Clear Indexes Ideas

When The Going Gets Tough: Advertise

Today's 50 basis point drop in rates will no doubt positively influence housing. One of the many questions for investors is if its "safe to go back in the water" with home builders, mortgage companies and the other service providers in the housing value chain. Can anyone really call a bottom?

The swift and drastic reduction of interest rates over the last two weeks will undoubtedly bring mortgage rates back near historical lows (I am calling my bank tomorrow). Refis are already up as I have previously posted and financing a new home is becoming more attractive. One of the issues for buyers that remain is valuation. For potential buyers of homes, new or "previously owned" is seeking where each market is bottoming out. What is the fair valuation for the land and the the structure on it? Do I want to plant roots there or rent the place out?

Looking at the public markets, there are a few ETFs for homebuilders and proxies for the mortgage market. Are we anywhere near a bottom?

The National Association of Realtors (NAR) has an agenda and it is only partially a hidden one. Shall we call it the 7% solution? That is the percentage most realtors receive when a home is sold regardless of price. And the higher the price, the greater fee for the realtor. NARs fancy web site www.HousingMarketFacts.com is supported by a $40 million ad campaign makes one feel foolish for not buying a home or two this week. The site illustrates that the average home doubles in value over a period of ten years, and website (which features the aforementioned home equity calculator). Can you turn an initial investment of $20,000 into $124,600 in a span of ten years? According the NAR home equity calculator, a twenty-thousand dollar down payment on a home will return that amount.

Those of us awake enough to read the newspaper (on- or off-line) know that in 2007, the median home price fell for the first time in over four decades in the US.

NAR has responded quickly, creating a set of new advertisements (yes with a $40 million budget) championing the lucrative investment potential of purchasing a home. True, long-term, a home may be a good investment. Lack of liquidity and market conditions can destroy a life long dream if one is force to sell or even scheduled to sell in negative market conditions. We all know there is a market (but no exchange) for homes, and the inventory is growing along with the anxiety of realtors. Assuming that owning a home will be someone's retirement, well we all know what happens when we ass-u-me.

Realtors stand to make money by encouraging people to buy homes, and especially at higher prices. And who wouldn't want to run out and buy a home based on the claim in one of the commercials and web site that 60% of home-owner wealth is derived from home-owner equity? 

Pouring a bucket of facts on the ads, home-ownership is anything but a "guaranteed golden-ticket" to wealth in our current economic state. Let's call 2007/2008 bad timing. In addition to the overbuilt and overheated South Florida and California markets, home prices are expected to decline across the country by as much as 10% in 2008. We may be headed into a recession; a time in which being able to pay that mortgage, in order to acquire the wealth that NAR suggests your home may build, for many people may be challenging.

Forgetting about NAR's slanted data, the friendly credit terms designed to stimulate our current economy (thanks again Uncle Ben for the rate cute today) can create opportunities for the savvy potential home owner or investor. Opportunities abound for those with good credit history to refinance their mortgages at a better rate. Even with the hard-hitting subprime mortgage issues, lower rate borrowing opportunities abound for those who are qualified. As for my opinion of the ads, purchasing a home if you want to make a life in it and can afford the down payment and monthly carrying costs, all of them can create a wonderful home.

It is not a guaranteed ticket to prosperity.

When viewing the ads, keep in mind the conflict of interest and agenda of realtors. They receive their commission regardless of whether the home owner achieves mass capital appreciation over time, or is foreclosed.

Disclosure: Mr. Corn does not own any ETFs or stocks of home builders or mortgage companies. This post was originally drafted by Clear intern James Baker, winner of the Clear Next Generation ETF contest.

The Top Line of the Super Bowl

Next Sunday, the newest edition of America's "must-see TV" will be unveiled.  On February 3rd, millions of Americans and millions more around the globe will be ensconced in bars and their cozy living rooms with name-brand snacks and beer as they gather to witness the latest installment of television advertising "gone wild."  Of course, many will watch the hyped-up wrapper around the ads, known as Super Bowl XLII. Here we will find out whether Tom Brady and the New England Patriots will be able to cap their perfect season by winning the biggest of games, or if the "we prefer to win on the road underdog NY Giants will win the day. Millions of more casual fans are also eagerly awaiting the newest creative pitches offered during commercial breaks in the action.

