Foreign markets rally in anticipation of the U.S. recovery:
But unless you are following Taipan's lead, you'd never know that! Here's how you can turn this frustrating sideways market into your personal profit machine.

by J. Christoph Amberger

Rapture and fear. These are the two emotions radiating back at me whenever the conversation turns to the autobahn. Americans in particular are enthralled by the very idea that in Germany, you can drive as fast as your vehicle will go, unencumbered by speed limits. (The fear only comes up in those who actually have experienced a set of headlights flashing wildly out of the fog and drizzle as the car in your rearview mirror hurtles toward you with the velocity of a booster rocket…)

The reality, of course, is much more prosaic. For one, the autobahn still consists mainly of comparatively narrow highways with two lanes in each direction and a sliver of shoulder. It is afflicted with chronic congestion caused by construction and an endless procession of slow-moving trucks. Or it’s simply choked by the sheer volume of cars.

Even if you make it into the more rural areas when traffic tides are low, the speed rush triggered by the freedom of the open road typically boils down to minute-long stretches of going 230 km/h… then having to decelerate energetically to 130 km/h… because a beat-up Golf is passing a truck right in front of you.

In short, the autobahn is a perfect metaphor for the markets: brief moments of limitless possibility rudely and oppressively punctuated by long stretches of fist-pounding frustration, anxiety, and fear.

Back to the future

As I write to you this month, most economic indicators are pointing to a modest recovery in the U.S. economy. (Just yesterday, in fact, Chairman Al indicated that a rate hike might be in the cards in the very near future…)

And it’s not just America. In Japan, the Cabinet Office reported in early May that its diffusion index of coincident economic indicators for March rose to 56.3 from a revised 40.0 in February. That’s nicely above the boom-or-bust mark of 50—for the first time in 15 months. Their index of leading indicators, which augurs future economic trends, also came in well above the 50 threshold for the third straight month—suggesting the economy may improve in coming months. Japan’s industrial output climbed for a second straight month in March, the first back-to-back rise in two years.

Some markets have experienced precocious rallies in anticipation of improving economic conditions in the world’s engines of consumption: Hong Kong’s Hang Seng, for one, staged an impressive rally close to the 12,000 mark last month. Indonesia is up over 40% from where it was last November. And the Moscow Times index shows a near 100% gain… despite a sharp spike downward a month or two ago.

And yet, the performance of the American indices could bring a grown man to tears. It’s back to the shiftless, frustrating sideways market we experienced last year, before 9/11 and the Phoenix-like rebirth of the markets between October and December 2001.

But if the end of the recession and the beginning of the economic recovery mean no more to the American markets than a continuation of the slump, what good is that to us, the investors?

Profits as usual

Taipan’s philosophy is that no matter what happens in the world markets, there is always opportunity for levelheaded, opportunistic investors to make money. You just have to look where others don’t.

The last month was no different. Using our telephone and Internet hotlines—accessible without extra charge to all our members—Taipan’s profit-hungry brain trust alerted you to a number of opportunities to turn good ideas into cold, hard cash.

Like on April 18, when we asked you to take 73% profits on last month’s editorial drought speculation, Western Water (WWTR). The urgent profit-taking alert recommendation went up at 2:45 PM in our daily update sections on www.247profits.com and www.taipanonline.com. WWTR was trading at up to US$1.26 that day, and we recommend you cash out of your position at US$1.20 or higher.

We had initially recommended you buy the stock at US$0.25 in March in the e-Dispatch… but found ourselves priced out the very next morning at the open. (Despite the incredible run-up, we cannot count that as a regular recommendation: it exceeded our maximum buy range by a long shot.)

In the April issue of Taipan, we adjusted for increased speculation given the crescendo of drought-related news. We recommended you buy between US$0.50 and US$0.70. While the stock was trading around US$0.80 at the time of publication, you had the opportunity to follow our advice to the letter and buy between US$0.72 and US$0.59 in early April.

We marked our entry price at US$0.69. And on April 18, we told you to take short-term profits above US$1.20 if you could… for gains of 73% in just under two weeks!

Dogs of the Dow

On April 24, it was time to take more profits off the table from our “Dogs of the Dow” plays. If you bought into Exxon Mobil (XOM:NYSE) at US$38.71 when Taipan’s World Investor Christian DeHaemer recommended it last February, you were able to take 20% profits: He wrote:

“We’d rather be safe than sorry after the company reported a 60% downturn in Q1 profits owing to weak pricing and margins. If you take a look at the CBOE Oil Index, it’s beginning to shed some weight. XOM is also beginning to fall below both its 13-day and 50-day moving averages.

