Dollars and Sense
Volume 4, Number 5 │January 2013
Market Update
December 2012
Month in review
Month YTD
7.2%
S&P TSX Index 1.9%
10.2%
Dow Jones Ind. 0.8%
0.9%
16%
S&P 500
17.5%
NASDAQ Comp 0.5%
3.2%
16.5%
MSCI World
S&PTSX Materials
2.4%
1.3%
-2.6%
1.2%
0.0%
17.6%
-0.6%
0.6%
-2.9%
-5.7%
US Dollar
Euro
British Pound
-0.2%
1.4%
1.3%
-2.9%
-1.1%
1.6%
Crude Oil (WTI)
Natural Gas
Gold
Copper
Aluminum
Zinc
3.3%
-5.9%
-2.3%
-0.9%
-2.5%
1.7%
-7.1%
12.1%
7.1%
4.2%
2.3%
12.7%
S&PTSX Financials
S&PTSX Energy
S&PTSX Utilities
S&PTSX Info Tech
Income
Senior Gold Producers
Income Corp (GPC)
Can-Energy Covered
Call ETF (OXF)
Money Market Rates
Current Highest GIC rates
on the market (Jan. 5th)
1 yr
1.65%
2 yr
2.00%
3 yr
2.15%
4 yr
2.20%
5 yr
2.45%
The Good Without the Awful
by John Hussman, Hussman Funds On January 7, 2013
In the spirit of hope and optimism for the New Year, I’m going to depart a bit from my usual concerns (which
are no less pressing at the moment), and instead discuss when to become bullish, why to become bullish, and
how often to become bullish. Using the word “bullish” three times in a single sentence may be a record for
me. Despite being a lonely raging bull for years coming out of the 1990 recession, and shifting positive in
early 2003 after the 2000-2002 downturn, my defensiveness during the most recent cycle has lent far too
much to my characterization as a “permabear.” Any previous bearishness I’ve had was validated by the 20002002 rout, and again by the 2007-2009 plunge, which wiped out the entire total return achieved by the S&P
500 – in excess of Treasury bill yields – all the way back to June 1995. While the S&P 500 – even with the
recent advance – has underperformed Treasury bills for nearly 14 years, the stratospheric valuations of 2000
are well behind us. Valuations are still rich, but they are now in the range we’ve seen near more typical bull
market highs, so I also expect a more typical frequency of bullish opportunities in the market cycles ahead.
Looking over the full span of history, the return/risk estimates from our ensemble methods have been
positive about 65% of the time, and would indeed have encouraged a leveraged position (unhedged, plus a
few percent in call options) about 50% of the time.
Present conditions will change, and bullish opportunities will emerge, as they always have in other complete
market cycles. Understandably, if one expects nothing but a defensive position at all times, even a moderate
drawdown makes no sense to endure. But if one is pursuing a risk-managed strategy that seeks to take
significant exposure over the course of the market cycle, and to significantly outperform the market over
time, the drawdowns should be considered in the context of what the market itself typically experiences over
the course of an ordinary cycle.
The average bear market loss is about 32%, and about 39% for cyclical bears that occur during secular bear
markets. Given the extreme valuations that we’ve experienced since the late-1990’s, the two most recent
market plunges in 2000-2002 and 2007-2009 took the S&P 500 down to less than half of the preceding bull
market peaks. A 50% drawdown requires a doubling to break even. An 85% drawdown, as the market
experienced during the Depression, is even more intolerable because one needs to more than triple just to
get back to a 50% drawdown.
A quick note on my reputation as a “permabear.” The most recent cycle required us to seriously contemplate
Depression-era outcomes, and that presented us with significant challenges. I still believe it would have been
reckless to ignore Depression-era data as irrelevant, and I also believe that investors invite ruin if they pursue
approaches that are not robust to that data (or worse, restrict their attention to data that primarily includes
the bubble period since the mid-1990’s). By the spring of 2012, we had addressed what I view as the two
extraordinary features of the most recent market cycle – the need to contemplate Depression-era outcomes
and incorporate the associated data into our methods, and the need to limit the use of actual put options in
an environment where central banks have convinced investors that “virtual” monetary put options are free.
