After the commodities, and hard assets more generally, suffered through several tough days, they roared back strongly today. These wild price swings are of concern as a key objective of ours is to avoid big portfolio losses. We're trying to accomplish this through broad diversification, a preference for dividends, and a penchant for hard assets. Here's my mid May resolution: at the end of each month, pay more attention to portfolio volatility.
Given my view of the world, our favorite investment has to be the Permanent Portfolio (PRPFX) managed by Michael Cuggino. He appeared recently in the Market Watch video below. The segment was titled "How to React to Global Crises: Be Prepared". It is interesting to hear Michael provide some rationale for how he structures PRPFX.
Wednesday, May 18, 2011
Monday, May 16, 2011
Washington Is My Sugar Daddy
The debt ceiling fiasco and other news have prompted me to consider just how tightly the Government and I are joined at the hip. In round numbers, 90% of the family annual income comes directly from the government: two social security payments and a federal retirement. The Medicare benefit could be factored in and would surely raise this percentage. Clearly my wife and I are completely dependent on the federal government for our livelihood. If the government money vanishes, we have investments that could be used to help pay our living expenses for a period of time, especially if we don't live long and happy lives. Approximately 70% of this money is in IRA accounts. IRAs are tax advantaged accounts authorized by the government and the rules governing IRAs are frequently modified by the government.
Given these circumstances, the ongoing debt ceiling debate took on a sense of immediacy for me as Turbotax Timmy G. announced the Treasury Department would be unable to fully invest in the Civil Service Retirement and Disability Fund and the Government Securities fund of the Federal Employees Retirement System starting Monday. The funds "will be made whole" once the debt limit is increased, and federal retirees will be unaffected Mr. Geithner said. But what if the debt limit is not increased? Are Federal retiree funds going to disappear. This ploy by Geithner is similar to Paulson's infamous threats to Congress in 2008 to get them to authorize the banker bailout. Thanks to Barry Ritholtz at The Big Picture for the following chart showing the pace of debt ceiling increases since 1940. The chart is turning parabolic just like many others these days.
We also have reports from Europe concerning the confiscation of private pensions. Could 401Ks and IRAs funds be confiscated here? I don't see why not. All you need is a market crash, some widely publicized complaints from pensioners who lost their money, a Senate hearing, a quickie Commission, an Executive Order, and poof, next thing you know-- mandatory Treasury Bond purchases by all IRA and 401K participants. Someone has to buy the darn bonds if the Chinese won't.
I have a strong sense of vulnerability right now. If the country is in serious financial trouble, and I believe it is, then I must be in serious financial trouble as well. Beyond finances, we Americans are increasingly dependent on the government for everything from food stamps and healthcare to tax breaks and jobs. All our eggs are pretty much in one basket these days and I was always taught that was a no no.
Given these circumstances, the ongoing debt ceiling debate took on a sense of immediacy for me as Turbotax Timmy G. announced the Treasury Department would be unable to fully invest in the Civil Service Retirement and Disability Fund and the Government Securities fund of the Federal Employees Retirement System starting Monday. The funds "will be made whole" once the debt limit is increased, and federal retirees will be unaffected Mr. Geithner said. But what if the debt limit is not increased? Are Federal retiree funds going to disappear. This ploy by Geithner is similar to Paulson's infamous threats to Congress in 2008 to get them to authorize the banker bailout. Thanks to Barry Ritholtz at The Big Picture for the following chart showing the pace of debt ceiling increases since 1940. The chart is turning parabolic just like many others these days.
We also have reports from Europe concerning the confiscation of private pensions. Could 401Ks and IRAs funds be confiscated here? I don't see why not. All you need is a market crash, some widely publicized complaints from pensioners who lost their money, a Senate hearing, a quickie Commission, an Executive Order, and poof, next thing you know-- mandatory Treasury Bond purchases by all IRA and 401K participants. Someone has to buy the darn bonds if the Chinese won't.
I have a strong sense of vulnerability right now. If the country is in serious financial trouble, and I believe it is, then I must be in serious financial trouble as well. Beyond finances, we Americans are increasingly dependent on the government for everything from food stamps and healthcare to tax breaks and jobs. All our eggs are pretty much in one basket these days and I was always taught that was a no no.
Sunday, May 15, 2011
Employee of the Week-- NZT
Telecom Corporation of New Zealand (NZT) was up 4.5% for the week. We acquired NZT on April 28th primarily for the non-dollar dividend so this bump up is a pleasant surprise in a forgettable week. The primary reason for writing this entry is to determine what might be behind the advance.
On April 20th, NZT and partner Vodafone for a government contract to deliver broadband telecommunications services to rural new Zealand. Under this agreement with the Government, Vodafone and Telecom will build and deliver open-access rural broadband infrastructure that delivers 100 Mbps connections to approximately 750 rural schools and 6 hospitals, and a minimum 5Mbps fixed and wireless broadband service to more than 80% of rural homes and businesses.
Telecom will build the fixed infrastructure and Vodafone will build the wireless towers. Government funding for the project is NZ $285 million.
Reuters reports that longer term, NZT has offered to split the company in order to compete for the NZ $5.9 billion nationwide broadband network funding. The government's proposal prevents retailers of phone and Internet service providers, such as NZT, from building the network.
The only other news I could uncover is Street Wire upgraded NZT from Hold to Buy.
Here's the chart.
On April 20th, NZT and partner Vodafone for a government contract to deliver broadband telecommunications services to rural new Zealand. Under this agreement with the Government, Vodafone and Telecom will build and deliver open-access rural broadband infrastructure that delivers 100 Mbps connections to approximately 750 rural schools and 6 hospitals, and a minimum 5Mbps fixed and wireless broadband service to more than 80% of rural homes and businesses.
Telecom will build the fixed infrastructure and Vodafone will build the wireless towers. Government funding for the project is NZ $285 million.
Reuters reports that longer term, NZT has offered to split the company in order to compete for the NZ $5.9 billion nationwide broadband network funding. The government's proposal prevents retailers of phone and Internet service providers, such as NZT, from building the network.
The only other news I could uncover is Street Wire upgraded NZT from Hold to Buy.
Here's the chart.
Wednesday, May 11, 2011
Don't Fight The Fed?
Somehow I can't shake the feeling that every investor is being herded around like sheep. There was a comment over on Turd Ferguson's site today by Jon-Erik who says:
i cant get over how unbelievably ironic the fight against commodity speculators.........the fed creates QE2, forces everyone into risk assets (crude, gold, stocks) because the market has no other choice, and then congress cries bloody murder when people do what they are told
My thoughts exactly. Permit me a decent return on savings and I'll become a wildly conservative CD investor and bond coupon clipper. But don't blame me for taking on risk and speculating when government itself is purposefully undermining my assets and those of most everyone on the planet.
There are some notable money managers resisting the government's prodding. Jim Rogers said today he will shorting US bonds (as is Bill Gross) and sticking with commodities. Jeremy Grantham's May market commentary includes the following snippet: So now is not the time to float along with the Fed, but to fight it. I believe what he means first and foremost is to reduce your exposure to US equities. "Don't Fight The Fed" has been sound advice for as long as I can remember, but the future could always turn out to be different.
i cant get over how unbelievably ironic the fight against commodity speculators.........the fed creates QE2, forces everyone into risk assets (crude, gold, stocks) because the market has no other choice, and then congress cries bloody murder when people do what they are told
My thoughts exactly. Permit me a decent return on savings and I'll become a wildly conservative CD investor and bond coupon clipper. But don't blame me for taking on risk and speculating when government itself is purposefully undermining my assets and those of most everyone on the planet.
There are some notable money managers resisting the government's prodding. Jim Rogers said today he will shorting US bonds (as is Bill Gross) and sticking with commodities. Jeremy Grantham's May market commentary includes the following snippet: So now is not the time to float along with the Fed, but to fight it. I believe what he means first and foremost is to reduce your exposure to US equities. "Don't Fight The Fed" has been sound advice for as long as I can remember, but the future could always turn out to be different.
Tuesday, May 10, 2011
Five Grams of Gold
I accessed my new Bullion Vault account Monday evening and made a bid for five grams of gold. Imagine my surprise when the bid was accepted and I now own five grams of gold stored in a Zurich vault. I'm was not surprised about the bid acceptance but rather the whole concept of someone with my resources buying gold and having it stored in Switzerland. Delusions of grandeur comes to mind. The five grams cost $244.46 including commission so we're not exactly shaking up the metals trading kingpins.
There were some bumps in the road getting to this point and we've got at least one more registration hurdle still outstanding. It took over a month and two emails to get the account funded. No explanation for the delays was provided. Bullion Vault's website was not that easy for me to use. In the States we're accustomed to pricing gold in ounces not kilograms. The site implies the minimum order is .01 kilograms, but that's not the case. The "Order Board" and "Market Depth" windows don't help me understand how my micro five gram bid got filled. In fairness, I need to spend more time learning about the Bullion Vault process before being overly critical. Alan's Money Blog has a more comprehensive and positive review.
The only other news to report is we purchased the Indonesian ETF (IDX) yesterday @ $31.12 a share. Happily, we're off to a good start as IDX was up about 1.5% today.
There were some bumps in the road getting to this point and we've got at least one more registration hurdle still outstanding. It took over a month and two emails to get the account funded. No explanation for the delays was provided. Bullion Vault's website was not that easy for me to use. In the States we're accustomed to pricing gold in ounces not kilograms. The site implies the minimum order is .01 kilograms, but that's not the case. The "Order Board" and "Market Depth" windows don't help me understand how my micro five gram bid got filled. In fairness, I need to spend more time learning about the Bullion Vault process before being overly critical. Alan's Money Blog has a more comprehensive and positive review.
