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Transportadora de Gas Del Sur S.A (TGS) Investment with Income

Randy — Tue, 24 Jan 2012 22:19:36 +0000

Investment with Income:

Transportadora de Gas Del Sur S.A. (TGS)
Per share values in USD 1-19-2012
Market value $ 3.00
Indicated Dividend rate 49%

Durig Capital seeks out quality high yielding global investments that offer both a high yield and a good probability of appreciation, while providing a unique hedge against inflation and/or a continued devaluation of the US dollar. As a result of our diversification research efforts, we have identified and selected Transportadora de Gas Del Sur S.A. (TGS), Argentina’s largest natural gas pipeline operator, for our Investment with Income Portfolio.

US Dollar Concerns

Most investors seeking income with growth for their investment portfolios are aware that the artificially very low US Treasury return rates still remain, even before taxes, significantly below current inflation rates. American savers are thus thrust into the tenuous position of continuous wealth erosion. Considering that last year was another year of declining equity and property prices, minimal pay raises, elevated inflation, ineffective politicians, potentially increased taxes, and the constant printing of more dollars (not only to backstop the US economy, but also that of Europe) leaves one with the stark realization that all of these components have precipitated a widespread erosion of wealth that will likely continue, and perhaps even accelerate, until the aforementioned conditions begin to change.

We would like point out something that been growing at a amazing rate. Unfortunately, it is not our economy. According to the Federal Reserve, the unfunded liabilities (known in Enron terms as off balance sheet debt) of the US Government now exceed $1million dollars per average tax payer.

The Natural Gas Market

Natural Gas is considered to be one of the more environmentally friendly sources of guaranteed energy while having one of the lowest costs to provide electrical power generation. It is therefore forecast to be one of the top providers of new guaranteed energy power plants in the near future. The newer technological ability of transforming Gas to Liquids (GTL), a refinery process that converts Natural Gas into such products as ethane, propane, butane and natural gasoline are recovered. The conversion to liquids should lessen the price spread between gasoline and Natural Gas. However, we are currently seeing the highest price spread since GTL technology has become a reality.

With that said, Natural Gas inventories are still growing more than expected during this unseasonably warm winter, raising concerns that the U.S. could run out of places to store the liquid. As more gas producers come online, the added supply plays a major role in the current bulging inventories. If inventories are increasing during the heaviest usage winter heating season, the problem is that added new sources could grow inventory much faster during the warmer lower heating time period. This excess inventory issue is a major factor why the spot price of natural gas is at the lowest price in 10 years.

With our energy usage/needs having only increased over time and with both gas and diesel prices on the rise during most of the recent past, we see the combination of a 10 year low in this carbon based fuel and a growing market for its use as a very intriguing investment opportunity.

Transportadora de Gas Del Sur S.A.

During our review of Transportadora de Gas Del Sur S.A. we found very few professional articles detailing their products and services. Other than rather simple articles featuring their high margins and very oversize dividend, very little (if any) of the many underling merits of the business were ever discussed. After diving deeper into the details surrounding Transpotadora De Gas Del Sur, we believe this is a largely misunderstood business that simply needs a better and more detailed explanation of a number of its hidden values.

The company has two main revenue streams:

1) Liquids, 61% of Revenues

TSA’s largest and faster growing business segment is an unregulated portion that converts natural gas to liquid gasoline and/or diesel. A majority of these sales go to world markets, where 90% of it is settled in US dollars. Liquid petroleum, as exports outside Argentina, provided 31% percent of total sales for the company. Thus, a major profit hub of Transportadora’s overall business is acquiring low cost natural gas at the wellhead, converting it into liquids, and then selling it at spot prices to the World markets. We think this is a good business, as judging by the current (and growing) price spread of the two carbon based fuels it should have very robust margins.

However, the stock of TGS appears to have a close correlation to the price of Natural Gas (see second graph below) and not the spread between gas and liquid fuel prices (see the first graph). Considering that the liquids business profits are likely to affected more by buying Natural Gas at the low levels and then selling at higher (gasoline) prices, the spread charts indicate that the current price difference should make this particular segment of their business extremely profitable.

The liquids segment also has revenues from a (not at risk) consulting division that provides cleaning and conversion to liquids services without taking ownership of the fuel.

Spread, with Gasoline Price in Blue and Natural Gas in Red

Natural Gas Price in Blue and TGS Transportadora de Gas Del Sur S.A. in Red

2) Gas Transportation, 33% of Revenues

TGS pipelines transport about 61% of all of Argentina’s Gas, and is Argentina is recognized as the largest gas producer in South America. Argentina also uses Natural Gas for over 50% of their energy needs. Since all non-interruptibility contracts with TGS are regulated and performed at a fixed rate, similar to a real estate rent, TGS revenues are not sensitive to the price the price of gas, volumes and other such factors. All guaranteed Gas (not-interruptible) clients pay connection fees that do not fluctuate with gas prices or actual usage. TGS provides a wholesale pipeline transportation business primarily to resale natural gas companies, as TGS is restricted from having their own retail gas business. They have one major pipeline competitor and don’t foresee any new direct competitors, putting them in the dominate and very desirable position of an oligopoly. Thus, the second major aspect of TGS’s business should not be directly correlated to natural gas prices, as its revenues are fairly immune to natural gas price swings.

Late last year, YPF S.A. (YPF) said they had found a huge deposit of unconventional natural gas that would be equivalent to a quarter of the country’s proven reserves in the region of Patagonian province of Neuquén. TGS has 2 gas lines into the Neuquén region and their competitor, TGN, has only one. Transportadora de Gas Del Sur S.A. has a total of 5598 miles of pipeline, 4754 miles of which is owned by the company and the remainder leased. The transportation portion of the business is a heavily regulated and licensed industry. Their current license is good until 2027, after which they have an additional ten year option.

The aforementioned new discovery will increase the countries known reserves by about 25%. Considering the close proximity of 2 existing TGS pipelines and the corresponding right of ways, this large of an increase in should allow TGS to possibly negotiate additional contracts to move the gas (risk-less transport business) while also supply an even lower cost (at risk business) source to make highly profitable liquids (i.e., gasoline.)

Earnings and Book Value

TGS’s overall US GAAP earnings for the last 5 years averaged $1.50 per (ADR) share per year. Judging from this, they are trading at only about 2x historic profits. The first nine months of profit for 2011 are 81 cents per ADR share, making this year’s run rate $1.08. Considering that the industry average is a PE ratio of 16.1, a 2.78 PE ratio for TGS is astonishingly low for a dominate oligopoly business with a solid balance sheet.

Historical US GAAP earnings:

2010 $1.42

2009 .84

2008 1.31

2007 1.38

2006 2.55

TGS currently trades at about 16% discount to its book value. However, we think the depreciated value of the 4754 miles of pipelines and property that is figured into the stated book value might be considerably lower than what its true market value really is. Therefore, we see buying shares of a very profitable “almost monopolistic” business at a (16%) discount to a “book value” that might very well be cloaking other significantly discounted assets, as a savvy investment opportunity.

Dividends and Taxes.

We believe that the last dividend was an abnormally large onetime distribution, and we expect it to be significantly cut to more historical levels this year. However, considering the company is trading near a 2.8 PE based on just 9 months reported earnings and that their 5 year US GAAP average yearly earnings is $1.5, we think that a very respectable level of dividends could easily be maintained alongside the retention of considerable funds for capital improvements and ongoing concerns. A review of the dividend history revealed no consistency in the dividends, and their annual reports contained no stated dividend policy or guidelines. Our contact the company’s representatives confirmed that no such policy or guidelines exist at this time. The payout last year was a onetime event, is clearly unsustainable, and is far above what it was in prior years. Our best estimate after talking to TGS company representatives is that the next dividend may be in the 7 cent range, and will most likely be paid in the spring of 2012. Short term, this would give about a 6% yield on new purchases of the stock, but only about 2.4% on a yearly basis. A 30% payout of earnings, which we see as being more reasonable, would probably bring the dividend yield to over 10%.

No taxes need to be paid on Argentina dividend stocks unless the dividend is found to exceed profits. If profits are exceeded, they would be taxed at a 35 % rate. This Argentine regulation inspires us to think that TGS, which in the last 9 months had tremendous cash flow and depreciated their assets about $1 per ADR share, could easily pay out about 30 cents per share per year and still retain over 70% of the US GAAP income.

Risks

While we now want to identify what we believed to be the three largest risks to our investors, please do not assume that this list is intended to be complete or comprehensive.

Natural Gas Prices.
Geo Political issues.
The Argentina Peso.

1. Natural Gas Prices. Since Natural Gas prices ended 2011 near 10 year lows and been trading down since then, this is plainly one of a natural gas company investor’s greatest concerns. After reviewing the company, we think they might actually be the recipient of benefits from possibly increased profits due to a larger spread between low gas prices and high liquid prices.

2. Geo Political issues. The second largest risk we could identify was the Geo-political risk of the county of Argentina. With that said, in 2011 Argentina in had some of the highest GDP growth rates in the World that we could identify, surpassing both India and China, and has by far the fastest growing GDP in Latin America.

Even though the Argentine economy is seeing some of the most robust growth in the world, which certainly helps to minimize the Geo political risk, it should be kept in mind that this is a highly regulated industry and this is one of the most regulated companies that we have reviewed. Robust economic growth does not stop local regulators from implementing poor bureaucratic policies, which over time have severely hampered the Argentinean gas industry.

3. The Dollar vs. the Argentina Peso. Since all their debt is carried in US dollars, we were concerned about what effect this might have on the company’s earnings. However, much to our surprise, about 30 percent of their business is done in the World markets, is settled in US Dollars, and is their fast growing business. Deducting their USD assets from their USD debt (according to their 2010 annual report) leaves only 115.5 million US dollars of debt exposed to currency fluctuations.

Summary and Conclusion

TGS integrates well into our strategic plan of finding strong balance sheet companies that own highly desirable assets and/or are monopolistic businesses, and are significantly undervalued as a result of depressed markets and/or currencies, such as our recently selected Southern Cooper Corp (SCCO) or Administradora de Fondos de Pen (PVD), an oligopoly similar to TGS, when neither copper nor the Chilean peso were finding a bottom.

Even though the currently indicated dividend level from online financial sources is clearly not sustainable and not to be expected, it is extraordinary to find a monopolistic styled business in a most desirable clean energy resource sector that, considering a historical 5 year period, is trading at less than a mere 2.8x’s GAAP earnings. If TGS were to initiate a 25-30% payout level, based on current prices the dividend would likely be in the 8-10% range while retaining plenty of cash to continue growing the value of its brands and properties. Furthermore, Argentina’s recent major Natural Gas discovery, in close proximity to two existing TGS lines, should help significantly improve Argentine energy needs and help insure future revenue growth for TGS, who’s main business is transporting/buying/selling fuels.

Therefore, we think TGS allows our clients to attain the strategic goals of an income stream and long term capital growth, as well as some diversification away from the US economy and the US dollar, which is why we have added it to our Investment Growth & Income Portfolio.

Disclosure

Durig Capital and some clients currently have positions in TGS.

Durig Capital clients may currently own these bonds.
Contact our fixed Income analyst for questions at 971-327-8847.

Durig.com | Bond-Yields.com

Related Articles:

Transportadora de Gas Del Sur S.A (TGS) Investment with Income
6.3% Yield, US Dollar Yankee Convertible bond: Neo Material, mat. Dec 2017.
7% Yield, Mexican Peso: UBS, Aa3/A rated, matures June 2015
8.50% Australian dollar, Goldman Sachs, A3/A- rated, floating rate bonds, maturing April 2016.
9.05% Yield, Turkish Lira: Volkswagen, A3/A- Bond mat. Dec 2013.
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Norway Bonds: News, Rates, Quotes and Bond List
7.25% Yield, Indonesia Rupiah: European Investment Bank, AAA rated bond maturing April 2014.
7.79% Yield, Goldman Sachs, Australian $, A+ rated, mat Nov 2016

TGS News:

TGS Yahoo feed:

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Argentina Economy News:

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6.3% Yield, US Dollar Yankee Convertible bond: Neo Material, mat. Dec 2017.

Randy — Wed, 18 Jan 2012 16:21:21 +0000

Income from Rare Earth materials.