While our valuation estimates were actually constructive in early 2009, my larger stress-testing concerns kept
us defensive until I was convinced that our approach was robust to Depression-era outcomes (stocks lost
about two-thirds of their value in the Depression even after historically normal valuations were established).
The need to address that “two data sets problem” was the “extraordinary” aspect of the recent cycle.
Dollars and Sense
In contrast, the period since spring 2012 is not one that I consider
extraordinary. The S&P 500 is presently only a few percent above
where it was last March, when our return/risk estimates dropped into
the most negative 1% of historical data. Our defensiveness since then
has not been rewarded, but that defensiveness has been of the
ordinary, repeatable variety, as we also experienced during similar
conditions approaching the 2000 and 2007 peaks. Given that I don’t
believe that market cycles have been permanently repealed, I also
expect that the cycle ahead will include periods of well-rewarded
defensiveness and ample constructive opportunities as well.
So with “extraordinary” responses behind us, and a full market cycle
ahead, it seems appropriate to put some focus on what is typical during
a market cycle, which is actually not defensive positions, but
constructive ones. None of this is to say that my concerns at the
moment are any less pointed (indeed, we’re at nearly the same set of
conditions that I’ve often noted are among the Who’s Who of Awful
Times to Invest), but it’s a new year, and it’s reasonable to look ahead.
January 2013
versus Treasury bill yields, on average. If an investor does not seek to
closely track market fluctuations – and we don’t – the optimal strategy
is to accept market risk only when the expected market return exceeds
the risk-free rate.
The following chart presents the cumulative performance of The Good
without The Awful, relative to the S&P 500 Index total return. In
contrast to simple moving-average crossover methods, which typically
don’t survive transactions costs (see The Trend is Your Fickle Friend),
these criteria would still have outperformed the S&P 500 after imposing
a 0.25% cost on every round turn, even though the model moves in
and out an average of every 10 weeks or so, and sometimes flip-flops
from week to week. It’s certainly too clunky, binary, and simplistic to
use in practice, but it’s instructive.
The Good without The Awful
Generally speaking, the very best times to be long are when a market
decline to reasonable or depressed valuations is followed by an early
improvement in market internals (breadth, leadership, positive
divergences, price-volume behavior, and so forth). This is a version of a
general principle: bullish investors should look for uniformly positive
trends to be coupled with an absence of particularly hostile features
such as overvalued, overbought, overbullish conditions. Put simply, we
are looking for the good without the awful.
To illustrate this principle, let’s put together a slightly crude model, but
one that will serve well enough for instructional purposes. I’ll preface
this by saying that this is not a model we use in practice, that past
performance does not ensure future results, and that this model is for
illustration only.
For “The Good” criteria, we’ll use some simple indicators we’ve used
before in other market discussions. Give one point to each of the
following:
1.
S&P 500 dividend yield below its level of 6 months earlier (a
trend-following measure)
2.
Dow Utility average above its level of 6 months earlier (a
multi-purpose indicator that has trend-following, divergence,
and interest-sensitive functions)
3.
10-year Treasury yield below its level of 6 months earlier (an
interest-rate trend measure)
The fact that the model is out of the market well over half the time is
certainly beneficial from the standpoint of drawdowns. The deepest
drawdown experienced by this model since 1960 is just -13%
(compared with several separate drawdowns in the 45-55% range for
the S&P 500). One has to proxy advisory sentiment to test the model
prior to 1960, but that’s actually not terribly difficult given the strong
correlation between sentiment and the size and volatility of recent price
changes. Unfortunately, like many models that we’ve tested (other
than our present ensemble methods), the worst drawdown in
Depression-era data exceeds 50%. Now, that’s certainly better than
the 85% loss experienced by a passive buy-and-hold (where again, the
market had to more than triple from its 1932 low just to get from an
85% loss back to a 50% loss). But it’s still not acceptable, in our view.
Let’s call 2-3 points “The Good” and only 0-1 points “Not Good.”
As for “The Awful” criteria, we’ll require a syndrome including all three
of the following:
1.
Shiller P/E above 18
2.
Investment advisors (Investors Intelligence) bullish
sentiment > 45%
3.
S&P 500 more than 50% above its 4-year low
Clunky, simplistic, but enough to get some useful results. Most
importantly for our purposes, if we look since 1960 at periods that
couple the Good without the Awful, we find that 41% of history falls
into that bucket. Assuming one was invested each week based on the
previous week’s signal, this subset of periods produced a 21.4% annual
total return, or 15.3% in excess of Treasury bill yields, on average.
