Question:
Is the U.S. government issuing new debt, at these incredibly low interest rates, and using the money to retire older bonds and notes that are paying higher interest? It would seem to make sense.
Answer:
The government is, in theory; however, this only works if they are paying down debt. The U.S. government is not. The overall interest rate is going down. On May 31, 2011, the average interest rate on all U.S. debt was 3.09%, and on May 31, 2012, the average interest rate was 2.72%. Essentially, the government is refinancing their debt, but the total amount of the debt is increasing.
Question:
While I realize England isn’t part of the eurozone, do you think the Olympics this summer bring more cash flow into Europe, essentially helping the eurozone’s troubles?
Answer:
While research reports are mixed, generally speaking, the Olympics do not bring a significant boost to the host city’s economy. One of the biggest reasons for this is due to the high amount of input costs required to build the infrastructure to host such an event. About 50% of the economic benefit from hosting the Olympics is created during the infrastructure build out phase, which has already happened in London. Likewise, Atlanta did not make a significant amount of money during the 1996 games, nor did Greece with the 2004 Olympic Games. As you mentioned, London is not part of the eurozone, and while the Eurozone could see an increase in tourism as a result of people being near countries that would otherwise be far from home, we do not think that the increase will be significant enough to see a lasting effect.
Question:
So RIMM appears to be on a downward spiral. Do you think their latest consulting effort will be able to turn the company around?
Answer:
While Research In Motion’s (NASDAQ: RIMM) patents might be worth something, the company has seen its market capitalization drop from $30.4 billion in early 2011 to less than $6 billion at the end of May 2012. We suggest selling this holding.
Question:
Hi. I have a question on Petroleo Brasileiro SA, an oil company out of Brazil. I bought it when it was around $25, and it’s been slipping since mid March. I thought oil was poised to do well. What gives?
Answer:
We do not recommend buying Petroleo Brasilerio SA (NYSE: PBR), a Brazil-based integrated oil and gas company. If we owned it, we would sell it. The company’s biggest advantage is that Brazil is hosting the 2016 Summer Olympic Games; however, as we previously discussed, hosting the Olympics does not necessarily bring an economic boom. The company also has price controls as it is mostly government owned. If it were primarily public-owned, we might be interested in keeping it for the emerging market exposure, but as it is, we do not recommend it.
Question:
I saw that Iron Mountain was having a good day in the market on Wednesday. It’s a company that we do business with at my work, and you’ve said before to invest in companies that you understand how they make money. What else should I look at?
Answer:
Iron Mountain (NYSE: IRM) is a records management, data protection and recovery, and information destruction services company. We suggest looking at the company’s debt, earnings expectations for the next three to five years, and how the company is financed. This company pays a dividend, but you should consider how safe the dividend is. In the case of Iron Mountain, the company does not meet our criteria for investment. Furthermore, the company is very debt heavy, with debt comprising 73% of the company’s total capital. Looking at current valuation, the stock currently trades at nearly 27 times earnings which is higher than its three-year average of 25 times.
Question:
I inherited some shares of HSBC Holdings from my grandfather. I’ve heard you mention you’re staying away from bank stocks. What can you tell me about HSBC? I hate to say, but I’d never heard of them.
Answer:
HSBC Holdings (NYSE: HSBC) is named after its founding member, The Hongkong and Shanghai Banking Corporation Limited, which was established in 1865 to finance the growing trade between Europe, India and China. Today, it is a global banking and financial services organization. The company has significant exposure to the United Kingdom and had issues during the banking crisis. If you are not significantly attached to the stock, we suggest selling the shares.
At Henssler Financial we believe you should Live Ready, which means understanding your investments. If you have questions regarding your holdings, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