At Durig Capital, we have developed a process to screen, review, select, purchase and monitor high yielding corporate bonds. Each week we screen thousands of corporate bond listings to find what we believe to currently be the best corporate bond for investors needing or seeking higher yields with as minimal risk as possible relative to its projected return. The following is our review process showing why we believe this remarkable Neo Materials (TSX:NEO) convertible debenture passes the criteria for our clients.

Denominated in US Dollars, this Canadian company’s 5% Convertible Unsecured Subordinated Bond matures 12/31/17, and is currently indicating a yield to maturity of about 6.3%. Given the possibility of significantly increasing this already high yield through the added capital gains its conversion to stock option allows for, as explained further in this review, we find it timely and appropriate to include the these 59 month Neo Material Technology convertible bonds in our Foreign and World Fixed Income holdings,

NEO Material Technologies

Neo Material Technologies Inc. (“NEM” or the “Company”) is a Canadian based international company incorporated in 1986, and headquartered in Toronto, Canada, having approximately 1,550 employees in 21 locations, across 10 countries. Through its Magnequench and Performance Materials business divisions, NEM produces, processes and develops neodymium-iron-boron magnetic powders (“Neo Powders”), rare earths and zirconium based engineered materials and rare metals including gallium, indium and rhenium. These innovative products are essential in many of today’s high technology applications.

The Company’s Magnequench division (“Magnequench”) is the leading producer of Neo Powders used in the production of high performance, bonded neo (rare earth) permanent magnets and has an estimated global market share in excess of 80%, giving them monopolistic economy of scale advantages. Neo Powders are used in micro motors, precision motors, sensors and other applications requiring high levels of magnetic strength, flexibility, small size and reduced weight. Through a number of manufacturing process and composition patents which expire between now and 2014, the Company is effectively the only legal supplier of Neo Powders for bonded neo magnets manufactured or sold in the United States (“U.S.”). The Company’s patent and license position is such that all end-use products containing bonded neo magnets that are sold in the U.S. must use the Company’s Neo Powders. Magnequench operates wholly owned manufacturing facilities in Tianjin, People’s Republic of China (“China”) and Korat, Thailand.

The Company’s Performance Materials division (“Performance Materials”) manufactures a product line of oxides and salts of rare earth elements which include cerium, lanthanum, neodymium, yttrium and yttrium-europium co-precipitates, dysprosium and terbium among others. The division also produces zirconium oxides and salts plus a line of mixed rare earth/zirconium oxides. Rare earth and zirconium applications include catalytic converters, computers, television display panels, optical lenses, mobile phones, and electronic chips. Additionally, the division produces, reclaims, refines and markets high value niche metals and their compounds that include gallium, indium and rhenium used in the wireless, light-emitting diode (“LED”), flat panel display, turbine, solar and catalyst applications. Performance
Materials operates joint venture and majority owned manufacturing facilities in Jiangsu Province, China; Shandong Province, China; Stade, Germany; Sagard, Germany and Quapaw, Oklahoma. Performance Materials also operates wholly owned manufacturing facilities in Peterborough, Ontario; Napanee, Ontario and Blanding, Utah.

The Company sells its products through a direct sales force and exclusive sales agents based in all major markets throughout the world. Third quarter revenues continued to increase for the tenth consecutive quarter, reaching record levels in the three-month period ending September 30, 2011. Revenues were (US) $248 million compared to $216 million during the previous quarter, and $91 million during the corresponding period in 2010. Higher rare earth product pricing and improved margins, driven by Chinese export quota restrictions, as well as price increases for Magnequench’s Neo powders, limited direct competition, and increased product demand across both divisions in the first half of 2011, were the main reasons for the 327% improvement in operating income year over year. Earnings before depreciation and amortization, financial expenses and taxes (EBITDA) was $112 million, compared to $22 million for the 3rd quarter of 2010. Their cash balance at Sept 30, 2011,was $316 million and long term debt amounted to $197 million. During the third quarter, the Company announced the commencement of a normal course issuer bid, resulting in the repurchase of 2,541,200 common shares for cancellation as at the end of the reported period and the use of $22 million which would have otherwise been reflected in the Company’s cash balance at quarter-end.

Neo Materials holds several unique competitive advantages among its peers through a combination of its advanced low cost production facilities, its proprietary technology and patents, and its global marketing and long-standing relationships with worldwide clients. Constantine Karayannopoulos, President & CEO, reported that while they were seeing selling prices and volumes moderate off recent peak levels, the overall business remains solid while their balance sheet continued to strengthen and was providing the flexibility to capitalize on strategic opportunities. The company has grown through strategic acquisitions, the most recent being an 80% interest in Gallium Compounds in August of 2011, and their stated aim to become the global supplier of choice in the high quality advanced materials market includes maximizing integration synergies as well as a utilization of their high cash flow to pay down debt.

On June 2, 2011, the Company completed a public offering of Convertible Debentures (the “Offering”) and raised $230 million through the Offering, net of issuance costs of $9.2 million which will be used to fund future acquisitions and for general corporate purposes. The Company maintains access to credit facilities and short term borrowings for its working capital needs, capital expenditures, and general corporate purposes. Management believes that its non-cancellable contractual obligations and other commercial commitments and 2011 capital program will be funded by cash flow from operating activities and by available cash. Occasionally, NEM will enter into short-term foreign exchange forward contracts to sell U.S. dollars in exchange for Canadian dollars. These contracts will effectively hedge a portion of ongoing foreign exchange risk on the Company’s cash flows as much of its non-U.S. dollar expenses outside of China are incurred in Canadian dollars. The Company has not entered into any off-balance sheet arrangements.

There are three primary areas that Durig Capital focuses upon for its bond reviews to help assure the return of our client’s capital. After reviewing their most recent 3Q 2011 statements, Neo Material scores breeze pass all three categories with great ease:

Debt to Equity – about 25%. Very good, shows balance sheet flexibility.
Cash to Debt ~3:2. Superb, but likely to change if/when more acquisitions are made.
Cash Flow to Debt obligations – over 20 x’s. An astounding coverage ratio.

In addition to the 5% accruing interest (paid semi-annually) that it offers, a very important feature of this bond to consider is the holder’s option to convert it at anytime prior to maturity to common stock at the conversion price of US$ 13.80 (aprox. 72.4638 per US$1000.) This strike price represents a better than 75% rise from the C$7.92 price NEM is currently priced at on the Toronto exchange, yet it is our belief here at Durig Capital that there is very strong upside growth potential remaining within this company that may significantly exceed the 12% average yearly growth that would be required for the stock price to reach par. Although 2011’s 9 month EBITDA growth of nearly 280% over 2010’s first 9 may prove to be somewhat of an anomaly, solid double digit EBITDA growth averaging over 12% annually appears to have been no problem for them to achieve over the four years between 2006 and 2010. But when 2011’s numbers are added to these four much leaner years, the average growth over five years easily exceeds 40% annually. And, while we acknowledge that this bond bypasses the potential equity gains that might be realized should the stock increase from its current level to C$ 13.80, which we think likely, it instead offers a 5% accrued interest payment and significantly more protection from a possible adverse decline in stock value.

The Company has not elected to pay dividend distributions, however, it appears to have chosen instead to perform stock buybacks. In summary, this appears to be a well financed company with reasonably low debt, ready options for additional funding if necessary, and a prudent use of existing cash flows.

Risks

The default risk is Neo Material’s ability to perform. Considering their historical and recent performance, their flexible balance sheet, their sound cash position, and the excellent cash flow to service their interest bearing debt, as outlined above, it is our opinion that the default risk for this short to medium term bond, is minimal relative to its more favorable return potential. An option that further reduces the default risk of this convertible bond, should at its maturity the company decide not to pay off or roll over the debt, is a conversion of the principle (at par) to NEM common stock at a 5% discount to stock’s valuation at maturity on 12/31/2017.

The company also has execution and market risks as very fast growth company in developing markets, as companies often encounter unforeseen issues. This is a common risk associated with younger, fast growing companies.

We believe that these Neo Material bonds have similar to slightly lower risks, a longer maturity, and a potentially higher yield that the bonds reviewed in Seagate Technologies 2016 Bond Provides Income From the Clouds and American Railcar 2014 Bond.

Conclusion

We think this is an exceptional opportunity for obtaining a very respectable 6.3% yield with significantly lower default risk than is typically associated with an unrated (or low rated) medium term bond, not to mention the additional return potential that its conversion at any time feature allows for. Therefore, we see this less well known debt instrument as a savvy investment risk offering a potentially great return from a company that has a unique position in the world market, a good cash position, very solid interest coverage, and a remarkably strong and flexible balance sheet.

Coupon: 5.00%
Ratings: none
Maturity: 12/31/2017
Price: $93.5
Yield to Maturity: 6.31%

Disclosure:

Durig Capital clients may currently own these bonds.
Contact our fixed Income analyst for questions at 971-327-8847.

Durig.com | Bond-Yields.com

Related Articles:

Transportadora de Gas Del Sur S.A (TGS) Investment with Income
6.3% Yield, US Dollar Yankee Convertible bond: Neo Material, mat. Dec 2017.
7% Yield, Mexican Peso: UBS, Aa3/A rated, matures June 2015
8.50% Australian dollar, Goldman Sachs, A3/A- rated, floating rate bonds, maturing April 2016.
9.05% Yield, Turkish Lira: Volkswagen, A3/A- Bond mat. Dec 2013.
7.38% Yield, Norwegian Kroner: Fred.Olsen Energy, matures May 2016.
12.50% Yield Brazilian Real, Bank of America, A rated, mat Nov 2014.
Norway Bonds: News, Rates, Quotes and Bond List
7.25% Yield, Indonesia Rupiah: European Investment Bank, AAA rated bond maturing April 2014.
7.79% Yield, Goldman Sachs, Australian $, A+ rated, mat Nov 2016

Neo News:

Neo Yahoo feed:

Rare Earth News:

Canadian Economy News:

Neo.to chart

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7% Yield, Mexican Peso: UBS, Aa3/A rated, matures June 2015

Randy — Fri, 30 Dec 2011 16:47:35 +0000

This week we have identified an Aa3 rated UBS Mexican peso denominated bonds maturing in June of 2015, and anticipate achieving a better than 6.7% yield for our clients.

Corporate Bond linked to Mexican Peso

UBS AG (Jersey Branch) has 10.25% coupon bonds denominated in the Mexican peso that mature in 42 months and currently have a yield to maturity of over 6.5%. This debt instrument represents a better than 80% increase over the yield to maturity of similar UBS AG yankee bonds denominated in US dollars, while offering an exposure to Mexico’s economy and the peso. This three and a half year bond offers diversification into a country that has experienced a greater economic rebound than the United States after 2008 and is poised to grow a healthy 3.25% in 2012. While the Mexican peso has a “high sensitivity” to the economic woes of the United States, we believe there are strong fundamentals underpinning for the peso. Mexico’s central bank currently holds significant foreign reserves, amounting to 20 percent of gross domestic product (GDP) versus foreign reserves totaling 7 percent of GDP in 2008. Public debt levels are in check, and even amid weakened U.S. demand, Mexican manufactured products have gained ground, accounting for 12.4 percent of total U.S. imports versus 11 percent in 2009. So, while the peso has declined over 15% since last July due to storms on various fronts (namely European), we view the higher yield that this bond offers a great opportunity to reduce US dollar devaluation risk by diversify away from an overweighted US dollar based assets.

Wealth Preservation and US Dollar Concerns

Global equity and commodity markets appear content to end the year with no consistent or clear direction, and wealth preservation remains a top priority for many people. Declining equity and property prices, ultra-low interest rates, minimal pay raises, elevated inflation, ineffective politicians, potentially increased taxes, and the Fed’s constant printing of more money in what may be an effort to not only backstop the US economy but also that of Europe, have all precipitated into a widespread erosion of wealth that will likely continue until the aforementioned conditions begin to change.

Headlines this week indicate that European banks are more than eager to accept ECB emergency refinance funding amid continuing liquidity concerns. Flooding the banking system with cheap (fiat) money and is, of course, the central bank’s traditional “fix” to any looming credit crunch. It’s okay if a dose or two from the ECB doesn’t provide enough juice to the European financial system with cheap euros, as there’s evidently a virtual wellspring of US drugs (i.e., cheap dollars) that’s ready, willing and able to backstop the euro. So, the financial system itself is poised to survive. Where certain sovereign political systems, politicians, economies, and their fiat currencies end up look to be another matter. But as long as the global economy survives, what significance is, can be, should be, or will be placed on the cost to any one individual, or nation?