The only other news to report is we purchased the Indonesian ETF (IDX) yesterday @ $31.12 a share. Happily, we're off to a good start as IDX was up about 1.5% today.
Friday, May 6, 2011
Some Things I'd Like To Do
1. Short the Erie Indemnity Company (ERIE), an insurance company with an Apple like chart. It's priced too high-- yield is under 3%. The chart looks like the stock is beginning to roll over. I can't do it for several reasons especially the low average daily volume of about 30K shares.
2. Deliver some really disgusting coffee or pizza to the analysts at Stifel (an obscure brokerage house) for downgrading Fifth Street Finance (FSC) today. Yes, I know, like the TSA gropers, they're only doing their job, but FSC was down 8% for the week and that's painful. It seems like everybody wants to take a shot at FSC these days. The fat dividend will help kill the pain we may have to endure with this one.
3. Buy Eli Lilly (LLY). The chart is favorable and others in the group like Bristol Myers are also moving up. But LLY would have to be a whim on a short leash. We'll see Monday morning.
4. Buy the Indonesian ETF (IDX). We owned it before and sold on Feb 16. It's gone up ever since. So buying IDX is both good medicine and good training. I thank Trader Mark for the reminder. Monday we'll go shopping for IDX.
2. Deliver some really disgusting coffee or pizza to the analysts at Stifel (an obscure brokerage house) for downgrading Fifth Street Finance (FSC) today. Yes, I know, like the TSA gropers, they're only doing their job, but FSC was down 8% for the week and that's painful. It seems like everybody wants to take a shot at FSC these days. The fat dividend will help kill the pain we may have to endure with this one.
3. Buy Eli Lilly (LLY). The chart is favorable and others in the group like Bristol Myers are also moving up. But LLY would have to be a whim on a short leash. We'll see Monday morning.
4. Buy the Indonesian ETF (IDX). We owned it before and sold on Feb 16. It's gone up ever since. So buying IDX is both good medicine and good training. I thank Trader Mark for the reminder. Monday we'll go shopping for IDX.
Thursday, May 5, 2011
Don't Tell The Kids
Yes, please don't tell the kids dear old Enid is blowing their inheritance. They're liable to have me committed, or at least gin up an intervention, if they knew I bought a few silver coins today. Not a lot, believe me, but when SLV plowed through $34.45 like a McCormick reaper on a half acre field, I got a tad heated. So here's the plan: as long as SLV is below $34.45, we'll dollar cost average a couple of coins each month and let the chips fall where they may.
The investment winds shifted unbelievably fast this week and we're likely to face our first test with a truly bearish market. Our investments are long term proposistions. I like to think we're sailing a fixed keel boat, not a centerboard board. We have no sell signals for bonds and precious metals. If need be, we'll sell other holdings based on either a 13/34 weekly moving average cross or dividend yield criteria. At least as of tonight, nothing meets our "sell" criteria.
The investment winds shifted unbelievably fast this week and we're likely to face our first test with a truly bearish market. Our investments are long term proposistions. I like to think we're sailing a fixed keel boat, not a centerboard board. We have no sell signals for bonds and precious metals. If need be, we'll sell other holdings based on either a 13/34 weekly moving average cross or dividend yield criteria. At least as of tonight, nothing meets our "sell" criteria.
Wednesday, May 4, 2011
SLV @ 34.45
There's no shortage of silver price predictions these days. Some that have not been found wrong before the ink dried are here and here and here. No predictions from me, but I intend to begin buying silver if and when the price of SLV is below 34.45. That, my friends, is the magic number, chosen for it's purity, it's balance, it's strength. I may play 3445 in the lottery tomorrow just to double my winnings.
Taking a wider view, who waved the magic wand? Inflation concerns have turned on a dime and deflation now has the spotlight. Commodities, equities, and most other asset classes have gone south with bonds of all things being a notable exception. News of a faltering economy has grabbed the headlines. GDP is falling, unemployment is rising. More such news is on tap for bad economic news is the wellspring for "quantitative easing" and we must have more quantitative easing (money printing). The Federal Reserve engineered boom - bust cycle gets shorter and shorter with each iteration. Ben, when are you going to put a stop to this careening wreck of a freight train?
Silver will rise in price and the dollar will depreciate once the need for QE III is overwhelmingly viewed as necessary. Couple of months ought to do the trick.
Taking a wider view, who waved the magic wand? Inflation concerns have turned on a dime and deflation now has the spotlight. Commodities, equities, and most other asset classes have gone south with bonds of all things being a notable exception. News of a faltering economy has grabbed the headlines. GDP is falling, unemployment is rising. More such news is on tap for bad economic news is the wellspring for "quantitative easing" and we must have more quantitative easing (money printing). The Federal Reserve engineered boom - bust cycle gets shorter and shorter with each iteration. Ben, when are you going to put a stop to this careening wreck of a freight train?
Silver will rise in price and the dollar will depreciate once the need for QE III is overwhelmingly viewed as necessary. Couple of months ought to do the trick.
Tuesday, May 3, 2011
Fire The Losers?
Since we started this journal there have been relatively few occasions where we've sold a holding for poor results. In a bull market, everyone's a genius, even me. But May has not treated our portfolio kindly and it's appropriate to take stock. Holdings that have lost more than 3% in the past five days are considered below.
1. SIVR (-7.9%): Silver ETF. Parabolic rise up, now a crash. No matter, we don't trade precious metal holdings.
2. CEF (-6.6%): Gold & silver closed end fund. See above.
3. USAGX (-5.5%): Miners mutual fund. We will sell given a 13/34 week moving average cross, but we're not there yet.
4. EWZ (-4.6%): Brazil equity ETF. Inflation (real and anticipated) is the culprit. There are reasons to bail now, but we're not a trader. We like the Brazil story, but would be forced to sell at a weekly closing price below 68.86 or a 13/34 week moving average cross. Not there yet.
5. BPT (-3.87%): Alaskan oil trust. BPT is a yield generator and as such we are not inclined to sell because of price moves. The current dividend yield is 8.2% and the latest ex dividend date was April 13.
6. GDX (-3.3%): Gold miner ETF. We are on the hook to sell half at a weekly close below 57.75 or a 13/34 week moving average cross.
7. FSC (-3.2%): Business development stock. Another yield generator. Current yield is 9.8%. Short sellers have been targeting some Business Development companies according to this article. Just what we need, something else to worry about.
8. KMR (-3.1%): Oil and gas pipeline company. Another yield generator, but you get paid in additional shares. It's complicated but the dividend is approximately 6%. The Master Limited Partnerships got hit today reportedly because of a change in favorable tax policy being floated by the Administration. From Reuters-- The Obama administration is considering a plan to force more businesses to pay the corporate income tax, an industry group said, in an overhaul package that could be unveiled as early as this month. Very preliminary-- hang tough for now.
9. CPL (-3.1%) Brazil electric utility. Yield again. This one's at 6.4% and management was given the thumbs up last month in this New York Times piece.
I feel better now. It's amazing what you can find out when you have to.
1. SIVR (-7.9%): Silver ETF. Parabolic rise up, now a crash. No matter, we don't trade precious metal holdings.
2. CEF (-6.6%): Gold & silver closed end fund. See above.
3. USAGX (-5.5%): Miners mutual fund. We will sell given a 13/34 week moving average cross, but we're not there yet.
4. EWZ (-4.6%): Brazil equity ETF. Inflation (real and anticipated) is the culprit. There are reasons to bail now, but we're not a trader. We like the Brazil story, but would be forced to sell at a weekly closing price below 68.86 or a 13/34 week moving average cross. Not there yet.
5. BPT (-3.87%): Alaskan oil trust. BPT is a yield generator and as such we are not inclined to sell because of price moves. The current dividend yield is 8.2% and the latest ex dividend date was April 13.
6. GDX (-3.3%): Gold miner ETF. We are on the hook to sell half at a weekly close below 57.75 or a 13/34 week moving average cross.
7. FSC (-3.2%): Business development stock. Another yield generator. Current yield is 9.8%. Short sellers have been targeting some Business Development companies according to this article. Just what we need, something else to worry about.
8. KMR (-3.1%): Oil and gas pipeline company. Another yield generator, but you get paid in additional shares. It's complicated but the dividend is approximately 6%. The Master Limited Partnerships got hit today reportedly because of a change in favorable tax policy being floated by the Administration. From Reuters-- The Obama administration is considering a plan to force more businesses to pay the corporate income tax, an industry group said, in an overhaul package that could be unveiled as early as this month. Very preliminary-- hang tough for now.
9. CPL (-3.1%) Brazil electric utility. Yield again. This one's at 6.4% and management was given the thumbs up last month in this New York Times piece.
I feel better now. It's amazing what you can find out when you have to.
Sunday, May 1, 2011
April Results
Better write fast and get this in the books as the metals are getting creamed as I type. April's increase of 4.86% was by far our best month. We clobbered the S&P 500 Broad Index return of 1.9% (estimated). Gold & silver, our professionally managed holding permanent portfolio PRPFX, international bond fund BEGBX, US Equity ETFs such as VIG, and the US Real Estate ETF VNQ were stellar performers. Finding something to whine about is difficult this month but it's fair to say our Brazil holdings such as EWZ have not been shining stars despite much favorable news and opinion.
