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Muditha Weeratunga  

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  • Who's Really To Blame For Higher Oil Prices? [View article]
    Another way of making money out of high oil price is to Buy retail (consumer staple) stocks and short the consumer discretionary stocks. When the inflation picks up supermarkets are better positioned to transfer the inflation pressure to consumers and the squeeze on the discretionary spending is captured via shorting the consumer discretionary stocks.
    Mar 7, 2012. 04:54 PM | Likes Like |Link to Comment
  • Post QE2: An Eerily Familiar Pattern for Stocks [View article]
    Excellent Article. very much my view as well. But in the short term this can be a good news as well. Personally I expect the debt ceiling to be lifted after some political debates. And there is going to be another presidential election in 2012 and it is very unlikely government will let the economy alone.
    If see the markets continue to crash, I think Fed will manipulate the markets again with another QE and we might see a rally in the short term again.
    Jul 11, 2011. 06:17 PM | Likes Like |Link to Comment
  • Commodities Bubble: Why I'd Avoid Iron Ore at Current Levels [View article]
    just FYI:
    I have highlighted the market performances for few mining stocks and broder market since the February (the article was published on 7/Feb)

    Iron Ore prices: - 9%
    BHP: -2%
    RIO ( RIO has more iron ore exporsure than BHP): -4%
    Vale: -10%

    Meanwhile broader equity market outperformed the mining/iron ore related stocks.
    S&P500: +0.4%
    MSCI World: -0.4%
    Jun 3, 2011. 02:45 AM | Likes Like |Link to Comment
  • Barrick Gold Moves into Copper Mining [View article]
    Just an observation:

    Minmetals is backed by the Chinese government, so it is unlikely that they were without the funding capacity to increase the bid. It can be that Minmetal has a better idea about the Chinese Demand requirements and they may be not seeing as much demand growth coming as most of the western analysts are forecasting in.

    So it may be possible the Minmetal is not so much bullish on the future copper prices to pay a hectic premium to EQN.
    May 1, 2011. 05:56 PM | 1 Like Like |Link to Comment
  • 4 Reasons Stocks Are Ready to Hit New Highs [View article]
    During high inflation historically high yielding sectors/stocks has done well. So it might help you. I did an article on this few weeks ago.
    Feb 17, 2011. 09:46 PM | 1 Like Like |Link to Comment
  • Iron Ore and Other Asset Bubbles [View article]
    1. Lower USD making commodity prices rally: this is exactly one of the reasons why i think the rally will come to an end. The QE2 will finish in June and I don't expect a QE3. That means there is going be less pressure on USD, which means USD depreciation should slow down. This should slow down the (USD denominated) commodity price rally in my view.

    2. Agreed that future prices will depend on Demand and SUPPLY. The problem is not many ppl look at the supply side developments. It might take 1-2 yrs for all the new capacity to come in to the market, but equity markets normally run ahead of the fundamentals and this should also create negative pressure on the stocks. Mind you currently all the analysts are factoring in large EPS gains for all the stocks and if the companies fail to meet these expectations, prices should react negatively.
    Feb 16, 2011. 06:00 AM | Likes Like |Link to Comment
  • Dividend Stocks Down Under: Two Telecom Companies to Consider [View article]
    NZT is a very risky investment at the moment. What is not mentioned in the article is that NZ telecoms industry is going through a major structural change.

    Government is trying to break up NZT and create a new high speed network and NZT is going to loose their monopoly on the network. it is similar to what happened in Australia with Telstra few months ago.

    Non of the analysts are not yet sure about the exact impact on the stock and even at their results release even company used a disclaimer to their profit guidance saying "The guidance doesn't reflect the impact of governments ultra fast broadband initiative.".
    Due to this uncertainty the stock appears cheap in a simple screen but I think it is a very risky at this moment.
    Feb 14, 2011. 06:16 PM | 3 Likes Like |Link to Comment
  • Inflation Ahead? High Yield Sectors and TIPS Offer Best Returns [View article]
    Thanks for your comment. In fact I dont have that data with me to test your thesis. But I think you might be correct. It is intutively correct. Since the oil price rallied in that period, I am pretty sure the oil and oil services sectors would have outperformed the broader market.
    But the danger with investing in a bubble is that once the bubble crashes, the whole sector is going to outperform the broader index.
    Feb 4, 2011. 02:19 AM | Likes Like |Link to Comment
  • Sifting Through the World Agriculture Price Estimates: Winners and Losers [View article]
    Just a reminder, true KO will be less effected by the commodity price increase.
    But globally there is a wet season. (Extreme winter in Nothern hemisphere, Floods in Australia and Brazil) So the chances are ppl need less drinks.
    I guess KO has a big fixed cost base and they need a big contribution to cover the fixed cost base. So if the volumes drop the earnings will be less than what the market is expecting at the moment.
    Jan 18, 2011. 04:22 PM | Likes Like |Link to Comment
  • Lost Decade for U.S. Equity Markets? Hardly [View article]
    If you take an equally weighted approach to S&P 500 stocks, you will end up building a portfolio with a more small cap biasness.
    If we assume most of the small cap stocks to be more "growth" biased stocks than their large cap counterparts. The chances are your equally weighted S&P500 portfolio was more growth biased than the mkt cap weighted S&P500 portfolio.