Here at Durig Capital, we have undertaken the effort to protect our client’s assets against the persistent erosion of wealth resulting from inflation rates that remain significantly higher than the extremely low, but “safe,” yields currently available with banksters and in US treasuries. By scouring the globe in search of sound investments, in the strongest global economies, we strive to offer the best possible high yield instruments that we think offers both a high income stream and the possibility of positively accruing money in spite of broad economic uncertainties, and it is why we have chosen this relatively short term UBS Mexican peso denominated bond as This Week’s Best Bond.

Mexican Economy

The economy of Mexico is 13th largest in the world in nominal terms and 11th by purchasing power parity, according to the World Bank, and the United Nations reports that Mexico’s standard of living – including health, education and per capita income – is now higher than Russia, China and India. As an export oriented economy in the trillion dollar class, it remains integrally correlated to the US economy because of its prominent role at 80% of exports trading partner. However, Mexico’s last reported debt to GDP ratio stood at 42.7% and the US ratio just passed 100%, while unemployment was about 4.97% compared to 8.6% for the US. Inflation rates for Mexico were recently reported at 3.65%, down from over 4% at the end of 2010.

While banking giant HSBC announced plans to cut back on retail operations in the US and cut 30,000 jobs worldwide, it said that it instead intends to focus on faster growing emerging markets like Brazil and Mexico, where the company is still hiring. Interestingly, Chinese tourism to Mexico increased 32.8% in 2011, and Japanese automaker Honda (which already has a plant in El Santo, Jalisco) plans to invest about 312 million dollars to build a new 100,000 vehicles per year capacity car plant near Jalisco. The Mexican Institute of Finance Executives, or IMEF, stated this week that Mexico’s economy will grow 3.25 percent in 2012 even though the economic problems in Europe and the United States remain unresolved.

UBS

UBS AG, a financial services firm, provides wealth management, asset management, and investment banking products and services to private, corporate, and institutional clients worldwide. The company is also involved in retail and commercial banking, and is Switzerland’s largest bank. Based in Zurich, UBS AG was founded on 29 June 1998 only after the merger of Union Bank of Switzerland and Swiss Bank Corporation, but its many roots go back over 100 years to 1862. UBS AG currently operates in approximately 50 countries, and employs over 65,000 people.

Having achieved a significant reduction in residual risk exposure, UBS AG recently improved their Basel 2 tier 1 ratio to 18.4% and increased its tangible book value 11% quarter on quarter. It’s long term credit ratings are Aa3 at Moody’s, A for S&P, and A for Fitch.

UBS has forecast 2012 as another year of subtrend growth, and believes that there is a longer-term “climate change” in the current economic cycle. For conservative investors, they believe finding safe-haven assets that offer acceptable real returns will be more challenging that it was this past year. UBS’s strategy is centered on its strong Global Asset Management business and a focused, less complex and less capital-intensive Investment Bank in Switzerland. Group CEO Sergio Ermotti recently stated that UBS has “chosen to substantially reduce the risk profile of the bank by exiting and downsizing businesses which do not add value to our client franchise or deliver unattractive risk-adjusted returns.”

Risks

The default risk is UBS AG’s ability to perform. Given their costs improvements, refocused efforts on building their strong Wealth Management franchise, and solid credit ratings, it is our opinion that the default risk is significantly less than the currency risk of the Mexican peso.

The currency risk could and will affect the returns of these bonds and possibly in a negative way as it exposes investors to Mexico’s economy.

Per capita income in Mexico is roughly one-third that of the US, and income distribution remains highly unequal. The current Mexican administration continues to face many economic challenges, including improving the public education system, upgrading infrastructure, modernizing labor laws, and fostering private investment in the energy sector. Because of the dominance of exports to the US, its economy will remain correlated to that of the US.

Allotments

Achieving an institutional sized yield typically requires an institutional sized bond purchase. To facilitate attaining a more attractive yield, here at Durig Capital we bring together many retail bond buyers into a single much larger institutional sized trade. In this week’s syndicate, we anticipate being able to accommodate purchases as low as $ 5,000 US Dollars should that the level that best fits with your interest. So the answer to the question is simple – contact your Durig professional.

Conclusion

The era of dollar devaluation, the indubitable result of relentless injections of “cheap” dollars into the financial markets, appears to be far from being over. Regardless of how opaque the economic “stimulus” reasoning is, or how it is presented to the average American taxpayer as being vital and necessary for our economy, a dependence on the global economy and perhaps the dollar’s dominate position as the reserve currency of the world seems to have precipitated the need for enough of these cheap dollars to stimulate the entire global economy. How many dollars are enough or how long it will take, isn’t defined. However, we believe that diversification into higher yielding corporate debt instruments denominated in various foreign currencies offer a savvy hedge against this abject devaluation of the US dollar.

As a result, it is our opinion that this short term, higher yielding Mexican peso debenture, issued by a sound and well respected financial institution, provides an intelligent alternative to the US dollar’s further devaluation and loss of buying power, which is why we are adding it to our Foreign and World Fixed Income holdings.

Disclosure:

Durig Capital clients may currently own these bonds.
Contact our fixed Income analyst for questions at 971-327-8847.

Durig.com | Bond-Yields.com

Related Articles:

Transportadora de Gas Del Sur S.A (TGS) Investment with Income
6.3% Yield, US Dollar Yankee Convertible bond: Neo Material, mat. Dec 2017.
7% Yield, Mexican Peso: UBS, Aa3/A rated, matures June 2015
8.50% Australian dollar, Goldman Sachs, A3/A- rated, floating rate bonds, maturing April 2016.
9.05% Yield, Turkish Lira: Volkswagen, A3/A- Bond mat. Dec 2013.
7.38% Yield, Norwegian Kroner: Fred.Olsen Energy, matures May 2016.
12.50% Yield Brazilian Real, Bank of America, A rated, mat Nov 2014.
Norway Bonds: News, Rates, Quotes and Bond List
7.25% Yield, Indonesia Rupiah: European Investment Bank, AAA rated bond maturing April 2014.
7.79% Yield, Goldman Sachs, Australian $, A+ rated, mat Nov 2016

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8.50% Australian dollar, Goldman Sachs, A3/A- rated, floating rate bonds, maturing April 2016.

Randy — Thu, 01 Dec 2011 19:57:57 +0000

We have identified a short term A- rated Goldman Sachs floating rate bond denominated in the Australian dollar and are targeting 8.50% yield to maturity for our clients.

Corporate Bond linked to the Australian Dollar

Goldman Sachs has a floating rate debt issue denominated in Australian dollars, which resets its coupon rate quarterly at the Australian Bank Bill Swap Reference Rate (BBSW) plus 0.51%, matures in 41 months, and currently indicates a yield to maturity about 8.50%. The high yield and short maturity of this Aussie bond, when considered with its solid A- rating and enviable position, compares extremely favorably in relationship to other high yield instruments in our Foreign and World Fixed Income holdings, and we consider the recent strength of the US dollar relative to the Aussie dollar a great opportunity for increasing exposure to the Australian currency in our basket of foreign fixed income holdings. We believe the dollar’s longer term weakening trend against many world currencies remains a major concern for investors seeking protection against its devaluation and a further erosion of its buying power, and we share the concern of our clients in protecting existing wealth by utilizing the higher yields of sound issuers in many the world’s strongest economies.

Wealth Preservation Concerns

The equity and commodity markets continue thrashing about with no consistent or clear direction, and wealth preservation remains a top priority for many people. Declining equity and property prices, ultra-low interest rates, minimal pay raises, elevated inflation, ineffective politicians, potentially increased taxes, and the Fed’s constant printing of more money in what may be an effort to not only backstop the US economy but also that of Europe, have all precipitated into a widespread erosion of wealth that will likely continue until the aforementioned conditions begin to change.

With the Euro-Region Economic confidence falling to a two year this week, talks in Brussels have moved towards forcing the 17 countries that use the euro to cede control of their sovereign spending to a central authority. Whether or not that is what is destined, it’s likely there will be more bumps along the way that allow for (or perhaps necessitate) the printing of more US dollars to insure the current financial system’s survivability. Interestingly, the increase in US money supply has recently been accelerating. Up over 50% in less than 4 years (or about 11% per year), the more recent trends indicates a year over year increase over 20%, a 26 week rate indicating over 25%, and a 13 week rate indicating over 30%. At these accelerated rates, by 2015 perhaps a debt of only $17.6 trillion will quite magically appear as “reduced” according to most any politician’s measure and the “banksters” will be ready for their next round of fleecing.

Here at Durig Capital, we have undertaken the effort to protect our client’s assets against the persistent destruction associated with an ever increasing supply of federal dollars, by scouring the globe in search of sound investments in the strongest global economies, and it is why we have chosen Goldman Sachs floating yield, short term Aussie bond as This Week’s Best Bond.

Australian Economy

The Australian economy grew for 17 consecutive years prior to the global financial crisis. Subsequently, the Rudd government introduced a fiscal stimulus package worth over US$50 billion to offset the effect of the slowing world economy, while the Reserve Bank of Australia cut interest rates to historic lows. These policies – and continued demand for commodities, especially from China – helped the Australian economy rebound after just one quarter of negative growth. The economy grew by 1.2% during 2009 – the best performance in the OECD – and by 3.3% in 2010. Unemployment peaked at 5.7% in late 2009 and fell to 5.1% in 2010. As a result of an improved economy, the budget deficit is expected to peak below 4.2% of GDP and the government could return to budget surpluses as early as 2015.

Although Australia has experienced persistent deficits since World War II, the estimated 2010 deficit of $30.4 billion, a mere 2.46% of GDP, bringing the total outstanding public debt to 22.4 % of GDP (2010 est.) The 2010 inflation rate stood at 2.9%, with current unemployment rates about 5.1%. Exports exceeded imports to the tune of 10.3 billion, with partners China, Japan, South Korea, and India all listed ahead of the US. The longer term outlook remains good as Australia’s terms of trade appear to have reached record peaks with prices for key export commodities staying high thanks to voracious demand from China and the rest of Asia.

	Public debt to GDP	Budget Deficit	Exports	Imports
Australia in A$	22.4%	A$ 20.3 billion	210 Billion	200 Billion
United States in USD	100.0 %	US$ 1.294 Trillion	1.28 Trillion	1.94 Trillion

Stanford University has rated the Australian economy number #1 on its global Sovereign Fiscal Responsibility Index. This recognition helped highlight how much stronger Australia’s financial condition is compared to #28 ranked (out of 34) United States, which came in only four points above a defaulted Iceland.

Australian dollars (AUD) per US dollar -

0.9771 (current)

1.0902 (2010)

1.2822 (2009)

1.2059 (2008)

1.2137 (2007)

1.3285 (2006)

About Goldman Sachs

Liquidity is of critical importance to companies in the financial services sector, and most failures of financial institutions have occurred in large part due to insufficient liquidity. Accordingly, Goldman Sachs has in place a comprehensive set of liquidity and funding policies that are intended to maintain significant flexibility to address both Goldman Sachs-specific and broader industry or market liquidity events. Management stated principal objective is to be able to fund Goldman Sachs and to enable their core businesses to continue to generate revenues, even under adverse circumstances.

To finance the firm’s business, Goldman Sachs issues various types of short and long term securities, including promissory notes, commercial paper, medium term notes and global bonds. It currently has about $ 835Bn in cash, $ 492Bn in debt, and its International bonds are solid Investment grade quality, being A- rated by S&P.

Goldman Sachs domiciled bond	Yield	Maturity	Rated
US Dollar	4.70 %	06/22/2016	A-
Australia Dollar	8.30 %	04/12/2016	A-

Risks

The default risk is Goldman Sachs’ ability to perform. Given their strong cash position, financial strength and evidently close political connections, it is our opinion that the default risk for this short to medium term bond is minimal relative to the currency risk of the Aussie dollar.

The currency risk of the Aussie dollar could and will affect the returns of these bonds and possibly in a negative way as it exposes investors to the Australian economy.

