IMAGES: Who Loaned Greece all that Money?

Just as we asked ourselves back in August, 'who loaned the United States all all those 15 trillion dollars?,' now we must ask 'who helped out Greece?'

Some say that the Greek nation has an indescribable amount of debt, but here at Wealth Wire we'd like to take on that challenge and show you precisely how much debt Greece is facing. Let us break down the images here for you:

Here is €100 which is equal to $131: enough to buy dozens upon dozens of little containers of Greek yogurt.

€10 Thousand (€10,000)

Well aside from a serious amount of yogurt, you could probably buy yourself a house in Detroit for this chunk of cash.

 

€1 million (€1,000,000)

No, this isn't a Guy Ritchie film with stacks of millions of euros being tossed around. This "modest" stack is worth about $1.31 million and would take (based on the global average) more than 92 years of work to accumulate yourself.

€100 million (€100,000,000)

This outrageously large stack reaches the height of an average man. Pretty impressive considering that some of the above-average men – CEOs at some of the big banks during the financial crisis – actually received that much money...as a bonus, nonetheless!

€2 billion (€2,000,000,000)

To adequately depict this amount of case you'll need a literal “truck-load" full of cash to show Greece's budget deficit, which is said to be €24,125,000,000. To give you an idea of what Greece will need to borrow in order to pay its debt, just imagine a stack of 12 of these trucks together in order...and that's just enough to avoid bankruptcy...for this year only!

Now who loaned Greece all the money? Detail by lender

(from left to right)

One truck:

€2.0B from France's CNP Assurances and €2.0B from Groupama

Two trucks:

€2.3B from Greece's Marfin Group and €2.9B from France's Societe Generale

€2.9B from Germany's Commerzbank and €3.0B from Italy's Generali Group

€ 3.7B from Greece's Alpha Bank Three trucks: (right) €4.6B from Greece's Deutsche Bank

€5.0B from France's BNP Paribas and €6.0B from Greece's Bank of Greece

Four trucks:

€6.3B from Germany's FMS Wertmanagement and €8.0B from Greece's Piraeus Bank

Five trucks:

€9.0B from Greece's Eurobank EFG and Seven truck: €13.1B from Europe's National Central Banks

Ten trucks:

€18.6B from National Bank of Greece and Eight trucks: €15.0B from the International Monetary Fund

Thirteen trucks:

€25.0B from World Governments and Fifteen trucks: €30.0B from the Greek Public Sector

Nineteen trucks: €38.0B from the European Union and 23 trucks: €45.0B from Eurosystem SMP

...and the rest of the €110.9B was from everyone else...

€360 billion represents Greece's total debt (€360,000,000,000)

 

This figure stands for Greece's government debt in its entirety. Just think about this for one moment...That's over 473 billion U.S. dollars! And this is what it would look like if that much money had to be transferred via truck. *Now, keep in mind: when money is loaned to Greece, it is transferred via wire...costing practically nothing for them to arrange the transfer. 

 

 

Two perspectives of this massive debt:

 

“In our time, the curse is monetary illiteracy, just as inability to read plain print was the curse of earlier centuries.”

-Ezra Pound (1885-1972 American poet/critic)

Or would you rather have those trucks charging at you? Here's your second perspective...

*Sources: ZeroHedge.com, Barclay Bank, and Demonocracy.info

 

Here is €100 which is equal to $131. Enough to buy dozens and dozens of Greek yogurts.

 

IBM: Sterne Agee Starts at Buy, $230 Target

Sterne Agee’s Shaw Wu this afternoon started coverage of International Business Machines (IBM) with a Buy rating and a $230 price target, writing that the stock’s current 11.4 forward P/E multiple on projected 2013 EPS of $17 should be more like 13.5 times, as the company deserves a premium given “its relative predictability.”

EPS growth of 10% to 15% over several years is “not dependent on the top line, but rather a growing mix of higher-margin software (23% of revenue) through organic means and acquisitions” writes Wu. And he thinks the company’s goal to reach $20 per share in profit by 2015 is “achievable.”

Wu calls IBM the “model enterprise company,” in its early appreciation of how to “add value” with services, and also the role the company has taken as the “strategic advisor of choice to governments and corporations around the world.”

IBM shares today closed down 82 cents, or 0.4%, $192.82.

Why Belden May Be About to Take Off

Here at The Motley Fool, I've long cautioned investors to keep a close eye on inventory levels. It's a part of my standard diligence when searching for the market's best stocks. I think a quarterly checkup can help you spot potential problems. For many companies, products that sit on the shelves too long can become big trouble. Stale inventory may be sold for lower prices, hurting profitability. In extreme cases, it may be written off completely and sent to the shredder.

Basic guidelines
In this series, I examine inventory using a simple rule of thumb: Inventory increases ought to roughly parallel revenue increases. If inventory bloats more quickly than sales grow, this might be a sign that expected sales haven't materialized. Is the current inventory situation at Belden (NYSE: BDC  ) out of line? To figure that out, start by comparing the company's inventory growth to sales growth. How is Belden doing by this quick checkup? At first glance, pretty well. Trailing-12-month revenue increased 22.6%, and inventory increased 15.1%. Over the sequential quarterly period, the trend looks worrisome. Revenue dropped 10.7%, and inventory grew 2.6%.

Advanced inventory
I don't stop my checkup there, because the type of inventory can matter even more than the overall quantity. There's even one type of inventory bulge we sometimes like to see. You can check for it by examining the quarterly filings to evaluate the different kinds of inventory: raw materials, work-in-progress inventory, and finished goods. (Some companies report the first two types as a single category.)

A company ramping up for increased demand may increase raw materials and work-in-progress inventory at a faster rate when it expects robust future growth. As such, we might consider oversized growth in those categories to offer a clue to a brighter future, and a clue that most other investors will miss. We call it "positive inventory divergence."

On the other hand, if we see a big increase in finished goods, that often means product isn't moving as well as expected, and it's time to hunker down with the filings and conference calls to find out why.

What's going on with the inventory at Belden? I chart the details below for both quarterly and 12-month periods.

Source: S&P Capital IQ. Data is current as of latest fully reported quarter. Dollar amounts in millions. FY = fiscal year. TTM = trailing 12 months.

Source: S&P Capital IQ. Data is current as of latest fully reported quarter. Dollar amounts in millions. FQ = fiscal quarter.

Let's dig into the inventory specifics. On a trailing-12-month basis, raw materials inventory was the fastest-growing segment, up 22.8%. On a sequential-quarter basis, raw materials inventory was also the fastest-growing segment, up 3.8%. Belden may display positive inventory divergence, suggesting that management sees increased demand on the horizon.

Foolish bottom line
When you're doing your research, remember that aggregate numbers such as inventory balances often mask situations that are more complex than they appear. Even the detailed numbers don't give us the final word. When in doubt, listen to the conference call, or contact investor relations. What at first looks like a problem may actually signal a stock that will provide the market's best returns. And what might look hunky-dory at first glance could actually be warning you to cut your losses before the rest of the Street wises up.

I run these quick inventory checks every quarter. To stay on top of inventory and other tell-tale metrics at your favorite companies, add them to your free watchlist, and we'll deliver our latest coverage right to your inbox.

• Add Belden �to My Watchlist.

What Is a Gram of 14K Gold Worth?

Next to platinum gold is the most precious metallic component within the periodic table, but in terms of popularity there isn’t any other metal that can match up with the status of gold. People revere the metal for varied reasons such as malleability, glitzy effect along with durability. Average Gold Prices Per Ounce is mainly determined on quotation with US Dollar per every represented Troy unit.

In many instances such a feature would as well be integrated on dealing through relevant components of same status within the entire world. Average Gold Prices per Ounce for each representative ounce would again be incorporated based on dualistic ratios preset in London and inclusive of total 5 unique members integrated within London Golden League, and such figures further incorporate all the members who are represented within the Bullion Dealers Alliance.

Your contemporary fixes would typically start trade round 10.30AM and may commence with the same way over to 3.00PM all depending on contemporary marketplace prices. In many instances the representative PM design on the London Fixated representative bullion rate per ounce would generally be used within the day’s price status and labeled on the chronological rate graphical composition.

As a wise trader you have to keep close eye up on relevant Gold Prices per Ounce rates on that particular metallic component such that ultimately one could make trade on items when more profitability is due. There are several real-time websites in which one could attain pertinent standings with regards to prevailing gold units on every preset ounce or even kilo that further incorporates currency representations from a wide range of countries including UK Pound, the Japanese Yen and several others which aren’t so common such as Australian Dollar.

In the market there are numerous authentic websites whereby one may get relevant standings in comparison to the contemporary gold piece units for each kilo which may as well integrate typical currency value of quite an extensive range of countries such as UK, Australia and even the highly esteemed Japanese Yen.

Gold is internationally measured in terms of carats per ounce and then this figure is converted into currency per region and represented within select member countries. The daily standings of gold is usually dependent on the amount of trade which is taking place within that particular day; this essentially means that those who would wish to make the most money while dealing this [particular piece need to wait till when demand is high so as to get the most profit.

Major characteristics that this component boasts are malleability and also inert status. The phrase inert here means that this metal can’t in any way react up with any composite featured within the periodic table, and as such high levels of purity is always guaranteed for totally extensive times.

