Belgium LT IDR downgraded to ‘AA’ from ‘AA+’; Negative Outlook; ST IDR  affirmed at ‘F1+’: iShares MSCI Belgium Index Fund (NYSE: EWK) is still up 0.4% at $11.33; 52-week range $10.23 to $15.65.

Ireland LT IDR affirmed at ‘BBB+’; Negative Outlook; ST IDR affirmed at ‘F2′:  Bank of Ireland (NYSE: IRE) down 1.6% at $6.15; 52-week range of $3.99 to $27.00 (adjusted for reverse split). MSCI Ireland Capped Investable (NYSE: EIRL) is down 1.5% at $20.17; 52-week range is $16.78 to $23.80. The Irish Investment Fund, Inc. (NYSE: IRL) is still up almost 1% at $7.22 and its 52-week range is $6.49 to $8.77.

Italy LT IDR downgraded to ‘A-’ from ‘A+’; Negative Outlook; ST IDR downgraded to ‘F2′ from ‘F1′: iShares MSCI Italy Index Fund (NYSE: EWI) is down 0.8% at $12.92; 52-week range is $10.88 to $20.15. Telecom Italia S.P.A. (NYSE: TI) is flat at $10.33 an dthe 52-week range is $9.74 to $16.04.

Spain LT IDR downgraded ‘A’ from ‘AA-’; Negative Outlook; ST IDR downgraded to ‘F1′ from ‘F1+’: iShares MSCI Spain Index Fund (NYSE: EWP) is still up 0.4% at $31.44 against a 52-week range of $28.53 to $45.99. Banco Santander, S.A. (NYSE: STD) is still up 0.7% at $8.16 against a 52-week range of $6.77 to $12.72.

Two more downgrades were issued:

• Cyprus LT IDR downgraded to ‘BBB-’ from ‘BBB’; Negative Outlook; ST IDR affirmed at ‘F3′
• Slovenia LT IDR downgraded to ‘A’ from ‘AA-’; Negative Outlook; ST IDR downgraded to ‘F1′ from ‘F1+’

Should this have really been a surprise?  If so, these would be performing far worse.

JON C. OGG

SPDR Barclays High Yield Bond (NYSE: JNK) carries a 7.7% listed yield and is up 0.25% at $39.00 against a 52-week range of $34.09 to $40.93 and it is the primary ETF we look at when it comes to the world of high-yield or junk bonds.  Then there is the iShares iBoxx High Yield Corporate Bond (NYSE: HYG) up 0.1% at $89.69 with close to a 7.7% yield and a 52-week range of $77.90 to $92.85, followed by the PowerShares Fundamental High Yield Corporate Bond Portfolio (NYSE: PHB) that is flat at $18.34 with a yield of about 6% and a 52-week range of $17.00 to $18.76.  You have to consider that the 10-Year Treasury yields close to 2%, but high-yield and junk bonds often pay 7%, 8%, or more.  Here are some of the top closed-end funds, although there are many more out there:

• Blackrock Corporate High Yield (NYSE: HYV): market cap of $396 million with shares up 0.3% at $12.02; 52-week trading range of $10.10 to $12.60; implied yield of 8.5%.
• Pioneer High Income Trust (NYSE: PHT): market cap of $480 with shares up 0.7% at $17.07; 52-week trading range of $14.12 to $18.08; implied yield of 9.6%.
• PIMCO High Income Fund (NYSE: PHK): market cap of $1.5 billion with shares down 0.1% at $12.62; 52-week trading range of $10.52 to $14.88; implied yield of about 8.5%.
• AllianceBernstein Global High Income Fund, Inc. (NYSE: AWF): market cap of $1.2+ billion with shares up 0.9% at $14.47; 52-week trading range of $12.43 to $15.41; implied yield of 8.3%.
• Western Asset High Income Fund II Inc. (NYSE: HIX): shares are up 0.4% at $9.84; 52-week trading range of $8.35 to $10.45; implied yield of about 10.0%.
• Western Asset High Income Opportunity Fund Inc. (NYSE: HIO): shares are up 0.8% at $6.32; 52-week trading range of $5.34 to $6.63; implied yield of 8.0%.

