Financial ETF Near Crucial Juncture

By Bryan McCormick

The Financials SPDR (XLF) exchange-traded fund is nearing a critical technical juncture.

As the sector is the second-largest by weight in the S&P 500 -- over 16 percent versus the Technology SPDR (XLK), which comes in at 21 percent -- what happens to the financial area is going to have a significant impact on the broader index. It isn't too surprising that the S&P 500 itself is nearing a similar juncture, given that the financials are that much closer to that test area.

And of course, were we to dig down an additional layer to the stocks within these ETFs, we'd find similar technical conditions in many of those names. For example, we know that a very large number of stocks in the various S&P indexes have made "bearish crossings" of their 10- and 50-day moving averages. We know also that in many technical trading systems, this is a confirmed sell signal.

As we can see on the one-year chart of the financials ETF, that same technical condition is evident. (The 10-day moving average is in pink, the 50-day in yellow.)

(Click to enlarge)

It is, however, the 200-day moving average that we need to pay attention to where the XLF is concerned. The purple line shows the 200-day average, which was last at $14.94. As we can see, that line was tested during the panic of May 6, on May 7, yesterday, and potentially again today.

This moving average is acting as an attractor for price, pulling the sector back down despite several attempts to move away from it. Note too how the 10-day moving average has acted as downtrend resistance, keeping any attempt to advance in check. If price keeps following that line, the trend is distinctly down.

And here is something that veteran technicians will tell you: The more frequently an area is touched on a chart, especially after a failed attempt to move away from it, the more likely that area is to be broken. That works by the way in an up or down tape.

There is a very real risk that this moving average will be broken at some point if it keeps testing down the way it has. If that does take place, it would mark the first break since the rally began last summer.

For the broader tape, given the weight of the sector, any attempt to rally would then be extremely difficult.

Disclosure: No positions

Types of Children’s Savings Accounts

Many parents like to save for their children when they can and there are many ways of doing this. This article looks at some of the popular types of children savings accounts.

Regular Children’s Savings Accounts

These are amongst the most common methods used by parents to save on behalf of their children. They are set up in the child’s name but controlled by parents who can deposit and withdraw money as they please. It is a good idea to make deposits on a regular basis to gradually build up the amount accumulating within the account. Some put in a set amount every month while others make payments when they have a little money spare and can afford to. Some choose to pay any money children receive for Birthday’s and Christmas from family members into the account. Parents have complete control of the account and can switch this over to the child when they see fit, whether this is when they turn eighteen or twenty-one, or earlier such as when they start to want to buy things for themselves. Because parents can also withdraw from the account they can use it to pay for things their child needs or wants. The disadvantage of regular children savings accounts is that they do not have the highest interest rates.

Children’s Bonus Bond

A children’s bonus bond is a scheme whereby parents can invest a lump sum on behalf of a child and this sum then accumulates tax free interest. This amount can remain in the account up until the child’s twenty-first birthday but they have control of the account from the time that they turn sixteen. After the account has been active for five years there is a bonus, which is also tax free. It can be cashed at anytime but if done so within the first year none of the accumulated interest is received. The idea of the scheme with the lack of interest prior to the first year and the five-year bonus is to encourage long term savings.

Fixed Term Savings Accounts

With a fixed term savings account payments are made as parents choose, but money cannot be taken out until a fixed time period has passed. This can be anything from one year to five years. The major advantage of these accounts is the high interest. As a bank or building society knows the money will be there for this fixed period they will offer a higher interest compared to other types of accounts. The disadvantage is that you are unable to withdraw until this time period has elapsed.

Child Trust Fund

The child trust fund is going to be discontinued, but that does not mean it has no value to those who are already benefiting. The child trust fund is a government scheme whereby the government gives a �250 voucher to parents of new born children to invest on their behalf and another voucher of the same amount when they turn seven. Children don’t have control until they are eighteen. Family and friends can invest up to �1,200 a year on top of this. This part of the scheme will continue as with other benefits such as investment being tax free. So for those already on the scheme and past their seventh birthday it will be unchanged. For those under seven they will not receive the second payment. Although this will be discontinued the government is likely to bring in another scheme, the Junior ISA. This will be similar but without the two government contributions. So essentially it will be the same minus a total of �500 worth of investment.

Andrew Marshall (c)

Jump Savings are a provider of Children Savings Accounts.

India Markets Monday Wrap-Up: Largely Rangebound Day

Although well into the positive, Indian markets largely traded in a range throughout the trading session today. While the BSE Sensex closed higher by around 49 points (up 0.3%), the NSE Nifty gained around 15 points (up 0.3%). Midcap and small cap stocks did better to notch gains of 1% each. While metals and banking stocks traded firm, oil& gas and auto stocks were at the receiving end.

As regards global markets, Asian indices closed mixed today. Most European indices have opened on a firm note. The rupee was trading at Rs 44.36 to the dollar at the time of writing.

Private banking stocks closed mixed today. While Axis Bank and HDFC Bank found favour, ICICI Bank closed in the red. Selling activity in the stock could be attributed to subdued results declared by ICICI Bank for FY10. Interest income fell by 17% YoY, while advances dropped by 17% YoY. Net interest margin (NIM) improved due to higher CASA proportion (42% of deposits). Operating costs dropped with cost to income ratio being at 38% in FY10 (44% in FY09). Capital adequacy ratio was healthy at 19.4% at the end of FY10. Net NPAs improved marginally to 1.9% of advances in FY10 (2% in FY09). Bottomline grew by 7% YoY due to lower operating costs. The company declared dividend of Rs 12 per share (dividend yield 1.2%).

Sun Pharma closed lower by 5% today. This could be attributed to the company announcing the US District Court’s decision of declaring the patent on Nycomed’s drug ‘Protonix’ (generic name is ‘Pantoprazole’) as valid. It must be noted that Sun Pharma had launched this product at risk in the US market in FY08 and had generated strong revenues and profits from this drug. Consequently, the overall performance in that fiscal was also enhanced. Now that the patent on ‘Protonix’ has been declared valid, there is a possibility that Sun Pharma may have to dole out damages although nothing has been divulged at present.

As per a leading business daily, India is not expected to meet its FY11 target of building roads as was originally envisaged. The original target was to build 20 km of road a day in FY11. It now appears that the country is likely build only 12-13 km of road a day. The reasons cited are problems in acquiring land and awarding contracts. In FY11, the transport minister Kamal Nath expects to build around 3,000 km of road. For this the investment required will be US$ 45 bn annually, 60% of which will come from the private sector. According to the government, India needs to spend US$ 500 bn in the five years to 2012 to overhaul its congested ports and airports, fix its potholed roads and generate more power to sustain an 8-9% growth in GDP. However, while the intention to improve infrastructure is there, execution will remain the key.

The BlackBerry Bush Is Burning

It's the end of the BlackBerry as we know it. Do you feel fine?

Shareholders in Research In Motion (Nasdaq: RIMM  ) don't feel good at all today. Shares plunged more than 15% on another disappointing earnings report, embedded in some even grimmer news. And what it all boils down to is pretty simple: It's the end of the road for the BlackBerry platform.

At first blush, and taken entirely out of context, RIM's numbers might not look that bad. The company produced $710 million of operational cash flows on $2.8 billion in sales, shipped 7.8 million smartphones, and reported subscriber growth in all regions, except North America.

But this company really is circling the drain. Sales slumped 43% year-over-year and missed analyst estimates by a $300 million country mile. The bottom-line loss of $0.37 per share was about 12 times worse than Wall Street had expected. RIM shipped nearly twice as many smartphones a year ago.

On top of that, "shipped" doesn't always mean "sold to consumers." To get the real sell-through numbers, you'd have to either conduct consumer surveys, or probe the unsold inventories at Verizon, AT&T, and Best Buy (NYSE: BBY  ) . Chances are, many of those 7.8 million tablets and smartphones are gathering dust on store shelves.

That's a terrible report and all, but the worst is yet to come.

The BlackBerry 10 software that was supposed to ride in on a white horse and rescue RIM from oblivion is getting lost on the way to Waterloo. Already delayed several times, there was still a chance that RIM could get the refresh done in time for the back-to-school season -- or at the very least, before the holiday shopping and corporate budget flush seasons at the end of the year.

But now we know that BlackBerry 10 won't make any of those deadlines. Instead, the platform is scheduled to ship in the first calendar quarter of 2013. And by then, all its rivals will have sold their latest and greatest stuff to cheering mall crowds. Smartphones using Microsoft�s (Nasdaq: MSFT  ) newest Windows operating system will hit shelves around then, as will Apple�s (Nasdaq: AAPL  ) latest and greatest iPhone. Which means that, even if BB10 is all that and a bag of Doritos after all, smartphone shoppers will still shrug and ask, "BlackBerry who?"

The smartphone wars can be brutal. Click here to find out why investors are so excited about this exploding trillion-dollar revolution -- and why RIM never could afford to miss the boat this badly.

Also, if you want to learn more reasons why Apple could have plenty of room to run from current levels, check out our new premium Apple research service run by our top technology analyst.

Is Tech Data Good Enough for You?

Margins matter. The more Tech Data (Nasdaq: TECD  ) keeps of each buck it earns in revenue, the more money it has to invest in growth, fund new strategic plans, or (gasp!) distribute to shareholders. Healthy margins often separate pretenders from the best stocks in the market. That's why we check up on margins at least once a quarter in this series. I'm looking for the absolute numbers, so I can compare them to current and potential competitors, and any trend that may tell me how strong Tech Data's competitive position could be.

Here's the current margin snapshot for Tech Data over the trailing 12 months: Gross margin is 5.3%, while operating margin is 1.4% and net margin is 0.8%.

