Florida or Bust

Not very original, but the "Florida of Bust" message on a hand-made sign certainly helped my college roommate and I hitch to Florida.  We made it in 36 hours, not quite the Cortland record at the time.  Tomorrow my wife and I set off driving a similar route and we'll take nearly four days to complete the trip.  Talk about slowing down!

The first thing I do upon arrival at a vacation spot is pick up all the free real estate magazines.  Very, very dull of me.  Florida will have loads of these-- no need to worry about what to bring to the beach to read.  Why I find them so fascinating is bizarre as I could be the least likely person in the country to purchase a second home.  Unless, of course, I actually do find the bargain of a lifetime.

Which brings us to today's Case-Shiller housing report.   This past October property values fell a more than expected 0.8 percent from October 2009, the biggest year-over-year decline since December 2009.  Florida real estate has certainly been hit hard.  The stock market for the most part shrugged off the bad news.  Still, it's another sign that our economy remains anemic despite the enormous sums of your money spent by the government to rejuvenate the patient.  In this video Shiller interprets the data as best he can.  

As we begin the trip tomorrow, I'll be thinking of my parents and many aunts, uncles, and cousins who left metropolitan New York for Florida in the 1960's and 1970's.  For a while, it was wonderful there-- everything new and shiny, inexpensive, safe and friendly.  Not so much glitter now as many of their neighborhoods have turned seedy.   But things do have a way of turning around.  Eventually, and only after reaching rock bottom.  So I'll keep day dreaming with my real estate magazines on the beach looking for signals, trends, and explanations.          

Fudging End Of Year Numbers

Holiday activities deem that we call a close to the end of the month, quarter, and year prematurely.  It's now or never so to speak and we're not obligated to follow FASB rules.  Funny, who is these days?  Judging from the recent market serenity, no significant changes are anticipated next week.  If something notable happens, we'll reconsider.

With the above caveat noted, Fiat Fantasy returned 1.6% for the month.  BPT, KOL, DBA, and HAP were strong performers.  Bonds were weak, but not alarmingly so.  Frankly, I'd be thrilled to see bond prices continue to fall gradually.

The Investments and Results pages have also been updated.

Merry Christmas-- let's end the year on a high note.

Invest Your Age In- - - -What?

You've likely heard the old rule of thumb that goes something like the percentage of your portfolio allocated to bonds should match your age.  The idea, of course, is to reduce risk as you get older.  Heaven forbid you're unlucky enough to live to 110 as you'd be leveraging bonds,  not exactly a conservative move.  But seriously, what to do if, for example, you don't think bonds are all that safe?  We've had a multi decade bond rally.  What if we're headed into a multi decade bond bear market, just in time for the boomer generation no less?

Randall W. Forsyth penned this excellent Barron's piece describing subtle changes popping up regarding the world's view of the dollar.  The reason the dollar is the world's reserve currency is because of our victory in World War II.  Though international monetary arrangements last for many years, even centuries, they don't last forever.  The prospect of changes in the dollar's status on the world financial stage and our growing national debt force me to question conventional wisdom concerning the relative safety of various investments.  Given these concerns,  how should the Fiat Fantasy asset allocation be made more conservative over time?

This Social Security website page estimates the average person my age will live another 19 years.  Let's be optimistic and round up to 20 years.  Next, we collapse our 14 asset allocation classes into the following 8 in order of decreasing safety.  Again, the order is my opinion based on my world view.

PRECIOUS METALS (15)
CASH (5)
BONDS (20)
YIELD GENERATORS (10)
---------------------------
HARD ASSETS (15)
REITS (10)
PROFESSIONAL ALLOCATORS (10)
EQUITIES (15)

Currently, 50% of the portfolio is above the line in the lower risk section and 50% is below the line in the higher risk section.  Every year on my birthday, starting this August, we will make a 2% adjustment.  After one year, above the line in the lower risk section will sum to 52% and below the line will sum to 48%.  After the 20 years Social Security believes I have left, the Fiat Fantasy portfolio would have 90% allocated to the lower risk classes and only 10% allocated to the higher risk classes.  Incredibly ingenious if I don't say so myself.

What could go wrong with this nutty scheme?  My "allotted" twenty years could instantly change into 20 minutes after a freak accident, a brilliant alchemist could win the 2012 Nobel prize for chemistry for discovering a way to transmute lead into gold, huge reserves of oil could be discovered under downtown Detroit-- well gee, just about everything could go wrong.  Or to quote R. Bandler, “Disappointment requires adequate planning.”  But hey, this is our plan and we're sticking to it.            
      