In contrast, once the Good was joined by the Awful, the resulting 10%
of market history featured market losses at a -1.3% annual rate (4.8% short of Treasury bill yields). Indeed, of the 59% of periods not
among the “The Good without The Awful”, the S&P 500 achieved an
average annual total return of just 2.0%, and a shortfall of -3.1%
One might ask why we don’t simply use this model, despite its
clunkiness, given a perma-bearish alternative. The answer is that my
reputation as a permabear is an artifact of our 2009-early 2010 stresstesting period where we were forced to contemplate and incorporate
Depression-era data. Also, the success of the simple model above to
classify favorable/unfavorable market conditions is a fraction of what
we observe from the broad ensemble methods that we presently use to
make return/risk assessments (as much as I enjoy sharing research,
nobody would publish a model that was competitive with what they rely
upon). The ensembles produced positive return/risk estimates in a
much larger portion of the 2009-early 2010 period, capture a larger set
of positive market conditions more generally, and handle extreme
periods such as Depression-era data more effectively.
Still, one might ask whether the Good/Awful model can be used as a
“filter” for our broader ensembles. For example, we can examine
periods when our ensembles were negative enough to encourage
strongly defensive hedges, and see how the Good/Awful criteria
partition those outcomes. Among the most negative periods identified
by the ensembles, even instances that were positive based on “The
Good without The Awful” criteria were associated with average annual
losses of -15.2% for the S&P 500 (-17.3% short of Treasury bill yields).
In contrast, the instances that were negative on those criteria – as is
presently the case – were associated with average annual losses of -
• Page 2 •
Dollars and Sense
48.1% for the S&P 500 (-49.5% short of Treasury bill yields). So while
the Good/Awful criteria are helpful in distinguishing bad from abysmal,
even positive readings on this model aren’t enough to counter negative
return/risk estimates from our ensembles.
In any event, regardless of the particular model we use, when we are
looking for bullish investment opportunities, we are really seeking some
version of the good without the awful. We don’t need deep
undervaluation, but we are seeking the combination of more moderate
valuations coupled with an early improvement in market action. There
are many ways to define the basic convergence of reasonable
valuations and market action, coupled with an absence of awful
conditions (overvalued, overbought, overbullish, yields rising).
Presently, we observe the awful, and not enough of the good, but I
have no doubt that we will observe a far more favorable convergence
of market conditions over the course of the market cycle ahead.
January 2013
and their eventual consequences – particularly over the complete
market cycle.
Meanwhile, we are looking eagerly, but not impatiently, for bullish
opportunities. This weekly comment could very well have been titled “A
Renewed Who’s Who of Awful Times to Invest,” because present
conditions are largely back to “awful” with an overvalued, overbought,
overbullish, yields-rising syndrome. But having noted that, we also
want to look ahead. The real message is that these conditions will
change soon enough, and a sufficient amount of the good, without the
awful, will be just fine.
The foregoing comments represent the general investment
analysis and economic views of the Advisor, and are provided
solely for the purpose of information, instruction and discourse.
Only comments in the Fund Notes section relate specifically to
the Hussman Funds and the investment positions of the Funds.
Conditional Returns
Fund Notes
Market returns vary with market conditions. A useful investment
criterion is one that helps you to “partition” the data into two or more
subsets, each having a different return/risk profile. That’s essentially
what the “Good without the Awful” criteria are doing. They partition the
S&P 500’s annual total return of 9.5% since 1960 into two subsets;
41% in a subset that is associated with a “conditional return” averaging
21.4%, and 59% in a subset that is associated with a “conditional
return” averaging just 2% (and less than Treasury bills, on average).
Geeks Note: (1.214)^0.41 * (1.020)^0.59 = 1.095.
The better the criteria, the greater the separation between returns
across subsets. For example, even including 2012, the most negative
5% of historical periods from the standpoint of our ensemble methods
is associated with an average annual loss of -40.5% (-42.0% short of
Treasury bills), which is why we are willing to endure an uncomfortable
defensiveness at present. We know we won’t remain in this partition for
long. About 30% of periods since 1940 would be associated with a full
hedge, and an average conditional return of about -0.1% for the S&P
500. About 65% of historical periods have produced positive return/risk
estimates, and are associated with an average annual return on the
S&P 500 of 22.6%. So the 11.2% total return of the S&P 500 since
1940 partitions out to (.595)^0.05 * (.999)^0.30 * (1.226)^0.65 =
1.112.