Looking ahead I don't see a pressing need to alter the basic themes of hard assets, precious metals, and dollar weakness. The market neutral strategy has hit a rough patch, needs more evaluation, and is on hold. Were mostly within the constraints imposed by the allocation model. The main task in May will be watching to see if any downturns that develop have legs.
Looking ahead I don't see a pressing need to alter the basic themes of hard assets, precious metals, and dollar weakness. The market neutral strategy has hit a rough patch, needs more evaluation, and is on hold. Were mostly within the constraints imposed by the allocation model. The main task in May will be watching to see if any downturns that develop have legs.
Thursday, April 28, 2011
New Troops Join The Fray
We added to our holdings of the international REIT exchange traded fund RWX. NZT, the New Zealand telephone ADR, and BCA, the ADR of a regional bank in Chile, are new holdings. We were looking for non-US, well established businesses with good yields. Hopefully these three fill the bill. Maybe were overdoing this move out of the dollar, but after Bernanke opened the floodgates yesterday I see no alternative. Here's a former Fed official basically stating that our Central Bank usually lies to the public.
Not long ago I had a little part-time business primarily to convince my wife I was busy earning money. Her father worked into his eighties and this was her plan for me. Anyway, a former customer about my age called with a problem and I went over to her place today to see if I could help. So Susie and I are chatting it up-- well, she is really-- and we're reestablishing a rapport. Susie seemed astonished, envious really, that I was no longer working. "How can you do that" she asked, but I don't believe I replied. "Jack and I still have to work" she said. If I'm not mistaken she said this twice with sadness in her voice. The irony is that Susie's house is at least twice the price of mine. She complained about her high end appliances breaking and her hardwood floors being scratched. Pablo the handyman was there repairing some grout in the shower. Repainting the foyer must have been expensive as it had to be 40 feet high. My unspoken advice: Susie, adjust your thinking: it's your money or your life.
That's the title of a favorite book of mine and a frugal living cult classic. An updated edition was published in 2008. I enjoy the creature comforts as much as the next person, but I bristle at being labelled a "consumer". For years smart people like Bernays have investigated how to make people behave in certain ways. Everyday we are inundated by attempts to mold our thinking with regard to all aspects of life. So Susie, from one boomer to another, if you're not happy working, make some changes and stop working. It's actually quite simple.
Not long ago I had a little part-time business primarily to convince my wife I was busy earning money. Her father worked into his eighties and this was her plan for me. Anyway, a former customer about my age called with a problem and I went over to her place today to see if I could help. So Susie and I are chatting it up-- well, she is really-- and we're reestablishing a rapport. Susie seemed astonished, envious really, that I was no longer working. "How can you do that" she asked, but I don't believe I replied. "Jack and I still have to work" she said. If I'm not mistaken she said this twice with sadness in her voice. The irony is that Susie's house is at least twice the price of mine. She complained about her high end appliances breaking and her hardwood floors being scratched. Pablo the handyman was there repairing some grout in the shower. Repainting the foyer must have been expensive as it had to be 40 feet high. My unspoken advice: Susie, adjust your thinking: it's your money or your life.
That's the title of a favorite book of mine and a frugal living cult classic. An updated edition was published in 2008. I enjoy the creature comforts as much as the next person, but I bristle at being labelled a "consumer". For years smart people like Bernays have investigated how to make people behave in certain ways. Everyday we are inundated by attempts to mold our thinking with regard to all aspects of life. So Susie, from one boomer to another, if you're not happy working, make some changes and stop working. It's actually quite simple.
Wednesday, April 27, 2011
Billion Prices Project
First, some follow-up on yesterday's comments. I called L-3 Communications benefits office to express my concerns about the poor performance of my retirement plan, but I got the gold star dummy treatment. Ah, it's coming back to me now-- why I was so happy to say goodbye to corporate cubicle life. I've not given up, but prying any additional information from my pension managers could be tougher than getting hold of Obama's birth certificate. We'd also be remiss if we didn't thank the Fed Chairman for presiding over the first ever press conference. With every syllable crossing his lips, our newest holdings gained ground. I don't know why, but his words of confidence always ring hollow. He's the sucker who's going to take the rap for this mess and he deserves the honor more than most.
Inflation was a hot topic at today's press conference. Usually the U.S. Bureau of Labor Statistics Consumer Price Index (CPI) is used to measure price inflation. However, for several years some have found MIT's Billion Prices Project useful in estimating price inflation. The Billion Prices Project collects prices from hundreds of online retailers around the world on a daily basis to conduct economic research. One of the outputs currently produced is an Index of US inflation which is the basis for the chart below.
Inflation was a hot topic at today's press conference. Usually the U.S. Bureau of Labor Statistics Consumer Price Index (CPI) is used to measure price inflation. However, for several years some have found MIT's Billion Prices Project useful in estimating price inflation. The Billion Prices Project collects prices from hundreds of online retailers around the world on a daily basis to conduct economic research. One of the outputs currently produced is an Index of US inflation which is the basis for the chart below.
Project managers readily admit they don't cover all goods and services due to the nature of online sales. Still, can you imagine how little is spent on this effort compared with the cost of producing the government's CPI?
Recently the US Index was unavailable for about a week, then reappeared. The Wall Street Examiner speculates that MIT's explanation of too much work to do is not the entire story. I hope the project's US Index continues to be produced. It's a neat use of technology offering an alternative to the often criticized CPI.
Tuesday, April 26, 2011
In For A Penny, In For A Pound
We purchased some additional precious metals and strong currency shares in the past two days. Perhaps I got too emotional. Bernanke's ridiculous scheduled TV appearance tomorrow really set me off. Besides the sheer chutzpah of the stunt, this guy is clearly running scared and more and more people know it every day. Geithner's statement that he favors a strong dollar was the last straw. Take your best shot tomorrow boyo's, reality resumes next week.
Anyway, here's a summary of the currency ETFs we now own:
UDN (PowerShares DB US Dollar Index Bearish Fund)-- Tracks the Deutsche Bank Short US Dollar Futures Index. It's a bet that the Dollar Index continues to fall. The dollar index consists of the Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc.
FXA (CurrencyShares Australian Dollar Trust)-- G'day mate.
BZF (WisdomTree Dreyfus Brazilian Real Fund)-- The investment seeks to achieve total returns reflective of both money market rates in Brazil available to foreign investors and changes in value of the Brazilian Real relative to the U.S. dollar.
CEW (WisdomTree Dreyfus Emerging Currency Fund)-- Invests in emerging and developing economies in three regions of the world: (i) Asia, (ii) Latin America and (iii) Europe, the Middle East and Africa. More specifically, currencies of Brazil, Chile, China, Colombia, the Czech Republic, Hungary, India, Indonesia, Israel, Malaysia, Mexico, Peru, Philippines, Poland, Russia, Slovakia, South Africa, South Korea, Taiwan, Thailand, and Turkey are current eligible candidates.
That just about covers the waterfront I would think. Oh, we also added some ultimate money by buying more CEF (Central Fund of Canada). Wow, we're up to our kister in this Austrian economics, anti paper money, end the Fed, Keyenes was a socialist, sound money way of thinking. As I said, in for a penny, in for a pound.
Anyway, here's a summary of the currency ETFs we now own:
UDN (PowerShares DB US Dollar Index Bearish Fund)-- Tracks the Deutsche Bank Short US Dollar Futures Index. It's a bet that the Dollar Index continues to fall. The dollar index consists of the Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc.
FXA (CurrencyShares Australian Dollar Trust)-- G'day mate.
BZF (WisdomTree Dreyfus Brazilian Real Fund)-- The investment seeks to achieve total returns reflective of both money market rates in Brazil available to foreign investors and changes in value of the Brazilian Real relative to the U.S. dollar.
CEW (WisdomTree Dreyfus Emerging Currency Fund)-- Invests in emerging and developing economies in three regions of the world: (i) Asia, (ii) Latin America and (iii) Europe, the Middle East and Africa. More specifically, currencies of Brazil, Chile, China, Colombia, the Czech Republic, Hungary, India, Indonesia, Israel, Malaysia, Mexico, Peru, Philippines, Poland, Russia, Slovakia, South Africa, South Korea, Taiwan, Thailand, and Turkey are current eligible candidates.
That just about covers the waterfront I would think. Oh, we also added some ultimate money by buying more CEF (Central Fund of Canada). Wow, we're up to our kister in this Austrian economics, anti paper money, end the Fed, Keyenes was a socialist, sound money way of thinking. As I said, in for a penny, in for a pound.
Monday, April 25, 2011
A Letter From A Former Employer
Today I received a letter from the Company that pays me a small retirement. The Company is required to send me an Annual Funding Notice because the retirement plan is insured by the Pension Benefit Guaranty Corporation (PGBC), a federal agency. The letter raises more questions than it answers.
On page 1 it reads "L-3 has no reason to believe that it will believe it will be unable to meet its funding requirements under the plan". Nonetheless, the ratio of assets to liabilities has declined from 93% to 81% over the past three years. No explanation is given for the cause or possible ramifications of the decline. Apparently, the PGBC requires special reporting if the ratio falls below 80% so if the trend continue, L-3 will cross that hurdle soon without raising a sweat.
The specific plan I'm part of is quite small-- only 646 total participants. The assets of our plan are invested 100% in a master pension trust sponsored by L-3 Communications Corporation. The asset allocation of this trust is reported as follows:
cash- .07%
corporate debt instruments- 5.84%
corporate stocks- 57.91%
value of interest in common/collective trusts- 24.60%
mutual funds and similar- 11.57%
other- .02%
No specific investment information is provided and I'm curious. Have they any gold or silver holdings? Commodities? You get the idea. Fortunately, the letter gives a phone number to call if one needs more information. I think I'll give them a ring.