Unfortunately, a look at the most recent numbers doesn't tell us much about where Tech Data has been, or where it's going. A company with rising gross and operating margins often fuels its growth by increasing demand for its products. If it sells more units while keeping costs in check, its profitability increases. Conversely, a company with gross margins that inch downward over time is often losing out to competition, and possibly engaging in a race to the bottom on prices. If it can't make up for this problem by cutting costs -- and most companies can't -- then both the business and its shares face a decidedly bleak outlook.

Of course, over the short term, the kind of economic shocks we recently experienced can drastically affect a company's profitability. That's why I like to look at five fiscal years' worth of margins, along with the results for the trailing 12 months, the last fiscal year, and last fiscal quarter (LFQ). You can't always reach a hard conclusion about your company's health, but you can better understand what to expect, and what to watch.

Here's the margin picture for Tech Data over the past few years.

Source: S&P Capital IQ. Dollar amounts in millions. FY = fiscal year. TTM = trailing 12 months.

Because of seasonality in some businesses, the numbers for the last period on the right -- the TTM figures -- aren't always comparable to the FY results preceding them. To compare quarterly margins to their prior-year levels, consult this chart.

Source: S&P Capital IQ. Dollar amounts in millions. FQ = fiscal quarter.

Here's how the stats break down:

• Over the past five years, gross margin peaked at 5.3% and averaged 5.1%. Operating margin peaked at 1.4% and averaged 1.1%. Net margin peaked at 0.9% and averaged 0.7%.
• TTM gross margin is 5.3%, 20 basis points better than the five-year average. TTM operating margin is 1.4%, 30 basis points better than the five-year average. TTM net margin is 0.8%, 10 basis points better than the five-year average.

With recent TTM operating margins exceeding historical averages, Tech Data looks like it is doing fine.

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• Add Tech Data to My Watchlist.

Foreclosed US Property Inventory Shrinking

Analysts at CoreLogic claim the inventory of properties in foreclosure in the U.S. is shrinking and that there were fewer foreclosures in 2011 than in the previous year. There were 270,000 fewer foreclosures last year than there were in 2010 and there were 8.4% fewer homes in the foreclosure inventory than the previous year, while the number of people with property being moved into the inventory improved by 7.3%. Experts say this is the first time in the year sales of bank-owned homes has outpaced the rate of completed foreclosures, which is further helping to shrink the inventory. Some of the states with the highest foreclosure rates include Florida, Nevada and New Jersey. For more on this continue reading the following article from Property Wire.

There were fewer property foreclosures in the United States in 2011 than in the previous year, according to the latest figures from CoreLogic, a leading provider of information and analytics.

Completed foreclosures for all of 2011 totalled 830,000 compared with 1.1 million in 2010. In December 2011 there was a month on month decrease in completed foreclosures to 55,000 from 57,000 in November 2011.
 
The December 2011 completed foreclosures figure was also down from one year ago when it stood at 67,000. From the start of the financial crisis in September 2008, there have been approximately 3.2 million completed foreclosures.

The new data from CoreLogic also shows that nationally 1.4 million homes, or 3.4% of all homes with a mortgage, were in the foreclosure inventory as of December 2011.
 
The foreclosure inventory is the stock of homes in the foreclosure process. A property moves into the foreclosure inventory when the mortgage servicer places the property into the foreclosure process after serious delinquency is reached and remains there until the foreclosure is completed.

The foreclosure inventory is measured only against homes with an outstanding mortgage, rather than against all homes. Nationwide, roughly one third of home owners own their homes outright.
 
Nationally, the number of loans in the foreclosure inventory decreased 8.4% in December 2011 compared to December 2010, a decline of 130,000 properties nationwide. The number of loans in the foreclosure inventory decreased by 5.3% in November 2011 compared to November 2010 as well.
 
The share of borrowers nationally that were 90 days or more delinquent on their mortgage payments, classified as seriously delinquent, improved to 7.3% in December 2011 compared to 7.8% in December 2010.
 
According to CoreLogic, servicers nationwide stepped up the rate at which they were able to process distressed assets, the distressed clearing ratio, in December 2011. The distressed clearing ratio is calculated by dividing the number of REO sales by completed foreclosures. The higher the ratio, the faster the REO inventory is clearing. The distressed clearing ratio was 1.03, up from 0.94 in November 2011.
 
‘The inventory of foreclosed properties has begun to shrink, and the pace at which properties are entering foreclosure is slowing. While foreclosure filings are being curtailed by a variety of judicial and regulatory constraints, mortgage servicers are completing REO sales faster than they are completing foreclosures,’ said Mark Fleming, chief economist with CoreLogic.

‘This is the first time in a year that REO sales have outpaced completed foreclosures, and part of the reason for the decrease in the foreclosure inventory,’ he added.

The five states with the highest foreclosure inventory were Florida with 11.9%, New Jersey with 6.4%, Illinois with 5.4%, Nevada with 5.3% and New York with 4.6%.

The five states with the lowest foreclosure inventory were Wyoming with 0.7%, Alaska and North Dakota both with 0.8%, Nebraska with 1% and Washington with 1.3%.

Data Flim-Flams Can Work For A While But Watch The Aftershock

The thin trading conditions continue to lead to wild swings in these last couple of weeks of the year. In some years, markets just float sideways, with investors more or less content with current allocations. This clearly has not been the case this year. The month of December has already been wild and Tuesday’s 3% rally in stocks did nothing to change that trend.

The immediate trigger for Tuesday’s rally was a stronger-than-expected Housing Starts number (685k versus expectations for 635k), but in normal times such data would not have as dramatic an effect – especially given the fact that the absolute level of Housing Starts, even with Tuesday’s second-highest-print-in-three-years figure, is drastically below the levels of a few years ago (see Chart - click to enlarge).

Yay! Big spike in Housing Starts! Right?

German manufacturing data was also strong, in contrast to much recent data off the continent, but also not something that would ordinarily move mountains, much less markets.

Bonds sold off sharply (10-year yields up 11bps to 1.92%), while inflation-linked bonds were roughly unchanged (10-year TIPS yields at -0.15%). This produced an impressive 11bps rally in 10-year inflation swaps and break-evens.

And therein lies the hint about what is really behind Tuesday’s action, if it has any external motivation at all and is not merely the twitching of a market in coma.

Increasingly, it is dawning on market participants that the recent move by the ECB to offer unlimited quantities of 3-year money to banks to buy domestic sovereign bonds is just the crazy scheme that might work. The effect of it, if it works, is to (a) push the day of reckoning for the EU, which will still come as surely as the sun rises, off by a period of time up to three years, (b) ease the transition from the Euro back to distinct national currencies (because if every bank has loans and assets from their own nation rather than from the whole of the EZ the breakup will be less traumatic for those institutions), and importantly (c) print money, since the ECB giving money to a bank to buy bonds is no different than the ECB directly buying the bonds. Admittedly (c) is only true if the ECB doesn’t sterilize the loans.

And so, after working this through, you get inflation-linked bonds outperforming their nominal counterparts by 11bps.

Now, it is true that the new ECB President has taken pains to declare that “the treaty forbids monetary financing” of governments by the ECB. There seems to be some debate on this topic, but what I have learned over the course of my career (and everyone has been reminded, in spades, over the last few years) is that people in power are all too happy to bend rules or to look the other way when they are being bent, if they believe the ends justifies the means. It looks to me as if by funding banks that then fund governments, Draghi has created enough distance that politicians who want to look the other way anyway, but had previously made strident statements that were hard to back off of, now have some cover to do so. Frankly, it’s nauseating but not surprising.

I have a weird feeling that this idea is just crazy enough to work, because in principle it can’t be pressured too much from external forces. The ECB sends money to banks, who buy high-yielding sovereigns that they pledge to the ECB. The sovereigns continue to sell their bonds to a new and ready market for them, and don’t have to worry about funding themselves in the short-run. The banks increase their leverage still further, but also increase their interest margin and, if they match-fund the sovereign bonds with ECB loans and don’t mark the bonds to market, they won’t have any more earnings volatility than they had. The ECB prints without sounding like it is printing. And everyone is happy, as long as no one blinks.

Cartels are difficult to maintain because there tend to be big incentives to cheat. (OPEC has survived as a cartel mostly because for many years – although it’s questionable if this is still true – the low-cost producer was willing and able to police compliance.) Where are the incentives here? Obviously, the ECB won’t cheat, and the sovereigns will have increased pressure on them to honor their covenant with the banks and work on getting their finances stable since in three years they may really have to raise money on their own merits rather than on the back of a scheme. What about banks? Here is where I have some mild concerns. If it is good for a bank to take in 3-year funds and buy 3-year sovereign bonds, then is it better for a bank to take in 3-year funds and buy 6-month sovereign bonds ‘just in case’? And I am sure there are other ways for a bank to try and extricate itself from this diabolical compact. Still, it is pretty easy money if everyone in the club plays along.

Spanish 10-year yields have abruptly fallen back to near 5%, which is as low as they have been in 13 months. Italian bondholders are less-impressed (perhaps because the ratio of bank balance sheets to sovereign debt isn’t as good), but 3-year yields are back to 5.58% and 10-year yields at least haven’t gone any higher.

It has been a long-shot bet all year that the EU would find a way to delay this train wreck. They failed in Greece and failed to build a firewall to prevent other countries from circling the drain dramatically and publicly. But it has also been a long shot for many, many years to bet that “the system” would collapse. By rights, after the equity bubble burst in 2000 the country and the world should have entered a deep and prolonged recession to unwind the excesses of the 1980s and 1990s. It didn’t happen, because institutions act to protect themselves (selfish memes!) and so we got outlandishly easy money rather than dealing with the consequences of the years of plenty. In 2008, many of the same institutions acted to avert what they considered disaster, and this time it required cutting some corners such as the central bank guaranteeing and financing toxic waste by means of the creation of a pair of off-balance sheet entities. Hmmm. But I don’t mean to be a scold; I’m just pointing out that it is hard to bet on the ultimate collapse because as the stakes get higher, the scruples of the people tasked with the rescue get lower.