Gold ranks amongst the inert group of compounds meaning that it cannot react with any other element within the periodic table and one can be guaranteed that it would maintain its levels of purity forever. Gold Prices per Ounce may also a good insurance source against unpredictable economic circumstances.

Searching for the Best Gold Sovereign Prices? Then you came to the ideal spot! You could also check their other post which tackles on Sovereign Prices of Gold Reviews

Why Perrigo May Be About to Take Off

Here at The Motley Fool, I've long cautioned investors to keep a close eye on inventory levels. It's a part of my standard diligence when searching for the market's best stocks. I think a quarterly checkup can help you spot potential problems. For many companies, products that sit on the shelves too long can become big trouble. Stale inventory may be sold for lower prices, hurting profitability. In extreme cases, it may be written off completely and sent to the shredder.

Basic guidelines
In this series, I examine inventory using a simple rule of thumb: Inventory increases ought to roughly parallel revenue increases. If inventory bloats more quickly than sales grow, this might be a sign that expected sales haven't materialized. Is the current inventory situation at Perrigo (Nasdaq: PRGO  ) out of line? To figure that out, start by comparing the company's inventory growth to sales growth. How is Perrigo doing by this quick checkup? At first glance, OK, it seems. Trailing-12-month revenue increased 17.6%, and inventory increased 20.0%. Over the sequential quarterly period, the trend looks healthy. Revenue grew 15.6%, and inventory grew 3.1%.

Advanced inventory
I don't stop my checkup there, because the type of inventory can matter even more than the overall quantity. There's even one type of inventory bulge we sometimes like to see. You can check for it by examining the quarterly filings to evaluate the different kinds of inventory: raw materials, work-in-progress inventory, and finished goods. (Some companies report the first two types as a single category.)

A company ramping up for increased demand may increase raw materials and work-in-progress inventory at a faster rate when it expects robust future growth. As such, we might consider oversized growth in those categories to offer a clue to a brighter future, and a clue that most other investors will miss. We call it "positive inventory divergence."

On the other hand, if we see a big increase in finished goods, that often means product isn't moving as well as expected, and it's time to hunker down with the filings and conference calls to find out why.

What's going on with the inventory at Perrigo? I chart the details below for both quarterly and 12-month periods.

Source: S&P Capital IQ. Data is current as of latest fully reported quarter. Dollar amounts in millions. FY = fiscal year. TTM = trailing 12 months.

Source: S&P Capital IQ. Data is current as of latest fully reported quarter. Dollar amounts in millions. FQ = fiscal quarter.

Let's dig into the inventory specifics. On a trailing-12-month basis, work-in-progress inventory was the fastest-growing segment, up 32.3%. On a sequential-quarter basis, work-in-progress inventory was also the fastest-growing segment, up 11.5%. Although Perrigo shows inventory growth that outpaces revenue growth, the company may also display positive inventory divergence, suggesting that management sees increased demand on the horizon.

Foolish bottom line
When you're doing your research, remember that aggregate numbers such as inventory balances often mask situations that are more complex than they appear. Even the detailed numbers don't give us the final word. When in doubt, listen to the conference call, or contact investor relations. What at first looks like a problem may actually signal a stock that will provide the market's best returns. And what might look hunky-dory at first glance could actually be warning you to cut your losses before the rest of the Street wises up.

I run these quick inventory checks every quarter. To stay on top of inventory and other tell-tale metrics at your favorite companies, add them to your free watchlist, and we'll deliver our latest coverage right to your inbox.

• Add Perrigo�to My Watchlist.

ZAGG Starting to Get Mojo Back

ZAGG Inc. (ZAGG) is dedicated to protecting and enhancing the mobile experience. ZAGG designs, manufactures, and distributes protective clear coverings and accessories for consumer electronic and hand-held devices, worldwide under the brand names invisibleSHIELD (TM) and ZAGGaudio (TM). The invisibleSHIELD is a protective, high-tech patented film covering, designed for iPods, laptops, cell phones, digital cameras, PDAs, watch faces, GPS systems, gaming devices, and other items. The patent-pending invisibleSHIELD application of clear protective film covering a device is the first scratch protection solution of its kind on the market, and has sold millions of units. Currently, ZAGG offers over 4,000 precision pre-cut designs with a lifetime replacement warranty through ZAGG.com, major retailers like Best Buy (BBY), Radio Shack (RSH), and Cricket, resellers, college bookstores, Mac stores, mall kiosks, and other online retailers.

ZAGG was a very hot stock during the first half of 2009 running from $0.60 to $7.00. The company missed analyst expectations two quarters in a row, and the stock traded down to a low of $2.00 in February. ZAGG looks to be righting the ship as it gave a baseline 30% growth estimate for 2010, which implies revenue of $50 million and EPS 0.23-0.26 for FY 2010. The company is currently trading around $3.00 or 15x TTM EPS (backing out non-cash charges in Q4 2009). I believe if the company can string together a couple of quarters that meet the street's expectations the stock will rally back to $5.00+ PPS.

ZAGG is one of the top benefactors of Apple (AAPL), Research In Motion (RIMM), and any other consumer electronic device with a touch screen. The Apple iPad is providing yet another growth driver for ZAGG. The company recently posted on its website:

ZAGG shipped tens of thousands of Apple iPad invisibleSHIELDs across the country prior to the iPad's release. The invisibleSHIELD was available in select national retailers across the country before the iPad itself even hit the shelves.

You can also see the positive correlation between the Apple iPad launch and Zagg.com’s website traffic:

ZAGG also continues to expand its domestic and international big box reach. ZAGG announced after the close that they expanded their domestic and international distribution with the addition of two major retail outlets. ZAGG’s newest distributors include:

• Fry’s Electronics, a big-box retailer of consumer electronics with stores in nine states and headquarters in San Jose, California. Along with the invisibleSHIELD, Fry’s Electronics will also carry many of ZAGG's other award-winning products, including the new ZAGGsparq™, ZAGGbuds™, and ZAGGskins™.

• Best Buy Mexico, a division of Best Buy Co., Inc. Best Buy Mexico will carry the invisibleSHIELD for some of the most popular electronics including the latest versions of the Apple iPhone and iPod touch, and the leading BlackBerry models.

I expect ZAGG will continue to do what it’s doing, expanding and growing. I believe the stock has a good shot at doing the same.

Disclosure: Long ZAGG

ISM Non-Manufacturing Index Highest Since 2007

"Economic activity in the non-manufacturing sector grew in February for the second consecutive month, say the nation's purchasing and supply executives in the latest Non-Manufacturing ISM Report On Business. In February, the Non-Manufacturing Index (NMI) registered 53 percent, indicating growth in the non-manufacturing sector for the second consecutive month. A reading above 50 percent indicates the non-manufacturing sector economy is generally expanding; below 50 percent indicates the non-manufacturing sector is generally contracting.

Costco: A Look Ahead of Earnings

With earnings season mostly in the rear view mirror, the pickings are getting mighty slim. One sector that still has a respectable presence, however, is the retail space. We’ll see reports from a number of different retail areas, including grocers [Kroger (KR)], office supplies [Staples (SPLS)], auto parts [AutoZone (AZO)], pets [PetSmart (PETM)], and apparel [Foot Locker (FL) and Ascena (ASNA), the new name of Dress Barn].

Another well-represented area is the discount warehouse retailer, with both Costco and Big Lots (BIG) reporting. Let’s take a closer at Costco (COST), which reports on Wednesday before the open. Analysts expect the company to show a modest 11% increase in profit growth from a year ago. The whisper number matches the analyst number, which shows more modest expectations after having exceeded the analyst figure for the past three quarters.

COST has a mixed record of beating earnings estimates, having a .500 batting average (three beats, three misses, and two meets) over the past two years. What’s more, the stock doesn’t tend to exhibit exaggerated moves following earnings. If anything, post-earnings activity tends to match the pre-earnings trend.

And that’s why we like COST beyond just an earnings play. Frankly, we don’t expect earnings to make a huge impact. But we don’t expect them to get in the way of an uptrend that has covered more than 35% since August. The stock is currently enjoying a strong bounce off its 50-day moving average, a trendline that supported a similar pullback earlier this month.

On the sentiment front, the put/call ratio has spiked to an annual high, probably in reaction to last week’s pullback. With the stock bouncing higher, look for that brief bout of pessimism to unwind to the stock’s benefit. And just half the covering analysts rate COST a "buy," leaving plenty of room for upgrades, especially if earnings don’t disappoint and the stock moves to take out the 75 level to extend into all-time high territory.

As we said, don’t count on the stock popping higher after earnings. Instead, look for the rally to continue on strong fundamentals and unwinding pessimism.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in COST over the next 72 hours.

Yelp, Zynga shares jump, leading tech gains

MARKETWATCH FRONT PAGE

Online review site Yelp surged more than 60% in its IPO debut, while Zynga continued a second day of gains following the announcement of its new online gaming platform. See full story.

The best are bullish, the worst are not

The stock market timers with the best long-term record are, on balance, bullish. See full story.

Bond bubble, toil and trouble

As long as interest rates are low, it costs very little to issue even more debt See full story.

Why dividend stocks top TIPS for income investing

Income-seeking investors nowadays face a Hobson�s Choice that forces them to hold their noses and plunge. But one income-generating option is capturing the attention of investors and investment advisers alike: Swapping inflation-protected Treasurys, or TIPS, for dividend stocks with yields exceeding 3%. See full story.

