The Fed is going to keep interest rates near zero for the foreseeable future. With 10 year treasury yields around 3.5%, solid blue chip companies offering decent dividends becomes popular. Not only do they offer current income and the possibility of capital gains, they also have better protection against inflation than regular bonds. No wonder Warren Buffett wrote “Buy American. I Am” article on The New York Times last October. (source: NY Times)

However, the economy is still in the bottoming process. There is a potential risk for the economic to backslide. Which blue chips are relatively safe?

While economic news remains gloomy for U.S. investors, some ETF investors are looking abroad for new opportunities. Israel’s relatively low exposure to the ongoing U.S. financial crisis has driven some foreign investors to consider the iShares MSCI Israel Capped Investable Market Index Fund (EIS), iShare’s MSCI-based Israel offering. As Israel’s leaders debate the best course for the choppy global market, components of EIS could continue to benefit in 2009 from ongoing needs internationally as well as from changing U.S. policy.

EIS, like other iShares funds that isolate slices of the MSCI spectrum, seeks to be representative of Israel’s economy while taking into account investment limitations. Components of the fund are selected based on their size and capitalization, but no single component can compose more than 24% of the ETF. EIS’s liquidity could be a concern for some investors—the average daily trading volume for the ETF over the past three months has been only 41,000 shares. EIS’s competition, Northern Trust’s TAV, was forced to fold in early February, due to a lack of investor interest.

An ancient question is gaining relevance: will mobile broadband be able to replace fixed line broadband?

At first glance, the answer could be no. The bandwidth difference between fixed and mobile networks remains large. In fixed networks, 1 Gb/s is a reality now in Hong Kong and Lattelecom is working toward half of that by the end of the year. In mobile, Telstra (TLSYY.PK) is leading the pack with 21 Mb/s and upgrading to 42 Mb/s later this year. That's still a large difference and it doesn't look like it will be getting any smaller soon, in a relative sense (Lattelecom already talks about 10 Gb/s, and LTE is some years off).

However, without a video component, mobile broadband looks more and more like a fixed line replacement. HSDPA USB modems have come to the market and gateways are avaliable for connecting up to 4 PCs to the mobile network. The addressable market could be limited (probably business travelers) as broadband is becomig pretty universal and heavy video consumption or P2P file-sharing is not going away (so, giving up on your fixed BB connection doesn't seem realistic). Also, mobile broadband carries much higher opex than fixed broadband, I would suppose.

Now, in Israel operators are asking the government to prevent mobile operators from providing internet services. According to this article, Partner (PTNR) and Cellcom (CEL) are trying to sell mobile broadband services through a gateway. The operators crying foul are asking for 'structural separation' (I think horizontal separation would be a better term) of mobile operators and ISPs. Interesting development, underpinning the view that mobile broadband is indeed becoming a fixed line replacement.

The table above (click on image for full-screen view) presents the 40 active component stocks among 99 total companies included in my Foreign Telco Services BULLISHares Index. All such companies must have market caps greater than $1 billion US Dollars and derive the majority of their revenues from telco services from outside of the United States [US] and Canada.

Last year I wrote an article about the highest yielding Israeli stocks. Earlier this month, Israel celebrated its 60th anniversary, and this might just be a good time to take a second look. Here are some interesting facts about the country:

It is ranked 22nd in per capita Gross Domestic Product.

It is ranked 23rd in terms of the Human Development Index.

It is the foreign country with more stocks listed on NASDAQ than any other country.

Warren Buffett purchased Iscar, an Israeli toolmaker for $4 billion.

The Tel Aviv 100 Index was up about 150% over the last five years.

Intel (INTC), Cisco (CSCO), IBM (IBM), Microsoft (MSFT), Motorola (MOT), Lucent (LU), and Oracle (ORCL) have made major investments in Israel.

One way that you can earn very high returns is utilizing a technique called 'buying dividends.' Buying dividends is the process of buying a stock just before it goes ex-dividend, and selling it shortly after the ex-dividend date at the same [or at a higher] price as the cost price. The ex-dividend date is the date after which a buyer of the stock is no longer entitled to the dividend.

In other words, if an investor purchases a stock on or after the ex-dividend date, the investor will not receive the dividend; however, if the stock is purchased prior to the ex-dividend date, the investor will receive the dividend on what is called the payment date. Another way to look at it is an investor can sell a stock on the ex-div date or later and still get the dividend.

We like Israel (but hey, we’re biased). While Israel is not putting up double-digit GDP growth like China, we are seeing close to 4-5%. And, that's not too shabby. Foreign capital is flowing into Israel, looking for a home. Canaan Partners just announced another fund that will be targeting opportunities in Israel.

The Israeli market received a great deal of media coverage in 2007. Some journalists lamented on the momentum and promise of the Israeli start up world; some sell-side analysts “shorted” the strength of the economy for a myriad of factors. Regardless of where you stand, its helpful to know who is saying what about the conclusion of 2007 in Israel and the potential reticent in 2008, the Year of the Rat.

What the Bulls are saying

S&P upgrades Israel’s debt outlook (Ha’aretz)

• • •

Hi, Yossi. Can you tell us about your company?

The new law enacted by the Israeli Ministry of Communication enabling consumers to switch cellphone carriers while keeping their existing phone number has gone went into effect on Sunday. So far, reports are that only a few hundred consumers have actually switched carriers. Part of the problem is that most consumers don’t even know that there is such a law.

In a very unofficial poll that I took both on the street and in my office, about 75% of the respondents didn’t even know that this change was happening. It’s ironic that a reform that is intended to benefit consumers, hasn’t even been brought to their attention. Oh the wonders of government! Even when they try and do something beneficial, they screw it up.

Hickey and Walters (Bespoke) submit: We recently complied a list of ADRs with an average daily volume of at least 200,000 shares and a market cap of $1 billion or more to see how they have performed year to date. The average year to date return of the 175 US ADRs we found is 17.16%, which is much stronger than the S&P 500's return of 6.73%.

Below we highlight the 20 ADRs that are up or down the most this year. As shown, two ADRs of Chinese companies (TSL and ACH) lead the "best performing" list, and Brazilian companies are well represented on the positive side. On the "worst performing" list, MPEL and SGAMY are down the most at 43.13% and 40% respectively. Asian companies are the most represented on the negative side.

Well, we feel we’ve answered these questions sufficiently for our readers, and investors who are voting with their support for our value-driven, on-the-ground analysis of Israeli companies. But for those who linger on the fences, we decided to publish some of our work on what are probably the two most interesting domestic plays in our universe: the two largest Israeli cellular operators, Cellcom (CEL), and Partner Communications (PTNR).

Let’s first profile Cellcom before we benchmark it against Partner.

Here is a list of ten Israeli stocks, and one Closed-End Fund that are worth looking into.

Interestingly enough, it appears that the Israeli market has suffered in each of the last nine summers, posting losses of between 5 and 17% in each (Tel Aviv 100 index). For investors in the U.S .who want exposure to Israeli shares you need to watch out. If you look at the TA 25 index (large cap), for example, you will see that Teva (TEVA), Partner Communication (PTNR), Ormat (ORA), Elbit Systems (ESLT) and NICE Systems (NICE) have a combined total weighting of about 20% of the total index.

I think Katsman said it succinctly when he anticipated the recent strengthening of the dollar: