Tuesday, February 26, 2008

Elephant Shifts Its Weight

Like everything else in California,its pension fund,the California Public Employees' Retirement System,or CalPERS,is gigantic.CalPERS manages about 261 billion dollars U.S. for around 1.5 million employees and retirees.This massive fund is in the midst of a 2-3 year transition to a new asset allocation.Russell Read,chief investment officer of CalPERS,is directing a cutback in stocks and bonds in favor of investments such as private equity,real estate,commodities,infrastructure projects and timber.As well, the equities portion of the portfolio will be moved to a greater proportion of foreign stocks.All of this is needed to ensure a larger return for the workers CalPERS serves.The stocks allotment will go down to 56% from 60%.Indeed,stocks have already been trimmed to about 58%.The current allocation of 36% U.S. stocks will decrease to 28%,while foreign stocks will go from 21.6% of the portfolio to 28%.Bonds will be reduced from 26% to 19%.Mr.Read is fundamentally optimistic about the global economy,although there will be continued softness in financials and a trading range of 13-14,000 in the Standard and Poor's 500 index.Energy and materials are favored.He also likes real estate,including global real estate,for the long term.Private equity investments such as Silver Lake Partners,which buys technology firms,don't necessarily follow the stock market.About 5% of CalPERS' portfolio will go into inflation-linked investments,which tend to do well when inflation ticks up.These include timber,infrastructure and commodities.The real estate portion will rise from 8% to 10%.Alternative investments,including private equity and venture capital,which invests in start-up companies,will go from 6% to 10% of CalPERS' holdings.In its last fiscal year,CalPERS earned a total return of 19.1%.Fiscal 2008,which began last July,will be very challenging,given current market conditions.The new strategy will give CalPERS a better chance of sustaining its great success.

Tuesday, February 19, 2008

Pharma Focus

A severe influenza outbreak is sweeping across the U.S..What is worse,the strain of flu that is prevalent was not selected for this year's vaccine.This points to a better first quarter for pharmacy chains such as Rite Aid Corporation(RAD),which is led by CEO Mary Sammons and based in Camp Hill,Pennsylvania.Its stock has been trading for less than 3.00 U.S. a share recently.Earnings for Q4 2007 were low on account of warm autumn weather,which kept colds to a minimum,and cautious consumers.Typically,pharmacy chains need illness to drive substantial traffic into their stores.When patients or their families come in to pick up medicine,they buy other kinds of merchandise as well.Rite Aid,for example,carries many cosmetics and has a digital photography center.You can even get photo restoration for 29.99 with a coupon this week.Small electronics such as cell phones,MP3 players and blood pressure monitors are also offered.Rite Aid is striving to be first with new over-the-counter medicines.The hot item now is the allergy drug Zyrtec(cetirizine),which Rite Aid is selling in both branded and private label forms.While the branded form sells for 18.99,the private label goes for 7.99.Soon private label Prilosec(omeprazole) will be sold as well.While Rite Aid shares have been doing poorly,those of biotech drugmaker Genentech(DNA) have been appreciating lately,on news that clinical trial data show that its Avastin is effective in treating advanced breast cancer.The San Francisco Bay Area firm is seeking Food and Drug Administration approval for that usage.It is also testing Avastin in over a hundred additional trials for different applications.As a health care company,Genentech is seen as a defensive holding.Its powerful drugs will be needed regardless of recessionary conditions.In this morning's trading,shares of Rite Aid were up at 2.59,and Genentech shares were up at 73.05.

Tuesday, February 12, 2008

Trade Group Tracks Pullback

A key measure of the performance of stores,banks,contractors and travel firms-the service sector-was sharply down for January.The Institute for Supply Management's non-manufacturing index registered a 44.6-well below the 50 that indicates growth.The index characterizes most of the U.S. economy,which is service-oriented.It averages 57.6,which is 13 points higher than January's reading,and had been projected to be at 53.The ISM,a buyers' trade group in Tempe,Arizona,produces some of the most respected monthly gauges of economic activity.The ISM's reading of service sector business activity dropped to 41.9 in January from 54.4 in December,which was a decline of historic proportions.It was the first time the service sector contracted since March 2003.The results of this purchasing managers survey were even worse than during the last recession of 2001-2002.Then,the index had a reading of 50 at the start of the recession,and moved between 48 and 49 during the downturn.New orders for January 2008 dropped to 43.5 and employment slumped to 43.9.The G-7 finance ministers and central bankers,who met over the weekend,said the U.S. economy may decline further,hindering global growth."Downside risks still persist,"the officials said in their statement.The G-7 consists of the U.S.,Canada,the U.K.,Italy,Germany,France and Japan.In their view,tighter credit conditions and continued volatility are to be expected.Jean-Claude Trichet,President of the European Central Bank,promised a firm response to a significant market correction,taking appropriate actions,individually and collectively,to secure stability and growth.Many investors remain active in these conditions,sticking to their habits of dollar-cost averaging and diversification to build for the medium and long terms.Health care stocks such as Apria Healthcare Group(AHG) and Johnson and Johnson(JNJ) are popular because they are seen as more recession-resistant.Other investors are staying in e-savings accounts such as that offered by Branch Banking and Trust(BBT),which yields 3.87%.

Tuesday, February 5, 2008

Exxon Mobil's Shiny Quarter

Exxon Mobil(XOM),the largest western oil company,has reported brilliant results for the fourth quarter of 2007.The Irving,Texas firm has again justified its reputation for superb management.It's 11.7 billion dollar profit was the biggest in U.S. corporate history.Year over year,it posted a 40.6 billion profit.Its revenue was 116 billion.The money was made on higher oil and natural gas realizations,amounting to per share earnings that were 15 cents above estimate.Exxon even made money on downstream refinery operations at a time of rising costs.It bought back 88 million shares to stabilize prices,but also had to pay 30 billion in taxes.By some calculations,Exxon may no longer be the world's largest oil company.Petro China(PTR) is theoretically greater in terms of market capitalization,being worth an estimated one trillion dollars.China has dismissed such speculation,as it has no intention of relinquishing its control of PTR.The Chinese system is not equivalent to western capitalism,within which Exxon works.At any rate,the stupendously successful Exxon isn't concerned about such chatter.Among western oil companies,BP ranks second,while Royal Dutch Shell(RDSa) is third and Chevron(CVX) is fourth.Goldman Sachs(GS) says oil will be higher in 2008,with an average price of 95.00 U.S. a barrel.To ensure future production,Exxon is exploring several blocks off the coast of Libya for oil and gas deposits.Some of them are in deep water.At the same time,it is using Enhanced Oil Recovery technology at the mature Means Field in west Texas to greatly increase the field's output.As well,advanced 3-D seismic imagery of a Gulf of Mexico resivoir revealed new hydrocarbon deposits,which more than doubled production rates.In Colorado's Piceance Basin,advanced technology is allowing Exxon to unlock natural gas buried in rock up to 16,000 ft./4876.8 m deep.Shares of XOM were down in early European trading this morning.