Buy the market, not the rally

It�s taken more than a decade for the Nasdaq to trade back near the 3,000 level. Now that it has, John Shinal asks, are tech stocks a buy? See full story.

MARKETWATCH COMMENTARY

Instead of acknowledging that banks have become a part of government, we keep pretending they are private institutions, writes David Weidner. See full story.

MARKETWATCH PERSONAL FINANCE

Americans are falling behind on savings and need to catch up. Here�s how. See full story.

Soaring Sales of Diesel Cars Support Higher Platinum Prices

A lot of car makers recently released sales figures. Most of the numbers were not very good; this has been attributed to supply disruptions due to the big earthquake in Japan, as well as a slowing of the economy. Nevertheless, they tended to be better than the dismal numbers that were expected.

In one little-noticed area, however, sales were soaring. Diesel engine sales in the United States are taking off at a rate far above expert predictions. With much higher fuel prices caused by heavy taxation, European carmakers have long specialized in producing reasonably priced, more fuel-efficient small cars and trucks fueled by diesel. Diesel engines use 30-40% less crude oil to go the same number of miles as gasoline-fueled vehicles.

German carmaker Volkswagen (VLKAF.PK) has brought its know-how to America. Its luxury car brand, Audi, was one of the first to introduce "clean diesel" technology to the US.. Overall Audi sales were up by 13.6% over May 2010, fueled by intense demand for those models offering diesel. Sales of the A3, for example, increased by 33.9% with the "TDI clean diesel" accounting for 55%. Sales of the Audi Q7 sport-utility vehicle showed an increase of 26.9%, with diesel amounting to 40% of the total.

In the mid-priced car market, Volkswagen sales were up by 28%, again led by its diesel offerings. "Clean diesel" TDI models accounted for more than 22 percent of all May sales. Fresh from this success, Volkswagen is making plans to vastly increase its sales in the US for all of its cars. The German carmaker recently opened a new manufacturing facility in Chattanooga, Tennessee. The Tennessee assembly plant will build a newly designed Passat that will sell for about $7,000 less than its German-built models. This will allow direct price competition, for the first time, with the market-leading Ford (F) Fusion, Toyota (TM) Camry, Honda (HMC) Accord and Hyundai (HYMLF.PK) Sonata.

Volkswagen expects to build 150,000 American Passats in 2012. The new Passat factory will produce clean TDI diesel engines made in America. The diesel version of the Passat has been able to achieve 43 mpg on the highway compared to 32 mpg for the 2.5-liter gasoline version. According to Rebecca Lindland, senior analyst for IHS Automotive, diesel car sales have increased by 48 percent over last year because consumers are looking for better fuel efficiency. In comparison, hybrid car purchases rose 25 percent.

Volkswagen expects annual US sales of 800,000 vehicles by 2018 from last year's 256,830, which was the company's best showing since 2003. It expects its Audi brand sales to rise an additional 200,000 over the same period. Volkswagen is vastly underestimating its future sales figures if it continues to be the only mass market automaker in America offering diesel engine cars. As the demand for oil worldwide continues to rise, and the price moves higher and higher, the demand for diesel will also move higher.

Other automakers can no longer afford to ignore diesel. Cummins Inc. is developing a four-cylinder diesel engine aimed at giving full-sized, light-duty American pickups the power of a small V-8 and overall fuel economy of 28 mpg. By comparison, a full-sized Nissan (NSANF.PK) Titan pickup gets an average of 15 mpg. According to the U.S. Department of Energy, if diesel vehicles make up 30 percent of the U.S. market share by 2020, the U.S. could save 350,000 barrels of oil a day, reducing the country’s dependence on foreign oil.

Ford, however, alone among automakers, recently indicated that it had no intention of introducing diesel to North America, even though it sells huge numbers of them in Europe. Ford says that it will rely on EcoBoost gasoline engines, which use turbocharging, direct injection and other technologies to boost fuel economy. But, In spite of the hype, no "Ecoboost" engine model achieves fuel efficiency remotely resembling diesel engines. The only real alternative to diesel are hybrids.

Hybrid vehicles have both high manufacturing and high maintenance costs because of the batteries. This makes diesel a cheaper alternative in spite of the fact that platinum must be used, instead of palladium, in catalytic converters. If diesel catches on in North America, as now seems to be the case, platinum prices could rise quickly to $4,000+ per troy ounce. However, even at that price, the cost of the platinum amounts to only a few hundred extra dollars, out of a total $29,700 paid for a new car on average, as noted here.

Aside from the initial cost, after about 100,000 miles, hybrid owners often must put up $4,000 for new batteries. In contrast, the average useful life of a well-maintained diesel engine is about two to three times longer than an equivalent gasoline engine, further reducing the cost of ownership. If maximum fuel efficiency is desired, and the cost of batteries is not an issue, Volkswagen has developed a diesel/electric hybrid that gets an average of about 70 mpg. Meanwhile, GM, Peugeot (PEUGF.PK) and Mercedes Benz have all announced plans to develop super-high fuel efficiency diesel hybrids.

About 39% of current platinum demand is from catalytic conversion of vehicle exhaust emissions. An average of about eight grams of platinum are used for each small diesel engine, compared to only about one gram for gasoline engines. The expert-beating success of Volkswagen's diesel-fueled cars in America and elsewhere, as well as the expected roll-out of similar products from other manufacturers, will fuel higher levels of platinum demand, even if economic growth declines and the total number of new cars produced falls.

You can learn more about how to invest in platinum here and here.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Institutional Investors Rapidly Shift to Direct Hedge Fund Investing: Citi Survey

Institutional fund managers have undertaken a dramatic shift to direct hedge fund investing following the global financial crisis, according to a survey released Monday by Citi Prime Finance.

The survey is based on in-depth qualitative interviews with some 60 major investors representing $1.7 trillion in assets under management as well as hedge fund managers representing $186 billion in assets under management.

It reveals that pensions and sovereign wealth funds have not only been increasing their hedge fund investment programs but are also allocating directly to hedge funds rather than using traditional funds of funds. Along with this trend, due diligence has intensified and focused on new priorities.

The survey found that hedge funds managing between $1 billion and $5 billion experienced the largest net growth in 2010.

“Fund managers in this range occupy a ‘sweet spot’ for investment allocators, with interest extending as low as $500 million in developed markets and $250 million in emerging markets,” Sandy Kaul, U.S. head of business advisory services, said in a statement. “Above $5 billion we see a bifurcation in the industry among hedge fund managers that are limiting new investment and those that are developing into larger asset management organizations.”

Among other key survey findings:

• Direct allocator hedge fund portfolios are typically small: 20–50 managers. Interviewees usually made only one to four allocations per year, writing few, but large tickets ranging from $25 million to $100 million.
• Partnership is key, with an emphasis on the “partnership” forged between the direct allocator and its selected managers and on the longer-term investment focus of its portfolios.
• Pension and sovereign wealth fund direct allocators have not yet settled on a standard model or approach. Most still look to outsourced CIOs, consultants or fund-of-funds advisors to support their direct allocating efforts.

Due Diligence Shift

In the aftermath of the financial crisis, due diligence has intensified and its focus has shifted. The Citi survey found that before 2008, a manager’s “pedigree” was a primary concern of institutional investors; that is, where the manager’s investment talents had been honed. Investors also focused on

“edge:” the unique skill a manager brought to the game that would likely generate better returns than other managers.

As well, pre-crisis investors wanted to be sure that the manager’s interests were aligned with their own; they wanted the manager to have money in the fund so that he or she would be focused on performance, not maintenance.

Other factors were less important in investors’ allocation decisions: how well the manager ran his business; operational aspects; and stability of service provider relationships. Moreover, the existence of an independent track record was not

always a critical investor consideration. Indeed, producing an independent track record often was not possible as many new managers had spun out of sell-side proprietary trading organizations or had served as portfolio managers within other hedge funds.

Today, the Citi report says, “the ‘footprint’ a hedge fund manager must demonstrate to qualify for institutional money has expanded dramatically. Many of the factors that had been of secondary importance to investors shot up in terms of being instrumental to their allocation decision.”

Take pedigree. Though still a drawing card for institutional investors, most of the survey participants said they would not invest at the outset in spinouts or startups other than through a seeding or farming arrangement—even if the highly credentialed manager brought an auditable, portable track record. The new manager would also have to demonstrate a wide set of supports and infrastructure.

A hedge fund manager’s edge is still one of investors’ top priorities, but now the manager has to demonstrate he or she is really generating alpha and not just posting beta in a hedge fund structure.

Institutional investors continue to want a manager to have “skin in the game,” in the event of a loss to feel the same pain as the investor.

The survey found that the biggest shift in institutional investors’ due diligence priorities has been an emphasis on hedge fund managers effectively running their business. “The non-financial performance of the fund now weighs equally in many investors’ minds to the manager’s returns,” the report says.

Operational due diligence reviews have become the norm, and have become much more probing that before the crisis. Managers are expected to have the right controls and processes in place. One public pension plan told Citi: “We need the comfort of a compliance officer and risk officer. If they are lacking in structure, it’s not worth it for us.”

According to the survey, most investors spend an average of three to six months conducting reviews, not only asking about controls but demanding a demonstration. Many reported that they actually went to a manager’s offices to observe month-end processing and perform tests around trade oversight and cash movements.

