Saturday, June 23, 2007
Last year, S&P 500 companies spent more buying back shares ($432 billion) than the government spent on Medicare ($408 billion). More and more companies have turned to buying back shares as they make more, spend less, and have more stagnant cash.
Wheat prices in the U.S. and Europe hit their highest point in more than a decade as floods and droughts continue to harm crops. This will push the government's inflation metrics even higher.
Call us old-fashioned, but we've long believed the best way to actually measure inflation is by watching the amount of money being created. The government has largely made that impossible by doing away with the broadest measure (M3) of monetary aggregates. It's no fun to be a money magician if the audience can see through your cape.
At least (for now), we can still watch gold, an equally real measure. Since 2002, gold's compound return is 16.6% annually. This number seems much closer to the true amount of inflation than the CPI, doesn't it?
Luxottica Group, the world's biggest maker of sunglasses, will buy Inside Strategist pick Oakley (OO) for $2.03 billion – a 16% premium. The company wanted to add athletic sunglasses to its extensive line, which includes Ray-Ban and Ralph Lauren. Oakley shares were up 13% on the news, and readers have made 60% on the recommendation.
Nobody likes a downer... At least that's what Wall Street bigwigs have been telling their analysts throughout the years. "Sell" ratings scare off potential customers, and the big banks want as much business as possible.
However, it seems the Street is changing its opinion. "Hold" recommendations outnumbered the buys as a percentage of total U.S. stock picks for the first time ever in February. Also, short-selling has reached its highest level since at least 1931 – 3.1% of listed NYSE stocks.
And the bearish mentality seems to be paying off. At the last market peak in 2000, only two of the big 10 banks produced S&P-beating returns. Now there are nine.
The big money is headed to Japan. The Financial Times reported recently that foreign investors raised their stake in the Japanese stock market to a record 28% in March. Sjuggerud warned us that a wall of money would be headed toward Japanese assets, specifically prime Tokyo real estate. Tokyo real estate prices are so depressed and so cheap, Sjuggerud calls it "the 15-year one-way bet." To read about Steve's top four ideas, click here.
There may only be one corporation more widely despised by the American public than Wal-Mart... the former domain of vice president Dick Cheney, Halliburton (HAL). And last year, Halliburton picked up another group of haters when it angered our tax-hungry Congress and announced it was moving its world headquarters to Dubai, the low-tax, low-regulating Arab Emirate.
One of S&A Oil Report editor Matt Badiali's contacts, who works for oil-services giant Schlumberger (SLB), just sent us this excellent note that we had to share:
Hi Matt, I had to laugh at the "gift" HAL gave to the politicos by moving to Dubai. Still, the move is just plain smart from a number of viewpoints:
1. It's where the action is. I just came back from the United Arab Emirates, and it is incredible. There are mega dollars to be made there. Schlumberger is perceived as "French" or "non-American" there, so we have an advantage that HAL is trying to remedy.
2. Meetings. Nowadays it's impossible or very slow for some nationalities to get visas for the U.S. So, ironically, since 9/11, it's been easier to meet in the Middle East, Beijing, etc. but not in Houston.
3. Employee taxes. Non-U.S. citizens pay no taxes in Dubai. Our expats resist a transfer to Houston due to income, property, etc. taxes. They also have to report investment income while in the U.S. This is a major negative for an increasingly multinational, non-U.S. taxpaying workforce.
4. And not least – company taxes. HAL takes the political heat, but Schlumberger is also a master at tax avoidance. It is domiciled in the Netherlands Antilles. It owns a Bermuda-based insurance company through which premiums are shifted offshore. Latin American transactions are through a Panama corporation, which has favorable tax treaties with most countries in the region. You get the picture.
I guess the only question for the move was why not earlier?
Date Range:6/14/2007 to 6/21/2007
Date Range:6/14/2007 to 6/21/2007