We do advise investors to study the current premium and discount that each closed-end fund trades at compared to the net asset value.  Some are discounts and some are premiums, and these can fluctuate wildly through time for a myriad of reasons.

While that is a composite and while the “BB” is now under 500 basis points over Treasuries, the “B” spread is now under 750 basis points over Treasuries.  Maturities matter here as the longer-dated notes and bonds command higher spreads than most shorter-dated instruments.  Still, this could be the beginning of a wave of continued interest in junk bonds.

What is interesting is that rising yields in Treasuries implies losses on the face value of bonds.  If the yields are rising because of an improving economic picture rather than because of inflation or because of a lack of faith in the underlying creditworthiness of the government, then the bond spreads are likely to contract further and that would drive the interest into high-yield junk bonds.

Be advised that not all junk bond funds are created equally outside of the ETFs.  Some closed-end funds use domestic junk bonds only, while some use international bonds.  Some include foreign-issue sovereign debt at junk levels or trading as though they are junk.  Aslo, some use a bit of leverage while others do not.  The dividend yields are “implied” because ethe closed-end funds pay monthly.

Another caveat needs to be mentioned… Some of the yields on financial quote screens also will differ from our implied yields because we do not include the capital gain distribution that comes with many of these.  They of course count toward your total return, but we like to look at the most recent ‘regular dividend’ when calculating yields.

We have provided a chart for the “JNK” ETF Below so you can see how much this sector has risen since Thanksgiving and then again since the selling climax of stocks and risk instruments (including junk bonds) in early October.

A true chartist would tell you to watch this current level closely.  If prices do not rise from here, it could be representative of a false break-out and that would imply a near-term top.  As long as the “risk-on” mentality prevails, these should do well.  The trick is watching longer-term Treasury yields.  With close to a 2% yield on the 10-Year Treasury Note, investors will seek higher returns as long as those returns are likely to have at least some degree of price stability.  If investors think that Treasury yields are likely to climb suddenly to 3% or even 4%, junk bonds will have some competition from the risk-free trade again.

As you would expect, there is no such thing as a free lunch in the financial markets.

JON C. OGG

As far as how this is impacting closed-end funds and ETFs, the moves are below and the 52-week ranges have been offered so that investors can see just how much pain has been there in the last year:

WisdomTree India Earnings (NYSE: EPI) is up 0.9% at $17.93 and the 52-week trading range is $15.44 to $25.58. 

PowerShares India (NYSE: PIN) is up 0.8% at $18.30 and the 52-week range is $15.96 to $24.59.

India Fund, Inc. (NYSE: IFN) is up 0.4% at $21.46 and the 52-week trading range is $18.61 to $33.99. 

Morgan Stanley India Investment Fund, Inc. (NYSE: IIF) is up 0.7% at $15.75 and the 52-week trading range is $13.59 to $24.57.

These are no ETFs nor closed-end funds but there are some key ARDs to watch:

Infosys Limited (NASDAQ: INFY) was recently butchered on its earnings and revenue warnings and shares are only up marginally at $52.00 versus a 52-week range of $46.12 to $74.52.

Tata Motors Ltd. (NYSE: TTM) is up 2.2% at $21.18 versus a 52-week range of $14.33 to $29.06.

ICICI Bank Limited (NYSE: IBN) is up only 0.25% at $30.95 against a 52-week range of $24.14 to $51.50.

Sterlite Industries (India) Limited (NYSE: SLT), which operates as a non-ferrous metals and mining company, is up 1% at $8.67 versus a 52-week range of $6.64 to $16.60.

$35 billion might not sound like much when you consider the U.S.-sized stimulus packages and when you consider that India has almost 1.2 billion people versus about 310 million in the U.S.  The 2010 GDP on a purchasing power parity was put at about $4.06 trillion and that comes to only about $3,500 in GDP per capita.