Finally, institutional investors need a track record, and they will examine more than just financial returns. They want to understand how the manager behaved during the financial crisis. And, very important, they want to find out how the manager dealt with investor relationships during that period.

A pension plan summed up these concerns: “We look at the intangibles. During tough times, did the manager made good decisions? Did they align with investors? Did they treat their people well? Does their behavior show that they would put their investors first?”

A Top Stock — For Novices and Pros

I often receive emails asking me how one begins investing—and specifically, if you were to follow my advice at Blue Chip Growth. So let me give you my thoughts on the best way to allocate $50,000. Whether you have more or less to invest, the principles remain the same.

First things first. Before you start buying, I want you to think about how much risk you can stomach. Are you comfortable owning aggressive stocks with lots of potential but high volatility? Or do you like to own more conservative stocks that may not give you the explosive returns, but are much more stable?

Everyone’s risk tolerance is different, and in order to accommodate us all, I’ve organized the Blue Chip Growth Buy List into three different risk categories. I usually recommend investors follow my 60/30/10 mix, which means 60% of your portfolio in Conservative stocks, 30% in Moderate stocks and 10% in Aggressive stocks. If you equally weight all the stocks on the Blue Chip Growth Buy List, you will naturally fall within my recommended 60/30/10 mix.

Of course, you can always adjust your portfolios to match your risk profile. I want you to do what’s best for you.

I also recommend that you always start with my Top 5 stocks, which I share with my readers every month, and which are among the strongest stocks on the market as identified by my proprietary ranking system. And always remember to diversify among various industry groups and by risk.

Something else to keep in mind—you should never pay more than 1% commissions when buying and selling stocks. For instance, if your average commission is $50 per trade, you should only buy 10 stocks; with $25 per trade, you should buy 20 stocks and so on.

And if you have a Bank of America account, you might have noticed when you use their ATMs that they are offering “free trades” for accounts with at least $25,000. Full-service brokers also offer wrap accounts (i.e., fixed percentage fee accounts) with free trading. The bottom line is, thanks to new lower transaction costs, thorough diversification is now more possible than ever before!

If you do decide to join Blue Chip Growth, you’ll notice that there are some high-priced stocks in there. Please don’t be afraid to buy just a handful of shares. The important point I want you to understand is that it doesn’t require a large portfolio to be a successful investor.

As I often tell my subscribers, your best defense is a strong offensive of fundamentally superior stocks. That’s why I’m obsessed with making sure that the Blue Chip stocks post much stronger sales and earnings results than the S&P 500. These efforts have served us incredibly well through the years, as we’ve trounced the S&P 500 by more than $3-to-$1!

So there you have a few important points to consider as you get started investing. Now, let’s move on to specifics. I’d like to tell you about one of my newest buys I just recommended in my Blue Chip Growth service—it also happens to make my coveted Top 5 list for the month!

Buy This “Boring” Utility Stock

Now, you might be asking yourself why a utility stock should have you excited to buy. Well, things have changed my friends. Utility stocks are boring no more. These companies are being awarded rate increases left and right. Why?

Well, the stricter emission controls that President Bush signed off on are fast approaching, and utilities are going back to their public utility commissions to ask for higher rates to comply with them.

These new stricter emission controls naturally favor utilities with hydroelectric and nuclear power, since they effectively have no emissions. That’s why several of my new buys have interests in nuclear and hydroelectric power, and all of them should see rate increases as the President’s emission controls are implemented.

The stock I want to tell you about now plays right into this trend. It provides electricity to 4.5 million customers in Ohio, Pennsylvania and New Jersey, three states that are encouraging competition among utilities.

The company’s domestic power plants have a total generating capacity of more than 13,940 megawatts, most of which is coal-fired. To complement its coal-fired power plants, the company also operates lower-emission nuclear power plants. Its subsidiary also trades energy commodities in deregulated markets throughout the U.S.

The company recently reported that its first-quarter earnings rose 37.3% due to higher sales and reduced operating costs. The company earned 92 cents per share compared with 67 cents per share in the year-ago period. Sales rose 9.6% to $2.97 billion. These results were 6% better than analyst expectations.

And the story gets even better. Due to the company’s 14.4 million share repurchase in March and 10.6 million share repurchase last August, its buybacks effectively bolstered earnings by 3 cents per share.

Like most utilities, I look for this company to try to boost its nuclear power generation capacity and continue to reduce emissions on its coal-fired plants through more sophisticated technology (called “scrubber” technology). This translates into more rate increases, and thus more pricing power. And when you add in a nice 2.8% dividend, this stock should be at the top of your buy list today!

“>Get the name of this stock now—plus all of the other top stocks on Louis Navellier’s Blue Chip Growth Buy List today. “>Join Blue Chip Growth today and you’ll get full access to Louis’s complete Buy List, his forecast for the second half of 2007 PLUS access to PortfolioGrader Pro—his exclusive online stock-rating system for nearly 5,000 stocks! Louis’s recommendations in Blue Chip Growth gained over 188.37% from 1998 through 2006. It’s your turn to profit from his newest recommendations! “>Click here to get started now.

5 Outperformers Over The Last Year

Equity markets have moved higher on the year despite aggressive downward moves during the European Sovereign Debt crisis. The S&P 500 Benchmark index has already returned 7.2% over the last year thanks to a strong rally over the last six months during which the index returned 21.4%

Within this positive sentiment there are individual companies returning even more than the general market.

In this article I will review the outperformers of the last year and judge the potential for future returns.

Winning portfolio

Investors had plenty of choice investing in companies with at least $1 billion market capitalization which drastically outperformed the S&P 500.

The absolute winners of the last year were Terra Nitrogen Company (TNH), Nu Skin Enterprises (NUS), Valhi (VHI), PriceSmart (PSMT) and Seagate Technology PLC (STX).

Any of these names returned between 87 and 115% over the last year.

Terra Nitrogen Company
Shares in the nitrogen fertilizer producer have returned an astonishing 114% over the last year. The company reported a 41% revenue increase over the last year as the global agricultural boom continues. Over the last three months alone, shares have returned 49% as demand for fertilizing products accelerated over the last months. On top of the price appreciation, shareholders also receive a fat dividend yield of 6.8%

Nu Skin Enterprises
The global direct selling company which develops and distributes anti-aging products saw its shares double over the last year. The company has seen years of steady revenue and profit growth, both of which seemed to have been accelerating in recent years.

Nu Skin had a good news show over the last year. Positive news included a string of upward revisions of its outlook, an increase in dividends and its intention to acquire LifeGen Technologies.

Valhi
The holding company focused on chemicals, components and waste management saw a spectacular move to the upside in the beginning of 2011 but ever since has traded in a $50-$60 trading range. Besides its holdings in the three public companies Kronos Worldwide, NL Industries and CompX International it also partially owns 2 private firms. The rise in the share price remains largely unexplained as there have not been obvious triggers sending shares higher over the year. Furthermore all three of the public names have traded flat or down on the year, which makes the move in holding company Valhi even more mysterious.

PriceSmart
The company which operates mostly international shopping warehouse clubs, continued to see its shares rise after the shares have now four-folded in a mere two years. The shares continued to be supported by healthy underlying revenue growth which has accelerated over the last year to 23%. The company expects growth to continue for the future and trades at a mere 1.2 times annual revenue multiple. For shares to continue to appreciate towards the $100 mark the company needs to expand its current net margin of 3.5% as shares are valued at roughly 30 times earnings already. The rate and the success of its expansion plans in Latin America will be key for 2012.

Seagate Technology PLC

The designer and manufacturer of disk drives and enterprise applications has seen a very strong performance on the back of strong earnings, a dividend hike and a massive $1 billion repurchase program. This resulted in a 20% share price jump on the last day of January. Despite the rally, investors still stand to receive a 3.7% dividend yield per year.

One thing is for sure. In the next year, this list will be totally different. Investors should critically asses their portfolio and not get complacent when the overall market guarantees portfolio returns anyway.

An investor who does his research can still find value especially in some small- and mid capitalization firms in an attempt to earn additional returns in this bull market.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Options Offer Cheap MasterCard Buy

Despite the recent weakness in the equities market credit card companies have yet to see the bears come home to roost. The likes of American Express (NYSE: AXP), Visa (NYSE: V), Discover Financial Services (NYSE: DFS), and MasterCard (NYSE: MA) have held up very well.

The relative strength shown by this industry may signal they are poised to continue marching higher once the selling pressure in the broader market abates. Market maven Warren Buffett is also placing a vote of confidence in the credit card space as shown by his 216,000 share purchase of MasterCard revealed in Berkshire Hathaway�s (NYSE:BRK.A) recent 13F filing.

Many options trading investors may become discouraged at the high price tag of stocks like MA trading close to $300. But, such discouragement is unnecessary if investors take the time to learn how to use option spreads. The bull call spread is one such strategy which allows traders to gain exposure to further upside in MA while keeping the cost to a minimum. It involves buying a lower strike call option while selling a higher strike call option in the same expiration month.� The maximum potential risk is limited to the net debit paid at trade inception. The maximum potential reward is limited to the distance between the strike prices less the net debit.

Find more option analysis and trading ideas at Options Trading Strategies.

Bullish traders with a shorter time horizon may consider purchasing a MA July 285-295 Call Spread for around $3.80. That is, buy to open the MA July 285 Call while selling to open the MA July 295 Call. If entered at $3.80 the max risk is limited to $3.80 while the max reward is $6.20.