Status Check

As planned we reduced our MERKX holdings.  Our return on this two year investment was a paltry 1%.  This from a fund that had the big gainer GLD in the portfolio.  The EURO's slide must have hurt.  Steep management fees were another negative.  I'm conviced-- additional MERKX shares will be sold tomorrow.

To replace MERKX, we placed a buy limit order for Wisdom Tree's ETF CCX.  The CCX concept of a basket of currencies from commodity producing countries sounds appealing, but CCX is very thinly traded now and that's a worry.  As an aside, the South African Rand ETF (SZR) looks quite strong, but like CCX, it trades only a few thousand shares daily.  Given this lack of liquidity with the currency ETFs, my currency related MERKX experience, and an earlier loss with the Dollar Bear Index ETF (UDN), I think somebody's dropping hints to skip the currency futures and move on to brighter pastures.  The CCX order is cancelled.

Happily we report that BPT bounced back quickly from last Thursday's big sell off and today is at an all time high.  And just so I don't forget, we are still trying to purchase shares of the Canada ETF (EWC) at $29.71, but the trade has moved away from us so far.                  

Commodity Currencies

Wisdom Tree's relatively new actively managed commodity currency ETF (CCX) is of interest to me as a diversification out of the dollar.  CCX seeks to achieve total returns reflective of both 1) money market rates in selected commodity-producing countries available to foreign investors and 2) changes to the value of these currencies relative to the U.S. dollar.   Constituent currencies at launch were the Australian Dollar, Brazilian Real, Canadian Dollar, Chilean Peso, Norwegian Krone, New Zealand Dollar, Russian Ruble and South African Rand.  Though it's bounced higher for the past two months, the dollar longer term faces a precarious future as it's place as the world's reserve currency is in doubt. 

Wisdom Tree clearly states CCX is not a money market style fund.  Someone wrote that it could be considered akin to an ultra short bond fund.  I'm not so sure as the "commodity currencies" took a big whack in 2007 and a 30% drop doesn't sound like a very bond like to me.  In fact, it's downright scary.  Nonetheless, if I had to pick dollars or a basket of commodity currencies as an investment for the next 10 years, I'd chose latter.

So here's the plan.  We'll sell some of our hard asset investment MERKX and replace it with CCX.  Not everyone favors the trade, but an emphasis on hard assets has been good to us.  We'll stick with what's been working.       

What Does "Hard Asset" Mean?

That depends.  The Market Vectors RVE Hard Assets Producers ETF (HAP), which we own, is a Van Eck fund.  Another Van Eck fund is the Global Hard Assets A (GHAAX).  Despite the common fund family and use of the term "hard assets", there are major differences between HAP and GHAAX.

HAP is an passively managed ETF that tracks the RVEI index.  The RVEI index reflects the performance of more than 300 companies engaged in the production and distribution of hard assets and related products and services.  Six commodity sectors are represented:  energy, agriculture, base and industrial metals, precious metals, forest products, and alternative resources.

GHAAX is an actively managed mutual fund that also invests in companies that produce and distribute hard assets.  GHAAX has a higher expense ratio than HAP, not unexpected given it's active management.  The energy sector accounts for 66% of GHAAX holdings.  For HAP, energy sector exposure is 41%.  GHAAX has a near zero exposure to agriculture while HAP has 31% of assets in this sector.  Sixty nine percent of GHAAX holdings are US companies-- for HAP it's only 38%.  To summarize, in key ways HAP is a more diversified fund than GHAAX.

As far as performance goes, GHAAX seems to have a considerable edge.  I say "seems" because as noted in a previous entry, comparing the total return of an ETF with that of a mutual fund is not straightforward.  Be that as it may, this post is just a reminder that labels like "hard asset" may in practice mean different things.  Make sure to check it out.       

  

Employee of The Week-- DBA

In a lackluster week, the PowerShares DB Agriculture ETF (DBA) took top honors with a 3.4% gain. 

This our second dance with DBA.  We sold an earlier position in October for a small gain.  Truth be told, we sold at a multi-month swing low, but that's what getting whipsawed is all about.