Needless to say, the period since 2000 has required far more
defensiveness than most of market history, owing to extreme initial
valuations. The Shiller P/E (S&P 500 divided by the 10-year average of
inflation-adjusted earnings) touched 44 in 2000, and is presently at 22.
That adjustment in valuations explains why the S&P 500 has
underperformed Treasury bills for nearly 14 years. Present valuations
may still be rich, but we’ve approached similar extremes in other
market cycles. There’s every reason to expect numerous opportunities
for bullish investment positions as we move forward from here, if not at
the moment.
From the standpoint of investment discipline, it’s instructive that even
while “The Good without The Awful” criteria easily outperform the S&P
500, even after reasonable estimates of trading costs and slippage, and
with far smaller drawdowns than the market even in Depression-era
data, the model hasn’t gained any net ground since October 2011. An
unhedged position in the S&P 500 has performed much better since
then, but that would hardly be a reason to abandon one for the other
at what seems like a particularly extreme and inopportune point to
accept market risk. This underscores the difference between long-term
strategy and short-term performance. The importance of discipline,
process, research, historical evidence and full-cycle characteristics can’t
be understated.
The past year was frustrating for risk-averse investors, particularly for
investors who believe that large imbalances are eventually corrected
(as they were in 2000-2002 and 2007-2009). The Federal Reserve and
the European Central Bank were effective in kicking these imbalances
down the road, at least for a quarter or two at a time, and the fiscal
deal at year-end ensured that the short-run benefits of massive budget
imbalances won’t be marred by a return to fiscal sustainability anytime
soon. At least for investors who care both about risk and about the
long-term, the magnitude of these distortions has been disconcerting. I
don’t believe that they will prove to be costless, but I do believe that
we have adapted to a world where we can navigate both the distortions
With valuations rich, advisory bullishness elevated, Treasury yields
rising, and overbought conditions placing the S&P 500 near or through
its upper Bollinger Bands (2 standard deviations above the 20-period
moving average) at daily, weekly and monthly resolutions, the present
overvalued, overbought, overbullish, rising-yields syndrome could
hardly be clearer. Of course, the last time the S&P achieved our criteria
for entry into the “Who’s Who of Awful Times to Invest”, it was March
2012, and the S&P 500 was several percent lower than it is today
(albeit with a 10% market pullback over the subsequent 12 weeks
before advancing). Suffice it to say that market conditions remain
hostile on our measures, though the typically violent past resolution of
these conditions isn’t necessarily indicative of how they will be resolved
in this instance.
Strategic Growth Fund remains fully hedged, with a “staggered strike”
position that places the strike prices of some of our index put options
closer to prevailing market levels, at a cost of less than 1% of assets in
additional time premium, looking out to springtime. We have been slow
to raise the strike prices of those put options in order to limit the time
premium we carry, as part of the 2012 decline in Strategic Growth can
be attributed to option time decay. The other part was attributable to
“basis risk,” as the performance of our value-oriented stock holdings
fell short of the performance of the indices we use to hedge, largely
because sectors such as financials and homebuilders – where we have
few or no holdings – benefited from a “risk on” investment climate.
Still, both our present defensive stance and our value-conscious stock
selection discipline are intentional aspects of our investment approach
here.
Though the restrictions we added in April to reduce the frequency of
staggered-strike hedges would have reduced our time-decay prior to
March, I do view the performance of the Strategic Growth Fund since
March as an accurate reflection of the ongoing execution of our
strategy. The fact that the Fund lost 6.36% from March through yearend, compared with a 3.03% gain in the S&P 500, is part and parcel of
the risk that we accept in pursuit of our full-cycle objectives. Anyone
who was with us just before the 2000-2002 plunge or the 2007-2009
plunge can recall that our early – but unfortunately necessary –
defensiveness was similarly frustrating in those cycles.
