Research Watch

This is a sampling of the week's best research notes. In a world of too much information, we hope our selection helps you spot the market's key signals.
Don’t panic. Sharemarkets are down all over the world, but bananas and alpacas continue to outperform. Fertiliser companies too may have a smell of money about them as the rest of the market goes down the proverbial. Believe it or not, the world is turning and while bailouts, rescue packages and writedowns are becoming as common as profits once were, the canny investor may still find opportunities. After all, the turmoil hasn’t wiped the smile off Roman Abramovich’s face as he waits for his £200 million yacht.

Desperate times call for desperate investments '¦ “Who can blame an investor for taking to the bottle? Andy Pick, a 49-year-old stay-at-home father in Atlanta, recently bypassed the stock market for liquid assets – $US120,000 in champagnes. He bought 400 bottles, mostly 1996 vintage, that he says he plans to 'sit on’ for 10 or 15 years and then sell at a profit '¦ Given the gyrations in the financial markets, some investors are abandoning stocks and bonds and seeking refuge in unusual alternatives – parking spaces, for instance, and condos in Peru. Sales of exotic livestock are up. The US Mint has seen a gold-coin rush. Peggy Parks invested in alpacas, which she believes have a better outlook than most mutual funds '¦ 'I've lost a fortune in stocks, and my 401(k) is falling through the floor. I feel comfortable in alpacas,’ she says. She invested $US56,000 in a small herd '¦ The national Alpaca Registry in Lincoln, Nebraska, says registrations are on pace to rise 7% this year and currently stand at 140,297 '¦ a female of 'medium quality’ can fetch $10,000 and that prices have been rising, supporting her hopes that she'll see a profit on her alpaca portfolio in five years.” (Wall Street Journal, October 3)

Silver lining on steel prices '¦ “There is an upside to the weakening US and global economies, at least if you're an American steel consumer. The commodity is more available, and prices have fallen 20% in the past three weeks. Behind the shift is a surge of foreign steel into the US, with the latest figures from August showing that steel imports from Russia jumped 86%, from India 37% and from China 33%. Analysts believe that the influx continued through September '¦ Imports had been down earlier this year, reflecting a weak dollar, strong foreign consumption and high freight-shipping rates. But that tide has begun to shift in recent weeks, with the strengthening US dollar, softening demand for steel elsewhere and falling freight rates '¦ Thai dry bulk shipper Precious Shipping Limited said that it expects freight rates to continue falling over the next two years due to the US financial turmoil and global demand slowdown '¦ [Its managing director] said that the Baltic Exchange's chief sea freight index for global raw materials, which has fallen almost 75% from a record 11,793 points on May 20, 2008, to 2990 points now, could drop to between 1000 to 2000 points over the next 18 to 24 months.” (Wall Street Journal, SteelGuru India, October 6)

Fertiliser still fertile '¦ “Do you remember the food and commodity bubble? Sure you do '¦ [and] the poor in India and China are still becoming middle class, there's still enormous demand for fertiliser -- and the actual price of fertiliser is still, for the time being, high. As a result, John Burbank of Passport Capital made a strong case for [NYSE-listed fertiliser maker] Mosaic Company '¦ what used to be a momentum stock has, in the space of a single quarter, become a deep-value stock. After all, it's not like these are dot-coms without earnings: all of these companies are enormously profitable.” (Portfolio.com, October 7)

And a bull run on bananas '¦ “According to [Japan’s] Seven & I Holdings Co., which runs the supermarket chain Ito-Yokado, banana sales have been increasing since spring. But twice as many as usual were sold in late September. Takashi Kobayashi, chief manager of the Granpark Tamachi branch of supermarket chain Daimaru Peacock, said his store is also seeing a run on bananas '¦ Hiromi Otaki, spokeswoman for Dole Japan Co, Japan's largest banana importer, said there was a 25–27% jump in banana shipments between June and August compared with the same period last year '¦ The craze traces its roots to the Morning Banana Diet introduced on Mixi, a popular social networking website, in 2006 by Hitoshi Watanabe, who studied preventive medicine in Tokyo, and by his pharmacist wife, Sumiko. According to their official Web site, the trick is to eat bananas along with room-temperature water for breakfast.” (Japan Times, October 7)

Terminator to Treasury '¦ “Like many other states, California is feeling the enormous effects of this crisis on our economy '¦ The credit crisis has frozen investment and commerce, forcing businesses and families to stop purchasing goods and services. This has resulted in tens of thousands of lost jobs and billions of dollars in lost tax revenue to the state. Most immediately, California and a number of other state and local governments are experiencing the lack of liquidity in the credit markets firsthand. Many states and local governments have been unable to secure financing for bond offerings and for routine cash flow used to make critical payments to schools, local governments and law enforcement '¦ We expect to issue $7 billion in Revenue Anticipation Notes for short-term cash flow purposes in a matter of days. Absent a clear resolution to this financial crisis that restores confidence and liquidity to the credit markets, California and other states may be unable to obtain the necessary level of financing to maintain government operations and may be forced to turn to the Federal Treasury for short-term financing.” (Arnold Schwarzenegger to Henry Paulson, October 2, leaked to the LA Times October 3)