DBA is a fund that attempts to track the price of an index of commodities by buying futures contracts.  Commodity ETFs, especially the oil and natural gas ETFs, have been criticized for poorly tracking the underlying commodity.  This Business Week article paints a grim picture.  Between January 2007 and July 2010 DBA eked out a 3 percent total gain while the weighted average of its underlying commodity components rose 19 percent.  Business week identifies contango as a culprit stating "Contango is a word traders use to describe a specific market condition, when contracts for future delivery of a commodity are more expensive than near-term contracts for the same stuff."  An ETF like DBA has to sell its futures contracts before expiration (storage is generally not an option) and buy new contracts at a higher price even though the value of the commodity itself hasn't changed.  The loss of money suffered by these funds due to rolling over futures contracts is problematic.  What to do?

The United States Commodity Index Fund (USCI) is a newer ETF that attempts to mitigate the contango problem by usng longer term futures contracts and avoiding commodities in contango.  Ron Roland writes about the steps taken by USCI's developers to improve performance.  I hope they're successful.

Another option is to skip the commodity ETF entirely and instead buy an ETF holding businesses related to the commodity.  MOO, which we also own, is an ETF that invest in companies related to agriculture.  Here's a chart courtesy of etfreplay.com comparing the total returns of MOO and DBA for the past year.  Interestingly, despite month to month variations, in the end the two wind up at nearly the same place.  I wouldn't think this is necessarily the norm.
 

Last option-- keep these commodity ETFs on a short leash so contango doesn't bite you. 

Change of Heart

Can an investor profit by trading based on stock chart analysis?  Some unabashedly claim they can.  More importantly, can I profit from analyzing charts?  With 99% confidence, I say the answer is no.  But that remaining 1% possibility lingers, alright festers, in the back of my mind.  The Fiat Fantasy portfolio can't settle the issue-- too many constraints.  To gain insight and have some fun, we hatched a new portfolio at tickerspy.com titled Change of Heart.  Within this new portfolio we are long CVBK, SRDX, and CGA and short KRO and TIBX. 

The Change of Heart portfolio is contrarian-- it attempts to fade the trend.  We'll try to select stocks that have had strong directional moves that are now weakening.  For example, if a stock's price has been rising strongly, we're going to attempt to go short at an opportune time.  Like stepping in front of the bus as they say.  Take a look at this BPT chart courtesy of stockcharts.com:

After a phenomenal run, much loved BPT was off 4.7% today.  Is this the end of the road for BPT?  We'll see, but this is the type of bet we'll be placing within the Change Of Heart portfolio.

Happily, Change of Heart is strictly a game-- no money is involved.  For me, playing the game beats watching Dancing with the Stars, but still, there are time constraints.  Tickerspy.com will track Change of Heart results daily.  The reports here on Change of Heart performance will be sporadic, but I'll give updates from time to time.  Incidentally, the Fiat Fantasy portfolio is also represented at Tickerspy, but only a rough approximation because of Tickerspy limitations.            

A Digital Christmas

Don't tell her, but one of the things I'm getting my wife for Christmas is an MP3 player. For $50 she'll have a device that will store and play approximately 1200 songs.  Following 78, 45. and 33 RPM vinyl (those were the days, heh), 8 track (skipped these), cassette tapes (spaghetti like), and CDs (get them mixed up with DVDs all the time), we're moving ahead for better or worse.  If I left some technologies out, all I can say is, it hasn't always been easy staying current.  Just as I'm reading the directions for the MP3 player, my favorite son called to ask my opinion on how his mother would like a Kindle for Christmas.  I see a holiday theme developing.   

What's remarkable is the digital bang for the buck you get these days.  In 1975, my favorite brother-in-law stops by waving this gizmo called a hand-held calculator.  It was a basic four function Panasonic and he was delighted to pay $100 for the thing.  A few years later I had the privilege of working with Dr Robert Miller, a Harvard educated statistician.  He showed me a Boston newspaper story recounting how he and his son were one of the first to have a computer in their home.  I believe the computer was a PDP 8.  In any event, Dr Miller paid $10,000 for the thing.  He programmed this dinosaur in the FORTH computer language using paper tape.  My little MP3 player has thousands of times the storage capacity of his old beast.  Incidentally, everyone assumed Dr Miller's primary reason for buying the computer was to make advances in weather prediction, but he confided in me he was looking for an edge when playing the ponies.  He was a wonderful guy.

