Investment Ideas

2 US-headlines of last week I consider most noteworthy: FED extends the zero interest policy to 2014 (keeping the target rate from 0 to 0.25 % and initiating an inflation target at 2 %) and 2.8 % US GDP-growth in Q4 '11.

The Q4 '11 numbers did not really impress, stocks started to slide after a good start into 2012. Reasoning for that slide was that inventory build up accounted for 1 % of the growth. Sure you cannot build-up inventories for ever, so this cannot be a growth driver in every quarter. CFOs do their utmost to keep inventory levels low at year end, thus improving their yearly cash-flow performance. Either companies overestimated Q4 demand and ended up with to much inventory or their inventories had been unsustainable low to accompany the demand growth they see in 2012. Other US-numbers look still good (declining job-less number, raising capital goods investment, 2 % consumer spending growth - all despite a drop in government spending). Overall growth outlook is 2.5 % for 2012 - well above European numbers.

The FEDs announcements: For the first time they set an inflation target - thus following the policy of most central banks. Argument for the prolonged almost-zero-interest-policy was Bernanke's expectation that unemployment will remain high during the next years. Thus, we will remain in an environment with artificially low interest rates, as the FED does not expect the economy to recover enough to allow for the old normals here. One of their most powerful tools is planned to be used to full extend. I guess, they can accomplish that, but whether the inflation will really be around 2 % remains to be seen.

(Alternative read: Gold will earn you 2 % real numbers in the following years if the FED is successful and the price of the metal does not change.)

On comparison the news from the Europe: interest rates on Portuguese debt rise, Greek 'voluntary' debt cut above 60 % required, Germany wants EU to control Greek budget (I see new Merkel comics with Adi's beard), and Germany requires Greek to pay 'debt first' after refinancing. I guess, this initiates a new round of 'negotiations'. Merkel - already under pressure on the Davos summit - starts to make demands that no Greek politician can fulfill. Citing the political squeeze she feels in her home-country - making it impossible to give more money to the Greek or any additional money at all if they fail to honor their austerity commitments - both sides start to entrench at positions, the other side cannot accept. This is the start of politicians to accept that Greek is doomed and to prepare the exit from the rescue plans. (Unfortunately 2 years too late and after banks and money-nobility had plenty of ability to unload their Greek papers on European institutions backed by the (German) tax-payer. Shame on the politicians colluding with those special interest groups.)

On of the playing flied this still suggests US equities (and Chinese ones - I will address them in an upcoming post) over European ones, though the DAX had a nice rally during the last weeks. I took some time to go through the charts of S&P100 providing me with an interesting list of 12 stocks at or near their ten-year-high.

Caterpillar (CAT), Chevron (CVX), Coca-Cola (KO), Colgate (CL), Costco (COST), Heinz (HNZ), IBM, Kraft (KFT), McDonalds (McD), Nike (NKE), Union Pacific (UNP), and VISA (V).

Scratching every-one with an expected dividend rate below 2 % we are down to 5 stocks: CVX (3.1), KO (3.0), CL (2.6), HNZ (3.7), KFT (3.1), and MCD (2.8). The most sound plays here seem to be Chevron (if you have no oil-stocks so far), Coke and McDonalds. All of them are huge companies not going to disappear, have a high equity share, no or below 1x net debt to EBITDA, and a history of increasing dividends. For the moment, MCD would be my favorite, as the stock came back a little after recent earnings release. (This also provides an excuse for 'fact-finding-missions' to one of their restaurants in the next weeks.)