Bullish traders with a longer time horizon may consider purchasing an MA October 285-305 Call Spread for around $7.90. That is, buy to open the MA Oct 285 Call while selling to open the MA Oct 305 Call. If entered at $7.90 the max risk is limited to $7.90 while the max reward is $12.10.

Due to MA options having a little wider bid-ask spread than I would prefer, make sure to use limit orders when entering to try to attain the best fill possible. In timing the entry I suggest waiting until MA clears the high of the recent two-week consolidation around $283.

Source:� MachTrader

At the time of this writing Tyler Craig had no position in MasterCard.

Follow Tyler Craig on Twitter@TylersTrading.

U.S. stocks are investors’ best bet

NEW YORK (MarketWatch) � Investors may have a decent opportunity to make money right under their noses and they don�t want to hear about it.

I�m talking about U.S. stocks, which have very quietly put up decent numbers. I�m not talking shoot-the-lights-out returns; if that�s what you�re looking for, you really need to get a grip.

Click to Play Obama on insourcing American jobs

The president spoke at the White House with business and labor leaders, arguing that the time is ripe for bringing jobs back to America.

But those few investors who have stuck it out in U.S. equities have managed to do OK over the last couple of years and certainly much better than those who took fliers in �sure growth bets� like emerging markets.

Read Howard�s 2011 column on why emerging markets have had their day in MoneyShow.com.

Only U.S. Treasury bonds are hated more, and they were by far the best performing asset class last year. �The entire market has been wrong about fixed income for the last five years,� says Jay Kloepfer, director of capital markets and alternatives research at Callan Associates in San Francisco.

Callan is the creator of the well-known Periodic Table of Investment Returns, which shows graphically which asset classes were the best and worst performers every year.

The firm hasn�t published its latest version (including 2011) yet but preliminary data suggest U.S. stocks ranked near the top last year. The Standard & Poor�s 500 index just about broke even in a year when markets like China�s lost 20%.

Now before you start firing off comments, let me assure you I don�t work for Wall Street, the mutual fund industry or the U.S. government, and I don�t make money if you follow my advice.

But I happen to think investing in U.S. stocks is a good idea for any U.S.-based investor who wants to grow his or her nest egg. And though I don�t recommend a big stock position for anyone (no more than 50% of your assets), I would keep two-thirds of your equity holdings in U.S. stocks.

U.S. economy not so bad off

Why? Mostly because the U.S. economy isn�t as bad as so many people think it is. Yes, unemployment is going to remain high for years to come, and that will hurt a lot of people. But investing is all about change, specifically the direction of that change, and from that standpoint the economy and employment are moving in the right direction.

We�ve had private-sector job growth for 22 consecutive months, manufacturing is rebounding and consumer spending is pretty strong.

�The U.S. economy is improving. It�s improving very slowly,� says Richard Bernstein, former chief investment strategist for Merrill Lynch who is now CEO of Richard Bernstein Advisors in New York. �Ultimately the trend is in the U.S.�s favor.�

Bernstein has preferred U.S. equities to emerging-market stocks for some time. In fact, he says the S&P 500 has outperformed the BRICs (Brazil, Russia, India and China) over the last four years, from 2008 to 2011.

U.S. companies are starting to bring jobs back to the U.S. because the total costs of making goods here are lower and the American work force is so productive. Last week the Wall Street Journal reported that wage and benefit costs at a Caterpillar plant in Illinois are less than half of what they are at another plant across the border in Ontario, Canada.

Has Healthcare Services Group Made You Any Real Money?

Although business headlines still tout earnings numbers, many investors have moved past net earnings as a measure of a company's economic output. That's because earnings are very often less trustworthy than cash flow, since earnings are more open to manipulation based on dubious judgment calls.

Earnings' unreliability is one of the reasons Foolish investors often flip straight past the income statement to check the cash flow statement. In general, by taking a close look at the cash moving in and out of the business, you can better understand whether the last batch of earnings brought money into the company, or merely disguised a cash gusher with a pretty headline.

Calling all cash flows
When you are trying to buy the market's best stocks, it's worth checking up on your companies' free cash flow once a quarter or so, to see whether it bears any relationship to the net income in the headlines. That's what we do with this series. Today, we're checking in on Healthcare Services Group (Nasdaq: HCSG  ) , whose recent revenue and earnings are plotted below.

Source: S&P Capital IQ. Data is current as of last fully reported fiscal quarter. Dollar values in millions. FCF = free cash flow. FY = fiscal year. TTM = trailing 12 months.

Over the past 12 months, Healthcare Services Group generated $35.4 million cash while it booked net income of $36.7 million. That means it turned 4.2% of its revenue into FCF. That sounds OK. However, FCF is less than net income. Ideally, we'd like to see the opposite.

All cash is not equal
Unfortunately, the cash flow statement isn't immune from nonsense, either. That's why it pays to take a close look at the components of cash flow from operations, to make sure that the cash flows are of high quality. What does that mean? To me, it means they need to be real and replicable in the upcoming quarters, rather than being offset by continual cash outflows that don't appear on the income statement (such as major capital expenditures).

For instance, cash flow based on cash net income and adjustments for non-cash income-statement expenses (like depreciation) is generally favorable. An increase in cash flow based on stiffing your suppliers (by increasing accounts payable for the short term) or shortchanging Uncle Sam on taxes will come back to bite investors later. The same goes for decreasing accounts receivable; this is good to see, but it's ordinary in recessionary times, and you can only increase collections so much. Finally, adding stock-based compensation expense back to cash flows is questionable when a company hands out a lot of equity to employees and uses cash in later periods to buy back those shares.

So how does the cash flow at Healthcare Services Group look? Take a peek at the chart below, which flags questionable cash flow sources with a red bar.

Source: S&P Capital IQ. Data is current as of last fully reported fiscal quarter. Dollar values in millions. TTM = trailing 12 months.

When I say "questionable cash flow sources," I mean items such as changes in taxes payable, tax benefits from stock options, and asset sales, among others. That's not to say that companies booking these as sources of cash flow are weak, or are engaging in any sort of wrongdoing, or that everything that comes up questionable in my graph is automatically bad news. But whenever a company is getting more than, say, 10% of its cash from operations from these dubious sources, investors ought to make sure to refer to the filings and dig in.

With 21.4% of operating cash flow coming from questionable sources, Healthcare Services Group investors should take a closer look at the underlying numbers. Within the questionable cash flow figure plotted in the TTM period above, other operating activities (which can include deferred income taxes, pension charges, and other one-off items) provided the biggest boost, at 5.9% of cash flow from operations. Overall, the biggest drag on FCF came from changes in accounts receivable, which represented 28.2% of cash from operations.

A Foolish final thought
Most investors don't keep tabs on their companies' cash flow. I think that's a mistake. If you take the time to read past the headlines and crack a filing now and then, you're in a much better position to spot potential trouble early. Better yet, you'll improve your odds of finding the underappreciated home-run stocks that provide the market's best returns.

We can help you keep tabs on your companies with My Watchlist, our free, personalized stock tracking service.

• Add Healthcare Services Group to My Watchlist.

Chipotle Still Overpriced After Earnings

On April 19, Chipotle Mexican Grill (CMG) reported Q1 earnings with a top and bottom line beat. The company reported $1.97 in EPS (better than analyst estimates at $1.93) and $640.6 million in sales (better than analyst estimates at $630.6 million). Without doubt, these were very strong figures for Chipotle. However, the company's current share price only makes sense on the assumption that Chipotle will continue to grow earnings at 30% or more annually for many years to come.

However, this is not likely to occur. The analyst community currently expects earnings growth of around 30% for this year and 25% for next year, with somewhat slower growth thereafter. But these estimates may be too optimistic, because Chipotle will face an increasing level of headwinds in future quarters and years. Sales and earnings growth are likely to slow down beginning next quarter and continuing on through the summer.

The primary headwind facing Chipotle is that the company will soon lap menu price increases made in 2011, and will thus lose the benefit of those price increases as a driver of same-store sales growth. Chipotle management stated on the call that menu price increases caused 4.9% of the overall 12.7% comp increase. While management believes that it still has additional pricing power, the company has decided (wisely, in my opinion) to forgo further price increases for now, in order to focus on long-term customer growth and loyalty.

Chipotle's strong Q1 results were also helped by the leap day, which added roughly 1% to comps, and by mild weather. Thus far, Q2 weather patterns have been much closer to last year. For instance, in the Chicago area (home to me and about 6% of Chipotle's stores), April weather was generally worse than March. This tends to depress restaurant sales. Lastly, with recent sales growth, many Chipotle stores are nearing a peak in rush-hour business, as they simply cannot handle additional customers. Management is trying to improve efficiency with initiatives to increase throughput, but there is obviously a limit to how fast customers can be served. With Q2 and Q3 being much stronger seasonally than Q1, throughput will be a bigger constraint on sales in coming quarters.

The result of all this is that Chipotle's management is guiding for mid-single digits comp store sales increases for the full year. While this is likely a conservative figure, analysts are currently estimating over 22% annual sales growth for 2012, which implies perhaps 9%-10% comp sales growth. This seems like a stretch. Because Chipotle trades at a high valuation of nearly 50X expected 2012 earnings, even a small slowdown in the growth trajectory could lead to a large drop in the stock price due to multiple contraction. This is just what this Seeking Alpha author predicted last week; there are some technical indicators that Chipotle may be on the verge of multiple contraction.