Many items have risen in price over the years.  I recall gasoline at 17 cents per gallon, a new car for $1700, and a new house for $9000.  But thanks to technology, price decreases are also common.  Technology has had a huge effect on how we live, work, relax, and move about.  In this remarkable video, Hans Rosling associates the rise in living standards throughout the world with income levels.  Technology is the key to these changes.    

Chartology Novice

Here's a chart showing Fiat Fantasy monthly performance and total return.  Boy, it took a long time for this novice to make the chart and then get into this journal.  I lost some labels in the process, but that's it for today.

First, Do No Harm

Too much time was spent this weekend trying to find the perfect investment.  I ran across Companhia Siderurgica Nacional and Gerdau S.A (SID), a Brazilian steel manufacturer moving into iron and cement.  SID is a hard asset play with a 7% dividend.  The railroads also seem attractive long-term and have been on a tear lately, perhaps courtesy of Warren Buffet.  Canadian National Railway Co (CNI) should do well hauling raw materials from "Cascadia". 

The fruitless anxiety of over-analysis extended to present holdings.  Our iShares S&P Developed ex-US Property Index Fund (WPS) holding should be sold from an administrative point of view.  The two international REITs we own is one too many.   In addition. the WPS chart is one of the weaker in the portfolio.  And speaking of weakness, our Singapore country ETF, EWS, is fading slightly as well.  We contemplated putting tight stops on both WPS and EWS.   Adding to concerns, the precious metals are obviously overbought.  Though I'm an unapologetic proponent of gold and silver, there must be a meaningful pullback at some point.  

And yet this morning, despite all these misgivings and trusting the medical community's most important precept "first, do no harm", we opted to let things stand as they are.  What I need to continuously etch in my feeble brain is that I am not a trader.  We should take positions based on a personal asset allocation model and an opinion on the effects of universal fiat currencies and deficit spending.  Selling is appropriate to avoid big losses, though we recognize some losses are inevitable.

The best find of the weekend was running into dshort.com and ycharts.  Every manner of chart and explanation are there.  Anyone who can speak knowledgeably about all the charts at dshort and ycharts likely has the equivalent of a MBA in finance.  Take a look.

A follow-up on BP Prudhoe Bay Royalty Trust (BPT)-- it continues to roll higher despite the dearth of public news.  Where there's smoke there's fire?  And hats off to the US equity market continues which continues to defy the skeptics (me included) and inches ahead. 

     

Employee of the Week-- BPT

The BP Prudhoe Bay Royalty Trust Company is this week's stellar employee.  BPT was up 5.7% for the week outshining the rest of the motley Fiat Fantasy crew.  Slap me upside the head as I'm getting giddy what with the pundits talking about my BPT.

Also, there is news of talks between Apache and BP over the sale of some BP assets to Apache.  Those Gulf oil spill payments must hurt.   Bottom line-- I bought BPT primarily for it's 7% dividend and now we're apparently in the midst of buyout negotiations.  As Fagin once said in Oliver, one of my favorite shows, "I'm reviewing--- the situation".

Bernanke's My Bookie

The financial crisis of 2008 pushed the big Wall Street banks / Anglo American financial banks right to the brink.  Guess what-- house prices can't rise exponentially forever.  Some wrote about what was coming, but not many listened.  Why turn off the spigot, so much money was being made thru a web of fraud.  With the West's financial empire in danger of collapse, the Federal Reserve stepped in and backstopped the risk.  Now when Fannie Mae losses billions, the American taxpayer foots the bill.  If car buyers don't buy GM cars and trucks, the American taxpayer shares in the losses to GM's bottom line.

At the peak of the crises, Wall Street oligarchs threaten my representatives in Congress-- Wall Street is too big to fail.  My representatives are weak, self-interested, and stupid-- they comply.  Shame on me for electing them.  The Fed continues to increase its risk profile.  Loans are seemingly made to any company or government that needs a dollars to stay afloat.  Even Harley Davidson, a symbol of American independence, gets a loan from the Federal Reserve.  The Fed pumps money into the system through quantitative easing to prevent asset prices from falling.  Critics use the term "pushing on a string" to describe the policy.  Thanks to Zerohedge for providing a graph depicting the Federal Reserve's latest balance sheet.  