While the Super Bowl has drawn large viewership since the early days of Vince Lombardi's Green Bay Packers in the 60's, the increased attention focused on consumers, especially over the last twenty years has been striking.  According to Nielsen Media Research (VNU.F), viewership only has increased from 80.1 million to 93.2 million from 1988 to 2007.  On the other hand, advertising rates for a 30-second spots increased from $645,000 to $2.385 million over the same period, according to a news release by TNS Media Research Intelligence on 1/17/08.  This equates to compound annual growth for advertising rates of 6.76% while the compound annual growth in inflation over the same period, according to CPI data from the Bureau of Labor Research, was only 2.85%.  Similarly, total ad revenue rose at a 7.63% annual clip from $34.8 million to $151.5 million.  That is more than all of Vegas expects to have bet this year according to Bloomberg. This year, writes TNS Media, Fox is proudly accepting an estimated average of $2.7 million for each 30-second ad during the game. 

Lending some credence to marketers' advertising decisions is data from The Nielsen Company's 2008 Guide to the Super Bowl, which notes that "people in wealthy homes, which generally have more than a $100,000 income, are almost three times more likely to watch the Super Bowl as people in homes with less than $30,000 in annual income."  These ads reach a large audience only available from broadcast TV. This is an unusual opportunity for marketers in what is becoming a hyper-niche audience world. Additionally, this is true original programming in a writer's strike media world.

Emblematic of the cultural phenomenon which the event has become, viewer excitement extends long after the game clock stops; and it travels far beyond the next day water cooler conversation.  As stated in the New York Times this week, Anheuser Busch (BUD) estimates its Super Bowl XLI commercials were viewed online more than 30 million times - with 87% of the volume occurring in the seven days after Super Bowl Sunday. This includes not only the company's budbowl.com site, but also on YouTube (GOOG), MySpace, Yahoo (YHOO), as well as smaller niche sites like Veryfunnyads and FunnyorDie.

The variety of marketers running ads is also interesting.  Contrary to popular belief, the most promotional advertising stems from the network itself.  Typically, the network broadcasting the Super Bowl fills in 15-20% of all ad-time during the game, as per the release from TNS Media Intelligence.  This figure may be even greater this year due to the writers' strike and the heightened need to plug programming to viewers who may not have tuned in to the network for some time. 

Super Bowl XLII offers News Corp's (NWS) Fox a chance to eliminate some of the lingering staleness resulting from the writers strike by re-introducing viewers to the network in a festive atmosphere.  Moreover, Fox and other companies may see this as an especially propitious occasion to advertise as New England attempts to become the first ever 19-0 team in matching up against the media capital of the nation, Madison Avenue's own New York's Giants.  This is significant, as 2007 marked the first year in which Super Bowl network TV ad spending was surpassed by ad revenue generated by "March Madness" in the final weekend of the NCAA Men's Basketball Championship, as indicated by TNS Media (albeit that includes three games versus one).

As for other marketers, beer and soda companies will offer the most ads, with Anheuser Busch (BUD) and Coca-Cola Co. (KO) expected to run at least seven and three commercials, respectively, while Pepsico, Inc. (PEP) has purchased two minutes of total commercial time, according to a December 14th article from Advertising Age entitled, "Who's Buying What in Super Bowl XLII."  Indeed, the leading five pitchmen over the prior two decades have been Anheuser Busch and Pepsico, which have marketed their products in every game during this period and also General Motors Corporation (GM), Time Warner Inc. (TWX) and Walt Disney Co. (DIS), all of which will continue their campaigns this year.  TNS Media's posting indicates that together, the five have contributed 36% of the total marketing costs from 1988 - 2007.