    I have a feeling that this means the growth stocks did better than the value stocks in the last decade.
    Dec 6, 2010. 04:58 PM | Likes Like |Link to Comment
  • Debunking the China Myth [View article]
    Well that is obvious options are BHp, RIO, benefit from the Chinese growth. While this is true, these stocks are trading at very high multiples as pretty much every one wants to invest in resources suppliers.
    I think another good option is the US market, at the moment market is not as expensive as resource suppliers and US companies can benefit significantly from growing Chinese middle class.
    Nov 11, 2010. 01:36 AM | Likes Like |Link to Comment
  • Despite Possible Dividend Increases, Be Careful Before Investing in Bank Stocks [View article]
    If you are looking for high dividend yielding banks , look for the Australian Banks, there are 4 main banks (ANZ, CBA, WBC and NAB) and they all pay around 6%.
    But they are not risk free, the country is running the biggest housing buble ever (according to some commentators even bigger than the one we had in US).
    Nov 7, 2010. 05:36 PM | 1 Like Like |Link to Comment
  • Fear and the Flight of the Individual Investor [View article]
    An interesting article. It looks like you definitely got the attention here. I wish you were correct with your views as I my self work for a broking house and the equity markets have seen very low volume over the past few months.

    Just to share my view about certain things you had mentioned in the article:

    1) Bond yields are lower than the equity yields: Looking at the estimates coming from the Bloomberg, for S&P500 forward PE is 13.13 and the forward div yield is 22.8%. So if we add up the earning yield and the div yield we end up with a yield of 30.5% for the equity market. When compared to 10 yr US government bond yields of 10% and 10 yr TIPS of 1% equities are really cheap.
    I cannot see the next catalyst for the next equity market rally. Just because it is cheap (mind you based on analyst estimates) I don’t expect the market to start a rally.

    2) S&P 500 companies are sitting on about $1 trillion of cash: To me this suggest that none of these companies have any confidence on the recovery to go ahead and carry out the investments. They are holding onto cash as a safety option. Another interesting thing to look at the debt distribution profile for S&P500 companies.

    3) Saving levels have picked up and expects job growth to pick up: Again I am not so convinced about this argument. . With the unemployment levels remaining so high and with so much outstanding mortgage debt, there is no wonder people saving more. For us to see a growth in job market, we should see a demand increase in the economy and the capex spending picking up. But if people don’t have jobs they will not spend. And more than 50% of the US economy is driven by consumer spending. And for S&P500 companies almost 60% of the revenue is generated within US. (So much for the China pulling US out of the recession view). So at the moment US economy is going through this vicious cycle and unless government increases its stimulus spending it is almost impossible for the economy to pull it self out from the recession.
    Aug 18, 2010. 08:30 PM | Likes Like |Link to Comment
  • The World's Best Stock Market Can Be Found Down Under [View article]
    Resource boom has provided a major support to the development of the Australian economy and the equity market. But to me it poses the biggest threat to the economy as well. Australia is suffering from the Dutch disease in a big way. There are no other developed industries in Australia other than the mining industry.

    Currently according to Bloomberg data c.30% of the stock market earnings come from the materials sector. Another c.25% comes from the banking sector. But the banks earn most of their income by lending to either mining companies or by lending to the home mortgage market. Thanks to the mining sector job creation Australia managed to continue to ride one of the biggest housing bubbles in the world.

    The Australian government recently attempted to correct this two phased nature of the economy by increasing the tax rate for the mining companies. But there was a huge public out cry against it and the prime minister had to pay the price by being toppled by his own party. Since then both the major parties has agreed not to charge a higher tax rate to the mining companies. Which means Australia is going to rely on the mining boom further into the future.

    In china the current move is to develop a consumption driven economy. Under this scenario there will be lesser demand for materials and Australian mining companies with huge capacities will have to sit idling. If that means an increase in the unemployment rate in the mining sector good luck to all the banks that has been funding the mortgage bubble.

    Under my view c. 55% of total earnings for the market is under risk, due for a correction. It is true Australian market had the best performance in last 100 years, but I don’t think it will do the same in the next 100 years.
    Aug 16, 2010. 01:24 AM | Likes Like |Link to Comment
  • Global Economy: U.S. Had Its Day, But Sun Now Rising Across the Pacific [View article]
    It would take a while for the Chinese “middle class” to start to spend in a big way

    I believe the next phase of the development in China will be the growth of the “middle class”. As the country continues to develop there will be more salary increases ( eg. Strikes in the Honda plant in China, population is getting skewed to older generation due to “one child policy”) and more wealth being distributed across the society. But don’t expect this to create a sudden increased demand for US products and to pull US out of its’ trade deficit level.

    1) Still Chinese GDP per capita is around US$ 2,000. So it is a long way away from where US consumers are.

    2) Most of the wealth created is not properly distributed to people. Most of the western areas of the country are still in extreme poverty levels.

    Even if they spend the chances are they will go for the Chinese manufactured products rather than the US imports.

    The way forward for the US economy is to re-train its work force to take up more high end idea generating work. And to promote entrepreneurs to go and make investments in China.

    But if you look at the US budget spending for 2010, Education gets only US$ 46.7bn while interest on national debt is around US$ 164bn. And with the amount of the debt US government has to raise to support the stimulus programs the interest cost is going to only increase. So it is unlikely that the US government will start to increase their spending on education in the near future. ( )

    It is true Sun is rising across the pacific, but it is partly due to west not prioritising their issues.
    Jun 10, 2010. 07:09 PM | 1 Like Like |Link to Comment