On page 1 it reads "L-3 has no reason to believe that it will believe it will be unable to meet its funding requirements under the plan". Nonetheless, the ratio of assets to liabilities has declined from 93% to 81% over the past three years. No explanation is given for the cause or possible ramifications of the decline. Apparently, the PGBC requires special reporting if the ratio falls below 80% so if the trend continue, L-3 will cross that hurdle soon without raising a sweat.
The specific plan I'm part of is quite small-- only 646 total participants. The assets of our plan are invested 100% in a master pension trust sponsored by L-3 Communications Corporation. The asset allocation of this trust is reported as follows:
cash- .07%
corporate debt instruments- 5.84%
corporate stocks- 57.91%
value of interest in common/collective trusts- 24.60%
mutual funds and similar- 11.57%
other- .02%
No specific investment information is provided and I'm curious. Have they any gold or silver holdings? Commodities? You get the idea. Fortunately, the letter gives a phone number to call if one needs more information. I think I'll give them a ring.
Friday, April 22, 2011
Twelve Months In Two Charts
These two charts were made at ETF Replay. Though limited in that only ETFs can be charted, these are Total Return charts which is a good thing. In these charts I'm using ETFs as a proxies for asset classes as follows: SPY, equities; BND, bonds; DBC, commodities; UUP, dollar index; GLD, gold.
I failed to mention it last week, but we doubled up on our investment in UDN, the dollar down ETF. Purchasing additional strong currency holdings seems prudent.
These are 12 month charts. They speak for themselves so I'll be brief. The worst investment was cash, just as Bernanke drew up the game plan. Those without capital or unable for other reasons to take investment risk, which I suspect is the majority of Americans, have had the rug pulled out from beneath them. Given the huge jump in commodity prices, statements from Washington about the benign nature of price inflation ring ever more hollow. All those feeling giddy about their 401K and IRA profits (I admit I'm guilty) need to recalculate the numbers taking into account the near 11% US dollar depreciation. Whoever in the administration Obama is saddled with investigating the reason for the rise in gasoline prices should ask members of the House of Representatives about their role in destroying the dollar.
I failed to mention it last week, but we doubled up on our investment in UDN, the dollar down ETF. Purchasing additional strong currency holdings seems prudent.
Wednesday, April 20, 2011
A Conundrum
Let's assume you have credit card debt-- not much of a stretch is it? Every month you send your bank a check but the balance doesn't change much. You study the bank statements and realize every month you are being charged interest because you didn't fully pay off the total amount owed. Worrying about paying off this debt given the high rate of interest on the outstanding balance keeps you up half the night.
Next morning you're browsing through Craigslist looking for a used economy car when you spot an unusual ad. It reads: Money Printing Machine, Produces Genuine Dollar Bills, Make an Offer, Cheap. You instinctively know this is too good to be true. Nevertheless, you have an epiphany: If you did have a money printing machine, you would never pay interest on borrowed money again. There would be no need to borrow money in the first place as you could always print enough money to pay your expenses. You reason, give me the authority to print money and rest assured I will never again pay interest. But what about the government and it's money printing machine?
Though not universally accepted as constitutional or wise, the view that the ability to print paper money is a necessary and proper power of the federal government is widely held. So here's the conundrum: If the United States government has the power to print money, why does the government chose to issue treasury bonds and pay interest to obtain dollars (aka Federal Reserve Notes)? Put another way, why does the government chose to pay interest on money that is created out of thin air?
A standard answer is that government bureaucrats and politicians have no discipline and can't be trusted. We need the steely resolution of the bankers to save us from economic ruin. But Thomas Edison once remarked ..."if the Nation can issue a dollar bond it can issue a dollar bill. Both are promises to pay, but one fattens the usurer and the other helps the People". A federal deficit of more than $14 trillion shows just how dearly we have paid for so little discipline. The outcome of the government's arrangement with the bankers has been so horrendously destructive, it makes the rationale offered for the arrangement totally implausible.
Our government cast it's lot with the usurers. Was making a different choice possible then? Is a different choice possible now? To conclude that there are real choices available on issues of this magnitude, one has to believe the United States government is sovereign. Are those we elect and normally regard as the government's leaders truly this country's supreme authorities? Or has the policy and decision making apparatus been usurped? A $14 trillion dollar government debt makes me wonder who's calling the shots.
Next morning you're browsing through Craigslist looking for a used economy car when you spot an unusual ad. It reads: Money Printing Machine, Produces Genuine Dollar Bills, Make an Offer, Cheap. You instinctively know this is too good to be true. Nevertheless, you have an epiphany: If you did have a money printing machine, you would never pay interest on borrowed money again. There would be no need to borrow money in the first place as you could always print enough money to pay your expenses. You reason, give me the authority to print money and rest assured I will never again pay interest. But what about the government and it's money printing machine?
Though not universally accepted as constitutional or wise, the view that the ability to print paper money is a necessary and proper power of the federal government is widely held. So here's the conundrum: If the United States government has the power to print money, why does the government chose to issue treasury bonds and pay interest to obtain dollars (aka Federal Reserve Notes)? Put another way, why does the government chose to pay interest on money that is created out of thin air?
A standard answer is that government bureaucrats and politicians have no discipline and can't be trusted. We need the steely resolution of the bankers to save us from economic ruin. But Thomas Edison once remarked ..."if the Nation can issue a dollar bond it can issue a dollar bill. Both are promises to pay, but one fattens the usurer and the other helps the People". A federal deficit of more than $14 trillion shows just how dearly we have paid for so little discipline. The outcome of the government's arrangement with the bankers has been so horrendously destructive, it makes the rationale offered for the arrangement totally implausible.
Our government cast it's lot with the usurers. Was making a different choice possible then? Is a different choice possible now? To conclude that there are real choices available on issues of this magnitude, one has to believe the United States government is sovereign. Are those we elect and normally regard as the government's leaders truly this country's supreme authorities? Or has the policy and decision making apparatus been usurped? A $14 trillion dollar government debt makes me wonder who's calling the shots.
Monday, April 18, 2011
Another Shocker (or no big deal?)
The shocks to the financial system are coming fast. Last week it was the University of Texas announcement they were loading up on gold bullion. Today Standard & Poors downgraded the outlook of the United States to negative, saying it believes there's a risk U.S. policymakers may not reach agreement on how to address the country's long-term fiscal pressures. In short, we owe oodles of cash and have not taken steps to reduce debt. The rating agency wants to see a credible solution to the deficit problem within two years or they will pull the plug on our AAA credit rating.
Almost immediately (they were clued in before the Standard & Poors announcement) the shoot the messenger crowd fired back. Austan Goolsbee, chairman of the Council of Economic Advisers, characterized the S&P move as a "political judgement." Treasury Assistant Secretary Mary Miller stated the downgrade "underestimates the ability of America's leaders to come together to address the difficult fiscal challenges facing the nation." Obviously Mary hasn't been watching the Sunday morning political talk shows where dumb asses from both parties only take cheap shots. Will the downgrade jump start fiscal responsibility in Washington or be ignored like other warnings.
Over at the Market Ticker Karl Denninger is of the view that given the outlook downgrade, Congress is trapped and has to knock off the deficit spending now, not in 30 or 40 years. If Washington fails to take action now, we will lose our AAA credit rating and truly bad things happen. Spam for dinner anyone?
Others believe it is impossible to stop government deficit spending and debt monetization. Really, who will buy our debt besides the Federal Reserve? Others like Graham Summers say austerity is not in the cards as interest rates can't be allowed to rise given the affect on banks holding trillions of dollars of interest rate sensitive derivatives.
With so many dependent on government largess of one form or another, I believe the likelihood of this country embracing austerity to voluntarily reduce the deficit is zippo. That ship has sailed. We will ignore this outlook downgrade and we will ignore all future warnings. You see, if a treasury agent comes into your home and demands you hand over the new home theater system and a third of Grandma's medicaid money to reduce the deficit, you're going to get upset. Politicians don't like to upset voters, so this won't happen. Politicians will try to achieve the same result via price inflation and hope you don't notice.
Saturday, April 16, 2011
The Longhorns Go Long Gold
Bloomberg reported yesterday that the University of Texas took delivery of nearly $1 billion in gold bullion and is storing it in a New York City vault. This is a startling development-- $1 billion is approximately 5% of the University's total endowment. The floodgates are now open for other endowments, pension funds, etc to follow suit.
Texas has the country's second largest endowment; Harvard University has the largest with more than $27 billion in it's coffers. I've often wondered why schools with this much money even bother charging tuition. Here's how Harvard's asset allocation model percentages have changed according to their latest annual report:
1995 2005 2010
Domestic Equities 38 15 11
Foreign Equities 15 10 11
Emerging Markets 5 5 11
Private Equities 12 13 13
Total Equity 70 43 46
Absolute Return 0 12 16
Commodities 6 13 14
Real Estate 7 10 9
Total Real Assets 13 23 23
Domestic Bonds 15 11 4
Foreign Bonds 5 5 2
High Yield 2 5 2
Inflation‐Indexed Bonds 0 6 5
Total Fixed Income 22 27 13
Cash -5 -5 2
Since 1995, holdings in equities and bonds, and have been reduced while holdings in absolute return, commodities, real estate, and cash have increased. Absolute return investment techniques include short selling, futures, options, derivatives, arbitrage, leverage and unconventional assets. For the most part, think hedge fund. What's interesting is how different this model is compared with the 3rd grade nonsense you read in the popular business magazines. Does the average 401K investor know the brainiacs at Harvard have more money in commodities that US equities?