However, there will also be other companies trying to make the most of the opportunity to reach as many Americans as possible, which means being imaginative in creating a spot that's catchy and memorable.  For example, GoDaddy.com, known for making racy ads in years past, has in the words of its CEO produced "the funniest best ad we've ever done" (source Ad Age).  Other brands planning to showcase themselves during Super Bowl XLII are Audi, Bridgestone, CareerBuilder, Cars.com, Dell, eTrade, FedEx, Frito-Lay, Gatorade, Garmin, Hershey, Hyundai, Kraft Foods' Planters, New Line, Paramount Pictures, P&G's Tide-to-go, Salesgenie.com, Sony Pictures, Toyota, Unilever's Sunsilk, Universal Pictures, Under Armour, Victoria's Secret, the White House Office of National Drug Control Policy and of course, the NFL itself.

The winner is of course Fox which gains the eyeballs, presents its own ads and rakes in the cash all at the same time. The winners of the best and most memorable ads will be debates the following week. We are hoping not to see an index from the game.

Borrowing Can Be Good

"Let's face it, the U.S. consumer is dependent upon housing prices and stock prices and with both of them sinking rapidly the outlook for the economy is not good.'"

WILLIAM H. GROSS, chief investment officer of the bond management firm Pimco.

I pulled this quote from the NY Times this week to show how out of touch many industry leaders and government officials are from main stream America. Or perhaps Mr. Gross is professing with his wallet as a recession and weak stock market line his pockets.

Everyone needs a roof over their head, food on the table three times a day and if you are a family, snacks along the way. We all need to transport ourselves to work and school and make a few purchases along the way each day.

I am not a typical consumer and I am well aware of this. I am however a consumer of staples every day and observe my family which makes small impulse purchases and their fondness for iPods, flat panel TVs and other mass and higher-end consumer items.

The average American interacts with the stock market through their 401k and perhaps a few funds. The average American is too worried about making their current mortgage payment to think about drawing more cash from that roof over their head.

The average American pays for things using their paycheck, not by stock market gains or the 20th refinancing of their home.

There has been excess borrowing for sure. But the 94% of Americans who do not hold subprime mortgages and the large percentage of people who do not have variable rate mortgages want to see themselves retire one day, and to educate their kids.

With the recent interest rate cut there is an opportunity to reduce mortgage payments through interest rate reductions without taking on a new mortgage. For those in more challenging situations, moving from a variable rate to a 15 or 30 year fixed rate mortgage can create half a lifetime of savings with the stroke of a pen and perhaps even lower monthly payments.

The 30-year fixed-rate mortgage averaged 5.48% for the week ending 1/24, down from 5.69% last week, according to Freddie Mac. The 30-year fixed-rate mortgage averaged 6.25% a year ago; the 30-year has not been lower since the week ending 3/25/04.The 15-year fixed-rate mortgage fell to an average 4.95% this week, compared with 5.21% last week. The mortgage averaged 5.98% a year ago; it hasn't been lower since the week ending 4/1/04.

According to a separate survey released on Wednesday by the Mortgage Bankers Association (MBA), there's evidence that more people are at least trying to refinance an existing loan. The volume of total mortgage applications rose 8.3% last week; refinance applications alone were up 16.9%. Refinance applications were up 92% since the beginning of November, while purchase applications rose by only 7% during that time, according to the MBA.

As interest rates have been lowered there is ample opportunity to grab hold of expenses and make them at a lower, fixed rate. This can then ensure the purchase of staples and allow purchases of other items such as clothes, entertainment and electronics. It also allows better planning.

Perhaps the majority of American consumers are not placing their heads in the sand. Perhaps they are out working and paying their bills and thus hard to define by an out of touch Bill Gross and the press.

This author is long the American worker and consumer.

Three Media Appearances, One Week

Monday, January 14 1:30 pm- I will be appearing on TheStreet.com TV with our Grand Prize Winner of the "Clear Next Generation ETF Contest". I will (of course) be discussing the contest, the winning index idea and the Spring contest.

Tuesday January 14 4:30pm- I will be appearing on Financial Entrepreneurs on Business Radio (1490 AM WGCH Greenwich, CT). There I will be discussing Global Timber (CUT) as well as my business and how we got started.