I have a funny feeling we might have reached that moment where the crisis turns aside for a few years until the next, and probably larger, crisis hits. It is harder for me to tell that from where I sit, outside rather than inside of these institutions – in 2008, it was crystal clear exactly when the system had passed the critical point if you were sitting on or near the bank’s funding desk. It is more of a guess for me now.

That being said, it does not imply that it is time to jump into equities – although I am sure some will read my words that way and we could well get a melt-up if my read of the situation is accurate. But stocks remain expensive and the outlook for future earnings if banks are locked in a zombie embrace with their regulators and central bankers is not good. It does seem to support the reflation trade, since part of the deal from the central banks must be that they will keep rates low (the Fed has already promised explicitly to keep them low for two years).

On Wednesday, the main economic data is the Existing Home Sales data. The consensus is for a selling rate for November of 5.05mm units (annualized), but the real story is that the entire series is being revised, and being revised by a large amount. It seems that this is another case where the Cassandras were right. The National Association of Realtors (NAR) has apparently been overstating the sales for years, double-counting sales and making many other “mistakes” (which all turn out to be errors in the direction of increasing the sales count). As much as people complain about government statistics, they are generally compiled by bored civil servants who get no direct benefit if the numbers they produce are high or low. The statistics you should be naturally suspicious of are the ones produced by industry groups. This is a case in point. Flim-flams usually come to light eventually.

The actual numbers are thought to be as much as 20% or more lower than the numbers originally reported. Although this has been reported now for a few days, the data may be shocking and Tuesday’s trends may well reverse on the news. It’s what they do after the initial shock that should draw your attention. In thin markets, impulse moves tend to follow through since there aren’t as many ‘value’ players leaning against the prevailing price action. If after an initial selloff in equities (and rally in bonds) on seemingly awful housing numbers the markets reverse, then respect the move…at least, as much as any move in December can be respected.

Sears Holdings Goes Negative

Sears Holdings (Nasdaq: SHLD  ) reported earnings yesterday. Here are the numbers you need to know.

The 10-second takeaway
For the quarter ended Jan. 28 (Q4), Sears Holdings met expectations on revenues and whiffed on earnings per share.

Compared to the prior-year quarter, revenue dropped and GAAP earnings per share contracted to a loss.

Margins dropped across the board.

Revenue details
Sears Holdings reported revenue of $12.48 billion. The three analysts polled by S&P Capital IQ expected sales of $12.44 billion on the same basis. GAAP reported sales were 5.0% lower than the prior-year quarter's $13.14 billion.

Source: S&P Capital IQ. Quarterly periods. Dollar amounts in millions. Non-GAAP figures may vary to maintain comparability with estimates.

EPS details
Non-GAAP EPS came in at $0.54. The three earnings estimates compiled by S&P Capital IQ forecast $0.78 per share on the same basis. GAAP EPS were -$22.63 for Q4 versus $3.43 per share for the prior-year quarter.

Source: S&P Capital IQ. Quarterly periods. Non-GAAP figures may vary to maintain comparability with estimates.

Margin details
For the quarter, gross margin was 24.5%, 350 basis points worse than the prior-year quarter. Operating margin was -0.6%, 660 basis points worse than the prior-year quarter. Net margin was -19.2%, 2,200 basis points worse than the prior-year quarter.

Looking ahead
Next quarter's average estimate for revenue is $9.46 billion. On the bottom line, the average EPS estimate is -$2.03.

Next year's average estimate for revenue is $40.29 billion. The average EPS estimate is -$5.32.

Investor sentiment
The stock has a one-star rating (out of five) at Motley Fool CAPS, with 1,485 members out of 2,273 rating the stock outperform, and 788 members rating it underperform. Among 553 CAPS All-Star picks (recommendations by the highest-ranked CAPS members), 342 give Sears Holdings a green thumbs-up, and 211 give it a red thumbs-down.

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on Sears Holdings is hold, with an average price target of $27.25.

If you're invested in retailers like Sears Holdings, you should check out the concept that is The Motley Fool's top stock for 2012. Its founder wrote the book on big box retailing, and it's growing in increasingly important international markets. Click here for instant access to this free report.

• Add Sears Holdings to My Watchlist.

Will Struggling Small Caps Bring the Next Crash?

Since suffering a terrible May, large-cap U.S. stocks have recovered nicely. The health of the three-year-long bull market, however, may hinge on the thousands of smaller stocks that typically don't make headlines. With smaller stocks having thus far been unable to regain as much of their recent losses as their larger counterparts, are large-cap stocks primed to outperform for the foreseeable future -- or is the entire market at risk?

The eternal tug-of-war
Small-cap and large-cap stocks endlessly take turns in topping each other's performance. During the market meltdown in 2008 and 2009, small caps did worse than large caps, as the financial crisis pushed many small companies to the brink of bankruptcy. Yet when the market recovered, small caps posted impressive gains, as those surviving companies recouped huge portions of what they had lost.

That experience matches up with how small caps and large caps generally perform against each other. During bull markets, small-cap stocks tend to outperform, as smaller stocks have more room to run and fare better during the periods of overall economic growth that tend to accompany favorable movements in the stock market. Conversely, when times get tough, large companies have the stability and reliable customer base to get through them, whereas small companies are put to the test to see if they can make it until conditions become favorable again.

Why are small caps falling behind?
Recently, though, small caps appear to have gotten ahead of themselves. Looking at simple valuations, the Russell 2000 sports an earnings multiple of 33 times trailing earnings, and while that's down from 49 this time, it's definitely on the pricey side compared to the S&P 500's P/E of 15.

Moreover, future earnings estimates are extremely optimistic, with the index's forward P/E implying that overall earnings for the index's components will more than double in the next 12 months. Given the already substantial growth in the last year, those projections are quite ambitious -- and with current valuations high, any shortfall could leave small-cap stocks poised to plunge.

That's likely what's behind the performance of small caps in the recent mini-correction. In April, small caps were even more richly valued, and so it isn't as surprising as it might otherwise be that the Russell 2000 remains more than 10% below its recent peak value while large-cap indexes have recovered to within mid-single-digit percentages of multiyear highs.

Focusing on value
But just because the overall Russell 2000 is richly valued doesn't mean that every company is expensive. Doing some digging can reveal some fairly cheap-looking stocks. But even though the following small caps all have cheap earnings multiples of between 5 and 10, most of them have some pretty big risks:

• Power-One (Nasdaq: PWER  ) trades at 6.5 times earnings, but weakness throughout the solar industry has hurt demand for its power inverters.
• Bridgepoint Education (NYSE: BPI  ) sports a P/E of 7, but falling end-of-year enrollment figures have forced it to turn its focus to getting higher-quality students in order to deflect government scrutiny.
• United Online (Nasdaq: UNTD  ) seems to be stuck in the dead-end business of dial-up Internet access, although it's trying to get a toehold in the wireless broadband industry as well. Its share price is around seven times earnings.
• Like many health-care-related companies, WellCare Health Plans (NYSE: WCG  ) faces the uncertainty of the Supreme Court's scrutiny of health-care reform. Its P/E of 8 reflects the volatile nature of the industry.
• Finally, Stillwater Mining (NYSE: SWC  ) trades at less than 10 times earnings, but with platinum-group metals having seen big price declines in recent months, those profits could drop substantially in the quarters to come.

These stocks may have low price tags, but they're far from obvious bargains. If things go well, then everyone will look back at the opportunity their low share prices represented -- but there's no guarantee that things will go well.

Don't panic
With most news sources focusing on the Dow and other large-cap indexes, you won't necessarily hear about any future drop in small caps unless you're paying close attention. Given their current valuations, some declines in small caps overall may be warranted. Only if a sustained drop comes for small caps is it likely to trigger an end to the bull market for stocks overall.

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Dividend Stocks Better Deal Than Commodities Over the Long Haul. Here Are 3 to Consider

Commodities, especially silver had its rear end handed to it in a zip loc bag last week. Why? Because the smart money that picked up SLV at 18 last year had the basic, mouth breathing wisdom to punch out at 48. There’re lots of other reasons, too. Margin requirements on silver and oil have been adjusted. That’ll keep things from getting too full tilt boogie. But, like we talked about a couple of weeks ago as we disputed Jeremy Grantham’s “New Paradigm” claim, prices come down eventually. Just gonna happen.

Here’re some fun facts we stumbled on. According to data from the Credit Suisse Global Investment Returns Yearbook 2011, the annualized return for stocks from 1900 to 2010 has been 9.4%. Bonds got you 4.8% for the same time period. Commodities? How about a whopping 2.6% annualized for over one hundred years. With inflation at 3.1%, an inflation sensitive “investment” couldn’t even keep pace. Hell, you would’ve gotten 3.9% if you’d stayed in cash. But, then again, after 110 years, you’d be too dead to spend it.

Yeah, commodities have snapped back. But what doesn’t after getting hammered big time in a short period? I’m sure Enron popped on the open at least once or twice. But it’s probably the last stand. From Cairo, Egypt to Athens, Georgia, consumers are sick and tired of paying too much whether it’s gasoline or a loaf of bread. They’re the market and the market is a voting mechanism. Looks like higher commodity prices have had term limits imposed.

Judging by the return data we discussed, stocks are a better deal over the long haul. The VERY long haul. Short haul, too. Like the rock-n-roll, the ingredients, while necessary, aren’t nearly as important as the end product.

