Threshold Capital Corp.
January 27, 2012
End of 2010Clients fully invested with small cash cushion
China – 40% - CAST,CYD,DGW,IDIBrazil – 25% - BRXX,UGP,VIVTobacco – 18% - MO,LO,PMGold – 15% - GDX,GDXJ,AEM,AUY,NEM
US – 2.6% GDP; Unemployment 9.6%China – 9.6% GDPBrazil – 6.9% GDP
Threshold Capital – Will Europe prove to be a tipping point in 2011?
Q1 - 2011
President Obama delivers State of the Union addressUprisings in the Arab WorldChina raises Interest ratesJP Morgan accepts gold as collateralEgyptian President H. Mubarak resigns
Q1 – 2011 cont.
Earthquake off the coast of JapanContinued Middle East unrest – rebels take control of oil areas in LibyaSaudi King Abdullah ventures out in publicEncouraging US jobs report – 216k jobs added in March 2011End Q1
Q2 – 2011
Republicans propose 2012 BudgetChina raises Interest RatesPortugal requests bailout of $129 BillionEuropean Central Bank – ECB – raises ratesStandard & 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
Q2 – 2011 cont.
China raises Reserve requirementsUS Unemployment rises to 9.1% (May 2011)DJIA falls below 12,000Greek Parliament approves austerity plan – DJIA rallies to 12,500Bank of America takes $20 Billion ChargeUS Federal Reserve ends QE2 ProgramThreshold 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%
Europe – Why are things so Bad?
Culture – European Banks are drastically different than US CounterpartsNo TARP Program in 2008 for Europe Banks – LTRO Plan (December 2011) by ECBEnormous Amount of Sovereign Debt IssuedPolitical Promises = Fiscal IrresponsibilityEuro Crisis? Mislabeled – Threshold Capital believes “Solvency Crisis” is better characterization
Q3 – 2011
Moody’s downgrades Portugal to Junk StatusOECD Releases Report on Consumer PricesChina Raises Interest RatesECB Raises Interest ratesUS Unemployment rises to 9.2% (June 2011)Moody’s downgrades Ireland to JunkPresident Obama Walks Out On Republican Leadership Over US Deficit Talks – Moody’s and S&P reviewing US Debt RatingGold Rises to $1,600 per oz.
Q3 – 2011 cont.US House & Senate pass $2.4 Trillion debt ceiling packageGlobal financial firms announce large layoffsS&P removes AAA Rating on US debt – Indices plummet; gold soarsDJIA drops to 11,000 on Europe & global economic slowdownBerkshire Hathaway invests $5 Billion in BofAECB announces it has been purchasing Billions in Italian & Spanish bondsMoody’s Downgrades debt of BofA, WFC & CUS Federal Reserve launches “Operation Twist”End Q3
Q4 – 2011
Franco-Belgian bank Dexia failsBrazil cuts interest ratesUS Federal Reserve reports household debt continues to fallUS GDP for Q3 = 2.5%US Fed Chairman Bernanke signals Fed is ready to act if neededECB cuts interest rates to 1.25% from 1.5%Interest rates in Italy Spike over 7%PM’s of Greece and Italy resignEuropean Bond markets sell-offUS indices have worst Thanksgiving week since 1942Joint action by global central banks to calm Euro fearsUS adds 120K jobs In November
Q4 – 2011 cont.Standard & Poor’s puts 15 Eurozone nations on watch for possible downgradeECB cuts rates to 1%Fitch downgrades 7 of the world’s largest banks – BofA, CS, BNP, Barclays, Deutsche Bank, GS, and CCrude oil spikes above $100/bbl on Iran commentsEuro reached 15 month low vs. US$ - $1.2961US 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
Core Portfolio Positions
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%
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%
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%
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
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
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 PositionsBRXX – EG Shares InfrastructureUltrapar ParticipacoesTelefonica Brasil SA
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 – GDXYamana Gold – AUYNewmont Mining – NEM
SearchMedia Holdings Limited
Chief Executive Officer – Mr. Paul Conway
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
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,PM27% Brazil & China – BRXX,VIV,UGP,IDI17% Metals/Mining – GDX,AUY,NEM16% US Businesses – BEAM,XYL
• 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.