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Russia’s Putin fills a power vacuum in Syria

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The latest military adventure on the part of Russia’s Vladimir Putin involves sending troops to Syria in the support of Bashir Assad’s regime. The troops seem to consist of naval infantry, the Russian equivalent of Marines. Reuters reports that they have been involved in the fighting against Assad’s enemies, particularly ISIS. Media reports suggest that military air and sea transports are pouring in more troops and equipment into Syria.

The Obama administration is, understandably, alarmed at the sudden influx of Russian military power into the Middle East. It has already asked Bulgaria and Greece to close its airspace to Russian aircraft on their way to Syria.According to CNN, the Russians simply shifted the fight path of their planes to over Iran and Iraq on their way to the war zone. Secretary of State John Kerry and other American diplomats have expressed concern.

The policy of the United States has been that the Assad regime has to go. The complicating factor is that what might replace it, say an extension of the ISIS-ruled Islamic State, would be far worse from the point of view of American policy. American efforts to create a pro-western alternative have thus far been ineffective as have the few air strikes conducted against ISIS targets.

Putin’s strategic goals are far easier to achieve. He is not very finicky about who winds up running Syria, so long as that person remains a firm Russian ally. Putin cares not a fig that Assad has dropped chemical weapons on his own people. All that matters is that Russia maintain its naval base at Tartous on the Syrian coast. Keeping Assad as the ruler of a client state in the Middle East would be a great plus for Putin’s scheme to reestablish the Soviet Union.

As with virtually all foreign policy disasters of the past few years, the entry of Russia into Syria can be laid at the doorstep of President Barack Obama. When the civil war in Syria broke out a few years ago, Obama warned Assad not to cross “the red line” by using chemical weapons. Then, as the Washington Post pointed out, the president denied that he had set the “red line” after Assad crossed it. To add insult to injury, Putin stepped in and claimed that he had made an arrangement with Assad to secure Syria’s chemical weapons arsenal. President Obama pretended to be pleased, but must have known that the move diminished American influence in the region and enhanced Russia’s.

The situation as it now stands is that Obama left a power vacuum in Syria with his dithering and his inability to influence the course of the conflict going on in that country. Putin has cheerfully filled that vacuum, despite economic problems at home that would tend to inhibit such imperial adventures.

Respect and influence in the Middle East always go to “the strong horse.” In the decades since the end of the Cold War, that horse had been the United States. America had used its military and economic power, sometimes less than wisely, to exert its influence. But now President Obama has drawn back and has failed to act. Now Putin’s Russia is aspiring to be the “strong horse” and thus the foreign power that matters in the Middle East. The United States needs to become more assertive to reestablish its influence and forestall Russia. Thus far, the administration seems unable or, more accurately, unwilling to do so.

It’s Time To Buy Wal-Mart

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Wal-Mart (WMT) has had a rough go of it in 2015. The only thing they’ve been slashing has been their share price lately.

Shares began the year around 85 and are down to 64 now, a massive drop for a Dow component, Dividend Aristocrat, and all-around key American company.

There’s been a variety of factors at play. The key factor is bottom line growth, the company’s EPS has been stagnant since 2012. And no one likes stagnant earnings.

It's Time To Buy Wal-Mart

The company’s Mexican operations are the company’s most important international subsidiary. And since the bribery scandal hit years ago, its momentum has ground to a halt. Walmex, the Mexico subsidiary, sees shares trade lower now than they did years ago, and they’ve been forced to unload their bank and restaurant chain in the wake of the corruption scandal.

Wal-Mart’s other store, the Sams Club model has also been struggling as Costco (COST) is cleaning up that space. Further annoying investors, the company has given meager 2% dividend raises the last two years, adding more discomfort to investors already annoyed with the company for recent poor performance in both the company and the share price.

On Thursday, the company’s shares took another hit as it was forced to disclose that there are accounting issues involving the company’s lease financing methodology. The company said that the maximum potential impact of the accounting errors would be “immaterial” to results, but many investors shoot first and ask questions later when it comes to accounting irregularities.

The skies are certainly dark enough for Wal-Mart, and the negative chatter is reaching a fervor. It’s at this point that it is time to start thinking about a contrarian buy.

While I agree the above concerns are all valid and troubling, the negative argument against the company overstates the case.

Wal-Mart is still, by far, the world’s most successful mass merchandiser. It’s so huge, its revenues exceed most countries’ GDPs. If Wal-Mart were a country, it’d have the 27th biggest economy in the world, ranking between Norway and Austria.

The company produced $16 billion in Net Income last year and $26 billion in cash flow from operations. Those are just massive sums.

Wal-Mart is down to a 13 PE ratio now, way cheaper than the market as a whole, and attractively priced compared to peers such as Target (TGT) who was unprofitable last year and Costco which hits at a 27 PE.

As we noted in This Investment Is Off Target, Wal-Mart’s largest direct competitor is having a truly horrible run of luck. First the massive credit card breach hit the company’s brand hard. And Target’s infamous Canadian expansion ended horribly.

