Clear Indexes Ideas

The Battle for Global Domination: Smart Phone Showdown

Last year I caused a small uproar posting purely about investing in Research in Motion (RIMM) and (AAPL). I am a Blackberry user and continue to be intrigued by the iPhone. My readers know that I do not believe that one man's opinion is statistically significant.

A recent study by Harris Interactive last week indicates that those who plan on reducing spending based on economic conditions will do so by decreasing electronics purchases (71%) and by dining out less (74%). Yet despite this apprehensiveness, only 41% of those polled said they would "go as far as" reducing mobile phone spending to cut costs. Let's face it, for many, their mobile communications device is an indispensable part, and partly defining facet of life. Just look at the legions of professionals addicted to their "crackberry", or the rise of text messaging as a preferred form of communication. Although it's a small segment in overall usage of cell phones, following the progress high-end phones has always been compelling for me because they steer the direction-and features-of the future phones utilized by the masses. Going back a few years, the Motorola (MOT) RAZR enjoyed a run as the "in" phone, and spawned an array of copy-cats.

Of course, these days it's all about iPhone and Blackberry. It seemed as if (RIMM), with its ease of communication and overall connectivity offered by Blackberry keyboards, was the way of the future, but that was pre-iPhone. Last summer, Apple's (AAPL) iPhone burst on the scene offering an elegant interface and design, ipod-like music functionality, and a PC-esque web browsing experience. Despite placing pretty big barriers to ownership, its high price tag, exclusive AT &T (T) service provider contract, incompatibility with corporate email juggernaut Microsoft Exchange/Outlook (MSFT), millions of iPhones were sold an capturing 25% of the US Smart Phone market.

Up until this month, Apple (AAPL) and (RIMM) have coexisted, with heavy reconnaissance but not openly attacking each other. Last week, Steve Jobs and co. got the blogosphere abuzz with iPhone 2.0 Not only has the entry price of the phone been cut to $200, Apple has included 3G network compatibility to erode the edge Blackberry held in browsing speed, made the device more corporate-friendly with Microsoft Exchange compatibility, and quashed a differentiator between iPhone and RIMM by incorporating built-in GPS. The new iPhone makes Apple's intentions clear: RIMM is in its cross-hairs. Meanwhile, the upcoming Blackberry Bold has adapted a sleeker design-and rumors of an iPhone-like touch-screen model abound. After all, what is good for the goose…

It's been roughly a year since iPhone first appeared-and it is clear that the interface is a game-changer that has captured its users through a new type of experience best attributed to Apple and Jobs, and is heavily influencing all phone design. There may be(hopefully) an expiration date on its exclusive contract with AT&T. Yet Apple has been reluctant to release its phone into emerging markets, thus creating a grey-market for exporting the iPhones and giving RIMM time to gain further footing in China and India. However, this stands to change quickly. Later this year, Bharti Airtel and Vodaphone (VOD) will begin selling the iPhone in India giving Apple the opportunity to build brand and customers from the collective one hundred million (and growing) subscriber base of the two telecom companies . It's only a matter of time until the Steve Jobs moves into China where (RIMM) already has a growing base.

Mr. Corn is CEO of Clear Asset Management Inc. Research in Motion (RIMM) is a holding in the Clear Large Cap Growth portfolio. Mr. Corn directly owns shares of (RIMM) through his participation in that portfolio.

Dividends and Consumers: Hanging with the Seniors

Today's WSJ has a data packed piece on why the US market is at "fair value." Translated, this means a few things, if we assume that the WSJ article is right.

First, indexers should expect volatility that goes no where. Perhaps the ride will be interesting.

Second, for active managers, moving sideways is known as a stock pickers' market. But as all stock pickers know, every market is a stock pickers' market. That is why we wake up without alarms and run to our computers in the morning, and get to work before everyone else. It is what we do. Pick stocks with the intent of beating the market.

Third is my real topic: how important is the stock market to consumers. Not the speculative consumers who live life paycheck to paycheck even as their income rises. I mean the "silent majority" types. This weekend I went to the beach where I found myself discussing various topics with fellow visitors, many of whom are regulars, and about one third are retirees.

One senior described how she rides out market volatility. She is no multimillionaire with a huge cushion. Most of my fellow beach people are teachers, social workers and middle managers.

She struck me with the wisdom of her buy and hold strategy. She is a Warren Buffet type investor not selling on volatility. She would only sell if either she no longer trusts the firm, or the stock deteriorates beyond reconciliation.

"I'm OK waiting for the market to return." She says. "It's the dividends: if they cut those, then I'm not sure what to do."

She lives off social security, a very modest pension and her dividends. Her holdings and her home will hopefully be passed onto her kids and grandchildren, and she will not ever have to sell them for necessities. Inflation cuts heavily into her earnings and she recognizes that. If the market goes higher, and she realizes capital appreciation, that will offset some of her erosion, and she is aware that the market rising is no reason to go out and spend. The best way for her to keep up with inflation is higher dividends.

