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Scott Sacknoff
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SPADE Indexes develops and manages sector, theme, and regional indexes used as the basis for investment products including exchange traded funds. Included among these is the SPADE Defense Index (NYSEarca: DXS), a benchmark for companies involved with defense, security, and space. The index... More
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  • Threatwatch: What Will Shift Thinking Back Toward Security Spending?
    Budget and economic issues are expected to pressure defense spending for the next several years. After a year of constant negative news regarding possible budget cuts to defense, when the dust settled, the sector held steady with the benchmark SPADE Defense Index, down just 2.75%. 
     
    The question is… when and what would lead to a shift back toward security spending and benefit defense contractors such as Lockheed Martin (NYSE:LMT), General Dynamics (NYSE:GD), Raytheon (NYSE:RTN), Northrop Grumman (NYSE:NOC), and CACI (NYSE:CACI) or ETFs such as the Powershares Aerospace & Defense ETF (NYSE: PPA)? 
     
    Recent news and analyst forecasts for 2012 can provide insight into that.
     
    Threat #1: Iran
    Whether its threatening to shut the Straits of Hourmouz and disrupt the world’s energy suppliers or threats to use nuclear weapons on neighbors such as Israel; or the possibility that Israel could pre-emptively destroy facilities in Iran before they can be used to create global devastation; and the region is highly unstable and threat #1 on most people’s list.
     
    Threat #2: The Arab Spring Aftermath
    Throughout 2011, people of nations throughout North Africa and the Middle East sought greater freedoms and overthrew oppressive regimes and those not assisting the economic needs of the populace. The problem is the old-saying regarding the devil you know. What will evolve in the region – more stable democracies, religious rhetoric, a new military leadership group, or turmoil and chaos – is still to be seen.
     
    Threat #3: North Korea
    The death of Kim Jong Il also puts the Asia region into unfamiliar terrority with a new leader taking control of a government that oppresses its people and has access to rockets and nuclear material. 
     
    Threat #4: Iraq
    We left, so isn’t everything stable? Not really. The U.S. was a stabilizing element between parties that have been in conflict for generations. The abensce of the U.S. in the region keeps an element of instability.
     
    Threat #5: Hackers and Cybersecurity
    When you depend on technology – economically and militarily – protecting it become more and more critical. Increasingly, people gaining access to databases and systems are becoming commonplace. While more of an annoyance at the moment, the threat is significant which is why it is gaining so much attention.
     
    Threat #6: Pakistan
    The weakness of the government to remove radical elements from its territory has created a division within the nation between those aligned with more with the West (U.S. and Europe) and those who focused on regional power and the Taliban. Ultimately anytime a nation has rockets and nuclear weapons and the possibility that elements of the region could overthrow or destabilze the local government and the situation generates fear.
     
    Threat #7: China
    China has been flexing its muscles and using resources from its economic growth to fuel development of a 21st century Navy, Air Force, space program, etc. The fear that China could become a true threat similar to what the Soviet Union represented from the 1950s-1980s is generating a lot of attention. The reality is that the near-term likelihood of them going on the offensive is relatively small (outside of course in their own backyard, ie. Taiwan, for example). Still, eyes need to be focused on any nation seeking to become a world power with the resources and technology that China possesses.
     
    Threat #8: The Unknown
    Globalization has brought greater awareness of events around the world. However the increasing ease of the spread of information can enable threats that 100 years ago would not have been possible. For many, the events of 9-11 and the possibility of suicide bombers on U.S. soil, were not envisioned. Neither were the Oklahoma City bombings, the events in London, Madrid, etc., or the actions of a lone lunatic in Norway. Diligence can only go so far.
     
    Ultimately, there is no greater function of government than to protect its people and its way of life. As long as Congress remembers that, cuts to defense spending may happen from time-to-time but the cycle of growth will return.


    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: The author manages the SPADE Defense Index (NYSE: DXS), an investment benchmark containing companies operating in the aerospace, defense, and homeland security sector. DXS is the underlying index for the Powershares Aerospace & Defense ETF (NYSE: PPA)
    Jan 05 2:52 PM | Link | Comment!
  • Oklahoma Stocks Surge in 2011
    Oklahoma Stocks Surge in 2011
     
    While the U.S. stock market took a wild ride up and then down to finish flat in 2011, investors who bought Oklahoma-based public companies finished the year well in positive territory. In fact, the SPADE Oklahoma Index (NYSE: OKLAH) outperformed the S&P500 by 13.76% and the SPDR Energy ETF (NYSEARCA:XLE) by 12.47%.  In the past six years, the Index, representing roughly 30 public companies headquartered in Oklahoma, has seen gains in excess of 86%.
     
    Over the past six years, investors would have benefited handsomely. Compared to the S&P500 which was essentially flat over that timeframe, the SPADE Oklahoma Index (NYSE: OKLAH) was up 86%. Even the performance of the SPDR Energy ETF (XLE) pales in comparison, generating nearly 50% less.
     
