Article by Investment U
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Mega funds have been stocking up on shares of small cap oil and gas stocks such as HGT, PBT, and SJT.
In focus this week: The bulls are running income, small-cap gas and oil stocks, trouble with the credit business and the SITFA.
Despite incredibly low interest rates, CitiGroup said this week they are bullish on the income sector and see no problem with long durations.
In case you aren’t fluent in income-ese, duration is a measure of how much an income investment, that is an interest rate sensitive one, will drop in value when rates move up one, two, or even three points.
Since interest rates are at zero, rates moving up seems to be the only option, and so a short duration to protect yourself against the drop in market value seems to be a prudent move.
But Citi is saying, don’t worry about rates going up and you can still buy long duration investments, which are always long maturity investments.
Citi supported their position with a list of technical factors that all point to a stable, bullish income market, especially in munis.
Thomas Reuters was quoted in a Journal article saying that the decreasing supply of munis in the market and the huge position of uninvested cash will keep pressure on the muni and broad income market for some time.
They like the five-to-seven-year maturity area for the value. The strange part, five-to-seven-year bonds do not have a high duration. In fact, that’s considered a very short maturity and therefore a short duration in almost all cases.
I like the five-year average maturity range for return and limited downside in bonds, as well, and have for about four years. So I’m half in agreement with Citi.
Watch yourself with any income investment with long maturities or duration. If you don’t, you could wake up to a terrible surprise when rates do move up.
Small-Cap Gas and Oil Stocks
Thirty of the tens of thousands of funds that invest in the United States control 35% of all the stock in the United States.
A recent Seeking Alpha article listed the small-cap gas and oil stocks these mega funds are accumulating.
If you follow these videos regularly, you know I’m very bullish on gas and oil despite the slowing in the BRICs and the incredibly low price of gas. So I liked this emphasis on what the big guys are buying, most at bargain prices.
Hogoton Royalty Trust (NYSE: HGT) – mega funds bought $42 million worth of this trust in the last two quarters. Bank of America was the biggest buyer.
Shares are at multi-year lows. Think the megas know something you don’t about this one?
Permian Basin Royalty Trust (NYSE: PBT) – This is the second time I have seen this one recommended in as many weeks. Permian seems to be doing everything right in their trusts.
$39 million of this one was bought up by mega funds in the just the last two quarters. The megas own 5.2% of this one.
Bank of America again was the biggest buyer. It’s pretty pricey here, so watch it. It has tripled since 2009.
San Juan Basin Royalty Trust (NYSE: SJT) – $42 million worth was picked up in the last two quarters and it’s at multi-years lows. BAC has $26 million of this one.
Other names mentioned in the article: ATP Oil and Gas, QR Energy, HyperDynamics Corp. and Triangle Petroleum.
The emerging markets are expected to increase pressure on the oil and gas prices, and NG is expected to be at about $3 by the end of the summer and $4 by the end of the year. Now is when you should be building your positions.
Trouble in the Credit Industry
The Journal ran an article about the fees banks and credit card companies charge, and that may have a lot of folks wondering about the future of the credit business.
The merchant class is in revolt about the fees they’re charged. Some of them are as high as $0.45 every time a card is swiped regardless of the size of the charge.
Charges are the second-highest operating expense for small merchants according to the Journal, second only to payroll.
According to Sanjay Sakhrani, credit analysts for Keefer, Bruyette and Woods, Banks are charging 1.5% to 2% on all charges and only paying the credit card companies 0.1% to 0.2% of the revenue.
Sakhrani sees the possibility of a backlash against banks and many are heavily dependent on credit charges for their revenue, but credit card companies themselves, Master Card, Visa, Discover and Amex, should outperform.
Merchants filed suit against the banks for unreasonable charges and congress reduced the fees charged, but only for debit cards. Credit cards are still open range.
Buyers are hooked on cards and there is no sign of their use slowing anytime soon. But watch for action against the bank’s fees. It could be a big hurt to those dependent on them.
The SITFA
This week it goes to the prosecutor’s office of Manhattan.
Twenty Manhattan District Attorney’s employees, including 15 prosecutors, battling barristers the Journal called them, went toe to toe in a sanctioned charity-boxing match last week.
The organizer, a former marine who boxed as an amateur, was concerned about the brainy crowd getting into it, but some attendees said the atmosphere was very professional.
Except, you knew there was one coming, right? Except when one prosecutor had her, yes, her contact lens knocked out of her eye during the first round.
A hard right left her with just one good eye, but she toughed it out for the three rounds.
She was quoted as saying, “I probably broke my nose, but it’s the fifth time, so who cares.” Now that’s a tough DA.
Boxing with contact lenses, this has to be a first.
Article by Investment U