That said, with the CBOE volatility index now below 14%, and our
option expirations out to March at less than 1% of assets, I don’t
expect option decay to be a material issue even if the market advances
significantly from here. On the stock selection front, we’ve always
focused first on value-conscious selection above other considerations,
and that has worked well for us over time. Still, where we find similarly
ranked candidates for purchase, we are seeking as much as possible to
choose those that have a tendency to reduce our basis risk versus the
S&P 500. That still won’t give us a significant long position in
homebuilders or financials anytime soon, but despite short-term
tracking risk, stock selection has typically been our strong suit over
time.
Strategic International Fund remains fully hedged here as well.
Assuming that we don’t observe a significant breakdown in
international markets, one of the first shifts in our overall market
exposure is likely to be in the international sector, where valuations are
generally better than in the U.S. on most of our metrics. One of the
near-term problems is that significant declines in U.S. stocks can spill
• Page 3 •
Dollars and Sense
over into international markets, which is why many observers have
noted that “international diversification helps except when you need it
most.” Still, I expect that a shift away from our most negative
return/risk classification in the U.S. would allow us to close some
portion of our international hedges. We’re not at that point at present,
particularly given the overvalued, overbought, overbullish, rising-yield
syndrome we observe in the U.S., but we are both patiently and
optimistic for constructive opportunities on the international front.
Strategic Dividend Value remains hedged at about 50% of its stock
holdings, its most defensive position. I don’t anticipate significant
changes in our hedge here until we observe more positive expected
return/risk estimates from our ensemble models, but such
opportunities can emerge quickly once the market clears hostile
syndromes of conditions (overvalued, overbought, overbullish, risingyields) as we presently observe.
In Strategic Total Return, we clipped our exposure to precious metals
shares by a few percent on last week’s early strength. The combined
confidence about further quantitative easing and limited budget
discipline seems to have stabilized some of near-term economic
pressures, at least enough to press real interest rates somewhat
higher. That benefited the exchange value of the dollar and pressured
gold late last week. It’s not clear that this will continue, but we want to
maintain a moderate and not aggressive exposure to market
fluctuations.
January 2013
1475 before spending the rest of the year in a “struggle” (see chart on
page 3). On the surface the nominal numbers portrayed a great year
with the SPX sporting a total return of 13%+. Yet for most investors it
was a pretty difficult year with roughly 90% of professional money
managers underperforming the SPX as they worried about waning
earnings momentum, softening economic statistics, Euroquake, a China
debacle, a dysfunctional U.S. government, etc. Of course I personally
don’t mind the underperformance because many of the folks who
underperformed did so because they were managing “risk,” which is at
the centerpiece of my investment philosophy. As often referenced in
these missives, investors need to manage the risk, for as Benjamin
Graham espoused in his book The Intelligent Investor, “The essence of
investment management is the management of RISKS, not the
management of RETURNS. Well-managed portfolios start with this
precept.”
Investors should keep that quote on their walls so they don’t forget the
major lessons learned since the 2008 Financial Fiasco. Yet, there are
other lessons to be remembered. To that point, Merrill Lynch lost two of
its best and brightest back in 2009 as Richard Bernstein and David
Rosenberg left for less constrained environments. During their final
weeks at Merrill they wrote about lessons they have learned over the
decades. To wit:
Richard Bernstein’s Lessons
As I’ve noted before, we would monitor the Philadelphia Fed Index and
the New Orders component of the Chicago Purchasing Managers Index
for early signs of real economic improvement. Continued firming,
particularly large upward spikes in both, would be informative in my
view. At present, I view the mild stabilization in economic figures as a
weak but at least noticeable consequence of the Fed’s promise to
continue quantitative easing, but I am unconvinced that this effect will
endure beyond a couple of months of “kick the can” stabilization. On
the spike in bond yields Friday, we added slightly to the Fund’s
duration, which now stands at about 3.5 years (meaning that a 100
basis point move in interest rates would be expected to impact Fund
value by about 3.5% on the basis of bond price fluctuations). The best
characterization of our stance overall is “moderate” – seeking
opportunities where our estimates for prospective return/risk are
positive, but avoiding aggressive exposures given the broader-thanusual range of potential outcomes.
“Lessons Learned” (Saut)
1.
Income is important, as are capital gains. Because most
investors ignore income opportunities, income may be more
important than capital gains.
2.
Most stock market indicators have never actually been
tested. Most don’t work.