I find the Federal Reserve offensive and have zero confidence they act on my behalf.  Bernanke says not to worry, the money we lend to risky creditors will be paid back.  Maybe, maybe not.  Recall Bernanke said the housing problem was "contained".  No matter the outcome of the Fed's high risk policies, I reject the Fed's right to jeopardize my future.  Bernanke is the bookie who places a super bowl bet for you without letting you know.  Whether or not you cash in on the bet really doesn't matter because the bookie acted without your consent.  It's time to replace or restrain Bernanke the bookie.

Damon Vrabel gives a wider and infinitely better synopsis of Federal Reserve and our economic system with Lesson 1.  Watch this 10 minute video to take the "red pill".

Enough With The Retirement Hints

Given the great number of aging baby boomers, I suppose it's not surprising that there are far too many articles written about dealing with retirement.  When I googled "retirement advice", I got 20,700,000 hits.   Where to retire?  An entire magazine is now devoted to helping you move away from the place where you live once you stop working.  How to save for retirement?  Where to vacation in retirement, as if you were working too hard in retirement.  How to stay healthy in retirement?  Unfortunately, much of the advice I see seems wrong, misleading, or just silly.

Take, for example, this piece in Yahoo's Focus On Lifelong Investing section entitled "Four Ways Sixty-Year-Olds Can Save Their Retirement" .  More than likely, the typical 69 year old is going to have a tough time resusitating his failing retirement.  But here we go with Yahoo's suggestions and some reactions:

Build a Bigger Nest Egg.  They cite an expert who says  "...if you need $30,000 per year indexed to inflation starting at age 65 until age 95, then you need $900,000 in your portfolio at age 65."  I'm in big trouble!

Check Your Asset Allocation.  No mention of precious metals or hard assets.  No mention that the US stock market has gone nowhere for 10 years.  The article notes that "...workers age 50 and over can contribute up $22,000 to their 401(k) in 2011".  Small comfort to many when the median annual salary of US workers is $38,400.

Delay Retirement.  "Even going back to school online where you can learn new skills and enhance your resume may be a solution."  Ha Ha Ha.

Delay Taking Social Security.  Good idea if both your parents both lived to be 90.

The advice given is better suited to a well off 40-year-old rather than an average 60-year-old.  Here's some suggestions about retirement from an actual happy retiree.  Give up golf-- you'll have less stress in your life and save money.  Take naps.  You need the rest and you can't spend money if you're asleep.  Laugh as much as you can.  A great place to get started is at Suddenly Senior.  Read Your Money Or Your Life to be inspired about living well with less money.

My Credit Union And The Bailout

A week ago the Federal Reserve released some details of who got the bailout money.  Wouldn't you know it, next thing Bernie Sanders wants more information.  Even I got curious enough to find propublica.org where they list all bailout recipients including my credit union, SEFCU.  According to Probublica, $145,056 was made available to SEFCU as part of the federal government's Making Homes Affordable program.  Apparently none of this money has been dispersed.

What is the Making Homes Affordable program?  Their website says--

The Obama Administration’s Making Home Affordable Program includes opportunities to modify or refinance your mortgage to make your monthly payments more affordable. It also includes the Home Affordable Foreclosure Alternatives Program for homeowners who are interested in a short sale or deed-in-lieu of foreclosure.

This is wonderful news-- my credit union has $145,056 to modify my mortgage to make my payments more affordable.  What's that you say-- I have to qualify.  I knew there was a catch.  Here are the initial qualification questions:

Is your home your primary residence?
Yes.  No condos, timeshares, or vacation homes for us.

Is the amount you owe on your first mortgage equal to or less than $729,750?
Yes.  Not even close.  No McMansions for us.

Are you having trouble paying your mortgage?
Yes.  I'm very troubled when I pay my mortgage.

Did you get your current mortgage before January 1, 2009?
Yes.

Is your payment on your first mortgage (including principal, interest, taxes, insurance and home owner's association dues, if applicable) more than 31% of your current gross income?
Yes.  I think so given the way taxes are going up.  Give me a month to refinance and get some equity out and I know it'll be more than 31%.

That was easy, but I'm still dubious.  I think I'll stop by my local SEFCU branch tomorrow and see if they'll help me out.

Angela's Sunday Special

The Sunday special at Angela's Pizza and restaurant was meatballs and spaghetti for $4.99.  Isn't that amazing.  Granted, dinner at Angela's is not fine dining-- it's just a local place mostly doing take out of decent food.  Still, that special a year ago was $6.99.  Where's all the inflation everyone is worried about?