Allotments

Many people ask, how do I invest in Australian Corporate bonds? With most firms it often requires an institutional sized single bond purchase. To circumvent this constraint and allow greater diversification, we at Durig Capital combine world bond buyers into a larger institutional sized purchase. In our previous syndicates, we were able to facilitate purchases as low as $10,000 US Dollar and should be able to do the same for your interest.

Conclusion

We continue to search for individual corporate instruments denominated in the currencies of growing economies that yield higher than average returns to help protect our clients against the erosion of wealth that results from a constant devaluation of the US dollar. We acknowledge that a stronger US dollar would directly reduce the total returns of this Aussie bond. Conversely, if the US dollar continues on the longer term path of relative weakness to the Australian dollar that it has been on, this alone would add significantly to the already highly positive accruing returns of this bond.

Considering Australia’s long term position as a stable economy and political system with shrew fiscal management will likely correlate with a stable and possible strengthening of the commodity based Australian dollar relative to the US dollar, we view the gaining of over 75% more yield from such a reputable issuer as Goldman Sachs as an incredibly compelling reason for choosing their Kangaroo bond over their similar Yankee (US dollar) bond. The combination of offering a remarkably high yield, some protection against a further loss of wealth with a continuation of the US dollar’s weakness against the Aussie dollar, and a diversification away from heavily overweight US dollar based assets into one of the world’s top tier fiscally conservative countries is why we are adding it at this time to our Foreign and World Fixed Income holdings.

Disclosure:

Durig Capital clients may currently own these bonds.
Contact our Fixed Income Specialist for questions at 971-327-8847.

Durig.com | Investment-Income.net

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9.05% Yield, Turkish Lira: Volkswagen, A3/A- Bond mat. Dec 2013.

Randy — Mon, 21 Nov 2011 17:36:27 +0000

We have identified a short term A3/A- rated Volkswagen 8.5% coupon bond denominated in Turkish lira, maturing in December 2013 and currently trading at about par, and have targeted a yield over 9.05 % for our clients.

Corporate Bond linked to the Turkish Lira

Germany based Volkswagen AG has bonds, denominated in the Turkish lira, that currently has a yield of about 8.5% for 25 months. The high yield of this Turkey bond, with its A- rating, compares very favorably in relationship to other high yield instruments in our Foreign and World Fixed Income holdings. Aside from the US dollar’s polarized response to the “on again, off again” fears over the euro’s future, the dollar’s longer term weakening trend against many world currencies remains a major concern for investors seeking protection against further erosion its buying power. This bond provides a significant diversification away from the US dollar and towards an economy that has weathered the recent financial turmoil relatively well with no government bailouts.

US Debt Woes

While the eyes of the financial world remain fixed on what is happening in Greece and Italy, it appears that the US debt’s crossing the $15 trillion mark this week is barley worth mentioning. Yet, with only a week until the deadline to reach agreement on cutting $1.2 trillion to $1.5 trillion from the federal deficit over the next 10 years, the Joint Select Committee on Deficit Reduction still has no agreement to stem automatic cuts to the budget. At the current rate, Debtclock.org reckons that the US debt will top $23 trillion in 2015, though the nonpartisan Congressional Budget Office puts the estimate at $17.6 trillion.

As incredible as it might seem, the US dollar M1 money supply is currently up over 50% since the beginning of 2008. However, if you prefer to keep it closer, then it’s only up 17.5% since the beginning of 2011. At these rates, by 2015 perhaps a debt of only $17.6 trillion will somehow appear as “reduced” according to most any political measure. In the mean time, to diversify and protect our client’s assets against a further possible devaluation of the dollar and corresponding inflation threats, we here at Durig Capital will continue to scour the globe in search of higher yielding sound investments which may better protect and positively accrue wealth.

Turkish Economy

Turkey is a secular state often viewed as a bridge between East and West. With a constitution adopted in 1982 after a military coup, it is now a successful multi-party democracy. Prime Minister Recep Tayyip Erdogan has held office since 2003. Turkey’s financial sector has undergone a rapid transformation. Since the 2000–2001 financial crisis, the government has increased transparency, strengthened regulatory and accounting standards, and improved oversight. The Turkish economy has been Europe’s fastest growing economy in the last decade and has become the world’s 16th largest economy as of 2010.

While its traditional agriculture sector still accounts for about 30% of employment, an aggressive privatization program has reduced state involvement in basic industry, banking, transport, and communication, and an emerging cadre of middle-class entrepreneurs is adding dynamism to the economy. Turkey’s traditional textiles and clothing sectors still account for one-third of industrial employment, despite stiff competition in international markets that resulted from the end of the global quota system. Other sectors, notably the automotive, construction, and electronics industries, are rising in importance and have surpassed textiles within Turkey’s export mix. The government sets prices for many agricultural products and pharmaceuticals and influences prices through regulation, subsidies, and state-owned utilities and enterprises.

After Turkey experienced a severe financial crisis in 2001, reforms strengthened the country’s economic fundamentals and ushered in an era of strong growth which averaged more than 6% annually until 2008, when global economic conditions and tighter fiscal policy caused GDP to contract in 2009, reduced inflation to 6.3% (a 34-year low) and cut the public sector debt-to-GPD ratio below 50%. Central government spending in the most recent year equaled 23.4 percent of GDP, while overall tax revenue as a percentage of GDP was 23.5 percent. Its well-regulated financial markets and banking system weathered the global financial crisis and GDP rebounded strongly up towards 9% in 2010, as exports returned to normal levels following the recession. The first half of 2011 experienced 9% GDP growth and rising inflation concerns.

Household consumption and private investment are considered the main growth drivers. Decreasing unemployment and ample credit availability are expected to prop up household consumption, which is reflected in the upward trend in the consumer price index. External demand is likely to remain subdued as the EU and UK, Turkey’s main trading partners, are facing sluggish growth. Central bank governor Erdem Basci surprised investors in August by cutting the benchmark lending rate by 50 basis points to a record low of 5.75 percent. While this does raise inflation concerns, Basci has sought to control inflation by increasing bank reserve requirements to as much as 16 percent for the shortest-term deposits to limit lending and consumer demand. Reaching for alternatives to defend the lira when it tumbled to a record low against the dollar in August, the central bank spent about 10 percent of its $84.4 billion of foreign-exchange reserves in three months to buy the currency. Furthermore, Basci announced plans last month for dual lending rates to banks ranging from 5.75 percent to 12.5 percent, saying he may switch between them on a daily basis. The intent of these policies were to give him the flexibility that “no other bank in the world” has to strengthen the currency while retaining the option of cheaper money should Europe’s debt markets worsen.

Volkswagen Group

Sitting third on the list of the world’s largest automotive manufacturers (behind Toyota and GM), the German luxury car maker Volkswagen sold over 7 million units in 2010 and constitutes such brands as Audi AG, Automobili Lamborghini Holding S.p.A., Bentley Motors Ltd, Bugatti Automobiles S.A.S., MAN SE, SEAT, Skoda automobilova a.s., Volkswagen, and heavy goods vehicle manufacturer Scania AB. Volkswagen Group is divided into two primary divisions: the Automotive Division, and the Financial Services Division. The Group consists of 342 Group companies, which are involved in either vehicle production or other related automotive services, and has about 450,000 employees worldwide.

Sales revenues for the first 3 quarters of 2011 were reported at over 116 billion euros, a better than 25% increase over the last year’s results. Operating profit was up €4.2 billion on the prior year figure, to €9.0 billion. Also note was that the planned merger with Porsche Automobile Holding SE would not be implemented, but that all parties remain committed to the goal of an integrated automotive group.

In August, rating agency Moody’s Investor Services raised its outlook for Volkswagen AG from “stable” to “positive” and held out the prospect of a rating upgrade in the next 12 to 15 months. At present, Moody’s has given Volkswagen a long-term rating of A3, and Standard & Poor’s rating is A-.

Risks

The default risk is Volkswagen Group’s ability to perform. Given its underlying strength and solid A3/A- ratings, as outlined above, it is our opinion that the default risk is significantly less than the currency risk of the Turkish lira.

The currency risk could and will affect the returns of these bonds and possibly in a negative way as it exposes investors to the Turkish economy.

The strong economic recovery is attracting much (short term) foreign capital. About a third of Turkey’s external financing comprises short term debt, and the large influx of short term foreign capital could lead to asset bubbles. By nature, short term capital flows tend to be volatile, which is a risk in itself. Downward risk to the growth projections are present in the form of a sudden reversal of short term foreign capital flows and lower economic growth than is currently expected in the western countries. In spite of solid growth outlook, many global investors still consider emerging markets relatively risky. Turkey’s relatively high current account deficit, uncertainty related to policy-making, and fiscal imbalances leave the economy vulnerable to destabilizing shifts in investor confidence.

Allotments

How can people invest in Turkish lira denominated bonds? With most firms it often requires an institutional sized single bond purchase. To circumvent this constraint, at Durig Capital we often combine world bond buyers into a larger institutional sized purchase. In this week’s offering, we anticipate being able to facilitate purchases as low as $ 5,000 US Dollars should that be the level best fits your desire. So the answer to the question is simple – contact your Durig professional.

Conclusion

While there are increased concerns of overheating and inflation flaring up with an economy growing at over 7%, Turkey stands out as having successfully rebuffed a serious global economic crisis. By rebounding strongly in 2010, it appears to have decoupled itself from the rest of Europe and is well positioned as one of the economic leaders in the area. As a result of our consideration of these trends and the high yield in Turkish lira backed by a highly recognized and accredited industry leader, we believe this very short two year Volkswagen Group corporate bond in Turkish lyra offers an exceptionally attractive opportunity for high yield income diversification, and it is why we have chosen to add it to our Foreign and World Fixed Income holdings.

Disclosure:

Durig Capital clients currently own Turkish bonds.

Contact our fixed Income analyst for questions at 971-327-8847.

Durig.com | Investment-Income.net

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Transportadora de Gas Del Sur S.A (TGS) Investment with Income
6.3% Yield, US Dollar Yankee Convertible bond: Neo Material, mat. Dec 2017.
7% Yield, Mexican Peso: UBS, Aa3/A rated, matures June 2015
8.50% Australian dollar, Goldman Sachs, A3/A- rated, floating rate bonds, maturing April 2016.
9.05% Yield, Turkish Lira: Volkswagen, A3/A- Bond mat. Dec 2013.
7.38% Yield, Norwegian Kroner: Fred.Olsen Energy, matures May 2016.
12.50% Yield Brazilian Real, Bank of America, A rated, mat Nov 2014.
Norway Bonds: News, Rates, Quotes and Bond List
7.25% Yield, Indonesia Rupiah: European Investment Bank, AAA rated bond maturing April 2014.
7.79% Yield, Goldman Sachs, Australian $, A+ rated, mat Nov 2016

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7.38% Yield, Norwegian Kroner: Fred.Olsen Energy, matures May 2016.

Randy — Wed, 09 Nov 2011 16:44:06 +0000

Fred.Olsen Energy ASA (FOE.OL) has a short to medium term floating rate bond maturing 5/12/16, denominated in the Norwegian kroner, that is currently yielding 7.38%.

Corporate Bond linked to the Norwegian Kroner

The desire to locate a corporate bond denominated in Norwegian krone that both steps away from so many of concerns currently plaguing the financial industry and steps up yields to outpace inflation motivated us to look outside the normal “investment grade” rating boundaries set by official rating agencies. And although this week’s best bond stands as “unrated” by these popular agencies, we will present how it does meet and exceed the strict criteria that Durig Capital has previously developed and found highly successful for evaluating lower rated bond issues. As a result, we believe that the significantly higher return potential offered in this floating rate debt instrument for Fred.Olsen Energy represents a savvy investment choice in what is historically regarded as one of the world’s strongest currencies, and one in which high yields seem to have been quite elusive to find.