3.
Most investors’ time horizons are much too short. Statistics
indicate that day trading is largely based on luck.
4.
Bull markets are made of risk aversion and undervalued
assets. They are not made of cheering and a rush to buy.
5.
Diversification doesn’t depend on the number of asset
classes in a portfolio. Rather, it depends on the correlations
between the asset classes in a portfolio.
6.
Balance sheets are generally more important than are
income or cash flow statements.
7.
Investors should focus strongly on GAAP accounting, and
should pay little attention to “pro forma” or “unaudited”
financial statements.
8.
Investors should be providers of scarce capital. Return on
capital is typically highest where capital is scarce.
9.
Investors should research financial history as much as
possible.
by Jeffrey Saut, Raymond James On January 7, 2013
Beginning of the year letters are always hard to write because there is
a tendency to talk about the year gone by, or worse, attempt to predict
the year ahead. Therefore, we are titling this year’s letter in an attempt
to share some of the lessons that should have been learned over the
past few years. We begin with this quote from an Allstate commercial
featuring Dennis Haysbert:
“Over the past year, we’ve learned a lot. We’ve learned that meatloaf
and Jenga can actually be more fun than reservations and box seats.
That who’s around your TV is more important than how big it is. That
the most memorable vacations can happen ten feet from your front
door. That cars aren’t for showing how far we’ve come, but for taking
us where we want to go. We’ve learned that the best things in life don’t
cost much at all.”
10. Leverage gives the illusion of wealth. Saving is wealth.
David Rosenberg’s Lessons
Charles Dickens’ classic novel begins with the quote, “It was the best of
times, and it was the worst of times.” That quote is certainly reflective
of the stock market in the year gone by as 2012 went down in the
books with that moniker. To be sure, from the October 2011 “low” into
the April 2012 “high” it was the best of times with the S&P 500 gaining
some 32%, and we were bullish. From there, however, the equity
markets got much harder; and is it any wonder? Indeed, it’s been said
that the stock market anticipates events six months in advance. If
that’s true, around the April peak the SPX started worrying about the
Presidential election and then the “fiscal cliff.” Subsequently, the SPX
declined 10.9% from the April “high” (1422) into the June “low”
(1267). From there the rally resumed and peaked in September at
• Page 4 •
1.
In order for an economic forecast to be relevant, it must be
combined with a market call.
2.
Never be a slave to the data – they are no substitutes for
astute observation of the big picture.
3.
The consensus rarely gets it right and almost always errs on
the side of optimism – except at the bottom.
4.
Fall in love with your partner, not your forecast.
5.
No two cycles are ever the same.
6.
Never hide behind your model.
7.
Always seek out corroborating evidence
Dollars and Sense
8.
January 2013
Have respect for what the markets are telling you.
There was another savvy seer that left Merrill Lynch, but that was 21
years ago. At the time Bob Farrell was considered the best strategist on
Wall Street, and while he still pens a stock market letter, his “lessons
learned” are as timeless today as they were when written in 1992.
1.
Markets tend to return to the mean over time.
2.
Excesses in one direction will lead to an opposite excess in
the other direction.
3.
There are no new eras – excesses are never permanent.
4.
Exponential rising and falling markets usually go further than
you think.
5.
The public buys the most at the top and the least at the
bottom.
6.
Fear and greed are stronger than long-term resolve.
7.
Markets are strongest when they are broad and weakest
when they narrow to a handful of blue-chips.
8.
Bear markets have three stages.
9.
When all the experts and forecasts agree – something else is
going to happen.
10. Bull markets are more fun than bear markets.
With these lessons in mind, we wish you good investing in the New
Year.
• Page 5 •
Dollars and Sense
January 2013
Chart of the Month
America's Stuff Is Getting Really Old,
And That's Bullish
Barry Ritholtz points us to Businessweek's chart of the day, and it's a
bullish one.
Businessweek's David Wilson notes that the "average age of cars,
appliances, and furniture owned by U.S. households is at its highest in
almost half a century."
In other words, Americans are increasingly likely to have to purchase
and replace these goods some time soon as they get more and more
worn out. That's bullish for spending, jobs, and the economy as a
whole.