“And, if you bought into Eastman Kodak (EK:NYSE) at US$28.71, sell it at US$40.92 for a 6% gain. It’s slowly selling off prior to tomorrow morning’s earnings announcement—a bearish sign. Not too shabby for two months.”

The Wink of an eye

Taipan readers are by now aware that Ian Cooper is not just a purdy face. His most recent Taipan pick, Wink Communications, continues its hot streak. As I write, it is trading at US$2.25—up 52% since April 22. Congratulations to those of you that bought into Wink Communications (WINK:NASDAQ) at US$1.48.

Ian: “The best part: volume’s been up more than 30% over the past few days, it trades 8% above its 13-day EMA, and more than 16% above its 50-day EMA. The latest news is Wink’s announcement that several of its programming partners have chosen to bundle Wink interactivity into their upfront advertising sales campaigns. This includes the likes of ABC, CNBC, ESPN and ESPN2, NBC, TechTV and The Weather Channel. In addition to CNN and CNN Headline News, The Discovery Channel and TLC are including Wink’s interactive element this season, as part of their standard upfront offering.”

• More good news for Taipans who bought into Impac Mortgage Holdings Inc. (IMH:NYSE). This real estate investment trust (REIT) last month reported higher first-quarter net earnings of US$15.6 million, or 43 cents per diluted share, and revised its 2002 earnings guidance higher after the company exceeded its first-quarter loan production goals.

IMH revised 2002 projections of its total assets to US$4.2 billion and increased 2002 earnings estimates to between US$1.55 and US$1.65 per share. When this news hit, the stock blasted through the US$10 barrier, trading as high as US$10.81. Including the dividends paid out thus far in 2002, that would correspond to a gain of 39.51% YTD, and a 65.42% gain since our initial entry last summer. This stock continues to be a solid hold in our Conservative Portfolio.

• And we’re holding on to our chipmaker Taiwan Semiconductor Manufacturing Co. (TSM:NYSE)—which we entered on January 29 at US$17.82 through a recommendation in the e-Dispatch—despite the recent fluctuations in price. At least the underlying argument for our entering this position seems rock-solid:

Global sales of semiconductors in March rose 7.2% over February. Chip sales totaled US$10.75 billion in March, up from US$10.03 billion in February, according to the latest figures compiled by the Semiconductor Industry Association. (Of course, compared to the sales of March of 2001, sales are still down more than 25%…) Most importantly, sales in the Americas grew 3.6% over the previous month.

TSM also announced that it expects steady growth in demand for chips this year. The company expects to produce 381,000 chip wafers a month, up from March’s 332,000. TSM is also increasing its 12-inch wafer production capacity to 13,000 wafers a month by the end of 2002—which could help boost productivity and save costs, because more chips can be cut from each wafer. (By the second quarter of 2003, TSMC will start using the futuristic 0.09-micron process technology on 12-inch wafers.) Consider this a hold.

• Telefonos de Mexico (TMX:NYSE) shareholders just approved a dividend of 0.56 pesos per share, and an increase in its share buyback fund, the company said in a statement. The dividend for holders of AA, A and L series Mexican shares will be paid in four equal installments of 0.14 pesos each, as of June 20, September 19 and December 19 this year, and March 20, 2003.

Holders of American Depositary Shares (that’s us!) will receive payments on June 27, September 26, December 27, and March 27.

(Just to refresh your memory: one TMX ADR represents 20 ordinary shares. At today’s exchange rate, that translates into US$1.19 per ADR spread over four dividend payouts… or an additional US$0.894 per ADR in the calendar year of 2002.) We had recommended TMX as a buy in the e-Dispatch of December 17 at US$34.75… and watched the stock rise above US$40 earlier this year.

• And finally, some good news for our holdings in China Unicom (CHU:NYSE), as Ericsson announced expansion of its original phase-one contracts for CDMA equipment and services covering seven provinces in China.

China Unicom is China’s second largest mobile communications operator, with over 100 branches and several subsidiaries in 30 provinces, autonomous regions and municipalities directly under the central government. With nearly 50 million users, China Unicom is now the only fully licensed service provider in the country. Which means we might finally see a reversal of the price trend that has made watching this stock such an unsatisfying experience for most of this year!

But in markets like this, timely information is key. We have beefed up your service level considerably throughout the last months. You can now access information and profit alerts by phone, on our websites, and through our daily email update service, the Taipan Group’s 247profits e-Dispatch. (In fact, I consider the latter such an important tool for keeping you and our other members informed that I write it myself… each and every day. Believe me, I would not do that unless I considered it crucial to your ability to make the most of your subscription.)

Signing up for the e-Dispatch is absolutely free to you as a Taipan Member. I urge you to do so at your earliest convenience. (Just go to www.247profits.com and follow the links. You can’t miss it!)