Just for fun I tried to find some information about the endowment at my alma mater, SUNY Cortland. It's not in the billions, just a paltry $11.7 million to be precise. This money is invested with a single manager. OK, I know I was a chemistry major and partied too much, but hello finance committee-- hire more than one manager.
Texas has the country's second largest endowment; Harvard University has the largest with more than $27 billion in it's coffers. I've often wondered why schools with this much money even bother charging tuition. Here's how Harvard's asset allocation model percentages have changed according to their latest annual report:
1995 2005 2010
Domestic Equities 38 15 11
Foreign Equities 15 10 11
Emerging Markets 5 5 11
Private Equities 12 13 13
Total Equity 70 43 46
Absolute Return 0 12 16
Commodities 6 13 14
Real Estate 7 10 9
Total Real Assets 13 23 23
Domestic Bonds 15 11 4
Foreign Bonds 5 5 2
High Yield 2 5 2
Inflation‐Indexed Bonds 0 6 5
Total Fixed Income 22 27 13
Cash -5 -5 2
Since 1995, holdings in equities and bonds, and have been reduced while holdings in absolute return, commodities, real estate, and cash have increased. Absolute return investment techniques include short selling, futures, options, derivatives, arbitrage, leverage and unconventional assets. For the most part, think hedge fund. What's interesting is how different this model is compared with the 3rd grade nonsense you read in the popular business magazines. Does the average 401K investor know the brainiacs at Harvard have more money in commodities that US equities?
Just for fun I tried to find some information about the endowment at my alma mater, SUNY Cortland. It's not in the billions, just a paltry $11.7 million to be precise. This money is invested with a single manager. OK, I know I was a chemistry major and partied too much, but hello finance committee-- hire more than one manager.
Thursday, April 14, 2011
Today's Score-- 34 to 5
We routed the competition today: 34 holdings up, only 5 down. This could very well be the score of Nebraska's opener against outgunned Chatanooga. Or I should play 345 in the lottery. Anyway, both the Fiat Fantasy and Change of Heart portfolios creamed the S&P 500. Enough gloating, what else is new today? Bullion Direct hasn't received my check so we can't participate in their gold auction just yet. I'm having trouble identifying a rock solid, can't miss (yeah, right) short candidate so we can kick off the market neutral strategy. This is a bit odd because the S&P 500 appears weak to me. There were many good snippets on the blogs I read daily. Here are a few highlights:
Market Ticker-- A bill (H.R. 1149) has been introduced that essentially would reinstate Glass-Steagall and resurrect the separation between commercial and investment banking. The big banks won't like this at all but H.R. 1149 is long overdue by about three financial crises. Here's how Karl Denninger put it:
This is pretty much the approach I outlined for myself a few days ago. I doubt I'll be astute or nimble enough to make money in a bear market. Realistically, I'd be thrilled to just not lose a lot. Or as I read elsewhere recently, I'd like to "sidestep" the bad years.
Along The Watchtower-- Turd Ferguson, who deservedly gloats all the time, penned this today:
The president's speech/plan was an absolute farce. The U.S.A. does not have a tax/revenue problem. The U.S.A. has a spending problem. The deficit and debt cannot be controlled by "eliminating waste and abuse" and raising taxes on millionaires. This is nothing but class warfare politics and SPIN. The only hope for the U.S. is that serious leaders will emerge with serious proposals. They then act on their proposals, re-election hopes be damned. Let's just say I'm not expecting this anytime soon.
Neither am I Turd, and that's the reason why hard assets are appreciating. There's no hard asset bubble, just a dollar bear market.
Zerohedge-- Michael Burry saw the housing bubble coming and profited handsomely. Here's what he has to say now:
I am worried about a future of a nation that refuses to acknowledge the true causes for the crisis. A historic opportunity was lost. America has instead chosen its poison as its cure... Today I expect the US government to attempt to continue easy money policies into the next presidential term, past the foreclosure crisis, and past the corporate and public refinancing humps that are forthcoming. Junk bonds incredibly are again at all time highs. Quantitative Easing seems to be working for now. But this is an invalid validation of what America is doing. This is in fact a Pyrrhic gamble. As we continue to debase our currency, Bernanke says he is not printing money, again I disagree. As it stands I get an email from the Fed saying we bought another X billion in Treasurys. I don't know - that's pretty clear to me. In fact this program QE2 its scope and breadth raises the severe question of the Treasury's needs. The government's borrowing of money for the purposes of injecting cash into society, bailing out banks, brokers and consumers, is a short-sighted easy decision for a population that has not yet learned that short-sighted, easy strategies are the route to long-term ruin. We never quite achieved the catharsis necessary to stoke the reevaluation of our wants, need, and fears.
So who's right, Krugman or Burry? We'll see soon enough, but my money's on Burry.
Market Ticker-- A bill (H.R. 1149) has been introduced that essentially would reinstate Glass-Steagall and resurrect the separation between commercial and investment banking. The big banks won't like this at all but H.R. 1149 is long overdue by about three financial crises. Here's how Karl Denninger put it:
EXXXXCELLENT.
CALL YOUR CRITTERS AND DEMAND A PUBLIC POSITION STATEMENT ON THIS BILL. IF THEY WON'T CO-SPONSOR AND PUSH IT, USE THE WORDS: "YOU'RE FIRED!"
Jesse's Cafe Americain-- Here's the key quote:
If there is a waterfall decline in stocks, which is a possibility, I would expect to have my trading account weighted to the short side by the time it gets underway, and make a significant sum of money as I have done the last two times this happened in the past ten years. I would expect not to touch any of my long term gold and silver holdings and take the charges of turning over long term assets such as bullion. I will not touch them until something fundamentally changes in the makeup of the dollar based money system.
This is pretty much the approach I outlined for myself a few days ago. I doubt I'll be astute or nimble enough to make money in a bear market. Realistically, I'd be thrilled to just not lose a lot. Or as I read elsewhere recently, I'd like to "sidestep" the bad years.
Along The Watchtower-- Turd Ferguson, who deservedly gloats all the time, penned this today:
The president's speech/plan was an absolute farce. The U.S.A. does not have a tax/revenue problem. The U.S.A. has a spending problem. The deficit and debt cannot be controlled by "eliminating waste and abuse" and raising taxes on millionaires. This is nothing but class warfare politics and SPIN. The only hope for the U.S. is that serious leaders will emerge with serious proposals. They then act on their proposals, re-election hopes be damned. Let's just say I'm not expecting this anytime soon.
Neither am I Turd, and that's the reason why hard assets are appreciating. There's no hard asset bubble, just a dollar bear market.
Zerohedge-- Michael Burry saw the housing bubble coming and profited handsomely. Here's what he has to say now:
I am worried about a future of a nation that refuses to acknowledge the true causes for the crisis. A historic opportunity was lost. America has instead chosen its poison as its cure... Today I expect the US government to attempt to continue easy money policies into the next presidential term, past the foreclosure crisis, and past the corporate and public refinancing humps that are forthcoming. Junk bonds incredibly are again at all time highs. Quantitative Easing seems to be working for now. But this is an invalid validation of what America is doing. This is in fact a Pyrrhic gamble. As we continue to debase our currency, Bernanke says he is not printing money, again I disagree. As it stands I get an email from the Fed saying we bought another X billion in Treasurys. I don't know - that's pretty clear to me. In fact this program QE2 its scope and breadth raises the severe question of the Treasury's needs. The government's borrowing of money for the purposes of injecting cash into society, bailing out banks, brokers and consumers, is a short-sighted easy decision for a population that has not yet learned that short-sighted, easy strategies are the route to long-term ruin. We never quite achieved the catharsis necessary to stoke the reevaluation of our wants, need, and fears.
So who's right, Krugman or Burry? We'll see soon enough, but my money's on Burry.
Tuesday, April 12, 2011
Today's Top Stories?
From this evening's Yahoo! Finance Top Stories:
Stocks fall after Japan raises crisis level- AP
The Dow Jones industrial average lost more than 100 points Tuesday after Japan raised the severity of its nuclear crisis and Alcoa Inc. reported disappointing sales. A drop in oil prices pulled down energy stocks.
Stocks fall after Japan raises crisis level- AP
The Dow Jones industrial average lost more than 100 points Tuesday after Japan raised the severity of its nuclear crisis and Alcoa Inc. reported disappointing sales. A drop in oil prices pulled down energy stocks.
- Free ride to higher bank earnings could be ending- AP
- Spending cuts not expected to dent $1.5T deficit- AP
- iPads take a place next to crayons in kindergarten- AP
- Cisco plans to shut its Flip camcorder business- AP
- 5 NJ schools get grants from $100M Facebook gift- AP
- February trade deficit narrows to $45.8 billion- AP
- Oil price tumbles on supplies and Goldman pullback- AP
- Farmers, airlines exempt from derivatives rules- AP
- S&P could erase 2011 gains, retest 1,250- Breakout
Monday, April 11, 2011
Which Investment Will Perform Best?
That was the question posed by Monday's USA Today Snapshots. And so, may I have the envelope please? Respondents said Technology- 36%, Gold- 31%, Blue-chip stocks- 10%, Real estate- 9%, and International stocks (9%). What, no bonds? The survey was conducted by Edward Jones and more than a thousand adults participated.