• Page 6 •
Dollars and Sense
Company Snapshot –
January 2013
Jan. 2013
FIAT S.P.A. (FIATY)
FAITY - (January 5th) $5.19/share
Summary –
Fiat SpA is an Italy-based company active in the
automobile sector. The Company designs, produces and
sells cars under the Fiat, Lancia, Alfa Romeo, Fiat
Professional, Abarth, Ferrari, Maserati, Chrysler, Dodge,
Jeep, Ram Truck, SRT, brands. In addition, it also
operates in the car components sector through Magneti
Marelli, Teksid, Mopar and Fiat Powertrain Technologies
and in the production systems sector through Comau.
Fiat SpA is also active in the publishing sector through
Editrice La Stampa SpA and in the reselling of
advertisement space through Publikompass SpA. The
subsidiaries of Fiat SpA include, among others, Maserati
SpA, Fiat Group Automobilies SpA, Ferrari SpA, Fiat
Powertrain Technologies SpA, Magneti Marelli SpA,
Teksid SpA, Comau SpA and Itedi-Italiana Edizioni SpA.
As of December 31, 2011, the Company’s major
shareholder was Exor S.p.A. with a stake of 30.5%.
Fundamental Analysis
Market Cap
Distribution
Yield
P/E ratio
Price/BV
$7.36 billion
$0.08
1.63%
24x
0.62x
Technical Analysis
Longer term – quadrant 1 – BUY
Intermediate term – quadrant 1 - BUY
• Page 7 •
Dollars and Sense
January 2013
FLLC Portfolio Tracker
Current
Company
Symbol
52 Week
Initially
Added
Recent
Price
P/E
22.05
Sold
19x
Yield
Sell
Brookfield
Intrastructure
Partners LP
BIP.un
Hi
19.50
Low
15.50
Date
Feb 26, 2010
Price
17.30
SELL
Gold Participation
and Income Fund
GPF.un
12.25
10.12
10.75
12.65
Sold
6.4%
Sell
PMT
5.90
3.31
5.03
2.84
Sold
8.7%
SELL
Perpetual Energy
(formerly Paramount
Energy Resources)
New Flyer
NFI.un
11.76
7.32
9.65
11.48
Sold
11.8%
SELL
Labrador Iron Ore
LIF.un
55.80
30.03
41.60
64.25
Sold
8.7x
10.8
SELL
Maple Leaf Foods
MFI
12.06
8.47
9.21
12.21
Sold
12x
1.4%
SELL
UIL Holdings Corp
UIL
30.33
23.79
Mar 26, 2010
Sell date
Nov 3, 2010
April 27, 2010
Sell date
Aug 24, 2011
May 31, 2010
Sell date
Nov 3, 2010
June 29, 2010
Sell date
Nov 3, 2010
July 30, 2010
Sell date
Mar 5, 2011
Aug. 30, 2010
25.90
30.53
Sold
19x
5.6%
Sell
PXX
3.98
1.94
Oct 7, 2010
Sell date
Aug 24, 2011
3.90
5.02
Sold
Buy
Black Pearl
(speculative stock with
high growth potential,
NOT Blue chip)
AGF Management Ltd
AGF.b
19.25
13.36
Oct 28, 2010
16.45
12x
5.68%
SELL
Canadian Oil Sands
COS.un
33.05
24.24
26.69
17x
8.07%
Buy
Pfizer
PFE
20.36
14
Oct 28, 2010
Sell date
Mar 5, 2011
Dec 3, 2010
11.63
Sold
31.78
Sold
16.70
26.16
22X
4.25%
Buy
Home Equity Bank
HEQ
8.33
6.12
Jan 3, 2011
6.55
Buy
China Security and
Surveillance
CSR
8.89
4.09
Feb 3, 2011
4.90
SELL
Proshares Ultrashort
Euro
EUO
26.40
17.64
17.45
SELL
Nuvista Energy
NVA
12.51
8.55
Apr 6, 2011
Sell date
Sept 12, 2011
May 6, 2011
9.50
Taken
over
6.50
Taken
over
18.87
Sold
9.30
6.01
Sold
SELL
Crescent Point Energy
CPG
48.61
35.30
June 8, 2011
45.03
43.30
Sold
28x
6.28
SELL
Westshore Terminals
WTE.un
25.85
17.57
July 28, 2011
22
24.75
SOLD
16x
5.9%
Buy
Capital Power
CPX
28
22.26
July 28, 2011
23.85
23.25
22x
5.1%
*current buyout offer of $6.50
• Page 8 •
5.3%
4.27%
6.5x
Dollars and Sense
Current
Company
January 2013
Symbol
52 Week
Initially
Added
Recent
