Japanese stocks keep climbing as the yen keeps falling

A weaker yen continues to drive Japanese stocks higher.

Japan’s Nikkei 225 closed above 15,000 for the first time since December 28, 2007 today. The index is now up 77% from its November 2012 bottom. Toyota Motor (TM) and Mitsubishi UFJ Financial Group (MTU), two members of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ , were up 3.7% and 3.1%, respectively in Tokyo trading.

The yen fell as low as 102.42 to the U.S. dollar, the lowest level for the Japanese currency since October 2008, before closing at 102.24 in Tokyo.

The financial markets seem to be betting that the yen has a clear path down to 105 to the dollar.

Part of that is confidence that the Bank of Japan and the Abe government want to push the currency at least that low in their efforts to revive the Japanese economy and increase inflation. The recently concluded meeting of the G7 group of the world’s largest economies gave Japan a green light on its efforts.

But part is the continued strength of the U.S. dollar. The Dollar Index (DXY) climbed as far as 84.09 today, its highest level since July 2012, before easing to 83.80. (The Dollar Index measures the U.S. dollar against a basket of currencies that include the euro, the yen, the pound sterling, the Canadian dollar, the Swedish krona, and the Swiss franc.)

The strength in the dollar today is yet another reminder that to climb the dollar doesn’t have to be a perfect or even a good currency; it just has to be less bad than the alternatives, the yen and the euro.

U.S. economic data released today were generally weak on an absolute basis but better than the news from the EuroZone. Industrial production in the United States decline 0.5% month over month in May—but that was pretty much what economists had been expecting. The Producer Price Index didn’t show a hint of future inflation that might inhibit the Federal Reserve’s $85 billion a month in debt purchases. The National Association of Home Builders index of strength in the housing market climbed to 44 in the month from 41. That was exactly the consensus among economists surveyed by Briefing.com.

But compare that anemic U.S. performance with the EuroZone GDP numbers released today. GDP across the EuroZone as a whole fell 0.2% in the first quarter. The French economy showed a second straight quarter of contraction with a 0.2% decline. Germany managed to scratch out a 0.1% gain, but that was less than economists surveyed by Bloomberg had expected. For 2013 the European Commission is now projecting that EuroZone GDP will fall by 0.4%. That comes after a 0.6% drop in 2012.

By the way, Japan is scheduled to release GDP data today.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , I liquidated all my individual stock holdings and put the money into the fund. The fund did own shares of Mitsubishi UFJ Financial Group and Toyota Motor as of the end of March. For a full list of the stocks in the fund as of the end of March see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/

A small-ball strategy for the uncharted territory that is 2013

Selling on valuation has felt like a mug’s game for the last six months or more.

The question now is this about to change. The last significant drop we’ve had in the U.S. stock market came in late spring/early summer of 2012. Wall Street is clearly worried about a replay of that late spring drop and it’s not overstating the case to call the current market jittery.

Are we about to see a drop that’s large enough in volume and long enough in duration so that selling on valuation will finally pay off? Or is this just enough head fake from a market that will keep on going up until global central banks take the punch bowl away?

If you’re sitting on cash do you keep sitting on it looking for drop? If you don’t have much cash should you be raising it hand over fist?

I wish I could give you one of those big dramatic “Sell everything” or “Buy everything” calls that make the headlines and sell lots of newsletter subscriptions. But I think this market is way more complicated than that. Valuations are high, economic fundamentals in much of the global economy are weak or weakening, but then cash flows from global central banks are simply off any recent scale.

We’re in uncharted territory. And that makes big calls tempting. But it also makes it very easy to get them wrong.

This post is instead a little call. Read more

My long-delayed report on the Jubak’s Picks portfolio for 2012

How you feel about the 7.3% return on my Jubak’s Picks portfolio for 2012 at least partially depends on what you think about the value of risk-adjusted returns.

Yes, on an absolute basis the portfolio badly lagged the Standard and Poor’s 500. The return on that index was 16% for 2012.

However, a good part of that lag—about half—was a result of the big cash position in the portfolio. The portfolio ended 2011 37% in cash and, after a year of trying to put money to work at good value I ended the year at 29% cash.

Doing some rough what ifs for 2012 on the effect of holding all that cash I get an 11.74% return on the money that the portfolio actually had invested in the stock market in 2012. That still trails the return on the S&P 500 but not nearly as badly as the actual portfolio did.

Besides depressing returns for the portfolio that cash position also lowered the volatility and the risk in the portfolio. So in theory you got lower returns but slept better at night.

I’ve always felt a certain amount of ambivalence about risk-adjusted returns.

Yes, I do believe risk-adjusted returns matter. If you shoot for the moon and hit it, you’ve had a great year. But that doesn’t justify shooting for the moon all the time. It’s a high-risk strategy that will catch up to most investors over time.

But, on the other hand, I haven’t yet found a grocery store that will give me more groceries or a car dealer that will give me more car because I’m paying in risk-adjusted dollars. At some point, a dollar is a dollar is a dollar. Risk adjusted or not.

And then, of course, let’s not forget that even accounting for the big cash position in Jubak’s Picks, the portfolio still trailed the S&P 500 in 2012.

Certainly the portfolio’s high cash position wasn’t to blame for all of that underperformance—it’s hard to match the index when your picks include Nokia (NOK) and OncoGenex (OGXI.)

What else went wrong in 2012? Read more

Time to buy my favorite financial–eBAY

I’m going to use the big post-earnings report drop to pick up shares of my favorite financial stock, eBay (EBAY). The stock fell  5.5% on the day after it announced earnings that beat Wall Street projections by a penny. But the company then guided second quarter and 2013 revenue below consensus expectations.

The lower guidance doesn’t bother me much. EBay’s revenue from its online marketplace and from its PayPal transaction service is sensitive to economic growth. In lowering its guidance the company pointed to the slowdown in the U.K. and EuroZone economies. That seems like a reasonable explanation, especially since the new revenue guidance is only a drop from the Wall Street consensus of $3.96 billion in second quarter to $3.8 billion to $3.9 billion.

What attracts me to the stock—and what makes eBay a financial stock–is the growth in the PayPal transaction service and eBay’s ability to grow PayPal on mobile platforms. As recent results from Yahoo (YHOO) and Google (GOOG) show, the transition to a mobile-centric world from the older desktop model isn’t easy. PayPal seems to have a real chance to be one of the companies to actually profit from the shift.

PayPal processed $145 billion transactions in 2012—that’s about 15% of the total $1 trillion in electronic commerce. (Total net payment volume grew by 21% in the first quarter.) But PayPal’s goal isn’t just to gain a bigger share of that growing stream of electronic commerce, but also to build a platform for transactions in the larger $1 trillion retail transaction market. With its 128 million users—up 5 million in the first quarter of 2013–and its reputation for safety and security I think PayPal has the potential to capture a big chunk of the next big market for financial transactions—those conducted over smartphones. The company has forecast annual revenue growth at PayPal of better than 20% a year.

None of this would matter much if eBay’s marketplace, the company’s original business, were still foundering. Read more

Sell Costco out of Jubak’s Picks to raise cash

On December 26, I wrote that raising some cash in the uncertainty over the U.S. fiscal cliff made sense. Yesterday, I wrote about how to decide what to sell to raise cash and recommended selling Costco Wholesale (COST) out of Jubak’s Picks http://jubakpicks.com/the-jubak-picks/.

My reasoning? Two weeks ago I posted http://jubakpicks.com/2012/12/12/subdued-reaction-to-earnings-beat-from-costco/ that I thought I’d got most of the gains out of owning Costco Wholesale (COST) that I could expect for a while, especially after a $7 a share special dividend, but that I would hold on for a bit further into December since, on December 12, the market seemed to be trending upwards. Holding on now for an upward trend that seems to have vanished doesn’t make sense. A stock like this is a good source of cash right now.

I’m selling with a 2.1% gain since I added the stock to the portfolio on October 24. Add in the $7 a share dividend and the total return comes to 9.4%.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/, may or may not now own positions in any stock mentioned in this post. The fund did not own shares of Costco as of the end of September. For a full list of the stocks in the fund as of the end of September see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/