Hate to say I told you..but here are our three lil’ piggies….

“Take the skinheads bowling…”

Bowl America Class A (BWL.A)
Recent Price: 13.20
P/E: NA
Current Yield: 4.84%

The Skinny
Growing up, a friend of my family's owned one of the larger bowling alleys in town. The entire family worked liked Trojans at the business but they were very successful. They fit the historical, mom-n-pop profile of that business. Eventually, AMF decided to roll up a mom-n-pop business on a national level (my pal’s family did quite well thanks to AMF’s delusion of grandeur). Didn’t work out so well. However, that doesn’t mean it can’t work on a smaller scale. BWL.A seems to be doing OK. The company operates 19 bowling centers in Washington, D.C., Florida. Virginia and Maryland. Tiny little $46 million market cap. But, sometimes those pay off big. The company has actually been around since 1958 and has consistently turned in revenue of $27 to $30 million annually over the last five years. The company is debt free and raised the dividend at the end of last year. Not bad considering the current environment.

The Danger
BWL.A’s numbers have been slipping a little lately. 2010 EPS came in at 36 cents versus 60 cents for the previous year. Revenue has also shrunk 8.85 percent YOY. Cash seems to be tightening too. Last year, operating cash flow was around $3.5 million, down from $4.78 million for the prior year. That’s a concern. BWL’A looks like an interesting idea. Be careful though, the potential for a gutter ball is there as well.

“Take Another Look at the Book…”

Courier Corp (CRRC)
Recent Price: 11.66
P/E: NA
Current Yield: 7.20%

The Skinny
CRCC is another Yieldpig repeater. We covered it July 23 of last year. The price then was around 14. It’s on sale now and the yield has consequently bumped up thanks to that. Still the nation’s third largest book manufacturer, CRRC cranks out over 100 million books annually. The stock now trades around book value. Last year, operating cash flow jumped from $18.3 million to $27 million. Sales did grow by about $10 million. Not bad. There may be some value there.

The Danger
I’m late to the party. But I freakin’ love my Kindle. No more reading glasses. The wife doesn’t kvetch at me for stacking books up on the night stand. That’s a Cat 5 headwind. They also posted a Q2 2011 loss of 40 cents a share. Throw in the fact that 2010 EPS came in at 60 cents when four years ago they were at $2.25.
Volume is also a concern. Yesterday, around 24,600 shares traded hands. I’ve seen less liquid stocks, but that’s a mighty skinny number. Be careful with this one.

“Trust the preferreds…”

Bank of America Capital Trust IV Preferred 5.875% (BAC.PU)
Recent Price: 23.27
P/E: NA
Current Yield: 6.3%

The Skinny
It’s hard to drive through the suburbs and not realize the power of Bank of America’s (BAC) franchise, warts and all. There are plenty of their trust preferreds out there. This particular one trades at a discount to par ($25) and sports half of an investment grade rating (BB+/Baa3). Remember, the Collins Amendment in Dodd Frank stipulates that banks with more than $15 billion must begin phasing out trust preferreds as part of their Tier 1 capital structure in 2013. They’ll have three years to do so. Most will probably call them in at par. That’s a 7.4% upside in addition to the yield. Not bad for a well known name.

The Danger
Since the financial crisis of 2008, B of A, at times, reminds me of an enormous train wreck where they are constantly pulling out bodies. A lot of junk in the basement to be cleaned out. BAC.PU only has half of an investment grade rating. Not impressive for an institution of that size. Interest rates are also a factor. When they rise, BAC.PU could be smacked a bit due to its lowish original coupon (5.86%). There’s also a chance that BAC converts it into a straight preferred thanks to its low coupon.

Top Stocks For 2012-1-12-10

Blyth, Inc. (NYSE:BTH) announced that it has declared a semi-annual cash dividend of $0.10 per share on the Company’s common stock for the six months ended July 31, 2011. This represents an amount equal to the dividend paid in the comparable prior year period. The semi-annual dividend, authorized at the September 14, 2011 Board of Directors meeting, will be payable to shareholders of record as of November 1, 2011 and will be paid on November 15, 2011.

Blyth, Inc., together with its subsidiaries, operates as a multi-channel company in the home fragrance and decorative accessories industry.

Hershey Co. (NYSE:HSY) announced changes to the Hershey Global Leadership Team. Bert Alfonso has been named Executive Vice President, Chief Financial Officer and Chief Administrative Officer. Alfonso, who joined Hershey in 2006, was named Senior Vice President, Chief Financial Officer, in 2007.

The Hershey Company, together with its subsidiaries, engages in manufacturing, marketing, selling, and distributing various chocolate and confectionery products, pantry items, and gum and mint refreshment products worldwide.

Advance Auto Parts Inc. (NYSE:AAP) a leading automotive aftermarket retailer of parts, accessories and maintenance items, announced that Jim Wade has been elected to Advance’s Board of Directors. Mr. Wade has also been appointed to serve on the Board’s Finance Committee.

Advance Auto Parts, Inc., through its subsidiaries, operates as a retailer of automotive aftermarket parts, accessories, batteries, and maintenance items.

Cleantech Transit, Inc. (CLNO)

Cleantech Transit Inc. was founded to capitalize on technology advances and manufacturing opportunities in the growing clean energy public transportation sector. The Company has expanded its focus to invest directly in specific green projects. Recognizing the many economic and operational advances of converting wood waste into renewable sources of energy, Cleantech has selected to invest in Phoenix Energy (www.phoenixenergy.net). This project could benefit the Company’s manufacturing clients worldwide.

Combustion is the most common way of converting solid biomass fuels to energy. Worldwide, it already provides over 90% of the energy generated from biomass, a significant part of which in the form of traditional uses for cooking and heating. This is mostly the case in developing countries, where biomass combustion provides basic energy for cooking and heating of rural households and for process heat in a variety of traditional industries in developing countries.

Cleantech Transit, Inc. (CLNO) is pleased to announce it has met its funding requirement to secure the Company’s ability to earn in 25% of the 500KW Merced Project.

The Company is in the final stages of closing its initial interest in the Merced Project and is currently working on completing the necessary documentation and expects closing the transaction soon. As previously announced Cleantech has the option to earn up to 40% of the Merced Project and the Company plans to continue to work towards increasing its interest in the Merced Project as they move ahead.

For more information about Cleantech Transit, Inc. visit its website www.cleantechtransitinc.com

Rep. Bachus Targeted for Insider Trading in Ethics Probe

Rep. Spencer Bachus (left) confers with Fed Chairman Ben Bernanke in 2011. (Photo: AP)

House Financial Services Committee Chairman Spencer Bachus, R-Ala., is being investigated by an independent ethics agency regarding allegations that he may have violated insider-trading laws.

The Office of Congressional Ethics opened its probe in late 2011 after identifying “numerous suspicious trades” on Bachus’ annual financial disclosure forms, individuals familiar with the case told The Washington Post in a story published Thursday.

The allegations come just as the House of Representatives has passed the Stop Trading on Congressional Knowledge, or STOCK, Act. The act, which has won sweeping bipartisan support, is designed to prohibit insider trading by members of Congress. It passed, 417-2, in the House on Thursday and will be reconciled with a Senate version approved last week.

“The Office of Congressional Ethics has requested information and I welcome this opportunity to present the facts and set the record straight,” Bachus said in a statement issued to The Post by his spokesman, Tim Johnson.

If the House's independent ethics body finds reason to believe Bachus acted improperly, it would refer the matter to the House's traditional Ethics Committee, which would then have 45 days to announce a course of action, according to a story in The Wall Street Journal. However, the head of the congressional ethics body would neither confirm nor deny it is conducting an investigation.

In January, Bachus proposed legislation, H.R. 3549, the Congressional Blind Trust Act of 2011, which would subject members of Congress to new limits on how they trade equities and manage their wealth. The act would require lawmakers to place all their stocks, bonds and other securities into a blind trust that would be managed without their consent as long as they are Congress members.

Bachus recently announced that he will likely leave his post when a new Congress convenes in January 2013 due to term limits, and he may attempt to aggressively push through his committee a redraft of his bill calling for a self-regulatory organization for advisors.

However, it has been speculated that the insider trading probe may force the Alabama Republican to step down sooner.

Financial advisors watch the congressman’s activities closely because of his powerful position as chairman of the House Financial Services Committee. Recently, he has been involved in a debate over whether advisors should be overseen by the Securities and Exchange Commission or a self-regulatory organization, and whether the fiduciary duty rule will affect the SRO outcome. AdvisorOne reported on Jan. 31 that industry officials soon anticipate a redraft of Bachus’ bill calling for an SRO for advisors.

FedEx Lower Despite Strong 3Q Earnings, Positive Forecast

FedEx (NYSE:FDX) shares were getting hit hard in Thursday trading despite a strong third-quarter earnings report and positive forecasts.

The American shipper�s profits of $521 million ($1.65) came in at more than double the year-ago period�s figures on a per-share basis, and adjusted EPS of $1.55 came in well ahead of analyst expectations for $1.35. Revenues were up 9% to $10.56 billion but just shy of estimates.

FedEx also was upbeat about its fourth quarter and full-year earnings. The company forecast earnings between $1.75 and $2 per share for the fourth quarter, against expectations for $1.98, and fiscal-year earnings in a range of $6.35 to $6.60, vs. expectations for $6.36.

Despite the good news, FDX shares were down more than 4% in midday trading.

The news comes just days after rival UPS (NYSE:UPS) announced it was buying out European shipper TNT Express — a deal that would make UPS the world�s largest shipper and give UPS a greater foothold in Europe. UPS stock is trading about 2% higher since the announcement.

