Eileen's picks

China's Thirst for Oil

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Reading non-financial sources is sometimes useful for making investment decisions as well as enlightening. One of my favorites re emerging markets is the International Crisis Group, an independent, non-profit, non-governmental organization covering some 60 crisis-affected countries and territories across four continents, working through field-based analysis and high-level advocacy to prevent and resolve deadly conflict.

Seoul/Brussels, 9 June 2008: The fear of China "locking up" energy supplies around the world is misplaced, and other countries should cooperate with it to ensure a more cooperative international environment on both energy and wider security issues.

China's Thirst for Oil,* the latest report from the International Crisis Group, examines China's need for energy and assesses the impact of Beijing's energy policies on the resolution of conflict by looking at Sudan and Iran as case studies.

China's need for energy is growing faster than that of any other country. Self-sufficient until 1993, China's three decades of rapid economic growth have led it to look abroad to meet its energy needs. While its approach until now has been characterised by oil mercantilism, physical control of supplies and distrust of international markets, it is increasingly recognising the value of treating oil as a commodity and adopting a more open approach towards international energy markets and cooperation.

Chinese companies' investment in oil exploration and extraction in countries and regions suffering from deadly conflict has sometimes led China to take positions counterproductive to conflict resolution, for example in the early stages of the Darfur conflict. At the same time, Beijing is willing to play a more constructive role as it increasingly engages with the international system and learns the limits of a foreign policy based on the traditional principle of non-interference.

According to Stephanie Kleine-Ahlbrandt, Crisis Group's China Adviser and North East Asia Project Director, "As policy options are formulated in the international community for ending crisis and resolving conflict, in the right conditions, China can play an important role in the solution."

International cooperation will be facilitated by a better understanding of Chinese energy policy and behaviour. While many in the country's leadership recognise that domestic policy must focus more on conservation, efficiency, reducing pollution, diversifying the energy mix and upgrading clean technologies, both policymaking and implementation are hindered by conflicting interests at the central, provincial, local and private levels. The need for a coherent energy policy and institutional apparatus to manage energy is more urgent than ever.

The rest of the world's interest in China's quest for energy security has never been greater. "Energy security is not a zero-sum game", says Charles Esser, Crisis Group's Energy Analyst. "Integrating China into cooperative arrangements presents a chance to enhance global energy security".

To read the full report, go to International Crisis Group

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Don't slave over it -- or agonize

Rating: 3.00 (2 votes) Vote:

I haven't touched my Round One portfolio (or even looked at it) since the last day of the competition in December. Today, it's valued at $1,182,885 and still compliant with all the SLO rules. That would make it second place in the current competition, were it active.

I point this out because I believe a lot of people put way too much effort into investing. And lots of other people feel investing is so complicated and difficult that they can't possibly do it themselves. As a result, they either pay huge fees to professionals (who rarely serve their interests) or put their money in CDs, bonds and money market funds that barely (or rarely) keep pace with the rate of inflation.

I'm not a stock picker. I am responsible for investing the funds of three generations of my family which makes me careful. And I use a system that has served me and my family well, and is proving itself in the SLO competition:

In my next post I'll tell you what my portfolio is invested in and the minimal rebalancing I did to it after 5 months of total neglect.

A stock to consider for the long term

Rating: 2.62 (8 votes) Vote:

MSN's Jim Jubak brought to my attention a stock I like so much I bought it for my personal portfolio. You might want to consider it too.

What Jubak said a while ago that first caught my attention: "The company's biggest growth area is the Middle East, where dollar-rich oil producers are spending to build up their energy infrastructure and to diversify by investing in refineries and chemical plants. With projects diversified across industries from transportation to petroleum to pharmaceutical to defense, Jacobs isn't vulnerable to a downturn in any one sector. Although on current trend, it looks like the biggest danger at the company is too much business. The company's backlog is likely to expand 15% year over year to $11.3 billion when the company reports Nov. 6, according to KeyBanc Capital Markets."

Forbes recently named JEC one of the best 400 big companies in America, saying "Build longtime relationships with, and get repeat business from, blue chip firms. Simple concept. But that's how Jacobs Engineering thrives where other construction companies lag. Jacobs gets 75% of its revenue from repeat customers. Jacobs had record revenues in 2006 of $7.4 billion, up 32% from 2005, earned $200 million, a 50% increase. Jacobs' stock also rose 23% this year, showing the benefits it accrued by being entrenched in diversified areas, and by not being a housing firm. The company has accomplished all this largely by focusing on the domestic market, rather than dipping into the more tempting go-go international construction scene. But that's changing--slowly."

Recently Zack's said: "Jacobs Engineering Group, Inc. (JEC) is a provider of technical, professional and construction services globally. With a gain of 12.3% for the week ended Dec 7, it was a top-performing Zacks #1 Rank. Last week, the company received a couple of new contracts, including a hospital in Brussels and a refinery in India. Earnings estimates for the fiscal year ending September 2008 are up 7.5% over the past three months and 3% over the past 30 days. For its fiscal fourth quarter, Jacobs Engineering earned 68 cents per share, which bettered the consensus by more than 4.6% while also improving on a year-over-year basis. Revenues advanced 15% to $2.3 billion from $2 billion."

Morningstar currently says: "Aggressive Grow Profitability and Financial Health - both As Growth - B This stock is in an industry with a healthy number of competitors, and looking at its sales, it is one of the largest players. [It] has generated market-like returns over the past 10 years, but has done better than average the past five. Note that while a 10-year record is unavailable for this stock, it has been one of the strongest performers in its industry over the five-year period. Most companies in the engineering & construction industry have generated very low returns on assets over the past five years. This company, however, has posted results that are some of its industry's best. Note also that the company has had very strong profit margins, another key profitability measure."