$35 billion matters, even if it is going to take more to jumpstart the economy after months and months of tightening and restive monetary measures as the nation fought inflation at the expense of growth.

JON C. OGG

The average yield is -0.0122%, down from a whopping 0.001% previously. We would be watching PowerShares DB German Bund ETN (NYSE: BUNL) and PIMCO Germany Bond Index ETF (NYSE: BUND) in reaction.  There is also the parabolic PowerShares DB 3x German Bund ETN (BUNT) as well, but there may be much different tracking issues on a leveraged exchange traded product that has different trading hours than the market it tracks. 

At issue is not whether or not this persists forever, because it cannot be the case.  It is unfathomable if not mathematically impossible.  More important is what the implication is for overnight and money market funds.  In the U.S., these are supposed to trade “at the buck” and that implies that the value is always $1.00 per share no matter what and that interest is paid out.  The firm hosting the fund has to have a management fee of some sort as well.

When negative rates are paid out it implies that the money market funds are paying out a negative yield and that implies that the funds are “breaking the buck.”

Again, this cannot go on indefinitely but it can create new previously uncharted problems in the near-term.  It is not exactly as if the European banks and fund management families are going to want to pay up the difference to keep the fund values at the equivalent of 1.00 in Europe.

No wonder the Euro has lost so much against the Dollar.  At least the German investors can get about 0.1% in America.

JON C. OGG

It turns out that many stocks with high dividend yields are now more attractive than sovereign debt in the U.S. and abroad. Part of the allure, besides income or reinvestment, is that dividend stocks often hold up better than other investments during jittery markets. It is hard to imagine, but the high-yield utility sector was one of the top performers of the S&P in 2011. In some cases, half of an investor’s total return through time may come from dividends. Warren Buffett generally picks dividend-paying companies for Berkshire Hathaway Inc. (NYSE: BRK-A) after following some of the principles of Benjamin Graham.

The 24/7 Wall St. 2012 Model Dividend Portfolio includes the following stocks: American Electric Power Co., Inc. (NYSE: AEP); American Water Works Company, Inc. (NYSE: AWK); AT&T, Inc. (NYSE: T); General Electric Co. (NYSE: GE); Government Properties Income Trust (NYSE: GOV); Kimberly-Clark Corporation (NYSE: KMB); Senior Housing Properties Trust (NYSE: SNH); and Wal-Mart Stores Inc. (NYSE: WMT).

While exchange-traded products have been avoided in the past, recent trends merit a look at the open-end or closed-end mutual funds and ETF products as follows: SPDR Barclays Capital High Yield Bond (NYSE: JNK); JPMorgan Alerian MLP Index ETN (NYSE: AMJ); ALPS Alerian MLP ETF (NYSE: AMLP); and PowerShares Financial Preferred (NYSE: PGF).

Lastly, there have been some exits due to upside price performance: Altria Group Inc. (NYSE: MO); Digital Realty Trust Inc. (NYSE: DLR); Enterprise Products Partners LP (NYSE: EPD); and Kinder Morgan Energy Partners LP (NYSE: KMP).

We have described the features and outlook for each component of our Model Dividend Portfolio.

Over $50 billion has flowed into bank savings accounts in the last month, with another $30 billion going into bond funds.  Rather than income, “Safety” is currently the most important criteria for investors at this time per the TrimTabs report.

What you guessed on gold is true: Over the past month $2.2 billion left the SPDR Gold Shares (NYSE: GLD) ETF.  TrimTabs also pointed out that another $800 million has flowed out of the healthcare ETF called the Health Care Select Sector SPDR (NYSE: XLV).  When you consider that the Gold ETF is worth over $70 billion it might not matter so much, but the healthcare ETF has a current value of only about $4.4 billion per Yahoo! Finance data.  The iShares FTSE China 25 Index Fund (NYSE: FXI) was also said to lose the same as the healthcare ETF, and its market cap is listed as about $6.3 billion.

