Tag Archives: president

Buy Russia: Now A Bargain At Just About 6 Times Earnings

Russian stocks are very cheap at just over 6 times earnings and should be appealing for bargain hunters and contrarians. Weak oil prices have hurt Russia’s economy, but oil may have bottomed out and could rise in the future. The issue with Ukraine remains a wild card, but it appears that all parties have too much to lose and that means a resolution could be likely. The plunge in oil prices and the increasingly stiff sanctions over Russia’s foray into Ukraine have taken a big toll on the economy and the stock market. The negative headlines are likely to continue for awhile when it comes to Ukraine, but as far as the price of oil goes, things seem to be looking up thanks to a recent rebound. I am wary about investing in Russia because the geopolitical risks are significant and there are also currency and other risks. However, when valuations get to very cheap levels, it is hard to resist buying a bargain. Because of the numerous ongoing risks, I can’t allow myself to invest heavily in Russian stocks, but the cheap valuation makes me want to buy small position in the Market Vectors Russia ETF (NYSEARCA: RSX ). Let’s take a closer look: (click to enlarge) As the chart above shows, this ETF was trading for about $26 per share in July 2014, but has since plunged into the low teens. However, it is worth noting that since December, there has been a solid rally as indicated by the light blue uptrend line. Over the last few weeks, oil also appears to have bottomed out and if so, this is a major positive for Russia’s economy. Even so, that leaves the risk of war and sanctions. The sanctions have certainly started to impact the Russian economy, and it could not really come at a worse time because of the plunge in oil prices. If oil prices were still around $80 to $100 per barrel, I believe that Russia could afford to take a more protracted and antagonistic stance when it comes to Ukraine. The fact that oil is about 50% below the 2014 highs, makes me think that Putin will want to be a little more negotiable when it comes to finding solutions with the West that could lift sanctions. Over the last few days, Putin has been meeting with Germany’s Merkel, President Hollande of France, Ukraine’s leader, Petro Poroshenko and other leaders in order to find solutions. If these talks fail, the chance of war might increase which could cause Russian stocks to re-test recent lows. There is a lot at stake for all parties, especially for Russia and many European nations because of significant trade and because they rely on Russian natural gas. In a worst case scenario, Putin could shut off natural gas pipelines to Ukraine and Europe which would be a real blow to those economies. While those are significant risks, it seems like too much is at stake and I don’t see what any of the parties have to gain by escalating matters. On the positive side, if oil has bottomed out and if a cease fire is agreed to and sanctions are eventually lifted, Russian stocks could have significant upside. Russia is here to stay and this nearly perfect storm of weak oil prices and sanctions might be a fantastic buying opportunity. The Market Vectors Russia ETF has a price to earnings ratio of just about 6.5 times earnings. Right now, the S&P 500 Index (NYSEARCA: SPY ) trades for nearly 18 times earnings. The Market Vectors Russia ETF has significant exposure to the oil industry as well as other commodities. Below, you can see the top ten holdings : (data sourced from Yahoo Finance) Top 10 Holdings (57.78% of Total Assets) Chris DeMuth Jr. is a Seeking Alpha contributor, and I believe he is also an extremely savvy investor. He recently wrote about the opportunities in Russia and pointed out metrics which show just how cheap the Russian market is now, he states : “Concerns about Russia have driven down the price of its equity market. Russia’s total market cap is only 17% of its GDP, one of the lowest in the world. This is its historical minimum and far below its maximum of 142% during the past fifteen years. Over the past eight years, its GDP has grown by over 13% per year.” Marc Faber is a well-known investor, and he is also seeing a potential buying opportunity when it comes to Russian equities. He believes Central Banks have inflated asset prices through money printing but that “low valuations” in Russia are worth considering. His views were discussed in a Bloomberg article which stated: “Russian assets may move into some kind of a buying range,” Faber told an investor briefing in London. “They can go lower but they’re moving into a buying range.” Shares in the MSCI Russia index trade at an 80 percent discount to their U.S. counterparts based on their price-to-earnings ratio, compared with an average discount of 50 percent since 2003, Datastream data showed. Russian assets are clearly cheap, and could get cheaper. You should expect volatility to continue. Because of this it makes sense to buy only a small amount and average in over time. It also makes sense to have a long-term time frame. Ten years from now, I doubt the “Ukraine Crisis” will still be top headline news and I also doubt oil will be trading for $50 per barrel. If that is the case, a little investment in Russia could pay off big in the future. Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor. Disclosure: The author is long RSX. (More…) The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Why TBT Doesn’t Have A Prayer