– Kyle Woodley, InvestorPlace Assistant Editor

Computer Sciences: A Deep Value Play That Is Also a Free Cash Flow Machine

When you analyze thousands of companies a year like I do, every once and a while you get lucky and stumble upon a company that Wall Street has totally missed the boat on and leaves you grinning from cheek to cheek. Then on top of that it gets even better, as that same company also misses their Wall Street estimates and as a result gets slaughtered by Flash Traders, while you are just about finishing up your research on it, which allows you to get in at a price that is 14% cheaper. So CSC lowered their estimates by 2.8% and flash traders trashed it by 14% in one day and brought it down from a "Steal It" price to an "Absolute Steal It" price.

The following is a Mycroft Research System Analysis of Computer Sciences (CSC) in order to show why I think Wall Street has totally missed the boat on this one, creating tremendous opportunity for the deep value investor. The current valuation that the market has placed on CSC is also a perfect textbook example of how flawed the efficient market theory really is.

The main thrust of this analysis is concentrated in three parts. The first two parts are based on owner earnings (future and historical) and the third is based on historical price action as a gauge of investor sentiment.

Before we get to the analysis let me give those new to my Mycroft Research System some links to show you how it all works.

The three methods used in this analysis are:

Price to Owners Earnings (OE) = Future analysis

Cumulative Owners Earnings (COE) = Historical analysis of owners earnings

Statistical Indicator Analysis (SIA) = Historical price action

OE and COE

SIA

CapFlow

Analysis of Computer Sciences (CSC)

Computer Sciences is an information technology and business services company headquartered in Falls Church, Virginia, USA. CSC predominantly provides IT personnel staffing services in the following areas: systems integration and professional services; enterprise application development and management; application software for the financial services industry; business process outsourcing; managed hosting services; and application and IT infrastructure outsourcing. CSC's consulting and professional services include advising clients on the acquisition and utilization of IT and on business strategy, security, modeling, simulation, engineering, operations, change management and business process reengineering. CSC serves Fortune Global 1000 companies in fifteen industries and national and local governments. CSC employs about 92,000 people in 90 countries and is one of the largest players in global outsourcing.

After reading the above description you have to say to yourself "WOW!, this is a company that is in the right place at the right time and should be selling at an overbought price instead of the deep value oversold price that it currently is."

The main reason that it is so mispriced is because Wall Street is worried about governments of the world cutting back on spending because of their huge budget deficits, but as you can see from following the news, that governments have little interest in cutting corners and would rather just borrow more money or print it until they run out of trees. In the USA for example, the Republicans and Democrats are fighting tooth and nail over cutting $60 billion in spending or about 2% of the entire budget and they are not making any progress at all.

Rumors on Wall Street are more powerful than facts, so companies that service governments have been taken to the woodshed and that is where deep value investors like me are finding the greatest bargains. As far as CSC is concerned, I see them being the last on the totem pole of cuts because they run the computers of the government and are the most cost efficient. Well enough words for now, let me show you CSC’s numbers so you can see why I think I got very lucky when stumbled upon this stock.

The following is a table containing Computer Science’s historical owner earnings data:

As you can see from the table above that the company is one of the most productive owner earnings generators on Wall Street, having pumped out $83.02 a share in COE since 1973. The current management has also done an amazing job in controlling costs as their CapFlows for the last three years have averaged about 31%. Here is CSC’s Cumulative Owner Earnings Chart so you can see how productive the company has been.

From looking at the data above Owner Earnings for the company have been excellent but what does our Statistical Indicator Analysis (SIA) tell us about investor sentiment? Here is our SIA % chart that clearly shows that investor sentiment on the stock has been dead as a doorknob, as I guess not many investors have ever really heard of the company.

Their nearest competitors are IBM (IBM) and Accenture (ACN) and both are doing very well and recently traded around their all time highs, so that should tell you that Computer Sciences should do well going forward. After all, they are expected to pump out $8.95 per share in Owner Earnings for 2011, which means that as of Friday’s closing price of $49.17, that CSC is trading at 5.49 times its 2011 price to owner earnings estimates. That is why I am of the opinion that it is trading at an "Absolute Steal it" price according to my system.

Disclaimer: Always remember that these are the results of our research based on the methodology that I have outlined above and in other articles previously published. This research is provided as an educational tool and should not be considered investment advice, but just the results of our research. There are many ways to analyze a stock and you should never blindly follow anyone’s work without doing your own due diligence or by seeking the help of an investment advisor, if you so need one. As Registered Investment Advisors, we see it as our responsibility to advise the following: We take our research seriously, we do our best to get it right, and we "eat our own cooking," but we could be wrong. Please note, investments involve risk and unless otherwise stated, are not guaranteed. Past performance cannot be used as an indicator to determine future results. Strategies mentioned may not be suitable for everyone. We do not know your personal financial situation, so the information contained in this communiqué represents the opinions of Peter "Mycroft" Psaras, and should not be construed as personalized investment advice. Information expressed does not take into account your specific situation or objectives, and is not intended as recommendations appropriate for you. Before acting on any information mentioned, it is recommended to seek advice from a qualified tax or investment adviser to determine whether it is suitable for your specific situation.

Disclosure: I am long CSC.

Emerging Markets Show Mature Markets a Clean Pair of Heels

I posted a table yesterday showing the public-debt situation of emerging versus mature countries. The commentary said:

The contrast is staggering … This trend [of escalating debt in mature markets and declining debt in emerging countries] represents a major reversal from the past, when investors in developing economies often had to factor in large sovereign debt, high default risk and wildly fluctuating currencies. Government policy changes have contributed greatly to stronger economic fundamentals in many emerging nations, while policy moves by governments have been a source of weakness and uncertainty in the developed world.

It comes as no surprise that the MSCI Emerging Markets Index has been solidly outperforming the Dow Jones World Index since the low of October 2008, as seen in the relative strength chart below (a rising line indicates outperformance by emerging markets and a declining trend the opposite).

(Click to enlarge)

But not only are public-debt levels low, company debt-to-equity levels of emerging market companies are also low and heading lower – UBS predicts a decline to 22% in 2010 from 28% this year. UBS also sees an increase in sales growth of 15% and 10% for 2010 and 2011 respectively, translating into a 34% jump in earnings this year and 12% in 2011.

Furthermore, when considering valuations emerging-market stocks appear reasonably priced. US Global Investors said:

The MSCI Emerging Markets Index has a 12-month forward price-to-earnings ratio of 10.8, which is 15% below the P/E for the MSCI World Index. As shown below, this valuation has rarely been more attractive – it is 15% below the long-term average.

(Click to enlarge)

As said yesterday, investors could do a lot worse than bargain on the outperformance of emerging market companies versus their slow growing counterparts in mature economies for a number of years to come.

Disclosure: No positions

Kandi Tech Reports Strong Results, But Future Depends on Electric Car Growth

Kandi Technologies (KNDI) reported strong earnings results this morning with an EPS of .04/share on revenues of $8.25 million. That’s a big improvement over the year ago quarter in which the company reported a loss of .03/share on revenues of $4 million, but no so impressive when you compare it sequentially. The company had been reporting accelerating revenue growth with $4 million, $5.5, $9.6 and $14.7 million over the last 4 quarters, so the $8.25 million this quarter no longer seems so impressive.

The future growth of this company really depends on the success of its COCO electric vehicle for which it recently received approval. Currently, it’s a go-kart and ATV business and while the go-kart business is doing very well with 44% growth last quarter, the future depends on its EV growth.

CEO Xiaoming Hu commented on the quarter:

The continuing recovery in the world economy as 2010 began, coupled with our efforts to expand the geographic reach of our vehicles helped us achieve strong gains in first quarter sales, led by a sharp increase in sales of our go-karts. Sales also were up in the quarter for our COCO EV. As the year progresses, our goal is to begin to expand domestic sales in China based on the landmark approval we received from the government on April 30, 2010, and when our Alliance plans in Jinhua City advance further.

Shares of KNDI are flat today and trying to hold key support of the 200-day moving average around the $4 level.

Disclosure: No positions

Top Stocks For 2012-1-15-17

Monotype Imaging Holdings Inc. (Nasdaq:TYPE) is now accepting entries through Oct. 28, 2011, for its 2nd annual Web Font Awards, the international competition that recognizes websites that incorporate exceptional use of Web fonts. Winners will be announced following a live judging event during the Future of Web Design conference, Nov. 7-9, in New York City.

Monotype Imaging Holdings Inc., through its subsidiaries, provides text imaging solutions worldwide. The company involves in developing, marketing, and licensing technologies and fonts for displaying and printing digital text.

Crown Equity Holdings, Inc. (CRWE)

Crown Equity Holdings Inc. (CRWE) is pleased to announce that it has entered into a joint venture to deploy VoIP (Voice over Internet Protocol) technology delivering voice, video and data services to residential and commercial customers. The joint venture company is Crown Tele Services Inc. which was a wholly-owned subsidiary of Crown Equity Holdings Inc. Crown Equity Holdings Inc. will own fifty percent (50%) interest in the joint venture.

Commenting on the joint venture, Kenneth Bosket, President of Crown Equity Holdings Inc., said: “We are excited to deliver VoIP communications solutions specifically designed to meet the business and residential market needs in this fast-growing global market.”

There are several reasons why corporations are considering VoIP (Voice over Internet Protocol) based systems. Among the most prevalent are call cost reductions, increased scalability and flexibility, and the ease of use and installation.
There are some benefits of VoIP (Voice over Internet Protocol) following:
Cost reduction
Flexibility
Scalability

Crown Equity Holdings Inc’s selection of Core Link reflects recent diversification beyond CRWE’s original charter as a provider of services and knowledge to small business owners taking their own companies public. In addition to these services, Crown Equity Holdings Inc has transitioned into a multifaceted media organization that publishes clients’ news online; sells advertising adjacent with its digital network targeted at a high-income audience; designs, hosts and maintains websites; produces marketing videos from concept to final product; crafts press releases and articles for maximum SEO; develops email campaigns; and forges branding campaigns to bolster client company images.