Bank of England to MI6, Iceland to the Kremlin '¦ “Anti-terrorism powers were used on Wednesday to recoup money owed to UK depositors in a failed Icelandic bank in a move that risked sending Britain’s relations with Reykjavik to their lowest since the 1970s 'cod wars’. UK taxpayers are likely to pay out at least £2.4 billion as part of a £4.6 billion scheme to compensate hundreds of thousands of account holders at Landsbanki, the Icelandic lender '¦ [Meanwhile] Iceland’s prime minister expressed disappointment at the refusal of Western allies to help prop up the krona and said he had to find 'new friends’ in the form of Russia, which is considering a €4 billion (£3 billion) loan.” (Financial Times, October 8)

Hedge funds go back to their roots '¦ “A group of former Man Group executives, including ex-chairman Harvey McGrath, has formed a new company to invest in early stage hedge funds '¦ The group hopes to buy stakes in small hedge funds and provide marketing and infrastructure support to help build them up '¦ McGrath, who takes over as chairman of Prudential in January, said the current turmoil in the industry – with this year the worst on record for hedge fund performance – made it 'an interesting time’ to be launching '¦ New hedge funds frequently find it tough to get going but an increasing number of venture backers – including Man itself – provide seed capital in return for a share of revenue or a stake in the company.” (Financial Times, October 6)

And a taste of things to come '¦ “The Securities and Exchange Commission today charged Beverly Hills, California-based Lion Gate Capital and its principal Kenneth Rickel with illegal short selling in the securities of 14 publicly traded companies '¦ From January 2005 through September 2006, Lion Gate and Rickel allegedly used shares purchased in 14 registered public offerings to cover short sales that occurred during the five business days before the pricing of those offerings (the restricted period) '¦ The SEC seeks permanent injunctions against each defendant, and disgorgement, prejudgment interest, and civil penalties against each defendant '¦ We conclude Rickel will shortly be dismembered, his bones burned in a specially established stove and his organs dissolved in acid. A treatment broadly in line with the SEC’s current stance on short selling.” (SEC, FT Alphaville, October 7)

Astrology watch '¦ “Dear Micki, with several planets in and out of retrograde motion in September and October, your question is quite timely. Last month, Jupiter and Pluto went direct after many months in retrograde motion. Mercury went retrograde on September 24 and will go direct on October 15. Uranus and Neptune have been and will remain retrograde until November '¦ With Mercury being the closest planet of this month’s retrogrades, its effects will be the most noticeable by the greatest number of people. Mercury retrograde is not all that rare, occurring three times in 2008. The aspect lasts approximately three weeks each period but the transitional three to five days before and after have been known to be influential to a certain extent as well '¦ Keep in mind that both the United States and President Bush are Cancerians, for whom this particular Mercury aspect takes place in their house that rules the home. As the crisis loomed, Mercury went retrograde and the leaders of our country had to 'look back’. It was no surprise to this astrologer that they concluded that impractical HOME loans are at fault. Is the timing a coincidence? I don’t think so '¦ Mind you, a retrograde period does not create a negative situation; it only brings something already problematical to the surface. The positive use of such time is to research, review, rework, rethink '¦ Mercury retrograde is the perfect time to do fact-checking or revisions.” (Felix Rodriguez, Astrologer, October 2008)

While on starboard, more yachting news at mega-rich Russian watch '¦ “The owner of Chelsea football club, Roman Abramovich, is having a new £200 million mega-yacht built, complete with a missile detection system to protect him against pirates and terrorists '¦ It is being equipped with armoured protection around the wheelhouse and the billionaire’s cabin, together with bullet-proof windows. If assailants do breach the security cordon and climb on board, Abramovich, 41, and his girlfriend, Daria Zhukova, 26, a former model, could escape in a yellow submarine that is launched underwater and can dive to 160 feet. The yacht – called Eclipse because it is intended to overshadow any other private boat – is due for delivery next summer. It is being built in the Hamburg shipyards that produced the Bismarck, Hitler’s “invincible” Second World War battleship, which was sunk by the Royal Navy in the North Atlantic in 1941 '¦ Should he decide to sail to the 2010 World Cup in South Africa, he wants to be forearmed against attack by such armed gangs as the Somali pirates who seized a Ukrainian cargo ship loaded with 33 Russian T-72 tanks 10 days ago '¦ Saddam Hussein’s 270 foot yacht Qadisiyah Saddam had a missile defence system, while the 482 foot Prince Abdulaziz, the royal Saudi yacht, is also a ship in the Royal Saudi Navy and is purported to carry French-made Exocet missiles.” (The Times, October 5)