I'm quite surprised that 31% of those surveyed believe gold will be the top performing investment. Apparently, Kate Ware, an investment strategist at Edward Jones, is concerned by the number of particpants favoring gold. She states "Our research of gold's performance since 1970 indicates that gold tends to fall as quickly as it rises, and over longer-term periods, it fails to match the performance of stocks as represented by the S&P 500." I'm sure Ms Ware's analysis of the past is correct. But in my case, planning on a 40 year investment horizon would be, shall we say, wildly pollyannaish. I would also note the rise in debt has made today's economic situation much different than that of the 1970s.
Switching gears, in the previous journal entry we mentioned the recent Martenson - Tustain audio interview. It really is quite good though towards the end it turns into a Bullion Vault infomercial. An effective infomercial, as despite initial skepticism, they won me over and I opened an account with Bullion Vault. We'll see how it turns out as a method of accumulating gold. By the gram in my case.
I'm quite surprised that 31% of those surveyed believe gold will be the top performing investment. Apparently, Kate Ware, an investment strategist at Edward Jones, is concerned by the number of particpants favoring gold. She states "Our research of gold's performance since 1970 indicates that gold tends to fall as quickly as it rises, and over longer-term periods, it fails to match the performance of stocks as represented by the S&P 500." I'm sure Ms Ware's analysis of the past is correct. But in my case, planning on a 40 year investment horizon would be, shall we say, wildly pollyannaish. I would also note the rise in debt has made today's economic situation much different than that of the 1970s.
Switching gears, in the previous journal entry we mentioned the recent Martenson - Tustain audio interview. It really is quite good though towards the end it turns into a Bullion Vault infomercial. An effective infomercial, as despite initial skepticism, they won me over and I opened an account with Bullion Vault. We'll see how it turns out as a method of accumulating gold. By the gram in my case.
Saturday, April 9, 2011
Employees of The Week-- The Fab Five
This weeks top gainers: SIVR (precious metals), 8.1%; GDX (gold miners), 7.0%; CEF (precious metals), 3.5%; USCI (commodities), 3.3%; SGOL (precious metals), 3.2%. A result like this is fiat fantasy nirvana. But if you force yourself to be objective, there's no cause for celebration.
My son told me yesterday his gasoline bill for March was $600. That's with a Mom and Dad driving to work and taking two children to some activities. A typical family with I gather a now typical monthly gasoline expense. They're not starving, but for sure there's going to be less of something else in April.
Paul Tustain, founder of BullionVault, discusses the economic situation in an interview with Chris Martenson. Paul reminds us that central banks have become net buyers of gold, a change from past preferences. Couple this with a world with a diminishing appetite for US Treasuries and dollars and you have the makings of a profound change. Whenever the CNBC crew mentions gold and silver both metals are treated as just another commodity like oil or corn. Except for Rick Santelli, the fact that at least some people are abandoning the dollar because they are scared is rarely mentioned by mainstream media pundits.
One of famed investor Jesse Livermore's admonitions was to have the patience to sit tight. Gold and silver have had big runs and are overdue for a pull back. Perhaps a pull back orchestrated by those who have much to lose if the rise continues. As I'm not clever enough to time this trade, my approach will be to buy more precious metals after a price decline. Going forward we will consider rebalancing all asset classes except precious metals. To remain true to the fiat fantasy raison d'etre, our gold and silver mantra is buy low and don't sell..... until there's at least one currency backed by something other than paper. Jade, oil, titanium, tulip bulbs-- just about anything except paper.
I dismiss the gold bugs who claim owning gold is an easy way to get rich. Let's face it, we're in trouble when gold and silver are primo investments. Once the dollar collapses and Americans are forced to deal with the realities, day to day living is going to become an unpredictable and untidy mess. At best, precious metals may give you some purchasing power you wouldn't otherwise have.
To end on a lighter note, I'm quite adamant about all this so don't even think about starting an argument.
My son told me yesterday his gasoline bill for March was $600. That's with a Mom and Dad driving to work and taking two children to some activities. A typical family with I gather a now typical monthly gasoline expense. They're not starving, but for sure there's going to be less of something else in April.
Paul Tustain, founder of BullionVault, discusses the economic situation in an interview with Chris Martenson. Paul reminds us that central banks have become net buyers of gold, a change from past preferences. Couple this with a world with a diminishing appetite for US Treasuries and dollars and you have the makings of a profound change. Whenever the CNBC crew mentions gold and silver both metals are treated as just another commodity like oil or corn. Except for Rick Santelli, the fact that at least some people are abandoning the dollar because they are scared is rarely mentioned by mainstream media pundits.
One of famed investor Jesse Livermore's admonitions was to have the patience to sit tight. Gold and silver have had big runs and are overdue for a pull back. Perhaps a pull back orchestrated by those who have much to lose if the rise continues. As I'm not clever enough to time this trade, my approach will be to buy more precious metals after a price decline. Going forward we will consider rebalancing all asset classes except precious metals. To remain true to the fiat fantasy raison d'etre, our gold and silver mantra is buy low and don't sell..... until there's at least one currency backed by something other than paper. Jade, oil, titanium, tulip bulbs-- just about anything except paper.
I dismiss the gold bugs who claim owning gold is an easy way to get rich. Let's face it, we're in trouble when gold and silver are primo investments. Once the dollar collapses and Americans are forced to deal with the realities, day to day living is going to become an unpredictable and untidy mess. At best, precious metals may give you some purchasing power you wouldn't otherwise have.
To end on a lighter note, I'm quite adamant about all this so don't even think about starting an argument.
Thursday, April 7, 2011
Price Follows Volume?
I came across this chart at Trader Mark's Fund My Mutual Fund. It would seem back in June 2009 traders said party on, but we're out of here. Other possible explanations of the chart and what it means from the article's comment section and elsewhere:
Either this time is different or the old logic will win out (eventually). We shall see.
* Volume is down because share prices are up.
* Lack of trading by high frequency traders.
* Computer trading programs are idle because of low volatility.
* ETF trading volume might not be included.
*Investors are uncertain and therefore not trading.
* Investors are busy trading commodities and currencies.
* "Investment" volume is less than realized because of ETFs and high frequency trading
(see this Money Morning article).
Price follows volume. This just might be the oldest adage in the trader's lexicon. Investopedia explains traditional thinking on volume this way:
"...volume should increase when the price moves in the direction of the trend and decrease when the price moves in the opposite direction of the trend. For example, in an uptrend, volume should increase when the price rises and fall when the price falls. The reason for this is that the uptrend shows strength when volume increases because traders are more willing to buy an asset in the belief that the upward momentum will continue. Low volume during the corrective periods signals that most traders are not willing to close their positions because they believe the momentum of the primary trend will continue.
Conversely, if volume runs counter to the trend, it is a sign of weakness in the existing trend. For example, if the market is in an uptrend but volume is weak on the up move, it is a signal that buying is starting to dissipate. If buyers start to leave the market or turn into sellers, there is little chance that the market will continue its upward trend. The same is true for increased volume on down days, which is an indication that more and more participants are becoming sellers in the market."
Conversely, if volume runs counter to the trend, it is a sign of weakness in the existing trend. For example, if the market is in an uptrend but volume is weak on the up move, it is a signal that buying is starting to dissipate. If buyers start to leave the market or turn into sellers, there is little chance that the market will continue its upward trend. The same is true for increased volume on down days, which is an indication that more and more participants are becoming sellers in the market."
Either this time is different or the old logic will win out (eventually). We shall see.
Wednesday, April 6, 2011
Operator Spreadsheet Error
In an earlier entry I wrote that Fiat Fantasy was up .75% in March; however, the correct number is actually 3.3%. The spreadsheet goblin goofed me up.
I sold shares of PRPFX today to scale back our exposure. PRPFX has been a star performer, now a victim of it's own success. It's still a core holding.
I don't have the same warm feelings for CSJ, a short term bond fund we also lightened up on today. After about six months, we essentially broke even on this one. CSJ is as a good bond fund but that's not a great place to be right now.
And that's the problem isn't it? Where's a good place to be right now. For lack of a better idea, we hooked up again with the Brazil equity ETF EWZ. The last time we traded EWZ it worked out great so we're looking for a repeat. After several months of middling to slightly down performance, the emerging markets are showing some life. Fundamentals don't interest me much, but I would note that Brazil is largely immune to oil price hikes as they grow and use so much sugarcane ethanol. Next year GDP is expected to grow 4 - 5%. The dividend payout is 3.8%. After not moving much since November, we're betting on an assault of the old high near 100. Unfortunately, we're off to a poor start as EWZ was off about 1% today. I'd post the EWZ chart but blogger has developed a hiccup.
The end result of this maneuvering is all portfolio asset classes are within bounds except we're overweight in cash and precious metals.
I sold shares of PRPFX today to scale back our exposure. PRPFX has been a star performer, now a victim of it's own success. It's still a core holding.
I don't have the same warm feelings for CSJ, a short term bond fund we also lightened up on today. After about six months, we essentially broke even on this one. CSJ is as a good bond fund but that's not a great place to be right now.
And that's the problem isn't it? Where's a good place to be right now. For lack of a better idea, we hooked up again with the Brazil equity ETF EWZ. The last time we traded EWZ it worked out great so we're looking for a repeat. After several months of middling to slightly down performance, the emerging markets are showing some life. Fundamentals don't interest me much, but I would note that Brazil is largely immune to oil price hikes as they grow and use so much sugarcane ethanol. Next year GDP is expected to grow 4 - 5%. The dividend payout is 3.8%. After not moving much since November, we're betting on an assault of the old high near 100. Unfortunately, we're off to a poor start as EWZ was off about 1% today. I'd post the EWZ chart but blogger has developed a hiccup.
The end result of this maneuvering is all portfolio asset classes are within bounds except we're overweight in cash and precious metals.