Compared to Target who couldn’t even figure out Canada, Wal-Mart, operating in more than two dozen overseas countries has shown it knows how to run a business. Sure, it hits snags such as the Walmex fiasco occasionally, but on the whole of it, Wal-Mart has been the only major US retailer that’s cracked the code for selling outside the country.

For Wal-Mart to be a good investment from these levels, it simply needs to maintain profitability at current levels and keep buying back shares. The company’s shares currently yield more than 3%, a nice dividend indeed.

And the company is buying back stock, shrinking the float and serving as a catalyzer of rising earnings despite the flat revenue growth.

China fears as they tie to China seem overblown. Yes, the devaluation means Wal-Mart has to pay slightly more for inventory they import from China. Then again, so does Amazon, Costco, Target, and all the other retailers.

And on the other side of the coin, Wal-Mart gets a big win with the fall in oil. Shipping and trucking costs are a major expense center. For a company with thin margins like Wal-Mart, a major drop in logistical expenses can be a big boost.

Wal-Mart won’t be a home run stock purchase at these levels. But there’s very little downside much below $60 on the shares. For defensive investors, this is a great time to take a position.

The Mining Bust Continues to Deepen: Who Will Come Out Strongest?

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The collapse in Glencore plc (GLNCF) in recent weeks shows the carnage is far from over in the mining space. In 2014, Glencore ranked as the tenth biggest company in the Fortune Global 500 list of largest companies in the world.

That hasn’t been enough to support the company in recent weeks, shares are down 50% since July, as investors are suddenly fearing the company may be heading for insolvency. The company has had to suspend the dividend and sharply cut expenses and CAPEX to try to save their investment-grade credit rating.

Glencore earns much of its money from trading operations, should it lose the faith of the market, those trading operations would become impossible to continue and the company would take a decisive step towards failure.

When the world’s 10th biggest company enters panic mode and heads ever closer to distress it makes investors wonder just what is still safe in the mining space. Industry leaders such as gold mining giant Barrick Gold (ABX) continue hitting new multi-decade lows over and over.

Unless you’re into catching falling knives, this probably isn’t the time to buy Glencore. So what’s left in the big-cap mining space, especially for yield-hungry investors?

BHP Billiton (BHP) is one obvious choice. As the company’s shares have been shredded over the past year, the yield has now risen to a mouth-watering 7.7%. And shares now trade at 10-year lows.

BHP has a diverse revenue stream, with five commodities driving significant sales for the company. Unfortunately, all five have plunged: copper, petroleum, potash, iron ore, coal, they’re all going down.

Unlike, say, the embattled oil majors, at least BHP has multiple ways to recover. Potash is driven more by agricultural prices, copper by economic growth and the outlook for China. If oil keeps dropping, the likes of BP and Chevron will have to cut their dividends. BHP might be able to hold the dividend if, say, copper or potash bounce.

And in iron ore, its most important product, BHP is the world’s lowest cost producer. It may not be making a lot of money, but at least it has the best cost basis. If the current bust persists, its competitors will have to fold long before BHP would. Perhaps it will even get to buy assets on the cheap to position itself for the next upswing.

Unlike Glencore, BHP has less debt, and a much lower leverage ratio. I’m not convinced BHP can maintain the dividend during these dark times, but it certainly won’t end up in a fight for its mere life, as Glencore currently faces.

Freeport-McMoRan (FCX) seems like another miner that should do alright, all things considered. Freeport is primarily a copper miner, but it also has significant revenue streams from gold and petroleum.

Copper, relatively, appears to be one of the stronger metals markets. And production cuts by embattled Glencore should help the supply/demand equation significantly. And gold is holding up quite well, it’s stayed well bid around $1100/oz even as other commodities have plunged.

Freeport has already done the dirty work. They’ve taken large writedowns and slashed the dividend. They’re cutting costs by 20% for next year.

And Freeport is picking up some quality investors. Most notably the famed activist investor Carl Icahn has taken a large position in the company. The company has a large debtload, but still lower than Glencore on a percentage basis. The company is also intending to launch an IPO of its oil and gas properties that would free up much needed working capital.

While both Freeport and BHP need higher commodity prices before their shares will get their vigor back, both companies look like they have what it takes to make it through the current bust.

Glencore’s sudden collapse is another frightening development for investors in the mining space. However, the takeaway shouldn’t be that the whole sector is uninvestable. The survivors will come out of this with great low-cost assets and a lot less competition to deal with.

Has the long term bull case ended for Apple? A chart study

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During it latest event, tech company Apple failed to surpass investors’ expectations. The company from Palo Alto introduced many new versions of its highly successful products, but received a lukewarm response from the market and followers. In addition, many watchers are wondering if the company can produce a new game changing product, as it did with the iPhone and iPad. The iPhone is seeing a decline in growth rate and saw a decline in sales before the launch of the 6s. Nevertheless, the question arises is the company still on top of its game and will the shares outperform the market.

