Month: September 2018

With the howling winds, banging windows and rain battering your roof during hurricanes, how your portfolio is performing is the least of your concerns.

However, there is money to be made when mother nature strikes!

Preparing yourself physically for a hurricane is of primary importance but keep in mind also that being able to benefit from companies with a boost in sales due to potential hurricane damages is a great opportunity.

In anticipation of hurricanes, companies in the insurance & tourism industry are adversely affected, this is reflected in their stock prices. In 2017, Margaritaville (Turks) Limited [JSE: MTL] sustained damages to their operations and were forced to close for two months which caused lower than the expected revenue for that year and their prices dipped.

This, of course, presented a buying opportunity for investors.

A smart tactic savvy investors use, as this allows for a great entry point for maximizing returns.

Insurance companies more specifically property and casualty, suffer losses due to paying out for hurricane damages they are able to recoup by increasing premiums in the aftermath. In September 2017 Hurricane Irma hit the US with record high damages, this had HCI Group Inc. [NYSE: HCI] and Heritage Insurance Holdings Inc. [NYSE: HRTG] dropping 14.7% and 14.2% respectively. Hotels, villas, restaurants and other leisure-based companies may suffer a drop in revenues due to renovations, lack of hotel rooms, as well as the destruction of fish and their habitats for food production.

On the other hand, companies such as Home Depot [NYSE: HD], Costco Wholesale [NASDAQ: COST] and Generac Holdings Inc. [NYSE: GNRC] are expected to boom as sales increases. The demand for consumer necessities, generators and hardware supplies are high before and after a hurricane for security, preventive and corrective construction and simply being sufficiently supplied with food provisions.

The state of Texas had large amounts of reconstruction done after Hurricane Harvey in August 2017. This resulted in stocks prices advancing for Home Depot [NYSE:HD], the main supplier of home improvement materials. In 2017, HD had a 23% increase due to both Hurricane Harvey and Irma. This stock is currently trading at $211.71 having popped 2% since Hurricane Florence earlier this month.

It may sound daunting but positioning your portfolio during natural disasters is smart move.

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It is no secret that stock prices have climbed to significantly high levels and naturally when investors see these high share prices, they often wonder whether the companies will stock split, thus putting more shares on the market but at a lower price.

A company’s overall value remains the same with a stock split, but a shareholder will double the number of shares in their portfolio, and those shares will trade at half the previous price.

Let’s look at some familiar stocks who have seen share prices rise to very high values. We’ll then examine the reasons why a company would choose to split its shares of stock or choose not to.

Amazon [NASDAQ: AMZN]

As of September 18, 2018, Amazon is trading at US$1,946.77. That’s nearly 40 times the price for a share of Coca-Cola. The price for of shares the major online retailer has nearly doubled in the last year. Believe it or not, Amazon did stock splits regularly, doing so three times in a 15-month span in 1998 and 1999. Back then, shares were trading much lower and dipped to single digits. When asked in 2017 whether he’d consider a stock split now, Amazon CEO Jeff Bezos did not rule it out.

Booking Holdings [NASDAQ: BKNG]

Also known as Priceline, this travel service company was trading at nearly US$1,901.60 per share as of September 18, 2018. This high price is at least in part due to a “reverse” stock split in 2003, in which shareholders received one share for every six they owned. The reverse stock split came after a major market downturn that slammed the company’s share prices to nearly US$1.

Thus, there may be some institutional wariness about splitting and allowing prices to get too low and there’s no indication from management that a stock split will be happening anytime soon.

Berkshire Hathaway [NYSE: BRK]

Warren Buffett’s company is perhaps the best example of a company that rarely shows a desire to split its shares of stock. Today Class A shares are trading at more than US $326,000  a piece.

No that’s not an error.

However, Class B shares, which are more available to everyday investors, are trading at US$217.30. The major difference between Class A and Class B is that B shares don’t have the same voting rights as A share. The company split Class B shares 50-1 in 2010, but has never split Class A shares.

Why Split?

• Make shares more affordable for more people.
• Avoid a concentration of shares.
• Allow for greater liquidity.
• Some companies will split shares simply as a way of getting people to believe share values are rising.

Why Not Split?

• Many companies prefer to avoid splitting because they believe a high stock price gives the company a level of prestige.
• Smaller companies may also wish to avoid stock splits because of a danger of share values falling too low.

What are your thoughts on stock splits?

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Our government is no doubt focused on advancing Jamaica’s economic growth, but one thing that goes hand in hand with growth is a low crime rate. The idea may sound eerily similar the chicken and the egg dilemma; but what came first crime or growth? Regardless of your opinion, you cannot deny a correlation does exist.

Crime affects the individual, community, and society on a whole at every level.

It’s tempting to suggest that significant macroeconomic factors explain crime trends. It is indeed simple to find stories that may predict the new crime trends to explain the reason Jamaica’s economy tanked in 2008; however, there is more to this.