Buy and hold and take the dividends. Not a bad investment philosophy.

This year we will see how the market and the big cap stocks hold up. We will also see how and if these firms can actively affect consumer spending through their dividend policy. The big question and source of anxiety for my friend and thousands like her is dividends, not 6-18 month market fluctuations. She is the type of consumer that is the backbone of the economy. She pays her bills on time. She eats out and goes to the movies with her grandchildren. She travels to see relatives and for pure adventure.

She is a core consumer. Let's see if public companies cut her pay. They may be cutting off their noses to spite their face.

(LEH) Lehman Brothers Discussion on Bloomberg Radio

Today at 9:10 am I will be discussing (LEH) Lehman Brothers and the ibanks, (MER), (GS), (MS) specifically. Where the industry now and what is next for the ibanks? I feel the opportunity for taking the high ground of mark to market and setting aside reserves in case the market deteriorates further is long gone. My call for this action along with full disclosure dates back to the fall on both Bloomberg radio and TV.

Listen to the perspective. Click here.

Disclosure: Mr. Corn is CEO of Clear Asset Management Inc. and Clear Indexes LLC. He does not directly own any of the securities mentioned. Clear Indexes publishes the Clear Global Exchanges, Brokers and Asset Managers Index which is tracked by the ETF (EXB). Mr. Corn owns shares of (EXB).

Help Yourself

This summer we are blessed with a plethora of interns. Our college contest spawns resumes of the best of the best that are looking to work with boutique firms for the summer and perhaps longer if the geography and schedules work.

We have every chair filled this summer and we have three exceptional CVs to share with other firms who are not yet filled. One student did his spring semester in Beijing and the internship he thought was lined up was canceled. These students are available for a variety of reasons.

It would be a loss to the student and a host firm for him to be idle this summer.

Our firm benefits from internships in many ways and I would like to share a few , especially with firms considering taking on an intern but have not yet jumped in.

• It sharpens our supervisory and education skills. As we have learned from experience, so must our junior staff begin learning how to supervise. The interns have senior interaction but are the direct responsibility of junior people. The guidance, life tools and skills that we draw upon to nurture our junior professionals is transferred. Good interns brings out the best in us.
• It tests our patience. At Clear, we assign real work. Work that is perhaps beyond their young training and experience and we are not sure of the short-term results. Re-explaining an assignment frequently doesn’t work. Providing the real-life path to the best outcome for even a seemingly small project can at first appear trying. A positive part of the outcome may be formalizing a  process complete with documentation.
• My favorite; interns are unaware of “what can’t be done” and that “we have always done it that way.” Their lack of experience, youth, and eagerness can deliver results we did not think possible. A new perspective can be brought by the untrained, untainted mind.

Far from every student and group will break new ground at every firm. Interns are required to perform grunt work everywhere. Paying the dues is part of the process. The key to success is to treat interns as professionals, while opening doors and windows of opportunity. Test their thinking and ingenuity. Let them fail in a public setting and allow them to feel senior support, mentorship and share your knowledge. Let them know that taking the risk, the process is as important as the result.

It will benefit your organization through productivity, energy and the completion of stalled projects.

Don’t tell the paper pushers, but it will enrich the student and you at the same time. Of course don’t let the other cat out of the bag; it may add some fun to your office as well.

If you have a spot open, please contact me and I will share the CVs of some potentially extraordinary students. acorn@clearam.com

A Team Worth Joining

Unfortunately, cancer has touched most of our lives in some way.

Too many people are often left feeling hopeless and powerless against these awful diseases. My family along with friends decided to take some action by supporting the American Cancer Society’s Relay For Life®.

We (that means my wife and kids leading and me following enthusiastically) have formed a Relay for Life team called "The City Kids" to raise money in order to make a difference in the fight against cancer. We love this event, because it brings people together in an atmosphere of hope and participation. It also fits one of my prime donation criteria. It has the highest percentage of donation going directly to the cause rather than administration or other purposes.

So far, the kids have had multiple and successful lemonade and cookie sales and a big tag sale this past fall to raise money.

This weekend we will be part of the big event: Relay For Life is an overnight event that brings our community together to help and support the American Cancer Society's lifesaving mission. Our team has at least one member walking or running on the track at the relay site for 24 hours.

We are actively seeking sponsors.

All donations are tax deductible! We would really appreciate your help! Every donation helps us meet our goal.

Please visit the team’s mini site to make a donation:
http://main.acsevents.org/site/TR/RelayForLife/RelayForLifeEasternDivision?px=4319700&pg=personal&fr_id=4245&et=PKekOCPK1lmswWSbL1o1Ew..&s_tafId=90498
 
Thank you!