Chipotle is certainly not quite as mature as competitors like McDonald's (MCD) and Yum Brands (YUM). Those stocks each trade at around 20X multiples. Chipotle certainly deserves a higher multiple, given that it has room to grow domestically and has essentially no international presence to date. However, McDonald's and Yum Brands both have larger total market opportunities than Chipotle, which is too pricey for many working class and middle class individuals. As a result, it seems that Chipotle is being given too high a premium relative to its more mature competitors. To provide one last data point, Panera Bread (PNRA) (which competes in a similar fast casual segment) is valued at less than 30X 2012 estimates. Panera provides a lot of the same upside as Chipotle, as an established but growing concept, at a more attractive valuation.

Chipotle is certainly a compelling story. However, at its Wednesday close price of $423.02, it is difficult to see any real upside. On the other hand, if investors become spooked by the potential slowdown in sales growth discussed above, the stock multiple could contract to a more Panera-like 30X-40X multiple, creating 15%-30% downside.

Disclosure: I am short CMG.

Private Equity Secondary Market Heats Up

Deal activity on the private equity secondary market is set to increase significantly in the near term, according to research carried out for the "2010 Preqin Private Equity Secondaries Review," the firm said in an April 26, 2010 statement.

Secondary market transactions involve either the acquisition of interests in private equity limited partnerships from limited partners looking to sell these interests, or the purchase of portfolios of direct investments in operating companies from financial/corporate investors or institutions.

"Already, activity on the secondary market has picked up considerably in 2010, most recently with Bank of America's sale of a $1.9 billion portfolio of fund interests to AXA Private Equity, one of the largest secondary market transactions to date," Helen Kenyon, Preqin's manager of investor data, said in the statement. "We anticipate this growth in activity on the secondary market will continue over the course of the year and into 2011."

The Preqin research supported her optimism. It found that the secondary market will continue to be an important part of investors' private equity investment strategies, with 48% of those surveyed considering secondaries increasingly significant to their strategies and 7% saying it formed a key part of their strategies.

Capital for purchases on the secondary market is abundant, Preqin said. In 2009, secondaries funds enjoyed a banner fundraising year, as the 20 funds that closed raised $23 billion. Moreover, 30% of institutional investors are considering buying fund interests in the next two years.

In March 2010, bids submitted for funds on Preqin's Secondary Market Monitor marketplace discounted fund interests by an average of 17%, way down from an average of 54% just six months earlier. The narrowing bid-ask spread is making pricing more attractive to investors considering sales of fund interests, the firm said.

Indeed, a growing number of investors are considering selling stakes in private equity funds on the secondary market. As of the second quarter of 2010, 13% of those polled said they may do so within the next 24 months, compared with 10% in Q2 2009.

Forty percent of investors surveyed consider the secondary market a useful portfolio rebalancing tool, portending a continuing important role for secondaries in the private equity industry going forward, Preqin concluded.

Michael S. Fischer (msf7@columbia.edu) is a New York-based financial writer and editor and a frequent contributor to Wealth Manager.

Stocks Gain With Help From Earnings

4:30 PM, Jul 15, 2011 --

• DJIA up 42.61 (+0.3%) to 12,479.73
• S&P 500 up 7.27 (+0.6%) to 1,316.14
• Nasdaq up 27.13 (+1%) to 2,789.80

GLOBAL SENTIMENT

• Nikkei up 0.4%.
• Hang Seng down 0.3%.
• Shanghai Composite up 0.4%.
• FTSE-100 steady.

UPSIDE MOVERS

(+) GOOG beats with Q2 results.

(+) C beats with Q2 results.

(+) CLX gets $76.50 going private offer.

(+) HK sold for $38.75 a share.

(+) MAT beats with earnings.

(+) VICL continues evening gain that followed pact with Astellas Pharma.

(+) CY downgraded

(+) WBS misses with results.

DOWNSIDE MOVERS

(-) RAH continues evening decline that followed earnings miss.

(-) TSYS downgraded.

(-) DCTH selling shares.

(-) SKH downgraded.

MARKET DIRECTION

Stocks end just in positive territory after a volatile Friday. Stocks got an early earnings boost on back of results from Google (GOOG) and Citi (C) but surrendered those gains as the results of European bank stress tests loomed. When those test results came in slightly better than expected, or at least as expected, U.S. stocks recovered anew. The main averages dropped 1% to 2% for the week, however.

The European Banking Authority (EBA) said that out of the 90 European banks, eight of them failed stress tests - fewer than what the market was anticipating.

Also, President Obama signaled this morning that he is ready to move ahead with cutting deficits at the same time the national debt limit is raised. He said the move would provide a "unique opportunity to do something big" and stabilize the U.S. economy for decades. The government is facing an Aug. 2 deadline to raise the debt ceiling. Failure to do so could mean "effectively a tax increase for everybody" if the government defaults, because interest rates would soar, the president said.

In the latest economic data, the July Thomson Reuters/University of Michigan consumer sentiment index fell to 63.8, reaching the lowest level since March of 2009, from 71.5 in June. Economists surveyed by MarketWatch had expected the barometer to tick down to 71.3. Before the bell, the U.S. Department of Labor reported that the U.S. June Consumer Price Index fell 0.2% with the core rate increasing 0.3%. The move was mostly in line with analysts forecasts.

In company news:

Petrohawk (HK) surged on news BHP Billiton (BHP) will buy the company for $12.1 billion, paying a premium of 65% to raise its presence in shale fields, underground rock formations rich in oil and gas.

Cracker Barrel Old Country Store (CBRL) announced today that due to its cost reduction and organization streamlining initiative, it will reduce its workforce, eliminating about 60 management and staff positions, mostly in its home office in Lebanon, Tenn. The company expects to save $10 million a year on a pretax basis as a result of the workforce reduction.

In healthcare M&A, Teva Pharmaceutical Industries Ltd. (TEVA) is down $0.20, or 0.41% to $48.23, after the company announced today that it has completed the acquisition of effectively 100% of the outstanding shares of Japanese Taiyo Pharmaceutical Industry Co. Ltd. for $934 million in cash. Also, Valeant Pharmaceuticals (VRX) announced today that it signed an agreement to acquire the assets of the Ortho Dermatologics division of Janssen Pharmaceuticals.

Clorox (CLX) gained as investor Carl Icahn has offered to take the company private in a $12.6 billion deal. Clorox shareholders would receive $76.50 per share in cash under the terms of the offer. Clorox confirmed the offer.

News Corp. (NWS) on Friday announced that News International Chief Executive Officer Rebekah Brooks will resign immediately, in the wake of a phone hacking scandal at the media group's former tabloid, News of the World. In a statement, the company said Brooks will be replaced by Tom Mockridge, who joins from Sky Italia, where he has been chief executive officer since its launch in 2003.

In the latest earnings news:

- Citigroup (C) is higher after the bank reported Q2 net income of $3.3 billion, or $1.09 per diluted share, on revenues of $20.6 billion. Second quarter net income grew 24% from the prior year period and 11% from the first quarter 2011, while net revenues were 7% lower versus the prior year period and 5% higher than the first quarter 2011. The analyst consensus was for revenues of $19.94 billion and EPS of $0.97.

- Shares of Google (GOOG) are up almost 13% at $597.32, after it announced results for the second fiscal quarter of this year. The internet search giant reported Q2 non-GAAP EPS of $8.74 per share, vs. the Street view of $7.85 per share. Revenue, ex TAC, was $6.92 billion, well ahead of the analyst consensus of $6.55 billion on Thomson Reuters.

Ecolab: Earnings Preview

Leading cleaning and sanitation products maker, Ecolab Inc. (ECL) is scheduled to reveal its second-quarter 2012 results before the opening gong on Tuesday, July 31.

For the quarter, analysts polled by Zacks are currently looking for earnings per share of 72 cents, representing an estimated year-over-year growth of 12.50%. The corresponding Zacks Consensus Estimate for revenues is $3,022 million.

The Minnesota-based company expects adjusted earnings between 69 cents and 72 cents a share for the quarter. The forecast assumes a dilution of roughly 10 cents a share, primarily associated with merger and integration costs mainly related to the Nalco Holding merger and restructuring of operations in Europe.

With respect to earnings surprises, Ecolab has reported in line with the Zacks Consensus Estimates in the last three quarters and beat the estimate on one occasion. Ecolab has produced an average positive earnings surprise of 4.17% over the last four quarters, implying that it has beaten the Zacks Consensus Estimate by that measure.

First Quarter Flashback

Ecolab's first quarter earnings per share of 50 cents beat the Zacks Consensus Estimate by 2 cents. Profits attributable to Ecolab fell 47% year over year to $50 million (or 17 cents per share) as growth in sales was eclipsed by charges associated with the company's European restructuring and acquisitions.

Revenues grew 9% in comparison to the year-ago pro forma fixed currency sales. Growth was triggered by Global Energy and Latin American franchises along with Food & Beverage, U.S. Institutional and Global Water segments.

Hefty restructuring charges resulted in a decline in margins. The company repurchased $1.4 million shares in the quarter under its share buyback program.