Therefore, we find this an appropriate opportunity to including Fred.Olsen bonds in our Foreign and World Fixed Income holdings, as it offers additional diversification protection against the continued erosion of the dollar’s buying power and status as the world’s reserve currency, as well as offering an opportunity to keep pace with potential changes in Norwegian bank rates. While the US dollar strengthened recently in the wake of the Greek financial crisis and its impact on the euro, much of its effect appears to wax or wane as quick as the wind. The longer term trend of the Norwegian kroner appears to have very convincingly held its ground against the dollar in spite of weaker oil prices, and its currency exchange rate remains firmly on a 10 year bullish trend against the dollar. Slightly over two years ago, banking giant HSBC analysts dubbed the Norwegian krone “The World’s Safest Currency“, and as recently as last summer, HSBC’s chief FX strategist David Bloom stated the belief that “there is no better currency than the NOK.”

Norway, like Switzerland, isn’t a member of the European Union and is the second richest country per capita in the world. Although Norwegian krone and the Norwegian economy isn’t big enough to become a safe haven for many large institutional investors, the strength of the currency mixed with a longer maturity date works extremely well with our laddering strategy to diversify clients away from heavily weighted US dollar based assets, and it is why we have chosen it for This Week’s Best Bond.

US Debt Woes

With the US National debt fast approaching $15 trillion, it appears it will very soon surpass our total Gross Domestic Production for the first time since WW II. In other words, the average American’s share of government debt will be more than an average American makes in a year. Not included in the aforementioned national debt, is the estimated $2 to $4.2 trillion U.S. state debt (including pension gaps) recently reported by Reuters. Yet, in spite of all of this, the appetite for “safe-haven” U.S. debt continues to be whetted by troubles more persistent than cockroaches in a dark pantry. The size and scope of the US economy and financial markets, combined with the relative stability of the political climate, have made the US dollar a preferred currency for international trade, and there can be little doubt that the US Dollar has reaped tremendous benefits from being the world’s reserve currency.

One of the most cited reasons for the dollar dominance, however, isn’t the United States’ role in international commerce, but rather, results from its oil trade monopoly. However, China recently arranged to trade oil and energy products with Russia in their own currencies. In another interesting move last Monday (10/24), the first gold contracts denominated in the Chinese Renminbi (also known informally as “yuan”) came to the Hong Kong market. In allowing the markets to buy gold denominated in the Chinese currency, investors can essentially exchange yuan directly for other currencies, using gold as a proxy. And while oil contracts may be a few months or years away, the Chinese may be quite content to have the Renminbi more slowly chip away at the USD’s coveted status as “world’s reserve currency.”

While the notion of a strong dollar may initially sound good or even invoke a sense of national pride, easier money and currency depreciation appears to be central banks latest weapon of choice to stimulate economies. Yesterday Japan sold the yen for the second time in less than three months, saying it intervened unilaterally to counter speculative moves that were hurting world’s third-biggest economy. With Federal Reserve Chairman Bernanke likely to repeat his disappointment with the pace of economic recovery after this week’s Fed meeting, it now seems likely for the dollar to take its turn at bat. In short, what we are looking for here at Durig Capital, are the fundamentally soundest economies to diversify towards, and away from overweighted US assets that are likely to significantly depreciate should the much longer and broader term global confidence in the dollar continue to deteriorate.

Norwegian Economy

Norway is one of the world’s most prosperous countries, and is ranked 16th in economic freedom out of 43 countries in the Europe region. In general, Norway’s economy was shielded from the worst of the global credit crisis due primarily to its extensive oil wealth (world’s sixth-largest oil exporter), a strong labor sector, a stable housing market and a mainland economy that is expected to continue expanding at a somewhat moderate pace. The country is richly endowed with numerous natural resources including hydropower, fish, forests, and minerals in addition to its already noted petroleum sector, which accounts for nearly half of exports and over one third of state revenue. In anticipation of eventual declines in oil and gas production, Norway saves state revenue from the petroleum sector in the world’s second largest sovereign wealth fund, recently valued over $570 billion.

After solid GDP growth in 2004-07, the Norwegian economy slowed in 2008, and contracted in 2009 before returning to positive growth again in 2010. It features a combination of free market activity and government intervention, with the government controlling key areas, such as the vital petroleum sector, through large-scale state-majority-owned enterprises. Norway opted to stay out of the EU during a referendum in November 1994. However, as a member of the European Economic Area, it contributes sizably to the EU budget.

Norwegian inflation accelerated last month as the central bank signaled it would delay planned interest rate increases amid a deepening European debt crisis. Oslo-based Statistics Norway recently reported that the underlying inflation rate, adjusted for taxes, fees and energy prices, climbed to 1.2 percent in September from 0.8 percent a month earlier. Headline inflation was 1.6 percent, also faster than the 1.3 percent estimated in a survey. The country’s central bank kept its overnight deposit rate unchanged at 2.25 percent this month and postponed its next rate increase into the second half of 2012, as policy makers tried to protect the economy from the fallout of Europe’s debt crisis. Norway’s government last week presented a 2012 budget plan that will increase the use of its oil money and stimulate the economy by 0.3 percentage point amid concern that the euro area debt crisis will sap exports.

The mainland economy is projected to grow 2.8 percent for 2011, and expand to 3.1% growth in 2012. The unemployment rate in Norway has fallen to 3.3% as the economy has bounced back from a shallow recession in 2009, and with those hiring chasing fewer candidates, wages and therefore inflation could rise. The Norges Bank traditionally is a flexible inflation fighter, balancing inflation and growth. The three- month Norwegian interbank offered rate was at 3.13 percent on Oct. 28, compared with a low for the year of 2.53 percent in January. The kroner has risen about 8% versus the U.S. dollar over the past year, and a stuttering U.S. recovery has weakened expectations that the Federal Reserve will raise rates any time soon.

Fred.Olsen Energy ASA (FOE:OSL)

Fred. Olsen Energy ASA (The Company) is a leading provider of exploration and development services to the oil and gas industry, and operates nine rigs and vessels for firms such as BP, Anadarko and Statoil. From roots over 150 years earlier in the shipping industry and more than 35 years in international offshore drilling, the Company first listed on the Oslo Stock Exchange in 1997. In 2000, important steps were taken to position itself within the deep water segment of the offshore market and strengthen its position as a supplier of offshore drilling and floating production services. Operating activities of Fred.Olsen Energy ASA and its subsidiaries (The Group) currently consist of offshore drilling as well as engineering and fabrication services. The Company is headquartered in Oslo with offices in Norway, the UK, Singapore, Bermuda, Brazil, Mozambique, Hungary and South Africa.

Gross revenues for the Group in 2010 was NOK 6,019 million, and earnings before depreciation and amortization, financial expenses and taxes (EBITDA) were NOK 3,401 million. The net interest bearing debt at 31 December 2010 was NOK 4,041 million. The number of tenders and fixtures within the offshore drilling market increased in 2010, resulting in a trend of shorter term contracts and decreasing lead-times, with rate levels remaining relatively stable. Oil prices fluctuated at levels between USD 70-90 per barrel during 2010.

Geographically, the Group currently operates in Norway, the UK, Mozambique and Brazil. At year-end 2010, the Group’s offshore units had an average contract length of 21 months. The current contract backlog is approximately USD 1.9 billion. At mid-end June 2011, the Group had consolidated assets of NOK 14,182 million. The ratio of net interest bearing debt to total assets about 41.5% and the book value of the equity was NOK 7,381 million. Net cash from operating activities for the first half of 2011 was NOK 1,182 million (compared to 1,066 a year ago) and cash and cash equivalents were NOK 2,268 million.

In April of this year Fred.Olsen Energy ASA ordered a new ultra-deepwater drillship from Hyundai Heavy Industries Co. for delivery in 2013 at an estimated cost of USD 615 million and in the following month successfully completed a five year NOK 1,400 senior unsecured bond issue, with a maturity date of 12 May 2016. The floating rate for this note is reset quarterly, at NIBOR (Norwegian Interbank Offered Rate) + 4.25%, which currently equates to 7.32% after 12 August 2011. The interest is paid in arrears quarterly.

There are three primary areas that Durig Capital focuses upon for its bond reviews to help assure the return of our client’s capital. After reviewing their most recent 2Q 2011 statements, Fred.Olsen Energy scores passes all three categories with flying colors:

Debt to Equity – about 50%. Higher than we normally prefer, but still quite acceptable.
Debt to Cash - about 2.5 to 1. This is reasonable, and once again, quite acceptable.
Cash Flow to Debt obligations – over 10 x’s. An excellent coverage ratio.

In 2007 the Company distributed dividends for the first time since listing in 1997, and stated that the Company would pursue a yearly strategy to pay a dividend of NOK 10 per share. This they have not only done, but an additional NOK 10 extraordinary dividend brought the total to NOK 20 per share for the year 2010. In summary, this is a well financed company with reasonably low debt, ready options for additional funding if necessary, and a prudent use of existing cash flows.

Risks

The default risk is Fred.Olsen’s ability to perform. Considering their historical and recent performance, their flexible balance sheet, their sound cash position, and the excellent cash flow to service their interest bearing debt, as outlined above, it is our opinion that the default risk for this short to medium term bond, is minimal relative to its more favorable return.

The currency risk could and will affect the returns of these bonds and possibly in a negative way as it exposes investors to the Norwegian economy.

The Norwegian kroner has gained about 6 % against the euro from a year ago, but because 80 percent of Norway’s exports go to the European Union, the kroner remains connected to the euro and would be affected in the advent of a Greek default. Though Norway’s banks hold little in the way of Greek debt, the fallout of a Greek default on banks in Germany and France would pass through the whole region and hit even Europe’s richest economies.

Allotments

How can investors participate in Norwegian krone denominated bonds? Achieving an institutional sized yield typically requires an institutional sized bond purchase. To facilitate attaining a more attractive yield, here at Durig Capital we bring together many retail bond buyers into a single much larger institutional sized trade. In this week’s syndicate, we anticipate being able to accommodate purchases as low as $ 10,000 US Dollars should that the level that best fits with your interest. So the answer to the question is simple – contact your Durig professional.

Conclusion

Indications of a slow or modest US economic recovery remain very fragile and sensitive to oil prices. Considering that higher oil prices will likely correlate into an added boost to the krone’s strength relative to the US dollar and numerous other global currencies, there may be significant potential for a longer term capital gains advantage residing in the currency exchange for the Norwegian kroner. Therefore, we view the both the currency risk of this leading European economy and the integral strength of a growing and profitable Norwegian oil services company like Fred.Olsen Energy as an intelligent risk choice that we have recommend our clients take in their continued effort to diversify away from overweighted US dollar based assets, and it is why we are adding it to our Foreign and World Fixed Income holdings.

Disclosure:

Certain Durig Capital clients currently own these bonds.
Contact our fixed Income analyst for questions at 971-327-8847.

Durig.com | Investment-Income.net

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12.50% Yield Brazilian Real, Bank of America, A rated, mat Nov 2014.

Randy — Wed, 19 Oct 2011 19:01:41 +0000

We have identified a short term A rated Bank of America bond denominated in the Brazilian real and are targeting a better than 12.50% yield for our clients.

Corporate Bond linked to the Brazilian Real

Bank of America has issued debt, denominated in the Brazilian real, which currently has a yield of about 12.5% for 37 months. The recent decline in this bonds price (and its increase in yield) appears to be a possible result of increased negative sentiment and much highly publicized criticism against a floundering global financial system, of which Bank of America is a very large and easily identifiable target. The incredibly high yield and short maturity of this Brazil bond, when considered with its solid “A” rating and positioning as one of the “too big to fail” icons within the US financial system, offers what we see as an extremely favorable reward to relatively low risk position.

The decline in the strength of the Brazilian real relative to the US dollar (which appears to primarily be a result of greater concerns over the future of the euro) also offers an ideal opportunity for increasing our exposure to the Brazilian currency within a basket of foreign fixed income holdings, as we believe the dollar’s longer term weakening trend against many of the world currencies remains a major concern for investors seeking protection against its devaluation and a continued erosion of its buying power. In our ongoing effort to address the concerns of our clients in protecting their existing wealth from the destruction caused by the persistent devaluation of the dollar, we believe this Bank of America Brazil bond represents this week’s best opportunity to add the higher yields of one the world’s best emerging economies to our Foreign and World Fixed Income holdings at a quite favorable exchange rate.