Crown Equity Holdings, Inc. together with its digital network currently provides electronic media services specializing in online publishing, which brings together targeted audiences and advertisers. Crown Equity Holdings Inc. offers internet media-driven advertising services, which covers and connects a range of marketing specialties, as well as search engine optimization for clients interested in online media awareness.

For more information, visit http://www.crownequityholdings.com

S1 Corporation (Nasdaq:SONE) announced that it has terminated its merger agreement with Fundtech Ltd. and received an $11.9 million termination fee. The Special Meeting of Stockholders scheduled for October 13, 2011 has been canceled.

S1 Corporation provides payments and financial services software solutions in the United States and internationally. The company operates in three segments: Banking: Payments, Banking: Large Financial Institution (FI), and Community Financial Institution (FI).

OncoGenex Pharmaceuticals, Inc. (Nasdaq:OGXI) announced that the company has successfully completed an amendment to the approved SPA with the U.S. Food and Drug Administration (FDA) to expand the inclusion criteria for the Prostate Cancer SATURN Clinical Trial - a Phase III study testing whether their experimental drug custirsen, also known as OGX-011/TV-1011, can improve quality of life by reducing cancer pain for more than 12 weeks in men with metastatic castrate-resistant prostate cancer (mCRPC).

OncoGenex Pharmaceuticals, Inc., a biopharmaceutical company, engages in the development and commercialization of new cancer therapies that address treatment resistance in cancer patients.

Are These Dividend Stocks in Trouble?

The market's highest-yielding dividend stocks are easy to love. Not only do they pad shareholders' pockets each quarter, but they also generally carry less risk than their non-dividend paying brethren. It's partly for these reasons that Fool Dan Dzombak's high-yield portfolio is beating the S&P 500 by almost 12 percentage points.

As we've seen over the last year, however, certain high-yielding stocks can nevertheless wreak havoc on an investor's portfolio. And mortgage REITs in particular have been some of the worst offenders. In an article about the 10 worst mREITs of 2011, for example, Fool analyst Anand Chokkavelu exposed mREIT stocks that produced sizable negative returns despite often offering huge dividend yields.

To see why this is so, and to help predict what's in store for these stocks going forward, we'll take a look at the biggest threat facing these monster dividend payers in 2012.

mREITs and interest rate risk
Mortgage REITs are leveraged investment funds that invest either directly in real estate or indirectly via mortgage-backed securities and collateralized mortgage obligations. They make money by borrowing capital at low short-term interest rates and then lending it out at higher long-term rates. The difference between the two, illustrated in the table below, is known as the interest rate spread.

Company	Interest Rate Spread	Dividend Yield	Add to My Watchlist
Chimera (NYSE: CIM  )	4.9%	16.7%	Add
Invesco (NYSE: IVR  )	2.4%	18.6%	Add
Armour Residential (NYSE: ARR  )	2.2%	18.5%	Add
Annaly Capital Management (NYSE: NLY  )	2.1%	14.2%	Add
American Capital Agency (Nasdaq: AGNC  )	2.1%	19.9%	Add

Source: S&P Capital IQ, as of most recent quarterly data.

While it may seem ironic given the condition of the real estate market since 2008, these funds have done particularly well for most of the intervening time period. The reason for this is that their borrowing costs have dropped to near-historic levels, courtesy of the Federal Reserve's efforts to revitalize the economy by decreasing short-term interest rates.

Annaly's cost of borrowing provides a perfect example. Its average cost of interest-bearing liabilities has decreased by a staggering 60% since the second quarter of 2008, going from 4.18% down to 1.63% in the third quarter of 2011. Meanwhile, its average yield on interest earning assets decreased by only 34% over the same time period, going from 5.64% down to 3.71%. Annaly's interest rate spread increased in kind, going from 1.46% in the second quarter of 2008 up to 2.68% in the third quarter of 2011, an increase of 46%.

The issue now, however, is that the Federal Reserve appears intent on lowering long-term interest rates -- particularly those that affect the housing market. William Dudley, president of the Federal Reserve Bank of New York, addressed this in a recent speech before a New Jersey bankers group: "The ongoing weakness in housing has made it more difficult to achieve a vigorous economic recovery . . . With additional housing policy interventions, we could achieve a better set of economic outcomes." And these comments come after Federal Reserve Governor Daniel Tarullo called on the central bank to initiate another round of quantitative easing targeted at mortgage-backed securities. According to The Wall Street Journal, the idea is to push mortgage rates downward to encourage more home purchases and to spur refinancings that could provide homeowners with cash to buy other goods.

While lower long-term interest rates are great for homeowners, as they translate into lower mortgage rates, they're anathema to an mREIT like Annaly, which relies on the interest rate spread to make money and thereby pay its monster dividend. I believe it was this fear that led investors to bid down the price of mREIT stocks in 2011. Even including Chimera's and Invesco's double-digit dividend yields, for example, both stocks ended the year down by more than 20%. And the remaining three companies in the table above -- American Capital Agency, Annaly, and Armour Residential -- all saw the price of their shares decline.

What to expect from 2012?
As I've discussed before, I'm extremely bearish when it comes to mREITs over the near- to mid-term future. I believe current economic realities -- principally the unemployment rate -- and the new composition of the Fed's monetary policy committee make it highly likely that the central bank will move to decrease long-term interest rates. This would eviscerate mREITs' profits and force them to further reduce their dividend payouts, which will have the corresponding effect of decreasing the price of their shares. And while I could be wrong, I see this as a probability and not a possibility.

If you're looking for dividend stocks that don't face this same type of risk, some of the best that I've found are disclosed in our free report about 11 dividend stocks with generous yields and stable outlooks. It includes a handful of well-known companies like AT&T and Proctor & Gamble, as well as a lesser-known, but very intriguing, investment bank with a high dividend yield and impressive recent performance. To access this report while it's still available, click here now -- it's free.

Tax Planning Advice: Consider Transferring a Residence to a QPRT—Ben Ledyard

This is the sixth in a series of 23 tax tips that AdvisorOne will publish on each business day in March as part of our Tax Planning Special Report (see our Special Report calendar for a more complete list of topics to be covered and experts who will deliver their insights).

The tax tip today comes from Benjamin Ledyard, director of Wealth Strategies and regional director of the Mid-Atlantic for Silver Bridge Advisors. During his 15 years of experience in wealth management, he has developed expertise in financial, tax, wealth transfer, risk management, investment oversight, family governance, business succession, executive benefits and philanthropic planning.Ledyard holds a JD from Widener University School of Law and a bachelor’s degree from the University of Delaware. 

The Tip: Consider Transferring a Residence to a QPRT

Effective Jan. 1, The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the Act), provides a wonderful opportunity for families and individuals to transfer wealth. But it’s scheduled to sunset at the end of 2012, so the time for action is now. The Act’s 500% increase in the gift tax exemption, for $1 million to $5 million, opens the window for more sophisticated transfer strategies, especially for wealthier families and individuals, according to Ledyard (left). 

Now is a good time to look at the qualified personal residence trust (QPRT), Ledyard says. This is an irrevocable trust funded by the homeowner’s interest in the residence. The homeowner transfers the house’s title to the trustee of the QPRT, but retains the right to live in the house rent free for the term of the trust. At the end of that time, the residence passes to the beneficiaries of the QPRT—typically the homeowner’s children.

The transfer of the title to the QPRT is considered a gift to the beneficiaries of the trust, but its value is reduced by the homeowner’s retained interest in continuing to live in the house rent free during the trust term. And the longer that term, the greater the reduction of the gift tax valuation at transfer.

Any appreciation in the residence’s value after transfer to the QPRT is removed from the homeowner’s taxable estate. The flipside of this shiny coin, however, is life expectancy risk: If the homeowner should die before the end of the QPRT’s term, the house will revert to his or her taxable estate.

The homeowner who survives the term of the trust can no longer live in the residence rent free, but must sign a formal lease and pay market rate rent to the beneficiaries. For some, this can be a further way to transfer wealth free of wealth transfer taxes. The beneficiaries pay tax on the income.

Ledyard says QPRTs became much more attractive on Jan. 1 because the gift uses up only a small portion of the now greatly increased lifetime credit. When that limit was $1 million, a QPRT would eat up much of that credit.

See our Tax Planning Special Report calendar for a list of future topics to be covered.

DryShips Goes Negative

DryShips (Nasdaq: DRYS  ) reported earnings on May 29. Here are the numbers you need to know.

The 10-second takeaway
For the quarter ended March 31 (Q1), DryShips missed slightly on revenues and missed expectations on earnings per share.

Compared to the prior-year quarter, revenue improved significantly and GAAP earnings per share dropped to a loss.

Margins dropped across the board.

Revenue details
DryShips booked revenue of $247.5 million. The five analysts polled by S&P Capital IQ looked for sales of $251.9 million on the same basis. GAAP reported sales were 19% higher than the prior-year quarter's $207.4 million.

Source: S&P Capital IQ. Quarterly periods. Dollar amounts in millions. Non-GAAP figures may vary to maintain comparability with estimates.

EPS details
EPS came in at -$0.11. The six earnings estimates compiled by S&P Capital IQ predicted -$0.05 per share. GAAP EPS were -$0.12 for Q1 compared to $0.07 per share for the prior-year quarter.

Source: S&P Capital IQ. Quarterly periods. Non-GAAP figures may vary to maintain comparability with estimates.