Take a gander at this graph from Casey Research showing commodity price inflation.

The chart title is misleading-- what's shown is commodity price increases, not retail price increases.  The price of wheat has gone up 74%, not the price of a loaf of bread.  Sobering stuff all the same.

This article reports that Richard Berner at Morgan Stanley believes that, in America, commodity price inflation will not translate into food price inflation at the grocery cash register.  He predicts the direct impact of increases in food prices on overall inflation will amount to just 0.2-0.3%.  Mr Berner says Americans are a special case because:

* we eat more processed foods than the rest of the world
* rising grain prices causes herds to be slaughtered lowering the cost of meat
* sellers absorb the price increases
* consumers will substitute cheaper foods when prices rise

Mr Berner may be right, but I take issue with the last two reasons cited.  First, if Angela is serving spaghetti and meatballs for $4.99 she must be close to her limit on absorbing price increases.  You do what you have to do to stay afloat in a bad economy, but if Angela loses money by absorbing price increases for an extended period, she's out of business.  Second, if Americans eat a less expensive diet to keep their food budget static, what does this have to do with food price inflation?  Can we keep the price of steak at $7 a pound by eating beans at $1 a pound.  I suspect not forever. 

Prices have been falling for assets that depend on credit creation such as housing.  On the other hand, many everyday purchases such as food and gasoline are rising in price.  According to this website, in 2009 the average American consumer's expenditures for food, transportation, and housing were 13%, 16%, and 34% respectively.  It will be interesting to see how these percentages change in the coming years.  

A Penny For Your Thoughts

According to coinflation.com , post 1982 penny thoughts only have a melt value of $.006 because these pennies are 97.5% zinc, not copper.  With copper at $4.00 per pound, older pennies have a melt value of $.026.  Glancing over my shoulder at a not very full gallon jug of pennies I've had for years, it's obvious hoarding pennies is not an effective response to fiat money.  Penny wise and pound foolish as they say.  On the other hand, not carrying pennies around is a good way to stop excessive change from tearing holes in your pants pockets.  

There is more substantive news about the rise in copper prices.  Here's a five year copper price chart coutesy of Kitco:

Tom Lydon at ETF Trends suggests four reasons for the rise: 

1. Chilean miners strike.  Chile is the largest copper producer in the world followed by the US, Indonesia, and Peru.

2. Emerging market urbanization.  Copper wire for all those new high rise city apartments in China and India.

3. Bullish forecasts.  Speculation?  Yesterday's Barron's article  reflects the copper buzz.

4. Federal Reserve Quantitative Easing.  More construction activity means more copper usage.  I would add that as the Fed debases the dollar it contributes to the rise in copper prices.

Large copper producing copper companies are Freeport McMoran, Codelco, and BHP Billiton.  There are two ETF copper plays-- CU and COPX.  JJC is a copper futures exchange traded note (ETN).  Surpringly, copper bullion is in vogue.  Ebay has 571 "copper bullion" items for sale today including a 2010 16 oz .999 percent pure Maple Leaf bar for $10.99.  At today's prices, you will need a huge amount of space to store copper as compared to gold, or even silver, for that matter.  Nonetheless, a physical copper ETF seems a certainty.

Copper is an ancient metal as man's usage goes back thousands of years.  Ruling out chemistry class with Doc Harrington, my first recollection of copper was at the bazaars in Adana, Turkey in 1970.  Here young boys used hammers to pound and shape the metal into beautiful pieces just as had been done for centuries.  I wonder if Turkish copper smiths still make beautiful and useful treasures? 

2010 16 oz .999 FINE COPPER  BULLION BAR MAPLE LEAF

Charity II

Just a quick follow-up on Friday's entry about Quinn Brammer.  I received two very kind emails from the Brammer family.  One includes the following excerpt:

....we have been receiving letters and checks from total strangers.  The letters of encouragment have been inspiring and uplifting.   I know there will be no Christmas present better than the gift of love we have been receiving. Words cannot express how grateful we truly are.   

If you are one of those "total strangers" out there in the ether that sent a donation, many thanks.

Employee of the Week-- XME

The SPDR S&P Metals and Mining ETF, symbol XME, was up 8.61% for the week, second only to SIVR at 9.1%.  We hired XME about a year ago, one of the first steps taken in the construction of the fiat fantasy portfolio.