While money has continued to flow out of U.S. equity mutual funds, it is a bit interesting that the biggest inflow over the last month was in the SPDR S&P 500 (NYSE: SPY) with a $5.9 billion inflow.  Its market cap is about $86 billion as of now.  Charles Biderman noted that it was those inflows which “surely supported the S&P 500’s 6% pop in price.”

Another gainer was the $800 million inflows into the tech ETF via the Technology Select Sector SPDR (NYSE: XLK).  The market cap today is about $7.45 billion, but it is interesting that investors went into this one just in time for so many technology leaders to issue earnings warnings even though the time measured showed a 3% rise in that one.

iShares MSCI EAFE Index (NYSE: EFA) rose 3.3% in the time tracked and it saw an inflow of about $700 million in new funds versus its market cap of $36.3 billion.  This is effectively the international equity large cap index.

Biderman expects that new funds will continue to head into bond funds and savings accounts, but he noted that January is traditionally one of the biggest months for new inflows into equity mutual funds. He said, “As a result of more money chasing less new shares, the S&P 500 usually has gone up not only during January but most of the time right up until tax time in April.”

Read Also: Top Biotechs For 2012

Read Also: REITs For Model Dividend Portfolio in 2012

JON C. OGG

The 17.9 million shares are worth close to $900 million, ad that is an exponentially larger stake that what Temasek owned at the end of the September quarter.  If Temasek wants an influential stake in one of the leading phosphate and potash suppliers, what does it mean for the valuations in Potash Corp. of Saskatchewan, Inc. (NYSE: POT) and Intrepid Potash, Inc. (NYSE: IPI)?

Temasek’s stake is now larger than Wellington’s 6.4% stake, but is still well under the Cargill Trusts that has been unloading shares.  We now know who likely absorbed more of the shares sales from those trusts.

Temasek’s effort to invest in resources and energy may be growing, particularly now that some of these shares have “gone on sale.”  Mosaic shares are down almost 45% from the 52-week high.  With a fund size of somewhere close to $150 billion, Temasek can afford to do deals of this size.  Effectively, this (in theory) gives the Singapore population some protection against rising potash and fertilizer prices in the future.  With a 0.4% dividend yield, the stake will not exactly be a high dividend for the sovereign wealth fund.

There is a tug of war taking place right now over the future of potash and other fertilizer prices in 2012 and beyond.  A slowing global growth story from India and China is meeting what had been solid pricing power from producers.  This news would be better received had it not been for Tuesday’s large rally followed by a post-Oracle concern about other areas deemed a bit more protected from a pending recession.

With Mosaic shares trading under 10-times expected forward earnings, even considering the international growth market risks, is it fair to ask if Mosaic is a value stock?

JON C. OGG

Of the thirteen companies, two of the companies have already completed their IPOs and two more companies have already filed to go public.  Of the 13 companies, 4 were in technology, 4 more were in internet and software, and 5 were in clean technology. Of the fund’s investment portfolio, the two public companies are NeoPhotonics Corporation (NYSE: NPTN) and Solazyme, Inc. (NASDAQ: SZYM).

The private companies in the portfolio list are BrightSource (thermal solar plants); Corsair (memory); Harvest (organic waste facilities); Kabam (MMORPG for social networking); livescribe (mobile, paper-based computing platform ); MBA Polymers (manufacturer of recycled plastics); Metabolon (molecular diagnostics); Suniva (solar PV modules); Tremor Video (Online video technology and advertising); TRUECar (online research and pricing for car buying); and xtime (service provider of Web scheduling and CRM solutions for automotive service departments).

The firm’s total assets consisted of about $32 million invested in 13 portfolio companies and some $45 million in cash left to evaluate and invest in future portfolio companies. The Net Asset Value per share was listed as $8.27 and the fund has 9,283,604 shares of common stock issued and outstanding.

While this is a business development company, a similar stock is GSV Capital Corporation (NASDAQ: GSVC) as it has invested in Facebook, Twitter, Zynga and others.

The prior Keating interview is here.