Criminologists claim that tough economic times make more people willing to commit crimes and that bad economies lead to more property crimes and robberies as criminals steal coveted items they cannot afford. The economic anxiety of bad times can lead to drastic rises domestic violence and higher consumption of mind-altering substances, leading to more destruction in general.

Economists tend to argue the opposite, that better economic times increases crime. More people are out and about flashing their shiny new smartphones and tablets, more new cars sit unattended in parking lots, and there are more big-screen televisions in homes to steal. Better economic times also mean more demand for drugs and alcohol.

Do you agree with the criminologist or the economists?

A high rate of crime has many adverse repercussions, such as:

1. A higher cost of doing business – business will now have to employ different forms of security and allocate resources to repair damages incurred.

2. Brain Drain – crime impacts the human capital as skilled workers migrate to find a better quality of life. Let us not forget, during times of extreme violence in communities; schools are closed causing instability and shift the priority from education to safety.

3. Budget – Every year our televisions are blocked out for days as the government and opposition debate the budget. How much to spend education, healthcare, security … a politicians phone bill? With a high crime problem, more funds will be diverted from other areas such as education to help combat the crime dilemma.

The bottom line: Crime is episodic, and there is no singular effect of the economy on crime. To understand and prevent crime, it is, therefore, necessary to understand what type of period we are in. It’s also essential to understand what forces are at work locally, rather than focus on the national picture.

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The antitrust lawsuit filed against AT&T Inc. has been one of the most closely watched court cases in decades. Following AT&T’s [NYSE: T] bid to purchase Time Warner [NYSE: TWX] in 2016, the U.S. Justice department quickly filed an antitrust lawsuit over the acquisition, on the basis that the merger would “greatly harm American consumers”.

However, on June 12, 2018, District Judge Richard J. Leon ruled in favour of AT&T, thus allowing the acquisition to go ahead with- surprisingly -no conditions or remedies. This win for the company has made investors even more eager for investment opportunities for new acquisitions. The market sentiment for the telecommunications and media industries has driven up stock value of companies like Discovery Inc. by 4.7 percent amid speculations about it being the next target. The decision positively impacted other media houses like Comcast, Disney and Fox, whom all saw a stock boost as a result. Additionally, Aetna’s shares jumped 4 percent after hours, and 21st Century Fox’s shares rose by more than 7 percent.

According to Ed Black, President of the Computer and Communications Industry Association, the merger has set a precedent for more to come in the future. People are now incentivised to act upon acquisitions that they might have been considering previously. Comcast has submitted a bid for 21st Century Fox set of USD$65 billion, which is higher than the USD$52 billion bid proposed by Walt Disney [NYSE: DIS].

While we expect a resubmission of the lawsuit, a loss for AT&T and Time Warner will no doubt usher a new era of government scrutiny over so-called vertical mergers and halt attempts by companies like Disney, Fox and Comcast to announce their megadeals. This decision could also exert more pressure on companies like Amazon, Netflix and Google’s YouTube, which have been competing with traditional media companies.

What exactly does this ruling mean for AT&T?

The telecom powerhouse will finally have a sizable portion of the entertainment industry. They will now handle the programming of popular media franchises such as Game of Thrones, the Harry Potter movie franchise, and CNN – as well as the infrastructure that delivers that content to the public.

Shares of AT&T fell while Time Warner stock rose as is typical during a takeover. AT&T’s stock fell as much as 3 percent, bringing its dividend yield to 6 percent and Time Warner shares were up as much as 5.3 percent to more than USD$100.00 per share in after-hours trading Tuesday.

Our analysts believe that the share price of AT&T represents the level of uncertainty that the market holds since the company will be undertaking the massive debt that comes with the acquisition of Time Warner with its long-term debt rising from $134 billion to more than $175 billion.

It is crucial to keep an eye on how the stock prices for both parties’ progress in the coming two weeks, as the deal is set to close by June 20, 2018, or AT&T will incur a charge of USD$500 million. With the recent drop in the value of AT&T shares, investors might see this as a viable buying opportunity as they anticipate an upward trend once the merger has settled. Just as the price of Time Warner is rising, AT&T will soon realise an appreciation of their share price once they start to enjoy the profits from their latest investment.

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Economic growth is a key a driver of gold demand, especially in emerging market (EM) countries where there is a high affinity for gold (for example: cash for gold) and investment.

At the same time, gold tends to perform well in periods of crisis. Having a strategic investment in gold tends to help in improving the portfolio of emerging market countries and their respective economic performances as it can be used to:

• Protect against systemic risks, which reduce portfolio volatility and losses;
• Hedge foreign-exchange risk at a lower cost than traditional currency hedges.

Dual in nature

History has shown us, that gold has performed well with returns on par with stocks over multiple time periods. It is not merely a hedge that eats into profits, but it also provides diversification during bull and bear market environments.