StockScouter says, "A mid-cap value company in the capital goods sector, is expected to outperform the market over the next six months with less than average risk."

The analysts that have the best long term track record on successfully calling the ups and downs on JEC, according to Starmine, are UBS (86% accurate) said "Buy Reiterate" on 10/30/07 Ford Equity Research (80% accurate) said "Most Favorable Buy Upgrade" on 11/16/07.

Because I expect a lot more volatility in the market, I think I'll have the opportunity to augment my position at a good price, so I've put in limit orders to buy more at $90 and lots if it drops temporarily to the neighborhood of $80.

And then there's no interest lending

Rating: 2.75 (4 votes) Vote:

I've become a small scale microfinancier, lending money to a young mother improving her small farm in Azeribaijan, to a young entrepreneur in Mexico who sells shoes through catalogs, and to a co-op of ten women in Senegal, West Africa. Astou Ndoye and her friends used the money to purchase pineapples, mangoes, hibiscus flowers, baobab fruit and tamarind and are now manufacturing and selling juices and preserves.

One loan I helped fund, just made in August, is already 67% repaid.

No profit motive; more along the lines of "Those who have more also have more of an obligation to give back". Donating to charity is one way, sharing knowledge is another, and lending money at a fair, reduced or even zero rate to people who need it is another way. On each loan I get my capital back which I then use to make more loans. No interest, just capital.

A Bicycle Trust for strangers you might say.

The Zopa idea appeals to me too. A person in the US starting a small business, for example, can be financed by a number of regular people like me who buy CDs and voluntarily contribute a portion of the interest they could be paid to the person starting the business as a way of helping them.

Personally I really like that concept. It's not charity, it's not taking a risk because the CD is insured, and it's an opportunity to help someone get ahead. I'm willing to give 2% of the interest I might receive back to a borrower whose reason for needing the loan interested or moved me.

Kind of in the spirit of the season.

I do my international microfinance lending through Kiva, an organization I really like. The Gates Foundation is assisting Opportunity International and there are others.

Think about becoming a microfinancier yourself as you celebrate the holidays and count your blessings.

Become a banker

Rating: 1.67 (6 votes) Vote:

Become a banker with a few clicks of the mouse, choose who you're going to lend to, how much you'll give them, at what rate.

Everyday people are earning higher rates than bank or credit union CDs, even as much as 9.49 - 12.81% returns on cash they decide to lend.

Have you heard of social financing, P2P Lending? It's relatively new, but is creating quite a stir in some quarters. In essence it is individuals making micro-financing loans to other individuals while cutting out most of the middle man banking fees.

In some ways it turns the clock back to "the good old days" when people went to the richest person in town to ask for a loan when they needed one. In other ways, it's cutting edge. Naturally, it's caught on first with young people. Take a look at Facebook's Lenders Club http://www.lendingclub.com/home.action

Now there are more and more sites, some of which are www.prosper.com www.virginmoneyus.com and www.lendersclub.com

One of the newest is Zopa CDs. They are a guaranteed and insured (up to $100,000) way to earn a fixed rate of return for a fixed term. Sounds like a bank. But it's different because a Zopa CD directly benefits the borrowers you pick by reducing their monthly loan payments. https://us.zopa.com/cd/Home.aspx

I haven't tried it yet, but I'm seriously considering a Zopa CD. Let me know if you've done P2P lending or borrowing and how it turned out for you.

Am I being too cynical?

Rating: 1.71 (7 votes) Vote:

Is it possible that fund managers - who control more dollars by far than individual investors - are going to allow the year to end with low performance numbers? That they'll risk investors fleeing their funds for higher performance elsewhere? That they will not take whatever action they can to assure their bonuses are as large as possible?

I don't think so, as Bianca says.

So I did my "end of the month" portfolio analysis and rebalancing (which I do "religiously" per my diversification system) earlier this week, to be ready to take advantage of a Santa Claus rally. I'm just cynical enough to believe that the Santa Claus rally is a tradition that's too profitable to disappear.

Here's how my SLO portfolio stands at the moment in relation to my plan:

We're $18,886 low in US equities, $38,292 low in foreign equities (having dumped my ill-advised purchase of LDK), $79,829 too high in cash and cash equivalents, $43,049 too low in real estate, and $2,602 too low in commodities (having sold the system-prescribed $10,000 of IGE when oil was flirting with $100 a barrel).

Since real estate is down the most (in my portfolio and the market), I started with making a decision on that. My system calls for real estate to be equally divided between domestic and foreign. My earlier decision to purchase SL Green Realty Group (SLG) was an OK (but not stellar) one made at the wrong time. How quickly it plummeted prevented me from investing in foreign real estate, but now is the time. So I'm going to put $43,645 in SPDR DJ Wilshire International Real Estate (RWX).

This decision presents a "problem" because it pushes portfolio investment in large cap way out of proportion. That means selling all of the GE shares I bought, also at the wrong time, but much less catastrophically. The reasons I bought the GE were sound, but it's a core holding and the portfolio is also seriously under plan in growth for going into "rally" season. So the small loss would be useful at tax time. Out goes all but $19,000 of the GE.

Next, in the foreign assets category, I decided to buy Shanda Interactive Entertainment Ltd. (SNDA) because I found Krish Rathi's most recent post highly compelling and because I'm not a stock picker and he clearly is and has done the kind of research stock picking requires and I have neither the time nor inclination to do. That purchase leaves the portfolio about $2,500 under plan in foreign, but that's close enough.

That leaves me with $92,331 for US equity to put into mid cap growth and $25,800 to small cap growth.

Bianca and I are on the hunt for stocks that meet our standards, and would love to get your recommendations.