Orange Portfolio’s Weekly Review

It's a quiet holiday-shortened week in the U.S., but the rest of the world has seen much more activity.

In fact, it’s been a pretty big week with markets in Brazil, Germany, France, Russia, Sweden, Italy, and the Netherlands, all up more than 5%. That’s a broad global rally by any definition, and it was even more impressive before global markets swooned on today’s U.S. non-farm payroll report.

The U.S. payroll report was a disappointment, but I think Spain’s 10-year bond yield ticking back up over 7% today is the more immediate threat to the recent rally. Following the recent EU summit, Spain’s 10-year bond had traded down to a 6.24% yield, so it's disappointing to see it back at the level where Greece, Portugal, and Ireland had to request bailouts.  

Things are getting a little easier

Barclays is still dominating the headlines, but the biggest news of the week was the lowering of interest rates in Europe and Asia. On Thursday, the European Central Bank and Bank of China lowered their benchmark interest rates, and the Bank of England announced it was resuming asset purchases, also known as quantitative easing, to increase liquidity in its economy.

The hope is that these moves will stimulate their economies and, eventually, they should have that effect. But cheaper rates are just one part of the solution that Europe and China need. In Europe, eliminating the fundamental differences in retirement benefits and regulations between EU members, and the overall amount of debt, might be more important than reducing the cost of debt. While in China, it’s the progress toward an economy driven by domestic demand for goods and services that I’m most concerned with.

Earnings season will tell us more

I like to keep tabs on central bank moves, because they can move markets and are an indication of the headwinds or tailwinds in the economy. But I don't make investment decisions based what the world's central banks are doing. I'm far more interested in knowing how companies, their customers, and competitors are performing, and how management teams are responding to the opportunities they see.

With earnings season starting next week, we'll get a good feel for how different industries are faring, and how they see second half of the year developing. Within the Orange Portfolio, I'm most interested in getting updates on how demand for new rigs is holding up at Precision Drilling (NYSE: PDS  ) , and how newly-opened restaurants at Arcos Dorados (NYSE: ARCO  ) are performing. Outside of the portfolio, I also want to see how well Unilever (NYSE: UL  ) is handling the rising costs that have caused many consumer staples companies to reduce guidance.

Economic growth in Brazil, and the price of oil, palm oil, and other commodities, already give some indication of how well Precision Drilling, Arcos Dorados, and Unilever are doing. But earnings season matters because we get to hear directly from management, and compare what these companies have to say to the results and plans of competitors.

Agriculture is hot

The Midwest is hot and dry, and that has agriculture stocks and ETFs on fire. I was planning on adding an agriculture-focused company or two to the Orange Portfolio to capture the long-term growth potential from global population growth and rising incomes in emerging markets. But the recent moves in the market have those plans on hold. Teucrium Corn, a corn ETF, is up 28% since mid-June, and soybeans are at a multi-year high. This has pushed Potash Corp of Saskatchewan (NYSE: POT  ) , and other fertilizer stocks by 15% to 20% in the last month. The long-term demand for fertilizers still looks strong, but fertilizer pricing is volatile, and a couple good days of rain might be all it takes for these companies to give back a good chunk of their gains. So for now, Potash Corp will remain on the watch list.

You can follow along with all my real-money Orange Portfolio moves here.

Nathan Parmelee is a co-advisor of Champion Shares Pro and Share Advisor in the U.K. You can follow his real money Orange Portfolio here and his Twitter feed at @GlobalFools. Nathan owns shares of Precision Drilling, Arcos Dorados, and Potash. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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