Wednesday January 16, 9:30am- The Contest Grand Prize Winner and I will make another appearance together, but on Fox Business Network to discuss the contest, his idea and the next contest.

Government Regulations: Unintended Consequences

There are many laws that are made from observation. One of my favorites is "for every action there is an equal and opposite reaction."

But is that a law, something that you can count on? For students of science and engineering who are disciplined observers, factors such as friction caused by contact, gravity, wind, humidity prevent perfect execution of this "rule." This law really only works in a lab where all external forces can be eliminated or its impact measured.

For investors there are fewer labs. Investment companies design back testing models and apply them to historical data. Similar factors can occur as in the paragraph above, only with different names: trading costs, trade market impact, execution timing and human intervention, and don't forget data integrity.

Observation of the live investment ultimately reveals the real story. Portfolio managers design "what if" scenarios including worst and best cases. The more talented managers design robust models with realistic scenarios.

Not to belittle the work, but most of this work is limited to a single strategy and often a single asset class. The government is making decisions that influence, but do not control, much larger multivariable situations.

That is perhaps one reason the government does not have quite the same track record of going from measurement, to design, to live success.

Today's anniversary is a stark reminder for how a protective decision can have long-term unintended consequences. Today in 1782, the Bank of North America, based in Philadelphia, and founded by revolutionary financer Robert Morris, became the nation's first commercial bank. The bank launched well and successfully. After a while, the government did not look kindly on this and shortly after its opening, the Pennsylvania legislature moved to outlaw private banks in the state. The unintended consequence: many bankers relocated to a more business friendly location: New York City.

Today, there are many interconnecting issues we are addressing in the economy, as a nation and the markets. Let cooler heads prevail. My unsolicited advice to our well meaning government is to measure and design all of the scenarios with all the tools we have. Measure again and discuss. Any new government intervention needs to best predict the eventual outcome.

Unintended consequences abound.

The Next Wave in Disease Prevention

In recent months, the global vaccine market has been preparing to charge. 

Sanofi-Aventis (NYSE:SNY), a constituent in the Clear Global Vaccine Chain ETF (AMEX: JNR), made a recent declaration on January 7th, that it expects its vaccine sales to grow by 10-15% per year, in line with the vaccine market. This impressive claim can be justified by the many exciting developments in progress in the vaccine industry. 

One of the stirring prospects in the vaccine world involves the possible eradication of the flu pandemic. A recently developed vaccine proved to be safe and effective in humans and ferrets. This flu vaccine is unprecedented in that it does not need to be recreated each year to protect against different strains because the vaccine attacks an unchanging element of the virus. The simplicity and efficiency of this flu vaccine may put flu pandemics in the same category of vaccine eradicated illnesses such as polio, rubella, and measles.

The progress of an Alzheimer vaccine is another major development in the vaccine industry. Thomson Scientific described the Alzheimer vaccine as one of the most "promising vaccines entering Phase 1 trials". It is estimates that 4.5 million Americans suffer from this debilitating disease and many millions more are touched and frustrated by the illness’s grasp on loved ones.

In addition to the conventional use of vaccines to prevent illness, scientists are broadening the scope to discover other potential vaccine benefits. Vaccines may become the most effective method to fight drug addiction. There is currently a vaccine in clinical trials that prevents cocaine addicts from experiencing addictive highs. Antibodies spurred by the vaccine bind to the cocaine and prevent it from reaching the brain. Unable to experience the affects, cocaine addicts will quickly lose interest in the drug. This cocaine vaccine may be the long awaited ultimate weapon needed to fight the War on Drugs.

Whether the objective is to prevent physical, mental, or addictive illnesses, scientists accross the vaccine industry are approaching their next milestones. Based on recent achievements, the next few years should be extraordinary ones for the vaccine industry.

Disclosure: Mr. Corn is the CEO of Clear Indexes LLC which publishes the Clear Global Vaccine Index. The index is tracked by the ETF (JNR) issued by Claymore Securites. Mr. Corn owns shares of (JNR).