Wealth Preservation Concerns

Wealth preservation continues to be the name of the game in the West. In other words, the focus for many people is not to make more money, but to preserve the wealth they already have. Declining equity and property prices, ultra-low interest rates, minimal pay raises, elevated inflation, ineffective politicians, potentially increased taxes, and the constant printing of more money are converging into what appear to be perfect financial storm conditions, where one financial storm after another beats down, eroding away wealth, until the aforementioned conditions finally change. We see little change on the horizon for the continued borrowing from tomorrow as means to pay for the lifestyle of today. With US Ten Year treasury yields not much above 2% and inflation rates undaunted, a certain degree of wealth destruction looms on the horizon, even while these T-bills are regarded as being “safe.”

Recently, the Wall Street Journal recently reported “the Congressional Budget Office said it anticipates that the trade-weighted exchange value of the U.S. dollar will decline at a moderate pace over the next 10 years”. And, in a further clarification of what they are seeing, it was reported that “So far this year, the dollar has dropped sharply even through the European debt crisis continues to unsettle international financial markets. That fall has prompted questions about whether the status of the dollar as a reserve currency and a safe haven in times of economic crisis has diminished because of investors’ concerns about rising U.S. government debt.”

Here at Durig Capital, we have undertaken the effort to protect our client’s assets against the persistent destruction associated with an ever increasing supply of US dollars by scouring the globe in search of sound investments in a basket of the strongest global currencies, and it is why we have chosen Bank of America’s very high yield, short term Brazil bond as This Week’s Best Bond.

Brazilian Economy

By far the largest and most populous country in South America, Brazil continues to pursue industrial and agricultural growth and development of its interior. Exploiting vast natural resources and a large labor pool, it has large and well-developed agricultural, mining, manufacturing, and service sectors. It is the world’s largest producer of coffee, sugar and orange juice and the second-largest exporter of iron-ore and soybeans. Brazil’s offshore oil fields have turned it into a net crude exporter, helping it expand its presence in world markets, and its economy outweighs that of all other South American countries.

Brazil’s economy slowed sharply in the second quarter, but domestic demand has remained resilient as consumers have been able to maintain their buying power despite the impact of higher interest rates and stiffer credit terms. That’s because Brazil’s unemployment rate is at record lows, with the tight labor market forcing companies to pay more to attract and keep a burgeoning work force. Despite concern about the impact of slower Chinese growth, Brazil, the world’s eighth-largest economy, is expected to grow more than 4 percent this year (see trade flow chart below.) This robust economic growth underscores the importance of emerging markets as the developed world struggles with a sluggish rebound from the global economic slowdown.

The inflation rate in Brazil was last reported at 7.23 for August, the highest since June 2005 and well above the ceiling of the government’s official year-end target of around 4.5%. Despite continued price pressures in Latin America’s largest economy, the Brazilian Central Bank shifted course at its meeting last week to cut interest rates because of concerns about global economic growth. While many economists share the government’s belief that inflation will eventually trend back toward the 4.5% target, the rate cut could prolong the time for that to happen.

Stanford University has rated the Brazilian economy number #10 on its global Sovereign Fiscal Responsibility Index, a placement significantly above #28 ranked (out of 34) United States.

About Bank of America

Bank of America continued to support the U.S. economic recovery by extending approximately $147 billion in credit to consumers, small businesses, large companies and others during the second quarter of 2011, approximately $3 billion more than the previous quarter. In fact, Bank of America serves one out of every two U.S. households with checking, savings, credit and/or home loans, and is one of the world’s largest financial institutions.

This week, Bank of America reported net income of $ 6.2 billion for the third quarter, compared with a net loss of $ 7.3 billion in the year-ago period (although a number of significant items affected these results.) Revenue, net of interest expense, on a fully taxable equivalent (FTE) basis rose 6 percent to $ 28.7 billion. In more general terms, Chief Executive Officer Brian Moynihan said “This quarter’s results reflect several actions we took that highlight our ongoing transformation toward becoming a leaner, more focused company” and Chief Financial Officer Bruce Thompson spoke of a focus for the quarter on strengthening their balance sheet by selling non-core assets and building capital to position the company for future growth.

Bank of America has indeed continued to strengthen their balance sheet, reducing its size by $42 billion from last quarter and increasing the common equity ratio to 9.50 percent. Short term debt was reduced by $17 billion and long term debt by $28 billion during the third quarter. Risk-weighted assets were also reduced by $33 billion.

3 Year Bonds	Yield	Country Fiscal Ratings	Currency	Ratings
US Treasury	00.47%	28 of 34	US Dollar	AA+,AAA,AAA
Bank of America	12.50%	10 of 34	Brazil Real	A,Baa1, A+

This is a yield pickup of over 12% when compared to corresponding US Treasuries, which gives this Bank America Brazil bond a very solid double digit positive accrual rate. Even if the Congressional Budget office is wrong and we have strong appreciation in the dollar, as long as the currency appreciation averages less than 12% annually relative to the real this bond would still outperform the 3 year US Benchmark bond. However, if the CBO is correct, and should the US currency decline instead of gain, any appreciation of the real would be accretive and add on top of the already astounding 12% annual return.

Please compare this Brazilian Linked Bank of American Bonds to our Australian Bank of American bond of shorter maturity.

Risks

The default risk is Bank of America’s ability to perform. Given Bank of America’s improving performance, it is our opinion that the default risk for this short term bond is very minimal relative to the currency risk of the Brazilian real.

The currency risk of the Brazilian real could and will affect the returns of these bonds and possibly in a negative way as it exposes investors to the Brazilian economy.

Allotments

Many people ask, how do I invest in Brazilian Corporate bonds? With most firms it often requires an institutional sized single bond purchase. To circumvent this constraint and allow greater diversification, we at Durig Capital combine world bond buyers into a larger institutional sized purchase. In our previous syndicates, we were able to facilitate purchases as low as $10,000 US Dollar and should be able to do the same for your interest.

Conclusion

We hope NOT to see any further destruction of wealth resulting from a constant decline in the US dollar relative other global currencies as forecast by the Congressional Budget Office, and we acknowledge that a strengthening of the US dollar would directly reduce the total returns of this Brazilian real denominated bond. On the other hand, should the US dollar continue on the long term path of devaluation that it has been on, this alone could add quite significantly to the already highly positive accruing returns of this bond, not to mention the possible stellar returns that would result should the US dollar ever lose its domineering status as the world’s reserve currency and collapse against a basket of other stronger currencies.

Considering Brazil’s prominent position as a leading emerging market economy, stable political system, and solid growth prospects in spite of broader global slowdowns, we view this potential gain of a remarkably high yield offering an intelligent risk to reward investment, and as some protection against a further loss of wealth with a continuation of the US dollar’s weakness against the real. Therefore, we are using this opportunity to diversify away from heavily overweighted US dollar based assets and into one of the world’s top emerging markets, and are adding it at this time to our Foreign and World Fixed Income holdings.

Disclosure:

Durig Capital clients may currently own these bonds.
Contact our Fixed Income Specialist for questions at 971-327-8847.

Disclosure:

Durig Capital clients may currently own these bonds.
Contact our Fixed Income Specialist for questions at 971-327-8847.

Durig.com | Investment-Income.net

Brazil Government and Corporate Bond Articles Here

Brazil Bonds Rates Sheet

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Norway Bonds: News, Rates, Quotes and Bond List

Randy — Wed, 12 Oct 2011 18:30:11 +0000

Norway Stock ETF NORW 13.83 [+0.27]

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Most of our Norway Krone bonds are quoted on our Norway Bond page.

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7.25% Yield, Indonesia Rupiah: European Investment Bank, AAA rated bond maturing April 2014.
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The economy of Norway is a developed is heavy state-ownership in strategic areas of the economy. Although sensitive to global business, the economy of Norway has shown solid growth since the start of the industrial area. Shipping has long been a support of Norway’s export sector, but much of Norway’s economic growth has been fueled by an abundance of natural resources, including petroleum exploration and production, hydroelectric power, and fisheries. Agriculture and traditional heavy manufacturing have suffered relative decline compared to services and oil-related industries, and the public sector is among the largest in the world as a percentage of the overall gross domestic product. The country has a very high standard of living compared with other European countries, and a strongly integrated welfare system.

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7.25% Yield, Indonesia Rupiah: European Investment Bank, AAA rated bond maturing April 2014.

Randy — Wed, 05 Oct 2011 23:28:01 +0000

We have identified a short term AAA rated European Investment Bank bond in Indonesian rupiahs that matures in April of 2014, and have targeted a better than 7.25% yield for our clients.

Corporate Bond linked to Indonesian Rupiah

The European Investment Bank has bonds denominated in the Indonesian rupiah that will currently yielding over 7.25 % for 30 months. This short term debt instrument compares favorably with other high yield foreign currency bonds, returning a remarkably high yield when considering its relatively short maturity and its superior credit rating. The two and a half year issue offers a unique opportunity for laddering into shorter maturities and diversifying into a country that has weathered much of the global financial crisis relatively smoothly because of its heavy reliance on domestic consumption as the driver of economic growth, and we are very pleased to have found a great yield from such a highly rated and stable issuer. This rupiah bond fits extremely well into an overall strategy to utilizing the recently renewed strength of the dollar to diversify our clients away from the risk of over weighted US dollar based assets, and it is why we have chosen it for This Week’s Best Bond.

(More) US Dollar Concerns

The recent strengthening of both the US dollar and the Japanese yen appear to primarily be the result of the risk adverse currency trading, and the prevailing weakness and uncertainly surrounding the euro. Hopes that the euro could provide an alternative global currency have been dashed by the ongoing crisis in the eurozone, where Greece teetering on the verge of bankruptcy has put an ominous question mark over the future of the euro. So, even with America teetering on its own brink of a double-dip recession, replete with all time high levels of debt, printing of money, and unemployment, there is more demand than ever for the greenback. In other words, it’s akin to choosing the prettiest girl at an ugly dance.

In fact, this latest rise in the strength of the dollar has been so significant it prompted the Brazilian monetary authority (which earlier this year debated how best to abate the strength of the real) to sell $5.3 billion in “swap contracts” on Monday, the biggest such operation seen this year, to halt the depreciation of the real. Rarely do the markets allow any one player to hold all the marbles, or at least, not for very long. With a newer, leaner, more globalized than ever, market clearly in the fray, it’s not much a question of “if” things will change, but how, or when, or why. And while we don’t expect to see currencies becoming embroiled in a trade war in the imminent future, there does appear to be an increasing pressure on China to allow a faster appreciation of their currency, the renminbi.

Predictions of recession appear to be on the rise daily, and arguments can and are being made for a lengthier strengthening of the dollar. However, rapid changes in any currency’s relative valuation sparks “issues” that affect the health and well being of its underlying economy. In a nutshell, too much strength in the dollar has its own ill effects on our economy. A strong dollar hurts exports and makes financing our many trillions of debt more expensive. Given Helicopter Ben’s proclivity to print, perhaps the equivalent of “QE3” that the market pines for has already found i’s way into the coffers of European financial institutions instead of those here in the homeland. And noticed or not, more dollars are more dollars, no matter who or what they are given for.

Indonesian Economy

Indonesia is the world’s most populous Muslim-majority democracy. President Susilo Bambang Yudhoyono has cracked down on corruption and tried to encourage much-needed foreign investment, but the weak rule of law remains a major impediment to attracting capital. Indonesia has undertaken wide-ranging reforms to address various structural weaknesses in the economy and to make it more competitive. Recent reform measures have put greater emphasis on improving the entrepreneurial environment, enhancing regional competitiveness, and creating a more vibrant private sector through decentralization. Management of public finance has been stable, and tariff barriers have been lowered

Indonesia is enjoying an economic boom, with growth of 6.5 percent, rising consumer spending, swelling incomes and a newly minted status as a middle-income country, with per capita GDP passing $3,000 this year. Indonesia’s debt-to-GDP ratio in recent years has declined steadily because of increasingly robust GDP growth and sound fiscal stewardship, leading two of the three leading credit agencies to upgrade credit ratings for Indonesia’s sovereign debt to one notch below investment grade. During the recession, Indonesia outperformed most of its regional neighbors. Although the economy slowed to 4.5% growth in 2009 from the 6%-plus growth rate recorded in 2007 and 2008, by 2010 growth returned to a 6% rate. The Indonesian central bank sees their economy expanding 6.6 percent this year.