Emerging markets potential

EM investments have a tremendous amount of potential for growth supported by economic trends. EM continues to play an ever-important role in asset allocation as a source of return, but it usually carries higher volatility.

Lofty valuations, market downturns and correlation

Lofty valuations in developed markets, as well as low bond yields across most developed economies have led to a more significant proportion of investment growth in new markets like emerging ones. Cheaper funding in the US has allowed better access to EM. However, expectations of rising interest rates in the US could cause uncertainty and hurt the attractiveness of EM exposure.

There is a higher beta of 1.26 in emerging markets versus the MSCI World Index. Systemic risks that impact global economies have an even more substantial effect on emerging markets. As gold often acts as a haven and hedge against systemic risks, it can provide an appropriate hedge to EM exposure.

And while EM stock performance is often linked and correlated to commodity performance, this does not hold true with gold, especially in market downturns. Gold has a negative correlation with risky assets during extreme market sell-offs yet provides returns during market strength. EM jewellery demand typically falls during market downturns, but this is generally offset by the increase in investment demand worldwide.

An asset in portfolios

Adding gold to a portfolio generally produces higher absolute and risk-adjusted returns than a fully hedged or unhedged portfolio. Gold is different than traditional hedges because gold gives an investor’s portfolio positive correlation in a rising market and negative correlation in a falling market, gold has a dual nature for investment purposes – this quality is not seen in other traditional hedges.

Choosing whether to hedge the foreign currency or systemic risk of an EM portfolio is a crucial decision for any investor. Regardless of the choice, having some gold exposure can provide an advantage for risk-adjusted returns compared to a portfolio with no gold exposure.

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If you want to start investing with SSL but don’t have the time to monitor the market or to conduct the trades yourself then you can choose one of SSL’s managed Financial Planning products. We offer a variety of products for every type of investor and if you are interested in managing online trades yourself and having complete control over your investment portfolio then you can try SSL’s Brokerage account.

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Investors have been on the edge recently as the Italian economy hangs in the balance. This is stemming from a possible debt crisis that currently looms if Italy decides to exit the European Union (EU). Investors have since responded to the news by dumping Italian bonds which  has sent the two year Italian bond yield soaring to almost 2.7 percent; yields which were in the negative just two weeks ago. The ten year Italian bond increased its yield to 3.44 percent. This is the highest it has risen in over four years as bond prices fall.

Italian bonds aren’t the only instruments being dumped as investors are also dumping government bonds in other debt-heavy Eurozone countries such as Portugal and Spain. Even European banks are feeling the pinch as investors are also selling European bank stocks fearing that the banks will more than likely suffer losses on large bonds as prices continue to plummet. Italy’s largest bank UniCredit’s shares fell by 5.6 percent while Spain’s largest bank Santander fell by 5.4 percent.

How did Italy get to this point?

Italy had an inconclusive election in March of this year. Following that, there is currently a power struggle between the Eurosceptic populists and the Pro- European Union politicians. The Eurosceptic populists are those who are against the increasing powers of the EU and opposes the connection of a European country to the Union. It is said that the EU opposers won the election and choose a Finance Minister from within to oversee the government, however, the Italian President, Sergio Mattarella, vetoed the appointment in order to dispel the risk of Italy abandoning the Euro.

Given that the current government is displaying much uncertainty and division, Italy may be having re-elections soon.

Currently, Italy’s debt is 2.3 trillion Euro which is 135 percent of the country’s GDP.

If you liked this article and want to read other great stories, try our Archives. Also if you are new to investing you can try our Investment Basics Blog.

If you want to start investing with SSL but don’t have the time to monitor the market or to conduct the trades yourself then you can choose one of SSL’s managed Financial Planning products. We offer a variety of products for every type of investor and if you are interested in managing online trades yourself and having complete control over your investment portfolio then you can try SSL’s Brokerage account.

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Digicel announces their plans to exchange  the full amount outstanding on both the 8.25% (2020)  and 7.125% (2022) bonds issued.

$2bn of 8.25% 2020 notes are offered to be exchanged for $2bn of new 8.25% 2022 notes;
Issuer: Digicel Group One Limited – 95c if tendered after the early tender date of September 14.

$1bn of 7.125% 2022 notes are offered to be exchanged for $1bn of new 8.25% Cash/PIK 2024 notes (7.125% cash/1.125% PIK);
Issuer:  Digicel Two Limited- 95c if tendered after September 14.

The exchange pushes maturities forward but does not fully address the issue of maturity concentration between bonds of 2020 and 2022. This move is likely to clear the refinancing risk of the ’20s that was of great concern for the relevant markets.

The offer is subject to a 90% acceptance rate for each series of notes with the tender expiration date slated for September 14. The company expects that through improved results this may channel the refinancing of debt maturities in the capital markets.