2. End of 2010
Clients fully invested with small cash cushion
China – 40% - CAST,CYD,DGW,IDI
Brazil – 25% - BRXX,UGP,VIV
Tobacco – 18% - MO,LO,PM
Gold – 15% - GDX,GDXJ,AEM,AUY,NEM
US – 2.6% GDP; Unemployment 9.6%
China – 9.6% GDP
Brazil – 6.9% GDP
Threshold Capital – Will Europe prove to be a tipping point in
2011?
3. Q1 - 2011
President Obama delivers State of the Union address
Uprisings in the Arab World
China raises Interest rates
JP Morgan accepts gold as collateral
Egyptian President H. Mubarak resigns
4. Q1 – 2011 cont.
Earthquake off the coast of Japan
Continued Middle East unrest – rebels take control of oil
areas in Libya
Saudi King Abdullah ventures out in public
Encouraging US jobs report – 216k jobs added in March
2011
End Q1
5. Q2 – 2011
Republicans propose 2012 Budget
China raises Interest Rates
Portugal requests bailout of $129 Billion
European Central Bank – ECB – raises rates
Standard & Poor’s changes US Outlook – “stable” to
“negative”
Gold rises above $1,500 per oz.
Standard & Poor’s downgrades Greece to single B from
double B minus
6. Q2 – 2011 cont.
China raises Reserve requirements
US Unemployment rises to 9.1% (May 2011)
DJIA falls below 12,000
Greek Parliament approves austerity plan – DJIA rallies to
12,500
Bank of America takes $20 Billion Charge
US Federal Reserve ends QE2 Program
Threshold Capital raises cash for Clients – liquidates
positions in CAST,DGW,CYD
DJIA +7.23% S&P 500 +5.01%
NASDAQ +4.55% Russell 2000 +5.5%
7. Europe – Why are things so Bad?
Culture – European Banks are drastically different than US
Counterparts
No TARP Program in 2008 for Europe Banks – LTRO Plan
(December 2011) by ECB
Enormous Amount of Sovereign Debt Issued
Political Promises = Fiscal Irresponsibility
Euro Crisis? Mislabeled – Threshold Capital believes “Solvency
Crisis” is better characterization
8. Q3 – 2011
Moody’s downgrades Portugal to Junk Status
OECD Releases Report on Consumer Prices
China Raises Interest Rates
ECB Raises Interest rates
US Unemployment rises to 9.2% (June 2011)
Moody’s downgrades Ireland to Junk
President Obama Walks Out On Republican Leadership Over
US Deficit Talks – Moody’s and S&P reviewing US Debt Rating
Gold Rises to $1,600 per oz.
9. Q3 – 2011 cont.
US House & Senate pass $2.4 Trillion debt ceiling package
Global financial firms announce large layoffs
S&P removes AAA Rating on US debt – Indices plummet;
gold soars
DJIA drops to 11,000 on Europe & global economic
slowdown
Berkshire Hathaway invests $5 Billion in BofA
ECB announces it has been purchasing Billions in Italian &
Spanish bonds
Moody’s Downgrades debt of BofA, WFC & C
US Federal Reserve launches “Operation Twist”
End Q3
10. Q4 – 2011
Franco-Belgian bank Dexia fails
Brazil cuts interest rates
US Federal Reserve reports household debt continues to fall
US GDP for Q3 = 2.5%
US Fed Chairman Bernanke signals Fed is ready to act if
needed
ECB cuts interest rates to 1.25% from 1.5%
Interest rates in Italy Spike over 7%
PM’s of Greece and Italy resign
European Bond markets sell-off
US indices have worst Thanksgiving week since 1942
Joint action by global central banks to calm Euro fears
US adds 120K jobs In November
11. Q4 – 2011 cont.
Standard & Poor’s puts 15 Eurozone nations on watch for
possible downgrade
ECB cuts rates to 1%
Fitch downgrades 7 of the world’s largest banks –
BofA, CS, BNP, Barclays, Deutsche Bank, GS, and C
Crude oil spikes above $100/bbl on Iran comments
Euro reached 15 month low vs. US$ - $1.2961
US adds 200k jobs in December – Unemployment drops to
8.5%
End 2011
DJIA +5.53% S&P 500 0.0%
Nasdaq -(1.80)% Russell 2000 -(5.45)%
Threshold Capital adds new positions to Client Portfolios as US
economy and job market improved
Purchased – BEAM and XYL
13. Philip Morris International
• World’s largest and most profitable publicly traded
cigarette manufacturer
• Growing Emerging Markets
• For 2011, PMI will earn $4.75 - $4.80; Up 21% from
2010
• Yield 4.5%
14. Altria Group
• Philip Morris USA, US Smokeless, John
Middleton, and 28.5% Stake in SAB Miller
• For 2011, MO will earn $2.01 - $2.07
• Yield 5.79%
15. Lorillard Inc.
• 3rd Largest Tobacco Company in US
• Newport Brand - #1 in Menthol segment with 39.2%
share of US Menthol market
• Continued strength of non-menthol Newport –
Newport Red
• Pays $1.30 dividend per Qtr – Yield 4.6%
16. Beam, Inc.
• Spun – off from Fortune Brands in October 2011
• BEAM is the 4th largest premium spirits company on the globe;
largest US based spirits Company
• Top Brands – Jim Beam Bourbon, Makers Mark Bourbon, Knob
Creek Bourbon, Canadian Club, Teachers Scotch
Whiskey, Courvoisier Cognac, Sauza Tequila, Cruzan Rum, &
Skinnygirl
• Generated sales of $2.7 Billion in 2010; expecting $3.5 Billion
in 2011 and earn $2.10 per share
• Potential takeover candidate by Diageo Plc or Pernod Ricard
SA
17. Xylem, Inc.
• Spun – off from ITT Corp.