Sowing Profits

As the fluctuating cost of oil has drastically altered the economic outlooks of this country and many of our trading partners, certain sectors and industryies have been materily effected. For example the airline industry has been adversely effected while clean tech appears to be in gold rush mode.

The main stream media seems to have overlooked the world's dependence on another key commodity. A recent article by Don Miller in MoneyMorning suggests that investors should be "lining their pockets with Timber" and that the commodity has the potential to be a potent investment play.

According to the article, Housing Starts totaled 692,000 in April 2008- this is the lowest it has been in seventeen years (and about 42% less than April 2007); new construction, in conjunction with consumer sentiment, is declining. Since byproducts of Timber are an instrumental part of the construction industry, timber owners should feel the effect of decreased demand. There are many reasons why this thesis is not accurate. Housing and construction are in a recession in much of thr west, but in Asia, housing and construction are on a steady rise.

Even in hard hit North America, there is no "expiration date" on trees-timberland owners have responded by tailoring their output to reduced demand. The land can be leased for recreation and what is under the land in the form of metals or perhaps coal may also be ripe for harvesting when the time is right to sell the trees.

Meanwhile, it's been boom-time for paper and pulp mills. The BRIC countries have a consistent-and rapidly growing-need for paper. Despite this demand, timber-land owners have kept supply limited to protect prices. Inreality, even in boom times tmost forest products go to making packaging rather than milled wood. The article states:

"the higher cost of pulp is being passed straight along to the paper mills. And they're frantically trying to pass those increases along to purchasers. Blake Hutchison, director of purchasing for the Menomonee Falls, WI-based printer Arandell Corp., says that most, if not all paper mills increased prices for 2008 by 5% to 7%."

Suppliers of paper and pulp based products are at the mercy of timber-land owners. Their business depends on access to timber-and thus, they are generally obligated to absorb cost increases.

The stability associated with the immense amount of control timber-land owners hold is a key factor of what drew me to the commodity as an investment. Even during a housing "recession", prices have held steady because land-owners choose to limit their supply. And when construction heats up again, land-owners will be more than ready to meet greater demand-and to collect the greater profits that accompany it. Investing in Timber can also be a hedge, as the commodity has traditionally had a low correlation with the performance of the index.

According to the article, about 2/3 of harvestable timberland is private. For decades, owning timber-land was reserved for the big guns of the investing world; however, REITs and more recently our very own Clear Global Timber Index which is licensed for the ETF (CUT), which gives investors access to an array of global equities that own and manage timberland, have created a vehicle for small investors to reap the benefits of timberland.

Disclaimer: Mr. Corn is the CEO of Clear Indexes LLC which publishes the Clear Global Timber Index which is tracked by the ETF (CUT). Mr. Corn owns shares in (CUT)

Another Senior Gain for Clear

Today we issued a press release that states: Attorney and ETF Expert Named COO and Chief Compliance Officer of Clear Asset Management Roger Braunfeld Joins Clear Asset Management and Clear Indexes.

Roger previously served as both Managing Director and General Council of XShares Group LLC where he was integral in the launching of 31 exchange-traded funds (ETFs) and oversaw general business operations. Prior to XShares, he practiced business law at Blank Rome LLP. Roger will be spending one to two days a week in Philadelphia cultivating relationships with both clients and vendors.

Roger is as much a senior manager of the business as he is a lawyer and compliance officer.

If anyone caught the article in FundFire I am quoted as describing him as having impossible energy. He is going to need it as we move the firm from development to launching into growth mode.

Stay tuned.

A Giant Leap for Our Firm

This morning we issued news that simply cannot be captured in a traditional press release.

Fred S. Fraenkel has joined Clear as CIO (Chief Investment Officer).

Fred has over 30 years of experience including having headed up global research at Lehman Brothers (LEH) and as a member of Barron's Year-End Roundtable to name just a few of his accomplishments.

Some of our staff cannot get over addressing him as Mr. Fraenkel!

No doubt that they have good reason to outwardly display some awe. Fred left Wall Street to found a Venture firm. We met through one of Clear's investors who asked him to "check us out" before they allocated to us.

That began a long courtship. Fred checked us out from a VC's and from an investment process perspective. He became an investor in the firm and we also have the privilege of managing money for his family as we do for all of our board members.

Over the last year, Fred became more involved with the firm moving from valued counselor on business and investment decisions culminating in our announcement today.

Fred is needless to say a brilliant man, but Wall Street is filled with brainiacs. The qualities that distinguish Fred are his uncommon sense, his knowledge and experience in so many areas of investing and research including the process of how to get to positive outcomes, and being a great person on all levels.

It is a pleasure to agree, disagree, challenge and be challenged by Fred.