Estimate Revisions Trend

Agreement

Estimates for the second quarter exhibit relative lack of activity with no movements in either direction over the last 7 days. Only one out of 13 analysts covering the stock in this quarter revised his/her estimate (in the upward direction) in the last 30 days. None of the analysts changes their estimates in either direction for fiscal 2012.

Magnitude

Given the lack of revision, estimates for the second quarter and full year 2012 have been stationary over the last 7 and 30 days. The current Zacks Consensus Estimate for 2012 is $3.01 per share, representing estimated year-over-year growth of 18.5%.

Our View

Ecolab's strong international presence has been driving growth and we believe that the trend will continue in the June quarter, buoyed by emerging markets. Asia-Pacific and Latin America represent the key growth engines for the company's overseas operations.

Moreover, the company is investing in marketing initiatives to gain customer confidence overseas. Recently, the company partnered China's State Food and Drug Administration Institute for Executive Development ("SFDAIED") to impart training on food safety to the local food service industry.

In addition, Ecolab extended its support to the Alliance for Water Stewardship ("AWS") through its agreement with World Wildlife Fund ("WWF"). Ecolab has got an excellent opportunity, via this global commitment, to market its expertise in water management.

Along with 14 other companies, Ecolab also collaborated with the World Health Organization ("WHO") to raise the standard of hand hygiene in hospitals around the world by lowering health care associated infections ("HAIs").

Ecolab expects profit in the second quarter to be boosted by higher sales volume, pricing, margin leverage, new products as well as synergies from acquisitions and European restructuring.

Management remains optimistic regarding improvement in end-market demand, its ability to attract new customers and opportunities for greater customer penetration through new product development. Ecolab is also active on the acquisition front and continues to explore opportunities to expand into emerging markets.

While we derive comfort from Ecolab's strong international exposure and recovery across its end-markets, we remain wary about aggressive competition and impact of foreign exchange movements on overseas sales. The company's U.S. Cleaning & Sanitizing and International divisions face stiff competition from Clorox (CLX) and Church & Dwight (CHD).

We are also aware of the dilutive impact of the hefty restructuring expenses on the company's bottom line. Our Neutral recommendation on the stock is supported by a short-term Zacks #3 Rank (Hold).

International Paper Is Hardly the World’s Cheapest Stock

“In Friday’s game plan, I told you to keep an eye on International Paper, which just reported its fourth quarter today. This manufacturer of all kinds of paper from loose leaf and industrial package and container board, is a fabulous indicator of the global economy’s health. Given the stock took a shellacking today, down 5.6%, you might think it’s signaling bad things about the recovery, not just its own business. Even with the tough decline, International Paper is up 4% since the last time we spoke to the CEO on September 25th. Then the stock was at $21.71.

What happened? Company earned 24 cents. That’s a penny better than Wall Street expected. It did have a 4 cent benefit from a lower tax rate. Some people would say it fell short of the bean counting analysts, what they were looking for.” — CNBC’s Mad Money 2/3/2010

Following the interview with International Paper (IP) CEO John Faraci, Cramer boasted that IP is currently the cheapest stock in the world and is “ready to roll”. Of course, there is no way that this claim can be proven without the benefit of hindsight, but we beg to differ as we believe the current valuation is entirely fair. Remember that the stock has nearly tripled in the last twelve months, and is about 6x higher than its lows for the year last March. As Cramer mentioned they reported fiscal fourth quarter and full year 2009 results which at first glance appeared to be better than expectations. However, the earnings beat was aided by favorable tax rates as sales were 8.7% lower than a year ago, and the market sold off in reaction.

Faraci noted that International Paper’s business is short-cycle and benefits from the initial signs of recovery, and that certainly seems to be the case for most basic materials bellwethers. The first signs of recovery, no matter how faint, were about a year ago now (when we had the stock rated Undervalued) which somewhat explains the stock’s rapid rise. Now, we are at the point where the market has rallied so strongly over the past year that current valuations are having a harder time being justified by the potentially slower than hoped recovery. In our opinion, the past quarter was the weakest of their past year, and even the CEO himself admitted to being disappointed as his company, “left a few pennies on the table.”

At Ockham, we have the stock currently rated as Fairly Valued, and can think of many stocks that have a more attractive valuation than IP. Cramer said that he has been following this stock for 30 years and believes the cash flow has never been more attractive. We utilize cash earnings in our analysis which are reported earnings that strip out non-cash items rather than cash flow. Our historical analysis shows that IP traditional trades for anywhere from 17.5x to 30.4x cash earnings, and the current price-to-cash earnings is within that range at 21.6x.

IP has yet to start raising its dividend that was hacked when the company needed to conserve cash last spring. Full year sales were down 5.5% from a year ago and the stock rose quite a bit last year, we think there are plenty of more attractive stocks for long term value investors. Unlike Cramer, we found the CEO admitting sub-optimal performance in the last quarter a bit worrisome. We would hold off unless the stock fell back down below $20, which would make the valuation far more attractive.

Original post

Was Lehman’s CEO Criminally Negligent or Merely Incompetent?

In a pattern that would be amusing if it was not so disturbing, we are again witnessing the spectacle of lawyers for a disgraced CEO who claim that their client was “unaware” of key risks that led to the downfall of their firm. The Lehman Brothers bankruptcy examiners report has been widely covered in the business media over the past few days and, at a minimum, paints a picture of shocking incompetence and an intent to mislead among Lehman’s senior management team. It is the type of scenario in which a former CEO’s only defense appears to rest on claims that he was incompetent rather than criminally negligent.

Repo 105 Transactions

The Wall Street Journal reports that Lehman management routinely engaged in “Repo 105″ transactions in an attempt to dress up the balance sheet prior to the end of financial reporting periods. In a normal repurchase agreement, a borrower uses a financial security as collateral for a cash loan. The agreement generally involves the sale of the collateral combined with a commitment to repurchase the same security at a point in the future at a higher price. In a “Repo 105″ transaction, Lehman was able to book the transaction as if it was an outright sale rather than an ordinary repo transaction because the assets the firm moved were worth 105% or more of the cash it received in return.

Through this accounting maneuver, Lehman was able to appear less leveraged than it really was. According to the Wall Street Journal, no United States based law firm would sanction this accounting treatment so Lehman secured an opinion letter from a London law firm named Linklaters. If a U.S. based Lehman entity needed to engage in a Repo 105 transaction, it would have to move the security to a European division to execute the transaction.

Lehman executives are on record acknowledging the necessity of such transactions as the following quote from a Wall Street Journal article clearly demonstrates:

Four days prior to the close of the 2007 fiscal year, Jerry Rizzieri, a member of Lehman’s fixed-income division, was searching for a way to meet his balance-sheet target, according to the report. He wrote in an email: “Can you imagine what this would be like without 105?”

A day before the close of Lehman’s first quarter in 2008, other employees scrambled to make balance-sheet reductions, the report said. Kaushik Amin, then-head of Liquid Markets, wrote to a colleague: “We have a desperate situation, and I need another 2 billion from you, either through Repo 105 or outright sales. Cost is irrelevant, we need to do it.”

Grossly Negligent, Criminally Responsible, or Merely Incompetent?

Lehman’s CEO Dick Fuld is cited in the bankruptcy examiner’s report as being “at least grossly negligent” regarding the Repo 105 transactions:

The examiner wrote there was “sufficient evidence” to support a legal claim that Mr. Fuld was “at least grossly negligent for failing to ensure” Lehman filed proper financial statements about its accounting for the transactions, and that a key former executive of the firm, the chief operating officer, personally briefed him on the matter.

Of course, Mr. Fuld’s attorneys have decided to pursue the “incompetent” defense as opposed to taking any responsibility for the situation:

Mr. Fuld’s lawyer said on Thursday that Mr. Fuld “did not know what those transactions were” and wasn’t “aware of their accounting treatment.”

It is unclear what is more shocking: The prospect of a CEO of a major financial institution willfully pursuing financial transactions designed specifically to mislead investors and counterparties into thinking that the firm was less leveraged than it really was, or the idea that the CEO really had no idea that these maneuvers were taking place at all.

Buffett’s Decision on a Lehman Investment

The bankruptcy report also contains some interesting information regarding Lehman’s attempts to have Warren Buffett invest $2 billion in the company as a “stamp of approval”. Of course, Mr. Buffett decided against doing so when he found problems in Lehman’s 10-K as well as negative signals from Lehman executives who were unwilling to invest in the firm on the same terms he was offered.

As is often the case, we can also look at Mr. Buffett’s statements regarding corporate governance to understand what went wrong at Lehman:

“In my view a board of directors of a huge financial institution is derelict if it does not insist that its CEO bear full responsibility for risk control. If he’s incapable of handling that job, he should look for other employment. And if he fails at it – with the government thereupon required to step in with funds or guarantees – the financial consequences for him and his board should be severe.”

– Warren Buffett’s 2009 Letter to Shareholders (pdf)

If Lehman’s story can be distilled down to its core problem, it seems to be that the company’s CEO did not regard himself as the Chief Risk Officer. Based on Mr. Fuld’s own admission (if we are to believe him), he was not aware of critical accounting policies that misled investors and counterparties who were using Lehman’s financial statements to judge the health of the business. Of course, the Repo 105 maneuver was only necessary because of other failures to control risk at the firm.