• XYL is a world leader in the design, manufacturing, and
application of highly engineered technologies for the global
water industry
• Maker of pumps, measuring instruments, water & waste
management services to municipal, residential, & commercial
users
• Global water usage is expected to grow exponentially over the
next 20 years
• Potential takeover by GE or Siemens
18. Brazil Opportunities
• 8th largest economy in the world
• GDP Growth slowed in 2011 to 3%
• Papal visit in 2013, World Cup in 2014, Olympics in 2016
• Beginning massive infrastructure projects
Threshold Capital Client Positions
BRXX – EG Shares Infrastructure
Ultrapar Participacoes
Telefonica Brasil SA
19. Gold & Precious Metals
• Threshold Capital has owned this asset class for Clients since
mid 2009
• Gold up 10% for 2011 – Mining stocks were down
• Large buyers continue to be China, India, Russia
• As a currency – Gold has no liabilities – Gold cannot default
• Threshold Capital Client Positions:
Market Vectors ETF Gold Miners – GDX
Yamana Gold – AUY
Newmont Mining – NEM
21. Performance Snapshot
2012 Since Inception Jan 2007
Threshold (A) +8.84% +10.86%
Threshold (B) +7.02% +41.52%
DJIA +4.41% +2.36%
S&P 500 +5.44% -(6.50)%
NASDAQ +8.18% +16.69%
Russell 2000 +7.38% +1.01%
Deliver Positive Returns Over a Long Term Horizon With the Ultimate
Goal of Outperforming the Markets
Superior Performance Through Stock picking
22. Outlook for 2012
• Europe still primary focus
• US Presidential election
• Implementation of Volker rule – July 2012
• US – will QE3 be in play?
• Threshold Capital Asset Allocation
30% Tobacco – MO,LO,PM
27% Brazil & China – BRXX,VIV,UGP,IDI
17% Metals/Mining – GDX,AUY,NEM
16% US Businesses – BEAM,XYL
23. • Disclaimer – This presentation is for the exclusive use
by Threshold Capital Corp. It expresses the opinions
of Peter A Delgado II and Threshold Capital Corp and
in no way constitutes a solicitation of business or
investment advice. It is intended for informational
purposes of the reader and the author.
Editor's Notes
Culture – European Banks are drastically different than US CounterpartsThe overall bond market here in the US – both Treasury and corporates – is much larger and more mature than in Europe. Syndication did not exist in Europe pre-2000 – Banks in Europe were lenders and NOT underwriters. European banks would historically hold these loans until maturity --Lack of a retail market with demand in Europe; here in the US, we have the likes of PIMCO, Fidelity, Janus, T Rowe Price, and other Institutional players that generate the demand for all types of Bonds – US Treasuries, corporates, & high yield bank loans – Not many large Mutual Fund companies in Europe that demand these instruments-No TARP Program in 2008 for Europe BanksAll the big US banks (even some regionals) received cash infusions in exchange for non-voting equity stakes during the crisis to firm up their balance sheets. European banks received no such aid. Some European banks did get into trouble – RBS, Allied Irish, Lloyds Bank, etc. – and these financial institutions were nationalized by their respective governments. Dec 2011 – Europe unveiled LTRO Plan – Long Term Re-financing Option – launched by the ECB and offered banks 3yr. Loans at a discount against a wider than usual range of collateral. (Gold sold off hard in December!). This program totaled 489 Bil Euros. Threshold Capital believes this is QE1 for Europe Enormous Amount of Sovereign Debt IssuedDebt of Greece, Spain, Italy, Portugal make up a large portion of European bank balance sheets in addition to banks having “cross – ownership”. As the value of these bonds have plummeted, their balance sheets have deteriorated and have severely weakened the financial institutions in question Political Promises = Fiscal Irresponsibility Over the past 10-12 yrs. European politicians of Greece, Spain, Portugal, & Ireland made unreasonable promises in order to get elected – and now severe austerity measures must be undertaken. In addition, these countries have more social programs for their citizens – healthcare, pensions – citizens are more dependent on their governments rather than the private sector.Euro Crisis? Mislabeled – Threshold Capital believes “Solvency Crisis” is better characterization These countries simply do not have the money to pay their obligations. You cannot have both austerity AND growth – it is either one or the other. This week in Davos – in the ECB charter – the European Central bank is prohibited from financing governments
Threshold Capital has owned this asset class for Clients since mid 2009Gold up 10% for 2011 – Mining stocks were downDisconnect between the price of bullion and the mining companiesIn December, the ECB launched LTRO Plan – these banks sold bullion to raise cash AND China – long known as a notorious manipulator of most commodities they purchase – passed a law that gold can only be traded on two approved exchanges in Shanghai – this led to liquidations from speculators Large buyers continue to be China, India, RussiaEven the smaller countries are stepping up to the plate to make bullion purchases – Mexico, Thailand, South Korea and Middle Eastern countriesAs a currency – Gold has no liabilities – Gold cannot defaultThreshold Capital Client Positions: Market Vectors ETF Gold Miners – GDX – holds a basket of large mining companies Yamana Gold – AUY Newmont Mining – NEMBoth Yamana and Newmont are profitable mining companies and yield 1.5% and 2.2% respectivelyCEO of Newmont speaking in Davos – it is important to make one issue very clear to all mining investors: +it is becoming more difficult to find deposits across the globe – discovery & exploration take anywhere from 3 to 5 years + once you discover a valid deposit – it then takes another 7-10 years to get government permits – this is all before you get to stick a “big shovel in the ground” for extraction