    December also saw three new Oklahoma-headquartered IPOs: Rose Rock Midstream, MidCon Energy, and Laredo Petroleum with additional firms on tap coming to market, such as the spinout, WPX Energy.
     
    Index manager, Scott Sacknoff, has been actively shopping the index to institutions and pension fund managers to identify investor interest in a state-focused fund. An ETF tracking it was briefing listed on the New York Stock Exchange in 2010 but the sponsor failed to market the product instead focusing on other activities.
     
    “Financial products that enable investors to invest in Oklahoma would benefit the state and investors. From a state-perspective, anytime you can increase investor interest in a region, it makes them healthier. From an investment perspective, heavily weighted toward energy, the index is in fact diversified among companies involved with drilling and exploration, pipelines, oil & gas, and coal. Investors in Oklahoma would have consistently seen gains that those invested with the S&P500 have not.”
     
    Details on the SPADE Oklahoma Index can be found at spadeindexes.com/oklahoma
     

    Annual Price Returns
     
    SPADE Oklahoma Index (NYSE: OKLAH)
    S&P 500
    XLE
    2011
    13.76%
    0.00%
    1.29%
    2010
    23.95%
    12.78%
    19.72%
    2009
    49.17%
    23.45%
    19.34%
    2008
    [39.43%]
    [38.48%]
    [39.80%]
    2007
    19.97%
    3.53%
    35.34%
    2006
    21.88%
    13.62%
    16.53%
     
    The ten largest companies by percentage in the SPADE Oklahoma Index (NYSE: OKLAH) as of 12/30/11 and their performance in 2011 is as follows: 
     
    OKS
    45.26%
    DVN
    [21.03%]
    WPZ
    28.60%
    CLR
    13.36%
    CHK
    [13.97%]
    WMB
    33.58%
    CHKM
    0.80%
    MMP
    21.91%
    OKE
    56.28%
    DTG
    48.67%

     
    Tags: XLE, DVN, OKS, CHK, WPZ, CLR, energy, etf, oklahoma
    Jan 03 12:03 PM | Link | Comment!
  • Texas Stocks Rise in 2011, While Global Markets Decline
    Texas Stocks Rise in 2011, While Global Markets Decline.
     
    Global diversification failed investors in 2011 with many markets around the globe down double digits and some firmly in bear market territory. The S&P500 ended the year flat but one of the top performances of the year, as indexes in China (down 22%), Brazil (down 18%), France (down 17%), Germany (down 14.7%), and India (down 25%), all finished the year substantially down. 
     
    In comparison, the SPADE Texas Index (NYSE: TEXAS) finished the year at 901.40, a gain of 2.59%. In the past three years, the Index, representing the largest 90% of public companies headquartered in Texas, has seen gains in excess of 65%. Longer term, since 2006, TEXAS was up 19.6% vs. just 0.7% in the S&P500.
     
    According to Scott Sacknoff, manager of the SPADE Texas Index, “From an investment perspective, Texas has a diverse economy with significant interests in energy and a business friendly political climate. Over the past several years, investors in Texas would have consistently seen gains that those invested with the S&P500 have not.”
     
    Although home to the 15th largest global economy in terms of GDP, currently no products exist to enable investors to invest in the Texas market. An ETF tracking the TEXAS index was briefing listed on the New York Stock Exchange in 2010 but the sponsor failed to market the product instead focusing on other activities.  Believing that there is still an opportunity, Mr. Sacknoff is currently discussing the index with potential fund sponsors, institutions, and pension fund managers to identify investor interest in state and regionally-focused funds. 
     
    “Financial products that enable investors to invest in Texas would benefit the state and investors. From a state-perspective, anytime you can increase investor interest in a region, it makes them healthier. From an investor standpoint, it provides the opportunity to invest in companies that can take advantage of regional markets and states with favorable tax policies instead of focusing on the U.S. as a whole.”
     
    Additional details on the SPADE Texas Index can be found at spadeindexes.com/texas
     

    Annual Price Returns
     
    SPADE Texas Index
    (NYSE: TEXAS)
    S&P 500
    2011
    2.59%
    0.00%
    2010
    19.10%
    12.78%
    2009
    35.02%
    23.45%
    2008
    [45.36%]
    [38.48%]
    2007
    19.85%
    3.53%
    2006
    10.74%
    13.62%
     
     
    The ten largest companies in the SPADE Texas Index as of 12/30/11 and their performance in 2011: 
     
    AT&T
    2.92%
    Conoco Philips
    7.00%
    Schlumberger
    [18.19%]
    Exxon Mobil
    15.91%
    EPD
    11.46%
    APC
    0.22%
    APA
    [24.03%]
    TXN
    [10.43%]
    HAL
    [15.48%]
    Kimberly Clark
    16.69%


    Tags: SLB, T, COP, XOM, EPD, KMB, TXN, HAL, texas, etf, xle
    Jan 03 12:01 PM | Link | Comment!
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