Margin details
For the quarter, gross margin was 54.8%, 1,170 basis points worse than the prior-year quarter. Operating margin was 8.6%, 1,860 basis points worse than the prior-year quarter. Net margin was -19.2%, 3,160 basis points worse than the prior-year quarter.

Looking ahead
Next quarter's average estimate for revenue is $360.1 million. On the bottom line, the average EPS estimate is $0.11.

Next year's average estimate for revenue is $1.30 billion. The average EPS estimate is $0.19.

Investor sentiment
The stock has a three-star rating (out of five) at Motley Fool CAPS, with 2,957 members out of 3,317 rating the stock outperform, and 360 members rating it underperform. Among 575 CAPS All-Star picks (recommendations by the highest-ranked CAPS members), 463 give DryShips a green thumbs-up, and 112 give it a red thumbs-down.

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on DryShips is outperform, with an average price target of $3.90.

Over the decades, small-cap stocks, like DryShips have provided market-beating returns, provided they're value priced and have solid businesses. Read about a pair of companies with a lock on their markets in "Too Small to Fail: Two Small Caps the Government Won't Let Go Broke." Click here for instant access to this free report.

• Add DryShips to My Watchlist.

Weyerhaeuser: 5 Reasons Paper Will Beat Rock

The last few years have been really good to commodities in general, but metals and mining (therefore "rock") in particular. Mining blue chips such as VALE and Freeport McMoran (FCX) have been the envy of the market, as they've fed China's seemingly insatiable appetite for building & construction. In that same time frame, Weyerhauser (WY), a blue chip in "paper" has performed in line with the market, but languished in comparison with mining plays. One reason for this tepid past performance is that WY has been a victim of being viewed as a pure play on US Housing.

Two things are changing that make me take paper over rock going forward. First, the bullishness on China is turning to nervousness, reflected in a number of articles including this on Yuan Revaluation. Second, the market is beginning to consider the trough valuations for US housing, and the meaningful potential upside starting late 2012, early 2013. In that second category, WY provides a levered 'picks and shovels' play on US housing, while also providing a play on other construction (see below).

Here are 5 reasons to be optimistic about WY going forward :

• US Housing. The multi-year malaise in US Housing might be coming to an end, signaled both by new house starts as well as used home sales. Two recent positives are the surge in new home starts according S&P Housing Views, and the recent earning beat by KB Homes and the associated upbeat note by Goldman Sachs. WY, as a strong player in the high quality lumber business, is particularly levered to the housing market.
• Global exposure a net plus. While WY is growing its business globally like any other S&P company, 81% of WY's export revenue comes from Japan (see the UBS conference presentation on WY's Investor site). The tragic devastation of property in Japan is likely to lead to an equally significant reconstruction, and WY's significant presence and strong relationships in Japan should be provide strong upside in the months and years to come.
• Dividend Bubble. Given the record low rates in bonds and the non-zero potential of default on government bonds, we are seeing a movement toward dividend paying stocks that yield as much or more than bonds with the possibility of dividend growth. Some such as this SA contributor make the case that this might be the beginning of a 'dividend bubble.' This is a plausible argument, given investor hunger for yield and fear of the spastic algorithmic trading that has taken over the market. WY's current dividend of 3.5% is solid and conservative, with substantial upside (see Plum Creek Timber for a comparable) and a stated goal of being aggressive about dividend increases.
• Analyst upgrades. A number of analysts have recently turned positive on WY and the longer-term story for high quality timber. Two of note are Steven Chercover, a Starmine rated analyst who set a $22 target on WY, and more recently its inclusion in CNBC talk show host Jim Cramer's High Dividend Stock Picks.

(Click chart to expand)

• Technical Breakout?. WY has been in a base setting channel for the last few months between $16 and $18. As you can see from this chart, any breakout of that takes you to $22 (see the peak in July and August 2011). Coincidentally, that is the next target in the Steven Chercover's upgrade alluded to in the previous point.

Conclusion. Betting on housing is risky in the near term but a safe bet in the longer term, given that the US is going to have long-term population growth. The question is timing. While no one can predict the exact inflection point, I argue that you are more right than wrong if you pull the trigger now.

Disclosure: I am long WY.

CVS Cashes In on Walgreen-Express Impasse

CVS Caremark (NYSE: CVS  ) has raised its annual guidance by $0.03 to between $3.18 and $3.28. Reason: Higher-than-expected gains from the Walgreen (NYSE: WAG  ) and Express scripts (Nasdaq: ESRX  ) spat.

Valuable additions
In CVS CEO Larry Merlo's words, "The pharmacy customer is the hardest person to lose, but once you lose them, it's the hardest person to get back." With customers unable to fill out their prescriptions at Walgreen's stores, companies such as CVS and Rite-Aid are welcoming them with open arms. As Walgreen and Express take longer and longer to resolve the issue, CVS continues to benefit. According to Merlo, the number of prescription transfers has been higher than expected.

While the break-up didn't have any significant effect on CVS' fourth-quarter results, 2012 paints quite a different picture. To get some idea of how much there is to gain, here are a few numbers: Last year, Express contributed $5.3 billion to Walgreen's top line, about 7% of its total revenue. No wonder CVS is upbeat about 2012.

Beyond the tiff
Although the rift did not affect CVS' fourth-quarter top line, the company's pharmacy services revenues for the quarter still rose a staggering 32.4% to $15.9 billion. The rise is attributable in part to the long-term contract between CVS and health insurer Aetna (NYSE: AET  ) . The two have entered into a 12-year strategic alliance where they'll provide high-value pharmacy plans. Overall, revenues rose 15%.

CVS has a lot to look forward to this year. How much it actually stands to gain from Walgreen's misery remains to be seen. But CVS will look to make the most of it. We at The Motley Fool will keep you up to date on all the latest to hit the drug retailing space. Simply click here and add any of these companies to your watchlist. It's free, and you can start today using the links below. Fool on!

• Add�Walgreen�to My Watchlist.
• Add�Express�scripts�to My Watchlist.
• Add�CVS�Caremark�to My Watchlist.
• Add�Aetna�to My Watchlist.��

Self-Employment Is Great, Except at Tax Time!

All my friends are envious that I work mostly at home, on my own schedule. Of course, they don�t realize that being an independent contractor means that I work a whole lot more hours than most folks who receive a regular paycheck, and at all times of the day and night!

Being self-employed is not for the faint at heart. But it has many rewards, including flexibility, being your own boss, and knowing that the amount of effort you expend is directly related to your results.

However, when Uncle Sam comes �round every few months — with his hand out — I grit my teeth and just write out the inevitable check. Listen, I don�t mind paying my fair share, but the Self-Employment Tax pushes my goodwill to the limit.

And�it requires additional tax planning that many new independent contractors don�t understand.

You see, when someone else writes your paycheck, they also pay one-half your Self-Employment Tax, which is essentially Social Security and Medicare taxes. But when you are your employer, you have to pay it all! And for 2011, that means your nut is 13.3% of the first $106,800 of your self-employment income (10.4% for Social Security and 2.9% for Medicare). That is actually better than 2010, thanks to the 2010 Tax Relief Act that reduced the self-employment tax by 2% for 2011.

On the plus side, Uncle Sam also allows you to deduct one-half of your self-employment tax when calculating your adjusted gross income. Note though, that the deduction only applies to your income tax — not to your net earnings from self-employment or your self-employment tax.

So, the next time your friends tell you how easy you have it being self-employed (and don�t forget how rich, either!), share this little story — maybe they�ll buy your dinner.

China Overtakes U.S. in Retail Consumerism

The United States has long been known as the world’s biggest consumer nation.

But this is no longer the case. Developing countries that are very densely populated have industrialized, and they’re pushing past the U.S.

Recent information from the U.K.-based Institution of Grocery Distribution (IGD) revealed that China has surpassed the U.S., now making it the biggest retail nation in the world.

The information included daily shopping statistics from places like grocers, clothing stores, pharmacies, and warehouses, and excluded luxury and large purchases like property.

And it showed that Chinese spending in just these areas is growing 11% each year, compared with the 4% annual growth in the U.S.

In 2011, the U.S. spent $907.5 billion in retail. Chinese consumers spent roughly $963 billion.  And the gap will just keep getting wider. By 2015, IGD determined, the U.S. retail market will be worth $1.07 trillion while China’s could reach $1.45 trillion.

But China isn’t the only nation moving up in consumerism.

Brazil, India, and Russia are all on their way to pass Japan, which is currently in third place. Just like China, these economies are growing into competitive markets.

And as technology like smartphones and online shopping grows in popularity, the U.K. is changing its position too.  The 9th largest in retail shopping, the U.K.’s market is growing by 3.2% each year.

IGD information shows that it could soon pass Germany to become the nation with the highest-spending shoppers.

But with China at number one in retail, companies from the U.S. and U.K. could really stand to profit from expansion into China.  Joanne Denney-Finch, chief executive of IGD, said:

“Between 2006 and 2015, the Chinese grocery market is forecast to triple in value and to be worth nearly a trillion pounds ($1.6 trillion).”

She attributed the growth to the high population, expansion of the economy, and the inflation of food prices.

 

First Eagle Fund’s Arnhold on Loving Japan and Hating Alpha

How much do you really know about First Eagle Funds? Sure, it’s racked up fantastic performance and given us legendary investors like Jean-Marie Eveillard, but its history is just as fascinating, and the tradition in which it’s steeped is a big part of its success.

John Arnhold (left), First Eagle Investment Management’s chairman and CIO, is a scion of the family that started the firm in Dresden, Germany, in 1864. It’s quite a tale, and Arnhold took time to explain it to AdvisorOne, along with the firm’s interest in Japan (post-natural disaster as well as long before) and why alpha is simply a Greek letter.