As much as economists, Wall Street and the White House cheered the upwardly revised labor data, few dared to ask if the job growth gains are as good as they will get. With the labor force participation rate still mired in the 1970s, the need for safer haven assets like long-dated U.S. Treasuries will not disappear. Waning labor force participation, international uncertainty and poor earnings leading to pricey P/E ratios are just some of the reasons why I am bullish on treasuries. When Jack Nicholson won his third Best Actor award in 1997’s “As Good As It Gets,” he may have chuckled at the knowledge that he’d never have it so good again. Who wins four Academy Awards for Best Actor in a motion picture? Nobody. (Yes, I checked… and Katherine Hepburn won four Oscars for Best Actress.) The problem with reaching a pinnacle, of course, is that your options are limited. You might be able to hang out on top of the world for a while. Or more likely, you’re going to fall down the mountain. As much as economists, Wall Street and the White House cheered the upwardly revised labor data, few dared to ask if the job growth gains are as good as they will get. Perhaps ironically, the CEO of Gallup questioned the veracity of the Bureau of Labor Statistics data itself, expressing that the “…suffering of the long-term and often permanently unemployed as well as the depressingly underemployed, amounts to a Big Lie.” Yet I could not find anyone who wondered if employers might not sit on those wallets in the months ahead. Here are three reasons why employers may not be as excited about hiring going forward: Small business creation remains well below small business conclusion . Throughout U.S. history, small employers have been responsible for the lion’s share of new jobs. In every year since 2008, however, more small businesses have called it quits than have opened shop. How can the largest employers make up for this trend, particularly when energy firms are laying off personnel and the strong U.S. dollar encourages large multinational corporations to hire cheaper labor abroad? Earnings across most sectors are already in trouble . How unattractive has the latest earnings season been for the S&P 500? Earnings growth for Q4 2014 may come in a 1.5%, far below the 7%-10% that analysts have come to expect. Yes, we can blame the energy sector for most of the damage, but truthfully, most economic segments underperformed. Worse yet, as recent as 9/30, analysts expected Q1 2015 to see earnings growth near 10%. Now the average for Q1 and Q2 has turned negative. Large companies may find it more appealing to use exceptionally low bond yields to issue more debt and buy back shares to boost the bottom line, rather than hire domestically at a time when the dollar is strong and foreign economies are decelerating. International Uncertainty . The Middle East is battling lost oil revenue as well as ISIS. Russia is battling lost oil revenue as well as Ukraine. And QE-euphoria is already fading. In particular, the new leadership in Greece may be taking a hard line on renegotiating the terms of its bailout. Meanwhile, Spanish and Italian bond yields have rocketed higher than they have in more than four months. Can you spell contagion? Even if you cannot spell it, does this sound like a global environment that is conducive to a “ramping up” of hiring? While I have been wrong on headline jobs numbers over the past year, I maintain that the size of the labor force and the percentage of those people working within in it more accurately reflect the state of employment in the U.S. With the labor force participation rate still mired in the 1970s, the need for safer haven assets like long-dated U.S. Treasuries will not disappear. Waning labor force participation, international uncertainty and poor earnings leading to pricey P/E ratios are just some of the reasons why I am bullish on treasuries. The other reasons? Roughly 1/6 of the world’s sovereign debt have negative yields, including the German 5-year and the Swiss 10-year. It follows that any liquidity/money that can get its hands on perceived safety (U.S. treasuries) for a better yield (10-year 1.9%) and price appreciation potential… who wouldn’t want that? ETFs like the ProShares UltraShort 7-10 Year Treasury ETF (NYSEARCA: PST ) and the ProShares UltraShort 20+ Year Treasury ETF (NYSEARCA: TBT ) simply do not stand a chance. Readers are well acquainted with my 14-month guidance on why rates would fall, the yield curve would flatten and how investors could profit from it. Some ETF enthusiasts might like the iPath U.S. Treasury Flattener ETN (NASDAQ: FLAT ). Most readers already recognize that my clients at Pacific Park Financial, Inc. own funds like the Vanguard Extended Duration Treasury ETF (NYSEARCA: EDV ). Use recent weakness in long-dated treasuries, as well as the 50-day trendline, to acquire positions. Click here for Gary’s latest podcast. Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.