If you do not know him, or only know him by reputation, his bio is now proudly displayed on our web site here.

http://www.clearam.com/Company/boad.aspx

Today marks another major milestone for Clear as a firm. It is good to celebrate and recognize the moment. After all, with a new CIO in town, tomorrow begins another day of hard work.

Your Mother!

May 11th marks a day for the celebration of motherhood. Of course, the American way to celebrate and show gratitude has also become our patriotic duty to go out and spend, mostly via cards and gifts.

I am more sentimental and take a world view of motherhood. This includes my own, my mother-in-law, siblings who are parents, friends and extended world parents, and the great wide world of motherhood. Then there is the Grand-Mommy of all, the mother of my children.

Ah, but this blog is focused on investing and the market, so my sentimentality does not need to flow for your reading pleasure.

A report this week by IBISWorld Inc. forecasts that this "mom appreciation" will add up to about $18 billion dollars in spending in America. The old adage is "It's the thought that counts", but when it comes to mom, consumers are willing to shell out cash in order to show how much they care.

As a quant, I like to look at the stats.

The report projects that $2.61 billion will be spent on flowers, $2.41 billion on jewelry (roughly 8% of that industry's total revenue), $1.5 billion on personal services, and $68 million on greeting cards.

Moms are not the only beneficiaries of this holiday; it has a monumental impact on the economy particularly benefiting the jewelry and other luxury industries. For the 86% of Americans that plan to participate in Mother's Day, a big question is in what form to give these gifts. For the lazy, time constrained, and those just plain fearful of disappointing mom on her day of celebration, gift certificates are proving to be an increasingly popular route. $1.94 billion will be spent on this flexible (and profitable for retailers) form of gift giving-a figure that stands to increase in the coming years. And, as I have posted before, these gifts have an immediate cash impact on retailers, a delay on revenue until they are redeemed, and some will never be redeemed making them almost pure profit!

The bottom line is that mothers will not be the only ones celebrating this Sunday; from 1-800 Flowers (FLWS) and Tiffany & Co. (TIF), to local restaurants and spas, the positive economic impact of the holiday on consumer spending reverberates. On the luxury side there are several ETFs that come to mind. We consult to the Robb Report so I am a little conflicted pointing them out, but the symbol is (ROB).

Putting aside the data, I'd like to give thanks to all of the moms in my world. You are deeply appreciated.

Disclosure: Mr. Corn is CEO of Clear Indexes LLC which consults to Curtco Media for the Robb Report Global Luxury licensed to the ETF which trades under the symbol (ROB).

Fear and Greed or Discipline and Flexibility – You Choose

Tennille Tracy wrote for yesterday’s Wall Street Journal that the Volatility Index, the VIX, closed at its lowest level of the year. That close, 20.06, remains slightly above the all-time average (19.08), and comfortably below the average of the year to date (25.22). It’s nowhere near the high-water-mark set during the collapse of Long Term Capital Management. It reached an eye-popping 45.74 on October 8, 1998—the same day that the House of Representatives voted to initiate impeachment proceedings against then President Clinton.

Some market professionals look at the VIX, “the fear/opportunity gauge,” to assess day-to-day sentiment, because the index measures how much volatility options traders expect in S&P500 stocks in the next few months. However, long-term investors know that fear alone is not a winning strategy.

Imagine, that someone used the VIX to “time the market,” with a strategy of selling when the VIX closed at or above 30 and buying when the VIX returned to 20 or below. If a person followed this strategy to “time” the S&P500, he would have done the following:

August 15, 2007: VIX closes at 30.67, cash out of the S&P500 at 1406.70
September 21, 2007: VIX closes at 19.00, buy back into the S&P500 at 1,525.75
November 12, 2007: VIX closes at 31.09, cash out of the S&P500 at 1439.18
December 21, 2007: VIX closes at 18.47, buy back into the S&P500 at 1484.46
January 22, 2008: VIX closes at 31.01, cash out of the S&P500 at 1310.50
Yesterday, April 24, 2008: although the VIX is still above 20, the S&P500 was 1388.82

This strategy would have lost 15% in 8 months! Moreover, during the time that this person was sitting on cash, he missed gains of 17%.

On the contrary, imagine an investor who is agnostic toward the day-to-day emotions of other market participants. She would have stayed in the market during this entire stretch and lost roughly 1% (before dividends).

Of course this is an oversimplification. A trading overlay on a long-term investment strategy can produce incremental alpha. Historically it has also shown relatively how much investors will be rewarded for buying volatility on a given day.

The detailed explanation of the VIX methodology from the Chicago Board Options Exchange can be found here: http://www.cboe.com/micro/vix/vixwhite.pdf

The Wall Street Journal article is here:
http://online.wsj.com/article/SB120909414580544133.html

Disclosure / Shout Out to intern Adam Hoffman for his research and draft!