On Wednesday of the week, the World Bank was reported that Indonesia will weather current economic strains in the global economy, even if investments in the portfolio sector suffer. Furthermore, their economic head in Indonesia, Shubham Chaudhuri, said, “The worst scenario is that the local economic growth only reaches 4.1 percent by 2012.” He went on to stress that the global crisis would deeply impact developing countries, but claimed Indonesia’s economic growth would not drop much as it is supported by strong local consumption and was not as dependent as on exports as countries like Malaysia and Thailand.

Annual inflation in September was 4.61 percent, below 4.79 percent in August and less than the 4.80 percent expected by most economists surveyed by Reuters, data from the country’s statistics bureau showed on Monday, cementing expectations that the central bank will hold the benchmark interest rate steady next week amid global uncertainty. As a member of the G-20, Indonesia is playing an increasingly important role in international economic policy discussions.

European Investment Bank

The European Investment Bank (EIB) is the European Union’ bank. The EIB is the largest multilateral lending institution in the world, and a leading sovereign-class international borrower. It raises substantial volumes of funds on the capital markets, which it lends on favorable terms to projects furthering European objectives. The Bank’s consistent AAA rating is underpinned by its strong capital base, exceptional asset quality, and a sound risk management and funding strategy. The shareholders of the EIB are the 27 European Union Member States.

EIB bonds have always been considered of the highest credit quality with a AAA-rating and a 0% risk weighting under Basle II (standardized approach). They have a credit rating of AAA from Standard & Poor’s, Aaa from Moody’s and AAA from Fitch.

The European Bank for Reconstruction and Development (EBRD)

The EBRD has similar debt issuances denominated in Indonesian rupiah, which is the reason for our mentioning them here in comparison to the European Investment Bank. Established in 1991, the EBRD has become the largest financial investor in their region of operations which stretches from central Europe and the Western Balkans to central Asia. Their mission is to help countries in the region to become open, market economies by investing primarily in private sector clients whose needs cannot be fully met by the market. They are owned and funded by 61 countries, the European Union and the European Investment Bank, and follow the highest standards of corporate governance and sustainable development.

EBRD’s authorized capital is EUR 21 billion (EUR 6 billion paid-in and EUR 15 billion callable). With EUR 20.79 subscribed, the EBRD has a solid capital base. The strength of the Bank’s capital and its prudent operational and financial policies are reflected in the EBRD’s credit rating of AAA from Standard & Poor’s, Aaa from Moody’s and AAA from Fitch.

Risks

The default risk is the European Investment Bank’s ability to perform. Given its large multinational support and its unanimous and impeccable credit ratings, it is our opinion that the default risk is very minimal compared to the currency risk of the Indonesian rupiah.

The currency risk could and will affect the returns of these bonds and possibly in a negative way as it exposes investors to the Indonesian economy.

Even with the strong growth outlook, many global investors still consider emerging markets relatively risky. Despite the progress toward economic restructuring, Indonesia still struggles with poverty and unemployment, inadequate infrastructure, corruption, a complex regulatory environment, and unequal resource distribution among regions. The government in 2011 faces the ongoing challenge of improving Indonesia’s infrastructure to remove impediments to growth, while addressing climate change concerns, particularly with regard to conserving Indonesia’s forests and peat lands, the focus of a potentially trailblazing $1 billion REDD+ pilot project. Although less directly impacted by European and United States debt woes, Indonesia’s economy will likely be further diminished if China and India’s economy fall in response to crises in Europe and the US.

Allotments

How can investors participate in Indonesian rupiah denominated bonds? Achieving an institutional sized yield typically requires an institutional sized bond purchase. To facilitate attaining a more attractive yield, Durig Capital brings together many retail bond buyers into a single much larger institutional sized trade. In this week’s syndicate, we anticipate being able to accommodate purchases as low as $ 10,000 US Dollars should that the level that best fits with your interest. So the answer to the question is simple – contact your Durig professional.

Conclusion

The ongoing European crisis and threat of a Grecian default appear to have given somewhat of an artificial support to the US dollar, affording investors that may be overweighted in US dollar based assets an ideal window within which to diversify away from the dollar and into a basket of higher yielding global currencies. As the Indonesian economy continues to expand as a result of solid domestic growth and its commodity exports, it will continue to be seen as a young, high-growth market, where the risk lies primarily in overheating rather than national bankruptcy. As a result, it is our opinion that the short term, high yield debt, offered by an AAA rated financial institution, make this Indonesian rupiah denominated bond a superb diversification and fixed income selection, which is why we are adding it to our Foreign and World Fixed Income holdings.

Disclosure

Durig Capital clients may currently own these bonds. Contact our Fixed Income Specialist for questions at 971-327-8847.

Durig.com | Investment-Income.net

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7.79% Yield, Goldman Sachs, Australian $, A+ rated, mat Nov 2016

Randy — Thu, 29 Sep 2011 00:50:32 +0000

We have identified a short to medium term A+ rated Goldman Sachs bond denominated in the Australian dollar and have achieved a better than 7.75% yield for our clients. Corporate Bond linked to the Australian Dollar

Goldman Sachs has issued debt, denominated in the Australian dollar, which currently has a yield of about 7.75 for 62 months. The high yield and short to medium length maturity of this Aussie bond, when considered with its solid A+ rating and enviable position, compares extremely favorably in relationship to other high yield instruments in our Foreign and World Fixed Income holdings, and we consider the recent dip in the strength of the Aussie dollar a great opportunity for increasing exposure to the Australian currency in our basket of foreign fixed income holdings. We believe the dollar’s longer term weakening trend against many world currencies remains a major concern for investors seeking protection against its devaluation and a further erosion of its buying power, and we share the concern of our clients in protecting existing wealth by utilizing the higher yields of sound issuers in many the world’s strongest economies.

Wealth Preservation Concerns

With equity and commodity markets thrashing about with no consistent or clear direction, wealth preservation remains a top priority for many people. Declining equity and property prices, ultra-low interest rates, minimal pay raises, elevated inflation, ineffective politicians, potentially increased taxes, the Fed’s constant printing of more money, and now, with the Europeans circling the wagons to defend the euro and restrictions on their citizens purchasing metals starting to emerge within their ranks, it appears that the effect of eroding wealth will continue until the aforementioned conditions begin to change. Slowly, the traditional safe havens for wealth are all being attacked, and are diminished. The mere change of the Chicago Mercantile Exchange’s margin requirements for gold appears to have sent it hundreds of dollars lower in a matter of a few days. Silver? Crushed as if it were nothing more than any other industrial use metal is in a slowing economy. More than one pundit has been heard advocating “sovereign debt” to be the only really “safe” place to put one’s wealth plus gain income. Here at Durig Capital, we have undertaken the effort to protect our client’s assets against the persistent destruction associated with an ever increasing supply of federal dollars, by scouring the globe in search of sound investments in a basket of the strongest global currencies, and it is why we have chosen Goldman Sachs high yield, short to medium term Aussie bond as This Week’s Best Bond.

Australian Economy

Australia’s abundant and diverse natural resources include extensive reserves of coal, iron ore, copper, gold, natural gas, uranium, and renewable energy sources. It also has a large services sector and is a significant exporter of natural resources, energy, and food. Key tenets of Australia’s trade policy include support for open trade and the successful culmination of the Doha Round of multilateral trade negotiations, particularly for agriculture and services. The Australian economy grew for 17 consecutive years prior to the global financial crisis. Subsequently, the Rudd government introduced a fiscal stimulus package worth over US$50 billion to offset the effect of the slowing world economy, while the Reserve Bank of Australia cut interest rates to historic lows. These policies – and continued demand for commodities, especially from China – helped the Australian economy rebound after just one quarter of negative growth. The economy grew by 1.2% during 2009 – the best performance in the OECD – and by 3.3% in 2010. Unemployment peaked at 5.7% in late 2009 and fell to 5.1% in 2010. As a result of an improved economy, the budget deficit is expected to peak below 4.2% of GDP and the government could return to budget surpluses as early as 2015. Although Australia has experienced persistent deficits since World War II, the estimated 2010 deficit of $30.4 billion, a mere 2.46% of GDP, bringing the total outstanding public debt to 22.4 % of GDP (2010 est.) The 2010 inflation rate stood at 2.9%, with current unemployment rates about 5.1%. Exports exceeded imports to the tune of 10.3 billion, with partners China, Japan, South Korea, and India all listed ahead of the US. The longer term outlook remains good as Australia’s terms of trade appear to have reached record peaks with prices for key export commodities staying high thanks to voracious demand from China and the rest of Asia.

	Public debt to GDP	Budget Deficit	Exports	Imports
Australia in A$	22.4%	A$ 20.3 billion	210 Billion	200 Billion
United States in USD	100.0 %	US$ 1.294 Trillion	1.28 Trillion	1.94 Trillion

Australian dollars (AUD) per US dollar – 1.04334 (current)

1.0902 (2010)

1.2822 (2009)

1.2059 (2008)

1.2137 (2007)

1.3285 (2006)

About Goldman Sachs

The Goldman Sachs Group, Inc. is a global leader in investment banking and securities who engages in investment banking, buying and selling securities, asset management and many other financial services focusing on institutional clientele and high net worth individuals. Goldman Sachs’ headquarters is located at 200 West Street, New York, and was founded in 1869. Former employees include Robert Rubin and Henry Paulson, who both served as the United States Secretary of the Treasury after resigning from Goldman Sachs, thus the nickname “Government Sachs”. Liquidity is of critical importance to companies in the financial services sector, and most failures of financial institutions have occurred in large part due to insufficient liquidity. Accordingly, Goldman Sachs has in place a comprehensive set of liquidity and funding policies that are intended to maintain significant flexibility to address both Goldman Sachs-specific and broader industry or market liquidity events. Management stated principal objective is to be able to fund Goldman Sachs and to enable their core businesses to continue to generate revenues, even under adverse circumstances. To finance the firm’s business, Goldman Sachs issues various types of short and long term securities, including promissory notes, commercial paper, medium term notes and global bonds. It currently has about $ 815Bn in cash, $ 485Bn in debt, and its International bonds are solid Investment grade quality, being A+ rated by S&P.

Goldman Sacks domiciled bond	Yield	Maturity	Rated
US Dollar	4.25 %	09/15/2016	A+
Australia Dollar	7.75 %	11/01/2016	A+

Risks

The default risk is Goldman Sach’s ability to perform. Given their strong cash position, financial strength and evidently close political connections, it is our opinion that the default risk for this short to medium term bond is minimal relative to the currency risk of the Aussie dollar.

The currency risk of the Aussie dollar could and will affect the returns of these bonds and possibly in a negative way as it exposes investors to the Australian economy.

Allotments

Conclusion

We continue to search for individual corporate instruments denominated in the currencies of growing economies that yield higher than average returns to help protect our clients against the erosion of wealth that results from a constant decline in the US dollar relative other foreign currencies. We acknowledge that a stronger US dollar would directly reduce the total returns of this Aussie bond. Conversely, if the US dollar continues on the longer term path of devaluation that it has been on, this alone would add significantly to the already highly positive accruing returns of this bond,

Considering Australia’s long term position as a stable economy and political system with shrew fiscal management will likely correlate with a stable and possible strengthening of the commodity based Australian dollar relative to the US dollar, we view the gaining of almost twice the yield from such a reputable issuer as Goldman Sachs as an incredibly compelling reason for choosing their Aussie dollar bond over their similar Yankee (US dollar) bond. The combination of offering a remarkably high yield, some protection against a further loss of wealth with a continuation of the US dollar’s weakness against the Aussie dollar, and a diversification away from heavily overweight US dollar based assets into one of the world’s top tier fiscally conservative countries is why we are adding it at this time to our Foreign and World Fixed Income holdings.

Disclosure

Durig Capital clients may currently own these bonds. Contact our Fixed Income Specialist for questions at 971-327-8847.

Durig.com | Investment-Income.net

Australia Government and Corporate Bond Articles Here

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Goldman Sach News:

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Australia Dollar (AUD) in US Dollar (USD)

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10%+ High Dividend Chile based Provida (PVD): Investment with Income

Randy — Tue, 27 Sep 2011 20:13:13 +0000

Administradora de Fondos de Pen (PVD:NYSE)

Per share values in UD$ 9-27-2011:
Market value               $58.55
Cash & Investments $ 3.32
Enterprise value        $55.23
Dividend rate             10.80 %

Introduction

Durig Capital seeks out quality high yielding global investments, often denominated in foreign currencies, for our International clients. As a result of these efforts, we have identified Administradora de Fondos de Pen as a selection for their investment portfolio.