Price
P/E
Yield
11.07
7.6
9.0%
12x
5.2%
Buy
France Telecom
FTE
Hi
24.60
Low
17.21
Date
Aug 26, 2011
Price
18.50
SELL
Proshares Ultrashort
20+ year treasuries
TBT
41.54
21.86
Sept 12, 2011
22.10
19.50
SOLD
Buy
Duke Energy
DUK
71.13
50.61
57.75
64.85
SOLD
SELL
WisdomTree Europe
SmallCap dividend
DFE
48.15
31.04
33.90
37.55
SOLD
Buy
Canadian Oil Sands
COS
33.94
18.17
Oct 6, 2011
Sell date
Nov 5, 2012
Nov 10, 2011
Sell date
Nov 5, 2012
Dec 14, 2011
20.75
20.36
7x
5.62%
Buy
Telefonica SA
TEF
27.31
16.53
Feb 7, 2012
17.40
13.63
8.5x
7.5%
Buy
Canadian Natural
Resources
CNQ
50.50
27.25
Mar 7, 2012
34.70
29.59
15x
1.0%
SELL
Repsol
REPYY
34.84
14.41
15.50
19.90
SOLD
9.5x
6.8%
SELL
Eni
E
49.65
32.44
39.50
45.30
SOLD
8.0x
4.6%
Buy
Phoenix
PHX
11.70
7.75
June 5, 2012
Sell date
Nov 5, 2012
June 29, 2012
Sell date
Nov 5, 2012
Aug 7, 2012
7.85
9.14
9.9
9.14%
Buy
CME Group Inc
CME
60.92
44.94
Sept 5, 2012
55.10
53.01
12.1
3.10%
Buy
TOT S.A.
TOT
57.06
41.75
Oct 10, 2012
48
51.54
8.01
5.91
Buy
Cliffs Natural
Resources
CLF
78.85
28.05
Dec 4, 2012
29.40
38.05
5.8
7.1
Buy
Fiat SPA
FIATY
6.47
4.19
Jan 4, 2013
5.19
5.19
24
1.6
5.58%
These stocks are chosen using the same techniques
as taught in the CIC course.
FLLC is not an investment advisor and is not setting any target prices or financial projections. Never invest based on anything FLLC says. Always do
your own research and make your own investment decisions. FLLC never recommends to buy or sell any stock. This email is not a solicitation or
recommendation to buy, sell, or hold securities. This email is meant for informational and educational purposes only and does not provide investment
advice.
• Page 9 •
Dollars and Sense
January 2013
Technical Analytic View
Date:
Jan. 5, 2012
TSX 60:
Long Term:
(6-18 mths)

MidTerm:
(5-10 wks)

Comments:
• long term BUY signal has occurred, use the next intermediate
correction to buy
Dow Jones Industrials:


• rally may begin to correct here
90 Day Interest
Rates:


• governments determined to keep short term rates low for now
• some symbolic increases (0.5% to 1.0%)
5 Yr Interest
Rates:
30 Yr Interest
Rates
Gold:


• rates have flattened


• rates should trade sideways for a long time


Canadian
Dollar:
LEGEND


• longer term trend may have formed
• sell into next rally
• Cdn $ seems to be range bound between $0.95 to 1.05 US

bottom forming

buy

top forming

Sell
Current Course offerings
New courses starting February 2013
www.fllc.ca
Please visit our website
or
www.canadianinvestorscourse.ca
Contact us at:
905-828-1392
The information contained herein has been obtained from sources believed to be reliable at the time obtained but neither the Financial Literacy
Learning Centre Inc. (FLLC) nor its employees, agents, or information suppliers can guarantee its accuracy or completeness. This report is not and
under no circumstances is to be construed as an offer to sell or the solicitation of an offer to buy any securities. This report is furnished on the basis
and understanding that neither FLLC nor its employees, agents, or information suppliers is to be under any responsibility or liability whatsoever in
respect thereof.
• Page 10 •