It would be a refreshing change if at least one CEO involved in the demise of a major financial institution would step up and admit that the responsibility was his rather than hiding behind the “incompetence” defense.

Consumers feel surprising pain at gas pump

Don�t miss these top stories:

• Why gas prices are so high

• Dividend stocks top TIPS for income investing

• What Romney, Obama tax plans might mean for you

• Tax planning? Good luck with that

Gasoline prices have risen every day for the past 36 days. But you knew that, right? What you may not know is why and what the outlook is. Today in her Commodities Corner column, MarketWatch�s Myra Saefong explains some of the reasons behind the price climb. Chalk a lot of it up to news related to military tensions over Iran � even though the U.S. imports no Iranian oil. Myra talks to several industry experts, who provide perspective on all the factors: Iran, money flow, refinery closures, refinery maintenance, exports, imports, poor non-OPEC production growth, and flat OPEC output.

Also on MarketWatch today, Jonathan Burton writes in the Weekend Investor column about one income strategy that�s capturing the attention of investors and investment advisers alike: Swapping inflation-protected Treasurys, or TIPS, for dividend stocks yielding 3% or more.

And check out Andrea Coombes� video report on what the Romney and Obama tax proposals might mean for you.

� Anne Stanley, Managing Editor, Personal Finance

Why gas prices are so high

Gasoline prices have climbed every day for the past 36 days so it�s no wonder why consumers are worried that record levels are destined for the pump in the next few months. But the many reasons behind the climb aren�t quite so easy to decipher � making prices even harder to predict. Read more: Why gas prices are so high.

Tax planning? Good luck with that

If you thought doing your tax return this year was tough, wait till you try to plan money-saving tax strategies for next year. It�s next to impossible, thanks to profound uncertainty with regard to tax law. Read more: Tax planning? Good luck with that.

What Romney, Obama tax plans might mean for you

Many tax laws are in flux now, and tax plans proposed by candidates on the campaign trail are adding to the confusion. Stacey Delo and Andrea Coombes look at possible taxpayer strategies in light of Mitt Romney�s and Barack Obama�s proposals. Watch the video: What Romney, Obama tax plans might mean for you.

Few options following foreclosure

Those who feel they�ve been wrongfully foreclosed on have a couple of options for recourse, Lew Sichelman writes. Read more: Few options following foreclosure.

Analyst Dumps Wells Fargo for Bad Service, Rates Stock a Buy

Many Americans -- this writer included -- have had the experience of being treated shabbily by their bank. But most of us, when confronted by mysterious fees or deceptive marketing practices, have little recourse beyond closing our accounts and taking our (admittedly modest) business elsewhere.

Not so Richard X. Bove, disgruntled Wells Fargo (WFC) customer and influential bank analyst. When Bove finally got fed up with his treatment at the hands of a Wells branch in Tampa, he not only moved his money to JPMorgan Chase (JPM), he turned his experience into a research note.

But Bove's report was a highly counter-intuitive response. It wasn't a scathing indictment of Wells's indifference to customer satisfaction; instead, it suggested that too much attention to the concerns of account holders like him might actually hinder a bank's pursuit of profit. The New York Times reports: "What really matters, [Bove] now believes, is pushing products and managing risk."

Which explains why, around the same time he switched to Chase -- where he says he enjoys the level of service he used to get from Wachovia, which Wells bought in 2008 -- Bove upgraded his recommendation on Wells Fargo stock to a buy.

Says Bove: "I'm struck by the fact that the service is so bad, and yet the company is so good. Whatever it is that drives people to do business with a given bank, in my mind, now has to be rethought."

Indeed, the story of Wells since its purchase of Wachovia suggests that customer satisfaction and success with investors are not necessarily linked. The Times notes that Wells recently passed JPMorgan Chase to become the country's biggest bank by stock market capitalization; at the same time, J.D. Power & Associates gave Wells below-average customer service ratings in seven out of the 11 regions where it does its surveys.

"In Florida," says the Times, "where Mr. Bove lives, Wells was 10th out of 11th banks." So he probably wasn't imagining the slights.

FierceFinance asks the obvious question: "So who does a bank serve, its shareholders or its customers?"

The knee-jerk answer is both, but few would doubt that there's a trade-off in these days of limited resources. The best line of action might be to do just enough for customers to keep revenue at levels that will ultimately please shareholders. You don't want to spark a mass defection, but you don't want to spend unnecessarily on keeping retail customers happy.

Wells, of course, denies any deliberate lack of attention to retail customers, but Bove seems to believe that things might be different behind the scenes: "Spending time solving problems with people is not selling products," he said. "It's wasting time."

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Stocks Jump on Hopes for Euro-Cooperation

Stocks jumped on Friday on reports that European leaders are getting more aggressive in their efforts to stem the bleeding in countries like Spain. ECB President Mario Draghi will meet shortly with the head of Germany’s Bundesbank, ostensibly to convince the Germans to back bond purchases and other actions. German Chancellor Angela Merkel and French President Francois Hollande also said they would work to keep the euro zone from breaking apart.

The vague statements of cooperation encouraged investors to buy riskier assets. The Dow jumped 187.7 points to close at 13,075.7, its highest level since May 3. The S&P 500 rose 25.9 points, ending up at 1,386. Both indexes rose nearly 2% on the week, their third consecutive week in the black.

Nymex crude rose to $90.13.

Every Dow stock rose. Merck (MRK) rose the most in the index, closing 4.1% higher after posting better than expected earnings.

IBM: ‘Stable’ Q3 Report Anticipated, All Eyes On 2011 Forecast

Shares of International Business Machines (IBM) are down $3.63, or 2%, at $186.90, trading roughly in line with the broader market as the company moves toward its Q3 report this afternoon, after market close.

The Street is modeling $26.26 billion in revenue and $3.22 per share in profit.

All eyes will be on the yearly outlook, as IBM has increased its 2011 estimate two quarters in a row now, raising the EPS projection to “at least $13.25” per share when it reported Q2 results back in mid-July. The company has also set a 2015 goal for “at least $20″ per share in profit.

Here are some things the Street is writing:

Mark Moskowitz, JP Morgan: reiterates an Overweight rating on IBM shares and a $205 price target. The company is likely to weather the global economic woes better than most, and it’s in the “Big Four” of tech, along with EMC (EMC), NetApp (NTAP), and Apple (AAPL) in that regard. He’s expecting 13% software growth, and the broader server business should show that it is holding up despite a slowing in the mainframe business. “Often, there is much noise related to the services signings number. (Our estimate is $12.1 billion.) We think that the better gauge is to evaluate the presence of any wide deltas in services backlog growth relative to services revenue growth on a year over year basis. If there are meaningful gaps between the two growth rates, then there could be cause for pause. If not, then there should be no noise after today�s print.”

Keith Bachman, BMO Capital Markets: Reiterates an Outperform rating, while raising his price target to $195 from $190. Bachman writes that IBM “had a good October quarter,” and estimates will keep gradually moving higher,” even though he thinks estimates are too high for the current quarter. Bachman raised his Q3 revenue estimate to $26.4 billion from a prior $26.27 billion, and raised his EPS estimate to $3.29 from $3.22. Going forward, comparisons get tougher for IBM, he thinks: “IBM�s hardware comparisons will likely be very difficult for the next four quarters, and the P and mainframes have both had the benefit of strong product cycles over the past year. We project 2% y/y revenue growth in CY12 compared with 9% in CY11 and 11% in CY10.” Nevertheless, despite cutting revenue assumptions in 2012 to $110.9 billion from $111.1 billion, he now sees higher profit, at $15 per share in 2012 versus a prior $14.60 estimate.

Amit Daryanani, RBC Capital Markets: Reiterates a Sector Perform rating and a $200 price target. Signings will be “slowing down” this quarter, but there’s still potential for upside “due to market share gains.” He believes 2011 full-year outlook will be reiterated by the company, “which should be a positive given the volatile macroeconomic environment.” IBM usually does more buybacks the first half of the year. If they get “aggressive” this latter half of the year, “we believe this would increase our non-GAAP EPS estimate by a few cents.” Daryanani is modeling $27 billion in revenue and $3.25 per share in EPS.

Toni Sacconaghi, Sanford Bernstein: Reiterates a Market Perform rating and a $162 price target. U.S. corporate demand is “stable,” but his “checks” suggest uncertainty “most notably about demand in Europe, in the Government segment and among Financial Institutions.” The dollar has strengthened against the Euro since July, when he last compiled estimates, causing some headwind to IBM’s revenue growth. Hence, he cut his revenue estimate for the quarter to $26.5 billion from $26.7 billion. He expects the company to turn in $3.31 per share in profit, assuming $3.5 billion in share repurchases.

Maynard Um, UBS: Reiterates a Neutral rating and a $180 price target. He’s modeling $26.8 billion in revenue for the quarter and $3.25 per share in profit. Services signings will probably beat his $13 billion estimate, he writes. And revenue may be helped somewhat by having sold some intellectual property to Google (GOOG) during the quarter. “We believe IBM could modestly raise its FY11 EPS guidance and will likely maintain its long-term EPS target of $20+.”

And Brian Alexander of Raymond James, who follows the IT distributors such as Arrow Electronics (ARW), writes today that his checks suggest computing demand is “moderating” and that channel sales were “more muted and volatile than normal, particularly around the data center.” “Checks on IBM were the weakest we have heard in recent memory,” he writes.