Tuesday, April 5, 2011
Real Estate Mixed Messages
The cover page of the latest edition of Fortune magazine has emblazoned in large print The Return of Real Estate followed just below with Finally! After Years of Plummeting Home Prices, The Market Is Showing Signs of a Turnaround. But is the turnaround here? Sunday's 60 Minutes television show aired a segment about underwater homeowners and fraudclosure. What first got me thinking again about home prices was the most recent Commerce Department report noting that new home sales in February sank 16.9% to a seasonally adjusted record low of 250,000 homes. Sales were down 28% from February 2010 and prices fell 13.9% from January. This was a shockingly bad report. The National Association of Realtors has an ongoing Home Ownership Matters campaign involving a bus tour and Facebook page.
Here in New York its more mixed signals. New York State home sales in February decreased by 3.1 percent year over year but the statewide median sales prices continued to trend upward. Can prices continue to rise in a market generating fewer sales?
The story is similar in my town-- year to date sales are down while the median sales price is up. The inventory of homes for sale has risen slightly from last year's figures.
Not long ago I would increase the value of our home by .2% a month whenever figuring household net worth. This was a conservative approach-- until the real estate crash and then even I had to admit it no longer made sense. Now I keep the home value estimate static. Or as the realtor who sold our last home said to me: You and I won't determine the value of your house-- the market will do that. Truer words were never said.
Here in New York its more mixed signals. New York State home sales in February decreased by 3.1 percent year over year but the statewide median sales prices continued to trend upward. Can prices continue to rise in a market generating fewer sales?
The story is similar in my town-- year to date sales are down while the median sales price is up. The inventory of homes for sale has risen slightly from last year's figures.
Not long ago I would increase the value of our home by .2% a month whenever figuring household net worth. This was a conservative approach-- until the real estate crash and then even I had to admit it no longer made sense. Now I keep the home value estimate static. Or as the realtor who sold our last home said to me: You and I won't determine the value of your house-- the market will do that. Truer words were never said.
Sunday, April 3, 2011
Employee of the Week-- CPL
Taking Employee of the week honors is CPFL Energia SA (CPL), a newcomer to the team. This company is a Brazilian electric utility. CPL was up nearly 6.6% for the week edging out three non US equity holdings for the top spot and reaching a 52 week high in the process.
CPL has a policy of semiannually paying out 50% of net income as dividends. In a Tuesday conference call they announced a dividend of 6.9% which is good but actually the lowest dividend yield in two years. Management also announced a complicated sequence of splits for both common shares and the ADRs which I don't understand completely but it must be good news given the jump in the share price.
CPL has a policy of semiannually paying out 50% of net income as dividends. In a Tuesday conference call they announced a dividend of 6.9% which is good but actually the lowest dividend yield in two years. Management also announced a complicated sequence of splits for both common shares and the ADRs which I don't understand completely but it must be good news given the jump in the share price.
Friday, April 1, 2011
March Results
March was a quiet month with only one sale and one buy. In my saner moments I like quiet months when things just plod along. Hope it lasts.
Fiat Fantasy was up .75% for the month. Precious metals and hard assets led the charge, bonds were a bit of a drag. Other asset classes were basically flat. In a minor way some asset classes are out of their permitted ranges. We're too heavy in precious metals and US bonds, too light in US equities. We're also overweight cash. Because the asset allocation model is itself a work in progress, I'm not going to trade to rebalance right now. Let's see how we fare at the end of QE II in June.
The S&P 500 was down .1% for the month. Bear in mind this is just the price index with no dividends. Bloomberg gives you data for the S&P 500 Total Return Index (includes dividends) and it gives a March return of .04%. Yippee, fiat fantasy pulls another rabbit out of the hat.
Fiat Fantasy was up .75% for the month. Precious metals and hard assets led the charge, bonds were a bit of a drag. Other asset classes were basically flat. In a minor way some asset classes are out of their permitted ranges. We're too heavy in precious metals and US bonds, too light in US equities. We're also overweight cash. Because the asset allocation model is itself a work in progress, I'm not going to trade to rebalance right now. Let's see how we fare at the end of QE II in June.
The S&P 500 was down .1% for the month. Bear in mind this is just the price index with no dividends. Bloomberg gives you data for the S&P 500 Total Return Index (includes dividends) and it gives a March return of .04%. Yippee, fiat fantasy pulls another rabbit out of the hat.
Thursday, March 31, 2011
We Need A Hero
Yesterday Walmart's CEO shared his concerns about inflation looming on the horizon and today there was a nice pop in commodities. Inflation has been a high interest topic for months, but to get the public's attention, it helps if someone with a high public persona makes a statement. As a holder of commodity company stock, I wish Donald Trump had lamented about rising corn prices during his debut appearance on Dancing With The Stars.
Many know the Federal Reserve is a banking cartel enriching themselves at our expense. See Naked Capitalism's take on banker Jamie Dimon's latest whining. The US is run by bankers to whom the people we elect are beholden. G. Edward Griffin and others virtually unknown to the American public have been saying this for years. Ron Paul, a member of the House of Representatives, hasn't even been able to orchestrate a legitimate audit of the Federal Reserve Bank. But this past Friday, Glenn Beck took the Fed to task, a clear sign doing away with the Federal Reserve is an idea with momentum. But who will finally put a stake in the heart of this beast?
One possibility is that a very powerful world bank favored by George Soros, David Rockefeller and other globalists overwhelms a weakened and subordinate US central bank. This would be a human tragedy of epic significance. And if this happens, please put a lid on the "nobody saw it coming" refrain.
Perhaps States considering legislation to create their own currency will be able to fill the void created by the sudden collapse of the Federal Reserve Bank. The Fed's latest and final, as it turns out, effort to jump start the economic recovery by giving every adult inhabitant $500,000 tax free infuriated foreign bond holders. Once these creditors prevailed upon President Obama (now beginning his fourth term by executive order) to stop printing money, the fate of the Fed was sealed.
Another possibility is that Congress, blossoming under the leadership of a national hero and President likened to Washington, Jefferson and Jackson, implements a new monetary system. This new monetary system does not have a Federal Reserve Bank, money based on debt, and fractional reserve banking. Extremely popular with citizens of all political leanings after becoming the first woman to set foot on Mars, the newly elected President had to overcome fierce opposition from Senators Schumer, Graham, and McCain. These three had agreed in a conference call to relentlessly use the word "extreme" in their failed attacks on the President.
That's more than enough End The Fed scenarios for tonight. My dear friend of more than 50 years is having heart surgery tomorrow. If you get a chance, saying a little prayer for Johnny Boy couldn't hurt.
Many know the Federal Reserve is a banking cartel enriching themselves at our expense. See Naked Capitalism's take on banker Jamie Dimon's latest whining. The US is run by bankers to whom the people we elect are beholden. G. Edward Griffin and others virtually unknown to the American public have been saying this for years. Ron Paul, a member of the House of Representatives, hasn't even been able to orchestrate a legitimate audit of the Federal Reserve Bank. But this past Friday, Glenn Beck took the Fed to task, a clear sign doing away with the Federal Reserve is an idea with momentum. But who will finally put a stake in the heart of this beast?
One possibility is that a very powerful world bank favored by George Soros, David Rockefeller and other globalists overwhelms a weakened and subordinate US central bank. This would be a human tragedy of epic significance. And if this happens, please put a lid on the "nobody saw it coming" refrain.
Perhaps States considering legislation to create their own currency will be able to fill the void created by the sudden collapse of the Federal Reserve Bank. The Fed's latest and final, as it turns out, effort to jump start the economic recovery by giving every adult inhabitant $500,000 tax free infuriated foreign bond holders. Once these creditors prevailed upon President Obama (now beginning his fourth term by executive order) to stop printing money, the fate of the Fed was sealed.
Another possibility is that Congress, blossoming under the leadership of a national hero and President likened to Washington, Jefferson and Jackson, implements a new monetary system. This new monetary system does not have a Federal Reserve Bank, money based on debt, and fractional reserve banking. Extremely popular with citizens of all political leanings after becoming the first woman to set foot on Mars, the newly elected President had to overcome fierce opposition from Senators Schumer, Graham, and McCain. These three had agreed in a conference call to relentlessly use the word "extreme" in their failed attacks on the President.
That's more than enough End The Fed scenarios for tonight. My dear friend of more than 50 years is having heart surgery tomorrow. If you get a chance, saying a little prayer for Johnny Boy couldn't hurt.
Wednesday, March 30, 2011
We're Gonna Need a Bigger Vault
Looking at the green and red flashes this morning in a semi stupor I see the Central Fund of Canada (CEF) is our biggest loser yet all other precious metals holdings are all up. Odd, but the reason is quickly discovered-- here's a paraphrasing of the pertinent CEF announcement:
CEF is pleased to announce that a syndicate of underwriters led by CIBC have exercised their right to purchase an additional 1,800,000 Class A Shares at a price of U.S.$22.30 per Class A Share, for additional gross proceeds of approximately U.S.$40,000,000 to Central Fund. The Underwriters agreed earlier this morning to purchase 14,350,000 Class A Shares for gross proceeds of approximately U.S.$320,005,000. The purchase price of U.S.$22.30 per Class A Share is non-dilutive and accretive for the existing Shareholders of Central Fund. The additional net proceeds have been committed to purchase gold and silver bullion for settlement at closing, in keeping with the asset allocation policies established by the Board of Directors of Central Fund.