Q: There’s much to be said for longevity. The firm got its start in 1864, but actually traces its roots back to 1803. Can you explain?

A: Our predecessor name was Arnhold and S. Bleichroeder, which is a firm that traces its history back to Germany where my family started its banking business in 1864. The Bleichroeder part of the firm was acquired in 1931, but it actually started in 1803. So we trace our history back over 200 years and we had a very successful bank in Dresden and Berlin. During the Nazi regime we were forced to sell the bank and, thankfully, the family fled the country. A number of family members came to the United States and began the business anew. During the subsequent decade my great granduncle focused the firm on the investment banking and global securities brokerage businesses. 

Q: And today?

A: Our only business today is our asset management business, which began in fund form in 1967. It was called First Eagle Funds N.V. and the name was derived from a bank that we had owned in Switzerland called Adler Bank. Adler is German for Eagle. The name Eagle Funds had already been taken in the United States, so used the name First Eagle. In 1987, we started our first mutual fund called First Eagle Fund of America. In 2002, we sold our investment banking and broker-dealer business to a large French bank. We think of ourselves as investment managers rather than asset gatherers. We focus on long-term capital preservation and preserving purchasing power overtime. And we serve over two million shareholders globally.

Q: How does this history influence First Eagle's investment philosophy?  

A: It’s actually a result of what happened almost 100 years ago. When Germany went through a period of hyper-inflation in the 1920s, the family had substantial industrial interests in a number of different industries, including brewing and ceramics. It was by owning the actual companies that we managed to preserve capital and purchasing power during that time. So our philosophy has always been that the best way to preserve long-term purchasing power is to own good businesses, but at prices that reflect a margin of safety. The future is uncertain; we can’t predict macro events nor can we predict with accuracy cash flows going out a year, five years and 10 years. But we try to determine what we think a business is worth today. If we can buy that business at a substantial discount from intrinsic value, we believe we have a margin of safety which will protect us to some extent if things don’t turn out as we hoped or anticipated.

Q:  Fantastic. So where are you finding alpha as a firm?

A: Not to be particularly controversial, but we don’t look for alpha. As far as I can tell, alpha is a Greek letter. It really means relative performance. So we’re not looking at relative performance. What we’re trying to find are great businesses that we can own at prices that afford us a margin of safety. If you look at our portfolio, we have a large presence in the United States and a particularly large presence in Japan. In the United States in the last two years, there have been pockets where multiples and prices have become more reasonable. And we’ve been able to add some excellent names, particularly in technology, which we would have loved to have owned in 2000, had they been trading at multiples which afforded us a margin of safety.

Q: What is attractive about Japan after the earthquake, Tsunami and resulting nuclear mess?

A: If you look at Japan, it's a market and economy that has been a relatively uninteresting place to be an investor. But because the macro picture is less than desirable there has been very little money flowing into Japanese equities. But there are world-class businesses in Japan that actually operate around the world and have traded at very reasonable prices. We’re taking advantage of those opportunities.

Top Stocks For 3/27/2012-3

National Health Partners, Inc. (NHPR)

National Health Partners, Inc. is a national healthcare savings organization that provides discount healthcare membership programs to uninsured and underinsured people through a national healthcare savings network called “CARExpress.” CARExpress is one of the largest networks of hospitals, doctors, dentists, pharmacists and other healthcare providers in the country and is comprised of over 1,000,000 medical professionals that belong to such PPOs as CareMark and Aetna.

Most people who have managed care health insurance don’t even understand the concept or why they might be better or worse than ordinary insurance plans. Under managed care insurance, companies attempt to control the cost of health care for employers by introducing specific guidelines or protocols health care professionals must follow and improve the ways both employees and employers select their medical providers and facilities. The assumption is the plan will allow a financial accounting that shows the results of various medical treatments in both patient responses and quality of life issues. The belief is that a managed care system will allow both employers and employees to make better judgments concerning quality health care providers.

The company’s primary target customer group is the 47 million Americans who have no health insurance of any kind. The company’s secondary target customer group includes the millions of Americans who lack complete health insurance coverage. The company is headquartered in Horsham, Pennsylvania.

National Health Partners, Inc. recently announced that it has signed a new agreement with a major marketing company that will significantly enhance the growth of its CARExpress membership base.

According to the Company, this deal, in combination with the previous partnership with Xpress Healthcare, will enable the company to build its membership base exponentially, initially generating in excess of an additional 2,000 new members per month. The new campaign is set to launch within the next few weeks and will provide a material positive impact on the company’s 2nd quarter sales.

National Health Partners anticipate that this new marketing agreement will provide a major impact on their overall sales not only for the 2nd quarter, but more importantly for the year. They look forward to building on the profits that they anticipate generating in 2011 that will be driven by substantial growth in sales of their CARExpress health discount programs. The combination of their substantial growth with their low price-to-equity ratio should reflect itself in the price of their stock over the coming months.

For more information about National Health Partners, Inc visit its website www.nationalhealthpartners.com

Global Hunter Corp. (BOB.V)

Copper has been known since prehistoric time. It has been mined for more than 5000 years. Sometimes copper appears in its native state. It is found in many minerals, including malachite, cuprite, bornite, azurite, and chalcopyrite.

Global Hunter Corp. engages in the acquisition, exploration, and development of mineral properties in Canada and Chile. It primarily explores for gold, copper, and base and precious metals. The company was founded in 1988 and is headquartered in Vancouver, Canada.

Copper is widely used in the electrical industry. In addition to many other uses, copper is used in plumbing and for cookware. Brass and bronze are two important copper alloys. Copper compounds are toxic to invertebrates and are used as algicides and pesticides. Copper compounds are used in analytical chemistry, as in the use of Fehling’s solution to test for sugar. American coins contain copper.

Global Hunter Corp. announced that it recently completed a surface sampling program at La Corona de Cobre. The program was designed to collect surface samples from the numerous prospective shear zones. This would aid in the definition of drill targets to expand on the copper oxide mineralization. The company has collected approximately 250 samples from the shear zones listed below.

The shear zones and areas of alteration that have been sampled (from East to West) include the following zones:
- El Manto.
- La Golondrina.
- Cerro Borracho.
- El Tazon.
- La Copa.
- La Varrilla.
- Et Tazon.
- Vino Fino.
- Abisinia.
The samples have been collected from outcrops along the entire strike lengths of the shears and will be shipped to ALS Chemex Labs in La Serena Chile for analysis.

For more information about Global Hunter Corp please visit http://www.globalhunter.ca

Solera Holdings, Inc. (NYSE:SLH) will release its financial results for the third quarter ended March 31, 2011 on Monday, May 9, 2011 after the market closes. A conference call will be hosted by Tony Aquila, Solera’s founder, chairman and CEO, and Renato Giger, Solera’s CFO, at 5:00 p.m. EDT that evening. The conference call will be webcast live in listen-only mode and can be accessed by visiting the Investor Relations section of the Solera website: www.solerainc.com.

Solera Holdings, Inc. provides software and services to the automobile insurance claims processing industry.

The TJX Companies, Inc. (NYSE:TJX) reported April 2011 sales results. Sales for the four-week period ended April 30, 2011, were $1.7 billion, up 9% over the $1.6 billion achieved during the four-week period ended May 1, 2010. For the 13-week period ended April 30, 2011, sales reached $5.2 billion, a 4% increase over the $5.0 billion achieved in the same period last year. Consolidated comparable store sales for the four-week period ended April 30, 2011 increased 5% compared with a 4% increase in the same period last year. For the 13-week, year-to-date period, consolidated comparable store sales increased 2% on top of a strong 9% increase in the same period last year.

The TJX Companies, Inc. operates as an off-price retailer of apparel and home fashions in the United States and internationally. Its stores offer apparel, including footwear and accessories; home fashions, including home basics, accent furniture, lamps, rugs, wall decor, decorative accessories, and giftware; jewelry and accessories; men and juniors offerings; childrens furniture; seasonal merchandise; and other merchandise.

American Tower Corporation (NYSE:AMT) reported financial results for the quarter ended March 31, 2011. Jim Taiclet, American Tower’s Chief Executive Officer stated, “Our financial results for the first quarter demonstrate the robust environment in the U.S. wireless market, driven by immense growth in demand for broadband data services, and the ongoing success of our international expansion strategy. To address the rapid growth in data services, some of our U.S. wireless customers were pursuing strategic initiatives to improve their networks’ ability to meet those needs. We support these types of initiatives, which will enable our customers to deploy next generation services to more subscribers rapidly and efficiently. During the next few years, we anticipate the deployment of three to four national 4G networks in the U.S., which will provide significant opportunity for ongoing revenue growth.

American Tower Corporation, through its subsidiaries, operates as a wireless and broadcast communications infrastructure company. It develops, owns, and operates communications sites.

Product Recall Insurance Debated in Wake of Egg Recall

In the wake of the recall of over half a billion eggs due to contamination by salmonella, economic losses are still being calculated; how much of those losses are insured is yet to be determined. And as incidents of food contamination rise in frequency and severity, insuring against losses incurred because of such events becomes more of a matter for consideration.

Product recall insurance has been steadily rising on business owners' radar screens for the past few years, as recalls of everything from pet food to spinach to peanut butter and now eggs take a higher and higher toll - not just on the public, with deaths and hospitalizations, but also on businesses - business interruption, the cost of the recall itself, and the reputational damage to the company involved can amount to a devastating loss, depending on the incident.

While the cost of claims resulting from injury or illness may be covered by general liability insurance, the expense of business interruption is another matter altogether. Coverage is not that common - third-party recall insurance, for instance, is not offered by that many insurers, although first-party coverage is more widely available - and only 10-20% of companies that deal in foods and beverages carry such insurance. Still, coverage has increased since 2006, and seems likely to continue to rise.