While scouring the globe for good economies and quality high yield bonds, a prior review of a Chilean short term bond revealed that Chile has one of the world’s best overall economies. Upon reviewing our previous bond report, we believe that you will see the possibility that over time, Chile may have a superior currency due their strong economic and financial market environment. Realizing that Chile is a desirable country to invest in, we choose a Chilean based oligopoly that brings together both an exposure to the Chile economy and a very high dividend rate.

Administradora de Fondos de Pen operates as an international oligopoly in the privatization of the pension system in Chile, and has become such a global strong example of how a country can successfully provide citizens with retirement security. It is increasingly being referred to as an exemplary model of success by pundits calling for changes to the US social security system.

Chile privatized its social security system in 1981 as part of a move lead by Milton Freedman towards a free economy, creating what are called administradora de fondos de pensiones, or AFPs. The AFPs are private companies that manage citizen’s retirement funds and invest in equity markets in the effort to achieve proper returns. Chilean citizens have a fixed percent of their paycheck automatically deducted each month and sent to their selected AFP. This mandated funding helps the AFP’s plan and achieve positive monthly money inflows.

The AFPs are required by law to be single-purpose companies authorized to provide the following services:

Collection and management of contributions made by participants.
Investments of participants’ contributions in pension funds managed by the AFP.
Provide life and disability benefits for participants.
Provide a senior pension for participants.

Strong Balance Sheet

The Administradora de Fondos de Pensiones Provida S.A. or Provida has the dominant position AFP in Chile. It has a strong balance sheet with over 72 million in cash and less that 1 million in debt. They have very little need for capital investments so they pay a whopping 10.80 percent dividend. (Even though Chile taxes this dividend, the Foreign tax credit provides a way for US citizens to reduce or eliminate that taxation.)

The success of Chile’s national retirement system has increased their citizen’s savings rate to 26%, while at the same time help re-investment in the country, which has been able to achieve growth of 6% in GDP.

Company Performance

Provida has evidenced substantial growth through both acquisitions and an organic increase in market share, moving from 29% in 1990 to 41% in 2010 in terms of participants, and from 20% to 30% in 2010 in terms of total assets under management.

Largest Risks

Change in AFP Laws.
Dividend Policy.
Chilean and South American Economy.

1. Change in AFP Laws.

Provida has gained an oligopolistic economy of scale, which is driven by Chilean and South American laws. If that governments change the structures of the retirements in those countries it could greatly effect the overall profitability of this single purpose company. Given the AFP is regarded as so successful that there has been talk of the United States utilizing a similar model to correct it’s Social Security woes, this AFP’s example of superior stewardship appears more likely to be replicated than discarded.

2. Dividend Policy.

They have had a consistent dividend policy that one could fully expect moving forward. They have paid a rate since 1996 with a partial interruption during the crash of 2008-9. They pay a floating rate dividend twice a year, meaning that over time the current rate will most likely increase or decrease from the current rate depending upon their overall financial economic forecast and internal execution.

3. Chilean and South American Economy.

The Chilean economy is ranked as an upper-middle income economy by the World Bank and is one of South America’s most stable and prosperous nations. This is a country that is somewhat dependent on copper and mineral mining, which results in the currency having a higher beta. The Stanford Sovereign Fiscal Responsibilty Index (SFRI) ranked Chile in a strong 7th place position, considerably better then 28th placed United States.

Conclusion

We have reviewed a number of high yield, dividend paying investments that are domained in Chile and/or denominated in the Chilean peso in order to help protect our US clients from possible continued devaluations of the US dollar. In Povida we find a strong, financially well positioned company that could possibly increase its dividend, even though its current high yield is above that of benchmark bonds. Knowing that the core operations are very profitable and that they are a repeatable required service, an overall consideration of the cash, profits and cash flow, and domicile in a well managed currency compels us to placed it as a core position in our Investment Growth & Income Portfolio.

Disclosure

Durig Capital and its clients currently do have positions in PVD.

Always putting your interests first,

Randy Durig
Financial Investment Advisor
DIR 971-732-5119

A+ Rating with the BBB!
Durig.com | Investment-Income.net

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10.50 % Yield, Russian Ruble Bond: JP Morgan, Aa3/A+ rated, mat. June 2017

Randy — Tue, 20 Sep 2011 19:40:32 +0000

We have identified again a medium term Aa3 JP Morgan bond denominated in Russian rubles maturing in June 2017, and are targeting a better than 10.5 % yield for our clients.

Corporate Bond linked to the Russian Ruble

JP Morgan Chase has bonds, denominated in Russian Rubles, which currently have a yield of about 10.50% for 70 months. The high yield and medium length maturity of this ruble bond, when considered with its reputable Aa3 rated issuer, compares very favorably with other high yielding instruments in our Foreign and World Fixed Income holdings, and we view the most recent weakness in the ruble as an opportune time for adding it to our basket of foreign fixed income holdings. We believe the dollar’s longer term weakening trend against many world currencies remains a major concern for investors seeking protection against its devaluation and a further erosion of its buying power, and we view the recent European debt concerns to have unduly weakened the Russian Ruble. The resulting strength of the dollar appears to have presented a great opportunity to diversify into the Russian economy, which continues to show remarkably good growth potential in spite of the recent financial turmoil.

In any event, in our effort to diversify and protect our client’s assets against the dollar’s likely continued devaluation, we here at Durig Capital scour the globe in search of sound investments in a basket of global currencies, and it is why we have chosen this superior yielding JP Morgan’s Russian ruble denominated bond as This Week’s Best Bond.

Russian Economy

Russia has undergone significant changes since the collapse of the Soviet Union, moving from a globally-isolated, centrally-planned economy to a more market-based and globally-integrated economy. Economic reforms in the 1990s privatized most industries, with notable exceptions in the energy and defense-related sectors. The Russian export industry consists primarily of natural gas to the Euro zone, is the world’s second largest exporter of oil, and is the third largest exporter of steel and primary aluminum. This reliance on commodity exports makes Russia vulnerable to boom and bust cycles following the highly volatile swings in global commodity prices, and provides reason for the higher correlation of its currency to oil prices.

The economy had averaged 7% growth since the 1998 Russian financial crisis, resulting in a doubling of real disposable incomes and the emergence of a middle class. The Russian economy, however, was one of the hardest hit by the 2008-09 global economic crisis as oil prices plummeted and the foreign credits that Russian banks and firms relied on dried up. The economic decline bottomed out in mid-2009 and the economy began to grow in the first quarter of 2010. Growth for 2010 was 4%, and unemployment in Jun declined to 6.1 %. Capital markets are relatively small but growing and are dominated by energy companies. 2011 estimates for GDP growth were recently reduced to 4.2%.

Russia’s competitive flat income tax rate and low corporate tax rates support innovation, although private enterprises also must cope with “informal taxes” such as bureaucratic hassling and corruption. Other taxes include a value-added tax (VAT) and a regional property tax. In the most recent year, overall tax revenue as a percentage of GDP was 34.1 percent. In the most recent year, total government expenditures, including consumption and transfer payments, increased slightly to 34.1 percent of GDP. The state maintains a strong presence in such key sectors as energy and mining. Public debt is at 11 percent of GDP ($1.465 trillion in 2010), while inflation slowed to 9%.

Country	Debt to GDP	2010 GDP growth	Unemployment Rate
Russia	11.0 %	4.0 %	6.1%
United States	92.7 %	2.8 %	9.2 %

About JP Morgan Chase

JPMorgan Chase & Co. is one of the oldest financial institutions in the United States, with a history dating back over 200 years, and is built on the foundation of more than 1200 predecessor institutions. The Firm is a leader in investment banking, financial services for consumers, small-business and commercial banking, financial transaction processing, asset management and private equity. It operates in more than 60 countries with over 200,000 employees, and its assets total $2.2 trillion.

Last month, JP Morgan reported second-quarter 2011 net income of $5.4 billion, compared with net income of $4.8 billion in the second quarter of 2010. Earnings per share were $1.27, compared with $1.09 in the second quarter of 2010.

Commenting on the Firm’s balance sheet, CEO James Dimon said: “We maintained our fortress balance sheet, ending the second quarter with a Basel I Tier 1 Common ratio of 10.1%. Our strong and growing capital base enabled us to buy back $3.5 billion of stock during the second quarter, and we will continue to buy back stock opportunistically. We estimate that our Basel III Tier 1 Common ratio was approximately 7.6% at the end of the second quarter. This level is well in excess of what is required today under existing rules and is greater than the level we expect will be required under the proposed rules for up to five years, including the additional buffer for global systemically important financial institutions. Our strong capital position and significant earnings power will allow us to actively grow our business and rapidly meet any proposed Basel III requirements as they are phased in. We intend to keep our capital ratios approximately where they are as we do not see a need to manage to higher ratios ahead of time.”

In concluding, Dimon stated that they continue to see substantial opportunities for the company building up their international presence, with more bankers, branches and products to serve our multinational clients where they want to be served. JP Morgan Chase’s senior unsecured debt is rated Aa3 by Moody’s, A+ by S&P, and AA- by Fitch.

J P Morgan bonds	Interest Rate	Ratings	Maturity
Russia Linked	10.50+ %	Aa3/A+/AA-	June of 2017
United States	3.80 %	Aa3/A+/AA-	July of 2017

US Treasury

1.49 %

Aaa/AA+/AAA

August of 2021

These JP Morgan bonds, linked to the Russian ruble, have about a 6.50.% higher yield than their very comparable US obligation. The Russian linked bond spread is over 8.5 % measured against the longer 10 year bench mark US Treasury bond, indicating an over 500 % yield improvement with 4 year shorter bond.

Risks

The default risk is JP Morgan’s ability to perform. Considering JP Morgan’s highly experienced and outstanding management team (led by James Dimon), its proven leadership role throughout the 2008 financial crisis that set them above many of their peers, and it’s quality Aa3/A+/AA- credit ratings, it is our opinion that the default risk is very minimal relative to the currency risk of the Russian ruble.

The currency risk could and will affect the returns of these bonds and possibly in a negative way as it exposes investors to Russia’s economy.

Russia’s long-term challenges include a shrinking workforce, a high level of corruption, difficulty in accessing capital for smaller, non-energy companies, and poor infrastructure in need of large investments. The Russian economic decline bottomed out in mid-2009 and the economy began to grow in the first quarter of 2010. However, a severe drought and fires in central Russia reduced agricultural output, prompting a ban on grain exports for part of the year, and slowed growth in other sectors such as manufacturing and retail trade. Higher oil prices, which buoyed Russian growth in the first quarter of 2011, could help Russia reduce the budget deficit inherited from the lean years of 2008-09.

Allotments

How can investors participate in Russian ruble denominated bonds? Achieving an institutional sized yield typically requires an institutional sized bond purchase. To facilitate attaining a more attractive yield, here at Durig Capital we bring together many retail bond buyers into a single much larger institutional sized trade. In this week’s syndicate, we anticipate being able to accommodate purchases as low as $ 10,000 US Dollars should that the level that best fits with your interest. So the answer to the question is simple – contact your Durig professional.

Conclusion

While acknowledging that every investment vehicle involves varying elements of risk, we believe that this recent strengthening of the US dollar relative to the Russian ruble represents an extremely attractive opportunity for initiating a moderately longer term exposure to the Russian economy with a well respected issuer, at a very attractive yield so we are double our postions. A continued demand for Russia’s abundant supply of oil and natural gas will likely result in a continued strengthening and expansion of their economy, which in turn is likely to result in the strengthening of the ruble currency, which we believe is one of the currencies more highly correlated to the price of oil. Therefore, we view the ruble currency risk of this prominent emerging market as an unusual and significant opportunity that we have highly recommended our clients take in their continued effort to diversify away from overweighted US dollar based assets, and it is why we are adding it to our Foreign and World Fixed Income holdings.

Disclosure:

Durig Capital clients may currently own these bonds.
Contact our fixed Income analyst for questions at 971-327-8847.

Durig.com | Investment-Income.net

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