CEF now has approximately $360 million additional funds to buy gold and silver bullion. Given their long standing practice of buying silver and gold at a 50:1 ratio, given today's prices CEF will be housing an additional 109,000 ounces of gold and 5,454,545 ounces of silver (give or take).
Is this a good thing? It certainly takes more physical gold and silver off the street. Today's price drop was likely a necessary and temporary part of getting the new CEF shares to the street. Mirroring the drop in price to around $22.30 per share, CEF's premium to NAV dropped from 8% to 5%. Today was not a bad time to buy CEF if you were looking to add precious metals for the long haul.
CEF is pleased to announce that a syndicate of underwriters led by CIBC have exercised their right to purchase an additional 1,800,000 Class A Shares at a price of U.S.$22.30 per Class A Share, for additional gross proceeds of approximately U.S.$40,000,000 to Central Fund. The Underwriters agreed earlier this morning to purchase 14,350,000 Class A Shares for gross proceeds of approximately U.S.$320,005,000. The purchase price of U.S.$22.30 per Class A Share is non-dilutive and accretive for the existing Shareholders of Central Fund. The additional net proceeds have been committed to purchase gold and silver bullion for settlement at closing, in keeping with the asset allocation policies established by the Board of Directors of Central Fund.
CEF now has approximately $360 million additional funds to buy gold and silver bullion. Given their long standing practice of buying silver and gold at a 50:1 ratio, given today's prices CEF will be housing an additional 109,000 ounces of gold and 5,454,545 ounces of silver (give or take).
Is this a good thing? It certainly takes more physical gold and silver off the street. Today's price drop was likely a necessary and temporary part of getting the new CEF shares to the street. Mirroring the drop in price to around $22.30 per share, CEF's premium to NAV dropped from 8% to 5%. Today was not a bad time to buy CEF if you were looking to add precious metals for the long haul.
Sunday, March 27, 2011
Employee of The Week-- EWA
Up about 5.5% for the week, our Australian ETF EWA gets the coveted Employee of the Week nod. Back a few weeks ago when we bought EWA we thought the best we might get was a short bump in price as proposed legislation for a special tax on mining companies was in the works. As it turns out there have been several bumps, yet the trade is at the moment in the black. A dividend of more than 3% helps defend against downturns though in most years it's an annual payout in December.
EWA's recent strong performance is a result of a successful campaign by the mining companies to beat back new government taxes specific to their industry. The proposed tax rate was dropped to 30% and modified so only iron and coal mining companies would be affected. More good news came last week when the government said that all royalty payments to state governments by iron ore and coal mining companies should be credited against federal taxes. I'll take a slight bow for thinking the original 40% tax rate proposed by the Australian government might not stand as the tax seemed onerous. Here's a link to a website showing global tax rates-- 40% is definitely steep. Incidentally, check out Singapore's tax rates--I need to reinvest in EWS at first opportunity. Or learn to use chopsticks and move there.
The financial services and basic materials sectors are EWA's biggest exposure. BHP Billiton is the largest holding at 16%, but the next four top holdings are banks. If you like Australia but not financial services, try the Australian small cap ETF KROO as it has less than 5% of assets in the financial services companies. Another option is the Aberdeen Australian Equity Fund (IAF), a closed-end fund that unfortunately now has a 4-5% premium over net asset value.
If you're thinking of going down under to check things out for yourself, first watch this little diddy.
EWA's recent strong performance is a result of a successful campaign by the mining companies to beat back new government taxes specific to their industry. The proposed tax rate was dropped to 30% and modified so only iron and coal mining companies would be affected. More good news came last week when the government said that all royalty payments to state governments by iron ore and coal mining companies should be credited against federal taxes. I'll take a slight bow for thinking the original 40% tax rate proposed by the Australian government might not stand as the tax seemed onerous. Here's a link to a website showing global tax rates-- 40% is definitely steep. Incidentally, check out Singapore's tax rates--I need to reinvest in EWS at first opportunity. Or learn to use chopsticks and move there.
The financial services and basic materials sectors are EWA's biggest exposure. BHP Billiton is the largest holding at 16%, but the next four top holdings are banks. If you like Australia but not financial services, try the Australian small cap ETF KROO as it has less than 5% of assets in the financial services companies. Another option is the Aberdeen Australian Equity Fund (IAF), a closed-end fund that unfortunately now has a 4-5% premium over net asset value.
If you're thinking of going down under to check things out for yourself, first watch this little diddy.
Thursday, March 24, 2011
New Agribusiness ETF-- CROP
A global agribusiness small cap ETF, symbol CROP, was initiated Tuesday to track the IQ Global Agribusiness Small Cap Index. The index consists of companies engaged in crop production and farming (30%), livestock operations (18%), agricultural supplies & logistics (23%), agricultural machinery (18%), agricultural chemicals (8%), and biofuels (9%). The index is adjusted quarterly so these percentages are variable.
You can find the gory details of how the index is calculated here but I'll try to summarize. Based on market capitalization, the smallest 10% of companies in the agribusiness sector are identified. Some are eliminated because they don't meet minimum trading volume and market capitalization criteria. All that remain are included in the index weighted according to market capitalization. There are currently 51 companies in the index. The process is repeated quarterly, though once included in the index, the requirements for remaining in the index are relaxed a bit.
The five largest members of the index are Viterra Inc (9%), a Canadian grain exporter; Tractor Supply Company (8%), a US retailer; Smithfield Foods (8%), a US hog producer; Nutreco Foods (6%), a Dutch aquaculture company; and Ebro Foods SA (5%), a Spanish food processor. Though I've heard of some of these companies, the names of companies at the tail end of the index get obscure. There seem to be a lot of Asian/Chinese companies which have gotten some bad press recently. For example, there are some interesting comments following this Seeking Alpha article about Choada, one of the index holdings.
The ETF has an expense ratio of .75%. At the close today it was selling at a minor discount to its NAV and 325,000 shares were traded. I like the global aspect of CROP and the prospects that food production will be a good and stable business in the coming years. The corporate governance and accounting practices applicable to some of these small companies is worrisome. And, of course, CROP has no track record. I'm keeping CROP on my list of "recruits", but for the moment, with MOO in place, I have no compelling need to take a position.
You can find the gory details of how the index is calculated here but I'll try to summarize. Based on market capitalization, the smallest 10% of companies in the agribusiness sector are identified. Some are eliminated because they don't meet minimum trading volume and market capitalization criteria. All that remain are included in the index weighted according to market capitalization. There are currently 51 companies in the index. The process is repeated quarterly, though once included in the index, the requirements for remaining in the index are relaxed a bit.
The five largest members of the index are Viterra Inc (9%), a Canadian grain exporter; Tractor Supply Company (8%), a US retailer; Smithfield Foods (8%), a US hog producer; Nutreco Foods (6%), a Dutch aquaculture company; and Ebro Foods SA (5%), a Spanish food processor. Though I've heard of some of these companies, the names of companies at the tail end of the index get obscure. There seem to be a lot of Asian/Chinese companies which have gotten some bad press recently. For example, there are some interesting comments following this Seeking Alpha article about Choada, one of the index holdings.
The ETF has an expense ratio of .75%. At the close today it was selling at a minor discount to its NAV and 325,000 shares were traded. I like the global aspect of CROP and the prospects that food production will be a good and stable business in the coming years. The corporate governance and accounting practices applicable to some of these small companies is worrisome. And, of course, CROP has no track record. I'm keeping CROP on my list of "recruits", but for the moment, with MOO in place, I have no compelling need to take a position.
Tuesday, March 22, 2011
Blindsided
Sometimes, despite following an investment approach that your comfortable with, one of your holdings gets blindsided. A case in point was BPT taking a huge hit in January merely because someone wrote an article questioning the value of BPT's oil reserves. Happily, since then BPT has been on the mend.
On Sunday I added Sprint (S) to the Change of Heart portfolio we're using to test a market neutral strategy. Surprise, surprise, on Monday AT&T announced plans to buy T Mobile apparently leaving my new best friend Sprint out in the cold. Here's a record of the damage; luckily there's no real money tied up in Sprint.
Up until the weekend Adobe (ADBE) was also a Change of Heart holding. Today Adobe cut it's outlook because of issues related to the tsunami.
Three bolts of lightning-- an Internet post, a takeover, and a natural disaster-- had, or could have had, an immediate negative effect on the bottom line. Can you prepare for these unforeseen events? Would the use of stops help much? Predicting bolts of lightning is impossible by definition, though whenever I read "the dividend is safe", alarm bells go off. The old adage of steering clear of things too good to be true has merit. But I've accepted that being occasionally blindsided is just part of investing and diversification is the retail investor's only defense. Once the damage is done, reassess and move on. Unless of course you can find someone to sue.
On Sunday I added Sprint (S) to the Change of Heart portfolio we're using to test a market neutral strategy. Surprise, surprise, on Monday AT&T announced plans to buy T Mobile apparently leaving my new best friend Sprint out in the cold. Here's a record of the damage; luckily there's no real money tied up in Sprint.
Up until the weekend Adobe (ADBE) was also a Change of Heart holding. Today Adobe cut it's outlook because of issues related to the tsunami.
Three bolts of lightning-- an Internet post, a takeover, and a natural disaster-- had, or could have had, an immediate negative effect on the bottom line. Can you prepare for these unforeseen events? Would the use of stops help much? Predicting bolts of lightning is impossible by definition, though whenever I read "the dividend is safe", alarm bells go off. The old adage of steering clear of things too good to be true has merit. But I've accepted that being occasionally blindsided is just part of investing and diversification is the retail investor's only defense. Once the damage is done, reassess and move on. Unless of course you can find someone to sue.
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