rose to the highest level since July 2007.

Utility stocks pay 4.1 percent in dividends for the second-biggest payout among S&P 500 groups.

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Gary Shilling position update 2013 – Gary Shilling blog 07-15-13

Salient to Investors:

Gary Shilling writes:

  • The fog remains thick, so reducing long positions in Treasury bonds and Japanese stocks and cut yen shorts, euro shorts and dollar long positions.
  • Maintaining long positions in US defensive stocks like utilities and health care.
  • Increased short position in junk bonds and initiated shorts in emerging market stocks and bonds.

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Investing in Water Good Long-Term Bet, Goldman Head Says – Bloomberg 02-11-13

Salient to Investors:

Kyung-Ah Park at Goldman Sachs said:

  • Water utilities, infrastructure and water rights offer stable, long-term investment.
  • Water supply is very inelastic, and 1 in 8 people lack access to safe water.
  • Demand for water is growing twice as fast as the global population, and much of the developed world’s water infrastructure is aging faster than it can be replaced.
  • Municipalities are constrained by what they can charge so need to seek alternative financing.

Matthew Diserio at Water Asset Mgmt said:

  • Managing or buying aging municipal water systems offer some of the best opportunities for private investors in water infrastructure – returns as high as 12 percent annually.
  • The water business is phenomenal because water rates go only up.
  • You don’t get rich off rates, you get a decent return.

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Gas Golden Age Darkens in Europe on U.S. Coal: Energy Markets – Bloomberg 10-30-12

Salient to Investors:

Europe is missing out on the natural gas boom in the US and Asia, and instead burning coal imported from America. The IEA predicts global gas consumption to rise 19 percent by 2017 from 2010 on demand surges in Asia and the US – Europe will drop 1.6 percent.

In Europe, gas costs three times as much as in the US, so it prefers coal despite investing twice as much in renewable energy as the US since 2004. German power stations lose money from burning gas but profit from coal. UBS said European utilities will open six times more coal-burning plants than gas-fed units by 2015.

Anne-Sophie Corbeau at IEA says we are in the dark ages of gas in Europe and a golden age of coal.

Thierry Bros at Societe Generale said gas is too expensive for Europe, so with gas demand further down, the major producers will be compelled to agree to alternative pricing.

Hydraulic fracturing helped make the US the world’s largest gas producer last year, creating a glut.

John Mitchell at Chatham House said a golden age for gas may not prevail soon or everywhere, which would take each major region needing prices low enough to increase demand but high enough to increase supply.

Both Japan and South Korea rely on LNG for all their natural gas and face increased competition from China, which IEA predicts will quadruple its use by 2020. BP Statistical Review said Japan needs to replace the world’s third-largest nuclear fleet by 2040.

Fan Gao at Oxford Institute for Energy Studies said a higher population density and a fifth of the amount of water available than the US are major hurdles to China fulfilling its shale ambitions – environmental concerns could be a show-stopper as the Chinese becomes increasingly health and safety conscious.

Jonathan Stern at Oxford Institute for Energy Studies said the ‘golden age’ in Europe ended in 2008 when demand peaked, and has been in a downward spiral since so its renewables all the way.

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Savers Push $374 Billion U.S. Utility Industry to Shift – Bloomberg 10-04-12

Salient to Investors:

Analysts say a new breed of conservationists is curtailing sales of electricity and driving an unprecedented shift in the U.S. power industry – power use per unit of economic growth fell to a record in 2011.

Demand for electricity is shrinking even as economies grow, eroding sales and profit at U.S. utilities.

Theodore Hesser at Bloomberg New Energy Finance said:

  • Utilities are expected to invest $12.4 billion in smart meters and updated electricity grids through 2015.
  • A small change in the growth of power demand can completely change a utility business model.
  • Utilities are shifting to providing higher-profit services like installing programmable thermostats and retrofitting buildings with windows, insulation and roofing that use less energy, which will further sink demand.

Wood Mackenzie predict US demand for power will grow 1.1 percent annually through 2030 versus 1.7 percent from 1990 through 2011.

Angie Storozynski at Macquarie Capital USA predicts long-term load growth will be 0.6 percent, says slow load growth should hurt near-term earnings and may drive utilities to seek rate increases more frequently from regulators or postpone spending on power plants and transmission lines.

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Best Performing Russell 3,000 Stocks And Sectors In 2012 – Seeking Alpha 09-24-12

Salient to Investors:

Smaller stocks are outperforming larger stocks in 2012.

Top sector is healthcare, followed by consumer discretionary, telecom and financials.

Bottom is utilities, followed by energy, industrials, technology, consumer staples and materials.

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Contrarian Manager Wins by Buying Newspapers, Avoiding China – Bloomberg 09-13-12

Salient to Investors:

Contrarian fund manager Bill Smead is:

  • Bullish on the U.S. but bearish on companies exposed to China. Looks for strong balance sheets, industries with high barriers to entry, long histories of profits and dividends, p/e ratios below their 10-year average, strong insider ownership, and shareholder friendliness with regard to allocating capital.
  • Likes U.S. companies with addicted customer bases – they benefit most from an improving economy. The U.S. began fixing its credit problems over four years ago, Europe’s 1½ years ago, China’s is just starting.
  • Along with Warren Buffett, likes newspaper stocks which are so lowly valued that they only need to survive five years to payoff.
  • Dislikes capital-intensive sectors that require lots of debt and equity to grow, like utilities, telephones, industrials, basic materials and energy, which do well when interest rates are low and borrowing is cheap but do badly as rates rise and borrowing becomes expensive. As rates rise over the next 20 years, capital-intensive businesses will be valued dramatically lower, including energy, basic materials and heavy industrials which will also be damaged by a hard landing in China.
  • China is like the U.S. was in the 19th century – the U.S. grew 9 percent compounded from 1800 to 1900 but endured 18 recessions, three depressions and three all-out panics, and a Civil War. China is comparable to the biggest of those four-year depressions. The bust comes when lenders don’t get paid back.
  • Likes financials because they are cheap and because the big banks own a lot of housing so will benefit when the 85 million baby boomer kids get married and  buy houses.

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The Speculative Look of Utility Stocks – Bloomberg 09-12-12

Salient to Investors:

Morningstar reports mutual fund and ETF fund assets in utilities increased more than 30 percent in the 12 months through July.

Utilities typically trade at a 20 percent valuation discount to the S&P 500. The P/E ratio of the Bloomberg Industries North American regulated integrated utilities is 14.9 times estimated 12-month earnings versus 12.8 for the S&P 500.

Brad Sorensen at the Schwab Center for Financial Research has never seen today’s speculative element to utilities – Schwab has a market perform rating for the sector for the next 3 to 6 months.

Russ Koesterich at iShares said the P/E premium of U.S. utilities is not because they are more profitable than in the past – they are currently less profitable than their long-term average.

Return on earnings for U.S. large-cap utility companies is 10.5 percent, the lowest level since 2004.

Roger Conrad at Utility Forecaster said the utilities are in good financial shape and run very conservatively now.

Maura Shaughnessy at MFS Utilities fund likes European utilities because the macro economic picture there is hurting everybody and they have lifetime values she has never seen in Europe.

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