I’m really not sure when we all of us became so freaking obsessed with the way currencies interact and affect the economy and various financial markets. But judging by the seemingly incessant “TRADE FOREX NOWWWWW!!!” commercials on CNBC and other financial porn channels, I have to think that there’s some sort of demand for the product. My favorite is the woman at the coffee cart talking about how “size does matter”. Somehow, I just can’t picture her shorting the yen on her iPhone during the soccer game or the dance recital.
I guess my main questions are does Jane and Joe Investor need this access and do they have any business playing with this particular hand grenade?
My guess is “No”. When they hear the pretty (and not so pretty) people on the T.V. yammering about how “…investors are selling their dollars” what does that mean? Sure, they could be shorting the greenback via futures contracts (something huge institutions do all the time to hedge their investments against currency risk). Or they could be lightening up their positions in dollar denominated assets like treasuries, or dollar denominated corporate bonds, or even U.S. equities.
The message they’re sending is pretty simple, they have less confidence in America’s ability to grow the business versus other places around the world.Now the inverse can happen as well. A weaker currency makes your country’s exports cheaper. People can buy the snot out of your products. Your citizens work like crazy and earn more of your weak currency and things hum along hunky dory in the vicious cycle of a debauched currency. But the nuances of trading those kinds of scenarios are highly, highly, black box, super math complex and I’m just not sure that small investors, hell or even advisors at the individual investor level need to worry about it. Sure, they need to be aware of it and have a basic understanding about how it affects an investment program.
However, the incessant ad blitz that bombards the herd with the notion that they can successfully execute a spread between the rupee and the loonie is a awful hard for the herd to resist (see: “Stuart Ameritrade tells you how to make zillions of dollars day trading tech stocks on line” 1999). So if you absolutely have to drink that Kool Aid, how do you do it? For starters, own multinationals. They always deal with multiple currency risks. It can and does affect their earnings thereby affecting the price of the stock. Coke (KO), Yum Brand (YUM), Caterpillar (CAT) are a few names to start with. Still hate the dollar? Own a decent global bond fund or maybe a good closed end (not an ETF) fund that’s a foreign currency pure play like the Aberdeen Australia Equity Fund (IAF). You’re paying those guys to manage the currency risk and take advantage of opportunities. It’s not as sexy as trading it on the bus from your iPad, but oh well.
“TRADING FOREX NOWWWW!!!” is just a bad idea. To get a little uppity and morally indignant, the financial media are should be a bit more responsible and the online forex trading firms are on par with the boiler rooms and bucket shops. Intelligent individual investors should know as much.
I’ve often envisioned a bank kind of place where a guy walks in wearing overalls with a laundry basket full of one dollar bills, dumps them on the counter and says “How much kin I git fer these?” Always good for a laugh but it really doesn’t work that way. Unless you’re some kind of megamind, currency trading genius that has the knowin’ power to go up against the likes of George Soros, don’t run in that field. You’re gonna step in something and, most likely, you will leave your money behind in it.
Well…let’s try to make a good trade into this edition’s three lil’ piggies…
“Mail of the species…”
Pitney Bowes, Inc. (PBI)
Recent Price: 22.80
P/E: 15.64
Current Yield: 6.48%
The Skinny
Yes….this is a rerun. PBI is probably one our perennial favorites hear at Yieldpig. Whenever the stock pulls back to where it yields better than 6%, it’s a good opportunity. While regular mail may be viewed as the buggy whip of communication, PBI is still the biggest and baddest in the mail sorting and machine bidness. They’re also focusing their efforts on Volly, their new cloud product. It only makes sense that they can capitalize on the penetration they’ve established. Stock looks cheap at 15.6x’s trailing earnings and 10.01x’s forward.
The Danger
Q1 earnings were a bit soft due to moderation in their recurring revenue stream (supplies, financing, etc.). The company also experienced a fire at one of its largest pre-sort facilities in Dallas, Texas which didn’t help. And, of course, looking at the bigger picture, do you really want to own shares of the best buggy whip company in the business. Just sayin’.
“It’s still a mythical beast…”
Chimera Investment (CIM)
Recent Price: 3.44
P/E: 5.55
Current Yield: 16.27%
The Skinny
Again…another repeat. But, the value looks compelling. CIM is a REIT that invests in residential mortgage backed securities and other real estate related financial instruments. The stock trades right at about book (1.06x’s) value. Strong 20% ROE. Granted, while the current environment seems like the absolute worst time to invest in anything mortgage related, it’s probably the best. The assets REIT’s like CIM are looking for are priced at deep discounts. That opportunity will flow through to the stock. And as the residential mortgage market becomes more privatized (less government backed lending thanks to a hobbled Fannie and Freddie), yields on the MBS (mortgage backed securities) will be more attractive.
The Danger
Did you see the Shiller chart last week? In a word: “fugly”. Whatever the housing market is doing, it’s safe to say, it’s not improving. As long as it stays week, mortgage backed securities will remain a dicey proposition. CIM took a $19 million writedown on it’s non-agency securities Q1 2011. That’s not good. And if the housing market continues to suck wind, expect more. This one is only for the bold.
“No…not the “Takin’ Care of Business” band…”
John Hancock Bank and Thrift Opportunity Fund (BTO)
Recent Price: 15.85
P/E: NA
Current Yield: 6.02%
The Skinny
Are we insane? Yeah. Probably. But that doesn’t mean there’s not some kind of opportunity in the bank space no matter how dreadful it looks. This was a pretty rock-n-rollin’ closed end fund when regional banks were getting fat, dumb and happy and buying each other every 15 minutes. Now, the environment’s totally different. BTO trades at a 17% discount to NAV. Not bad. And the yield is about a bazillion times better than just about any bank stock out there (if said bank stock even has a dividend). Eventually, the financial sector will turn, BTO will be there to catch that pitch.
The Danger
The share price of BTO got so ugly during the financial crisis that a 1 to 4 reverse split was engineered to boost it. That would put the current share price at around $3.95. Reverse splits are like a crappy report card in 5th grade. You don’t want to tack it up on the refrigerator. Although things have improved, the banking sector is still a minefield. TARP needs to be repaid and, bottom line, banks need to relearn how to make money again. Hey! Here’s a great idea! Lend money to…well…people! But seriously, until there’s some velocity in the money supply, the banking sector will lie there like a soggy taco and BTO’s chart will continue to resemble the EEG of a cinder block.
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