Product upgrade vs game changers

At the Apple Event of September 9th, the company showed a range of ‘new’ products. All products were updated and/or upgraded versions of its blockbusters, such as:

  • iPhone 6s and 6s Plus
  • iPad Pro
  • Apple TV

The remarkable thing was that the iPad Pro, despite its stellar specs and looks, seems to be a catchup to competitors. The Pro comes with a 12.9 inch display, where its main rival Samsung already offers a 12.2 display version for a longer time. Also the introduction of a stylus, pardon, Pencil, is a bit odd since in 2007 the late Apple-founder Steve Jobs was very skeptical about this accessory competitors offered. Now Apple joins this party very late. And then there’s the Apple TV: a relatively low-margin product in a field with fierce competition where it’s hard to have unique features. Currently Rovu has roughly a third of the market and the Apple TV doesn’t have a unique proposition, since the products are content-driven. To summarize, without the launch of a new game changer, we might wonder were the next impulse for the company’s shares may come from.

A technical approach

Let’s not take a deep dive into Apple’s fundamentals, but look instead to its graph and view it from the point of Technical Analysis. To get a clear picture of its long term development, we take a weekly chart of the last 6 years. In this way, we can consider the impact of the iPad (launched April 3, 2010). During this period, we basically see 2 major bull runs: up to fall 2013 and the second from July 2014 until this year when Apple’s shares set an all-time high. During the recent turmoil, shares dropped back to the previous top of April 2012, which seems to offer a strong support. In the recent weeks, shares recovered. The peak of fall 2014 is likely to act as a resistance. In this case, we will witness a text book example of a head and shoulder-pattern. Left shoulder (LS) and Head are clearly visible, whereas we have a nice indication where the right shoulder (RS) will end.

Has the long term bull case ended for Apple? A chart study

How to trade Apple

For long term investors in Apple who have been holding the shares during the last few years, it may be the last opportunity to sell Apple at decent prices if one is convinced of the success rate of the head and shoulder pattern. Shorters who seek for a long downswing in Apple may use current levels to start and add additional positions as long as the USD 120 is not breached. The head-and-shoulder pattern may be completed around USD 60-levels, the low in 2013 (green dashed line). But probably the investment case of the company, and likely the stock market as a whole, will be completely different at those levels, so a new analysis is recommendable when share prices will drop that far. If the resistance line of USD 120 is breached, the recent drop was just a correction and the long term bull case of Apple would be still intact. For now, shares of Apple are in a crucial situation which offer different trade opportunities.

The BDS movement aims at Israel, but hits the Palestinians instead

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The BDS movement aims at Israel, but hits the Palestinians instead

As the Washington Post recently reported, SodaStream, the Israeli company that manufactures machines that custom-make carbonated drinks, is closing its factory on the West Bank and is moving operations to Israel. An organization called Boycott, Divestment and Sanction (BDS) is claiming victory, not only for its campaign of economic warfare against the Jewish state but for the Palestinian cause. 600 or so Palestinians who are losing their jobs as a result of the move might beg to disagree with that sentiment.

The Israeli position is that the BDS movement not only wants to force Israel to withdraw from the West Bank, which it conquered during the 1967 Six Day War, but to no longer be a Jewish state. That is because BDS is demanding that Israel submit to the resettlement of millions of Palestinians within its own recognized borders, flooding it with primarily Muslim refugees and their children and grandchildren.

Israel maintains that the BDS movement is not harming its economy but is clearly concerned that it might in the future. The movement is tainted by association with the Nazi-era campaign of economic boycott of Jewish-owned businesses that preceded the Holocaust. The irony was not lost several years ago when the BDS movement arrived in Germany.

A further irony occurs when one considers that the BDS movement is hurting the Palestinians even more so than the Israelis. BDS’ position is that Israeli-owned businesses on the West Bank “exploit” their Palestinian workers. The movement has no answer when these businesses, like SodaStream, are forced to relocate to Israel, leaving the Palestinians who used to be gainfully employed without work. SodaStream claimed that its factory on the West Bank was a center of harmony in a turbulent region of the world when employees of all religious and ethnic backgrounds worked side by side.

If a “two-state solution” is to be achieved, with Israel and a Palestinian state living side by side in peace, the latter is going to need a lot of foreign investment if it is supposed to thrive economically. A lot of that investment would logically come from Israel, a country that has become a sort of Silicon Valley on the Mediterranean for the number of high-tech startups that are happening. Close economic ties between the two states would seem to be something that would further peaceful relations.

One would like to think that the BDS movement has just not thought things through in its campaign to remove any hint of Israeli economic presence. The only other alternative theory is that it is deliberately seeking to cause economic devastation, in order to better incite conflict that might lead, in the fullness of time, to the destruction of the State of Israel and its replacement by a Palestinian state that would stretch from the Mediterranean to the Jordan River. The cost of such a development in human lives and misery would be beyond calculation.