The Real Value of Pennies and Why High Yield Will Shine in 2012
by Steve McDonald, Investment U Contributing Editor
Sunday, December 11th, 2011
First Up, Pennies
A penny made before 1982 is worth three times its face value. That’s right, three cents for one penny according to a network news piece.
The value of copper has gotten so high the copper content of a pre-1982 penny is worth three times, or three cents. Crazy!
Copper has become so valuable people are going to extraordinary lengths to get it.
Thieves have been stealing copper anywhere they can find it; stripping copper wiring from phone and utility cables, from construction sites, even a 122-year-old copper bell In San Francisco.
One ball park in San Diego had so much of its wiring stolen they can’t play night games, the lights don’t have any wires left.
Ads on eBay are offering $10 of pennies for $20. The last time I saw anything like this was when commodity process got totally out of whack in the late 70s.
Here’s the problem, and there’s always one, right? In order to get the copper out of the pennies you have to melt them down, and that’s against federal law. You cannot destroy currency.
Don’t think about shipping them out of the country to do it, either. It seems there is a law that prohibits shipping more than $5 in pennies out of the U.S. Who would have thought?
But, the mint is re-evaluating our currency and is considering abolishing the penny. If that happens, you would be able to melt them down and that would open the penny floodgates.
One guy in Portland has $270,000 in pennies that he sells now for about $176 for $100 in pennies, shipping included. Live long enough and you’ll see everything.
Africa is Booming
The Economist reported this week that African growth is stunning the developed world. The IMF expects sub Saharan African economies to grow by 5.75% in 2012 and the bigger countries could see 10% growth.
Africa, according to The Economist, could be on the brink of an economic turn around similar to China 30 years ago and India 20 years ago.
These economies are growing faster than any other in the world. At least 12 have seen growth rates of 6% annually for the last six years.
Ethiopia, once synonymous with famine, is now the tenth largest producer of livestock in the world with a 7.5% growth rate this year.
Africa’s population is also expected to double within the next 40 years and with it the availability of workers in the prime of their production years; a demographic that was essential to the Asian miracle of the past 20 years.
This has been referred to as the “lion economies” similar to the “Asian tigers” of the 90s.
Africa has one half of the world’s gold reserves, one third of the diamonds in the world and healthy oil reserves. But East Africa with only a small amount of oil and very little of the mineral deposits of the rest of the continent has the fastest growing economy.
This isn’t just about commodities! The entire continent is under going a major shift from corruption, poverty and starvation to a real up and comer.
Obviously, just as in the case of China and India, the infrastructure has to be improved and there is still a huge disparity between the haves and have nots, but this is the hottest place in the world right now and you need to be on top of it.
High-Yield Bonds Will Be the Darlings of 2012
That according to a Credit Suisse report out this past week.
CS sees yields in the 6% to 9% range with default rates in the 1% to 3% range, defaults well below long-term averages.
Remember, we’re talking about junk bonds, so a 1% to 3% default rate is fabulous. That means 97% to 99% of high-yield bonds are paying as promised. Over an 80-year period it has averaged about 4%.
Eliminate the CCC range and it historically has dropped to about a 1% default rate.
Problem income areas for 2012, Eurozone and Argentina debt
CS sees the Eurozone as problematic with what they called a “very bad scenario.
Argentina according to Credit Suisse has both currency and inflation issues that could be a problem for investors. If you’re looking for South American exposure, CS suggests Peru, Mexico and Brazil.
One surprise, mortgage backed securities have a constructive view by CS. They see headline and technical factors as a negative but still like them in a limited role.
But CS reported they think both MBS’ and foreign sovereign debt will be out performed by US hi yield bonds.
By the way, high-yield bonds have been out performing the stock market for about 10 years.
And Finally, the SITFA
This week it has to go to S&P for their incredibly bad timing in announcing that most of the EU will be put on a negative credit watch.
Couldn’t they have waited until the new debt survival plan was completed and on the table before they dumped all over everyone. The only countries not on the negative watch list; France, Germany, the Netherlands, Austria, Finland and Luxembourg. This is much worse than when the U.S. was dropped to AA+ from AAA. That was just a blip in the markets. This recent announcement will not be.
Several countries, Italy especially, are already in trouble with the cost of their debt and this is really bad news for most of the other EU members. Their debt costs are just going higher and they can’t afford it.
A little breathing room would have been nice.
Or, here’s a real slap in the face
Martha Stewart, at least the brand Martha Stewart is being bought out by JC Penny, Jacque Penne’ as we call it, for about $4 a share.
The market cap at this price is around $224 million. It has sold for as much as $30 a share or a market cap of about $1.6 billion.
Why was everyone so hyped about this deal last Wednesday when it was announced? The shareholders who paid the initial offering price are getting the shaft.
$4 looks more like a dying man’s last breath, not a buyout.
Article by Investment U