The top three holdings are Hecla Mining (silver and gold mining), Massey Energy (coal mining), and Arch Coal (coal).  Steel is the major sub-industry group.  In their June 30 annual report, management attributes the strong performance of XME to three factors.  First, increased demand for base metals stemming from the growth in Asian infrastructure development.  Second, the increase in the price of precious metals.  Third, the near doubling in the price of iron ore and steel. 

Charity

A few days ago an acquaintance of mine sent me an email about Quinn Brammer, a young boy from Watervliet, NY who needs heart surgery.  The family can use help meeting expenses.  Anyone who has had to cope with a major surgery in a distant city knows how expensive it is even if you have health insurance.  I don't know the Brammer family, however I'm certain the need is genuine.  Details about Quinn's situation are given in this flyer.  If you are able, please consider sending some money to one of the addresses given in the flyer.

When I first received the email about Quinn, I dismissed it as I usually do.  Not my problem.  In fact, I had to recover the message from the trash bin.  An alarm had sounded inside-- if I could ignore this particular request for charity, well then, I was morally in deep trouble.  Likely in fear of eternal damnation, I mailed a check off to the Brammer's and told some friends and family about Quinn.  Next thing you know my son writes that he' s sending a check.  Today I received a most generous contribution from my brother-in-law.  Maybe more is on the way.

In 2009 gifts to charitable organizations were $304 billion, down 3.6% from the previous year.  The majority of giving comes from individuals, not corporations and foundations.  As a percentage of income, the poor give more than the wealthy.  Some large charities have been criticized for high overhead costs and other "charities" turn out to be complete scams.  So here's my early New Years resolution as a result-- be more generous giving to those in need from my community.  Thanks Quinn.   





    

Where the Rubber Meets The Road

Today's barrage of advertisements included something I need.  Tires-- four of them.  The least expensive tire for my car was $110.  After balancing, mounting, exchange fee, taxes (you know the drill), a set of four will be in the $500 range.  If you happen to drive an SUV with 19 inch wheels, drag that home equity loan paperwork out because you are roughly talking $1000.  What's going on?  It seems a perfect storm has hit the tire buying public.

In September the US imposed an additional 35% tariff on Chinese tires.  In response China said something nasty about US chickens.  This is the problem with trade wars.  Next up is the booming economies of the emerging markets.  As incomes rise, goodbye scooter, hello BMW.  More raw materials are needed to meet increased demand.  Today Bloomberg reports that "Goodyear, the largest U.S. tire maker, expects raw-material costs to jump 35 percent for the fourth quarter."  A key raw material for tire production is natural rubber.

Natural rubber makes up about 25% of a tire depending on make, size, and other factors.  Natural rubber prices have risen a three-fold since 2008.  Floods, aging trees, speculators, and other factors are at work.  More trees have been planted but it takes years for them to produce.  Manufacturers are conducting research on synthetic materials to reduce the amount of natural rubber used in tires.  Again, another slow process.

The Market Oracle gives some suggestions to capitalize on the rubber shortage.  EWM is on my list of investment recruits.  In the meantime, I still have High Hopes for getting a new set of tires.  Oops, there goes another rubber tree plant! 





 

Everything's Working (for now)

Silver's working that's for sure.  Some, not all, SIVR hit the stop early today and we're out at 28.12.  We've had this portion of SIVR since Sep 1, 2010 and the gain was 45%.  Despite the partial sale, I'm glad we still own SIVR.  Here's the chart from stockcharts.com.

We've been lightening up on bonds and moving to shorter term bonds.  That also seems to be working.  Bond prices have been falling for a month and today was especially weak.  Google "bond prices" and you'll find nearly every hit attributes the bond price drop to "positive signs of job growth".  Exactly the same words across the entire internet.  I don't doubt the rationale, but given the uniformity of analysis, I keep envisioning a little old man hidden in a room somewhere issuing proclamations that every media outlet turns into a headline.  Our one Whim, a hedge against falling bond prices using triple short treasury bear fund TMV, which for months was in a death spiral, is beginning to do its job.

To round out the day we put in a limit order for additional shares of EWC.  Presently we're underweight non US equities and REITs.  EWC had the best chart so we put in a bid ignoring recent concerns the Canadian economy is slowing.  Maybe it's that one little old man in a room manipulating public perceptions again.  On a more positive note, Peter Grandich explains here why he favors the Canadian economy.