JON C. OGG

There was speculation over whether or not Corzine would testify in front of a Congressional hearing next week.  He had previously only been “invited” to attend the hearing.  Now Corzine has to appear because of a subpoena.  Customers, investors and creditors are not likely to learn anything new about the demise of MF Global nor how Corzine pushed the limits off the cliff in betting the firm’s assets. It seems crazy that the trades that blew up the firm were leveraged bets on Italian sovereign debt, but the potential theft of customer funds is where this really becomes lunacy.

Corzine has already lawyered-up for civil suit protection and we’d put the odds that he will “Plead the Fifth” at 99.9%.  After all, it would be in his best interest unless he can somehow claim that this whole implosion was just a misunderstanding.  The odds of that ‘unless’ factor: zero.

Investors need to know and understand one thing about the ramifications if the “Where are the customer funds?” question is not answered and if the customers are not made whole here.  Customer funds are supposed to sacred as “Seg Funds” and are not supposed to be commingled to support a firm’s trading or operating expenses.

With the manner in which these repos were handled and with the math not adding up (is it $600 million missing, or is it $1.2 billion?), the ramifications of tomorrow are awful. They are bloody awful.  Imagine if this happened at a “too big to fail” institution and millions of customers are suddenly told “we do not know where you client funds are and you cannot close out or hedge any of your positions.”

A report from Managed Futures Today outlines the segregation process about segregated funds of futures trading accounts and Futures Clearing Merchants.  Even in the REFCO bankruptcy, customers were treated better than they have been in this MF Global implosion.  That report noted, “In 2005, Refco Inc. and 23 of its unregulated subsidiaries filed for Chapter 11 bankruptcy protection. However, Refco’s regulated subsidiaries (where customers’ futures trading and managed futures accounts resided) were unaffected and customers were able to continue trading and managing their accounts.”

Frankly, if it turns out that the customer funds are truly at risk then the regulators need to be responsible here.  Criminal filings also better come if the customer funds are missing, because it will be no different from robbery.  The fact that customers not only couldn’t access their funds but also could not hedge or close positions is a tragedy already.  If those funds and positions are allowed to be held by the trustees and bankruptcy attorneys, it could be years before this gets sorted out.  Who really wins in bankruptcy?  The lawyers, of course.

Imagine what can happen if a firm can just magically declare bankruptcy and then says that its customer segregated funds accounts do not add up.  It would be a license to steal and the millions and millions of dollars (actually billions and billions) would be large enough that many managers who are supposed to have a fiduciary duty might be willing to risk prison.

This all sounds pretty extreme, but the problem is that each new case can set a legal precedent as the new basis for future case law.  Ask your self this one simple question… What if your customer funds are not really safe and protected?

JON C. OGG

The report cited a recent gain of 36% in earnings, with higher operating income across all the business segments except in the finance and financial products operations. The sectors which were noted as performing well were Insurance, Railroad, Utilities and Energy, Manufacturing, Service and Retail.

The growth engine was labeled as the property and casualty insurance businesses with a contribution of approximately 40% of its 2010 operating income.  Another favorable note for the segment was that it maintains capital strength at exceptionally high levels.

So, what is worth?  Apparently it is worth $91.00 per share and Zacks has an “Outperform” rating on Mr. Buffett’s company.  What is interesting is that this $91.00 figure is a 6-month target rather than a one-year price target.  What does this translate to for valuation? The projection is roughly 13.2-times Zacks’ earnings estimate for 2011 and it implies a total return of about 17% in that period.

We would note that there may be one issue with this report, and that is that Warren Buffett himself has always said to watch the firm’s stated book value per share.  The reason behind that is that he admitted that Team Buffett & Munger could effectively make earnings almost anything they wanted to in any single quarter because of its ability to lock-in gains or losses from its vast investment portfolio or by incurring or pushing out charges on assets. Merger expenses could also alter those quarterly figures.

Mr. Buffett made some significant changes to his investment holdings this last quarter, and here were his full equity holdings.

Shares closed Thursday at $77.81 and the 52-week range is $65.35 to $87.65, so if Zacks is right then Berkshire Hathaway is heading for a new year high.

JON C. OGG