Sources: AlzheimerVaccine:
http://www.presstv.ir/detail.aspx?id=37835&sectionid=3510210
http://www.nia.nih.gov/Alzheimers/Publications/adfact.htm

Flu Pandemic:
http://ww.timesonline.co.uk/tol/life_and_style/health/article3128119.ece

Sanofi- Aventis:
http://money.cnn.com/news/newsfeeds/articles/newstex/AFX-0013-22072672.htm

Cocaine Vaccine:
http://ap.google.com/article/ALeqM5h4s0F9Rn9z8SKqxJKy7C5XRrPPQQD8TTC2N80

This post was researched and drafted by Clear Indexes LLC analyst Emily Needell.

May I have the Envelope Please?

What is better than winning an Oscar if you are attending a top University? After significant deliberation, all the winners of the "Clear Next Generation ETF Contest" have been chosen, albeit a different style of industry recognition. The submissions we received are incredible. We can't say enough about the quality of the work NYU, Lehigh and Columbia students submitted.

I suppose I shouldn't keep you in suspense any longer… (drum roll please). The Grand Prize Winner of the "Clear ETF Next Generation Contest" is James Baker who attends NYU. Although only a freshman, his idea is compelling. His idea is based on Exports; US domiciled firms which derive a material portion of their revenue outside of the US. It's a great play on a growing global economy, the reduced value of the dollar and the cache of "Made in America". Not bad for a freshman.

James told us that he heard about the contest through the article in the Wall Street Journal and that he worked throughout his Thanksgiving break on his idea (so much for our Facebook and in-school promos). His idea originated while he was in high school during an internship at UBS. Our contest gave him an outlet to express an idea that had been coalescing in his mind for quite some time. James' story is exactly what this contest is about; tapping into the creativity of bright young people and providing a real world outlet for exceptional ideas.

From the description of our grand prize winner, you are probably wondering what strategies were addressed by the other winners and honorable mentions. Our Second Prize Winners are Anna Baburina from NYU whose idea is a Global Country Rotation Index and Pengcheng Lin from Lehigh whose idea is a China Value Index. We also picked ten Honorable Mentions, which was equally as difficult as choosing the first three winners. From Lehigh, the honorable mentions include Jacob Labret, James Brink, Daniel Scansaroli, Dave Lutz, Jason Ackerman, Nathan Achezinski; from NYU, Stan Shelest and from Columbia, Adam Hoffman. Lehigh, whose faculty was the most receptive to the contest, swept up the most spots with the best ideas. We are considering publishing indexes from some of the ideas of the second prize winners and honorable mentions, since we believe the investment theses were that good.

With such great success from our first contest, we can't wait to see what will happen in our next round in the spring which will include five to ten more schools.Of course, I'll be posting more updates as we move along.

The Google Mindset in China

I have had some reservations about long term investing in China. Some of this is due to the many one child families and the predominance of boys. With all of those boys and fewer girls around, I have some reservations concerning the overall social climate. Apparently it has had no effect so far. Google (GOOG) is helping to prove that I am wrong, at least short term.

Reuters Nick Macfie and Roger Crabb reported this week some interesting results.

The names of three banks and the word "stocks" beat "sex" to become four of the most Googled words in China last year, according to a Google China list seen on Thursday.

China Merchants Bank, Industrial and Commercial Bank of China and China Construction Bank ranked second, third and sixth, according to a list supplied by Google China on its website (www.google.cn).

"On the Chinese mainland, it was money and technology that took the honors last year," the China Daily said, pointing out that "sex" was the most popular keyword for Google users in some other countries.

Fourth on the list was "stock," not surprising with Shanghai shares having risen 97 percent last year. At number 1 was "QQ," a Chinese instant message service and a brand of car.

China's Central Bank, the Ministry of Finance and Banking Regulatory Commission ranked first, third and fifth in the "Most Popular Departments" list, the Web site said.

Then again, China keeps a tight rein on Internet content, perhaps one reason why "sex" did not score number one.

Mr. Corn is CEO of Clear Asset Management. Google is a holding in the clear large Cap Growth and Large Cap Core portfolios. He owns the stock directly through his participation in both portfolios.