We added Fifth Street Finance (FSC) to the Yield Generator portion of the portfolio. FSC has a dividend yield of 9.2% and is a business development company that lends to and invests in small to mid-sized companies in connection with investments by private equity sponsors. For example, FSC has a $12.4 Million Second Lien Term Loan with Filet of Chicken, a company that processes and sells chicken products to national restaurant chains, chicken processors, and grocery stores. To maintain its corporate structure, FSC must pay out at least 90% of its taxable income which sounds very REIT like.
Here's the dividend yield of our current Yield Generator lineup:
CPL 6.6%
FSC 9.2%
KMR 6.2%
BPT 8.5%
PGX 6.7%
KMR is a special case in that the dividend is in additional shares of stock rather than cash, but 6.2% is my best estimate.
Our informal sell signal for these guys is when the dividend yield drops under 6%. Since we purchased these investments mostly for their dividends, it doesn't seem logical to use our standard 13 week / 34 week moving average crossover for avoiding colossal losses.
One last thought. It turns out nearly half the Fiat Fantasy holdings pay a dividend of more than 2%. Somehow I find that reassuring. Now if only we could get the precious metal holdings to pay dividends.
Monday, February 28, 2011
Saturday, February 26, 2011
February Results (approximate)
It takes a bit of time to crank out the numbers so because of Feb 28th scheduling conflicts, that day will be lumped in with March. With that caveat in mind, Fiat Fantasy garnered a return of 3.4% in February, a smidgen under the S&P 500. This was the second best month recorded by Fiat Fantasy. Precious metals and hard assets did exceptionally well. Bonds and emerging market equities were laggards. We launch into March overweight precious metals, hard assets and cash; underweight emerging market equities and yield generators.
By the way, there's some buzz that the decline in emerging markets is the first sign of big trouble ahead. Here's one take on the theory if you're curious. There's agreement that the emerging markets have hit a speed bump, that's the easy part. What happens next, well, not so much agreement. Keep your eye on how QE3 is being played-- that's the key.
Comparing Fiat Fantasy and the S&P 500 is OK, but I now want to start measuring up against an investment with a broader scope. Earlier this week I railed against the Dodge & Cox Balanced Fund (DODBX) noting my past losses in DODBX resembled a crime scene. Eureka-- why not track how we perform against our old buddy DODBX. February results are in as DODBX gained .9%-- chalk one up for the good guys.
By the way, there's some buzz that the decline in emerging markets is the first sign of big trouble ahead. Here's one take on the theory if you're curious. There's agreement that the emerging markets have hit a speed bump, that's the easy part. What happens next, well, not so much agreement. Keep your eye on how QE3 is being played-- that's the key.
Comparing Fiat Fantasy and the S&P 500 is OK, but I now want to start measuring up against an investment with a broader scope. Earlier this week I railed against the Dodge & Cox Balanced Fund (DODBX) noting my past losses in DODBX resembled a crime scene. Eureka-- why not track how we perform against our old buddy DODBX. February results are in as DODBX gained .9%-- chalk one up for the good guys.
Thursday, February 24, 2011
Thank You Al Gore
For inventing the internet that is. I did an e-file for the very first time and what do you know, a few hours later the IRS said they had "accepted" my return. I would hope so given the effort I put into it. But I'm not complaining as the IRS estimates my refund should arrive on approximately March 11. OK, excuse the fiat induced paranoia, but why the delay? Are they considering an audit? Does Bernanke need time to print more money?
One reason for the refund is I maxed out my investment loss deduction at $3000. Lucky me, given the size of the losses, I can use the loss carry over provision and max out this deduction for years. This loss was associated with investments in two Dodge & Cox funds, International and Balanced. As "value" investors, in 2008 they overweight the financial sector, made other bad choices, and refused to be flexible. Month after month I watched them ride that tired horse into the ground. This experience was the impetus for two of the three cornerstones of the fiat fantasy portfolio. First, it's your money so you better be responsible for it. Second, "buy and hold" has been oversold. The third precept is fiat money is a scam so acquire some hard asset and non dollar investments.
The stock market nosedive in 2008 must have lingering effects. Wouldn't the result of many investors realizing losses and taking the max deduction be reduced government tax revenues? Just curious.
One reason for the refund is I maxed out my investment loss deduction at $3000. Lucky me, given the size of the losses, I can use the loss carry over provision and max out this deduction for years. This loss was associated with investments in two Dodge & Cox funds, International and Balanced. As "value" investors, in 2008 they overweight the financial sector, made other bad choices, and refused to be flexible. Month after month I watched them ride that tired horse into the ground. This experience was the impetus for two of the three cornerstones of the fiat fantasy portfolio. First, it's your money so you better be responsible for it. Second, "buy and hold" has been oversold. The third precept is fiat money is a scam so acquire some hard asset and non dollar investments.
The stock market nosedive in 2008 must have lingering effects. Wouldn't the result of many investors realizing losses and taking the max deduction be reduced government tax revenues? Just curious.
Tuesday, February 22, 2011
That Was Quick
Vanguard Materials ETF (VAW) got stopped out today at $85.03. We owned this investment a grand total of 13 days during which time we eeked out a gain of under 1%. Not the time frame we're looking for but on a day like today, even a small gain feels good.
Tax preparation season has started here in earnest. For the past seven years an accountant helped prepare our return but we're back to flying solo this year. Even with a simple, almost boring return, it's quite a time-consuming grind getting through all the questions and forms. This is my first try using a tax prep software package. I opted to go with TaxAct, a low cost option. So far I'd grade it a solid B, but again, I have no basis for comparison. Any presidential candidate who puts forth a grand plan for simplifying the tax code deserves a serious look.
Laurence Kotlikoff has an interesting article out today at Bloomberg in which he pegs the long term budget shortfall at $202 trillion. The previous high estimate I can recall seeing was in the $100 trillion range. Surely what we have here is a house of cards.
Tax preparation season has started here in earnest. For the past seven years an accountant helped prepare our return but we're back to flying solo this year. Even with a simple, almost boring return, it's quite a time-consuming grind getting through all the questions and forms. This is my first try using a tax prep software package. I opted to go with TaxAct, a low cost option. So far I'd grade it a solid B, but again, I have no basis for comparison. Any presidential candidate who puts forth a grand plan for simplifying the tax code deserves a serious look.
Laurence Kotlikoff has an interesting article out today at Bloomberg in which he pegs the long term budget shortfall at $202 trillion. The previous high estimate I can recall seeing was in the $100 trillion range. Surely what we have here is a house of cards.
Monday, February 21, 2011
Everyone Reads Harvey and Turd
Harvey Organ that is. Harvey tracks the gold and silver markets as well as other related tidbits at the Gold and Silver Report. I gather he's focused on manipulation of the gold and silver markets and he passes on a ton of information. I read his website faithfully hoping to get smarter but it's tough never having traded futures of any kind. I'm missing the fundamentals, the lingo, everything. Harvey and others have been talking about big happenings in the silver market: some big banks are short silver and are getting creamed. Somehow this could affect the Commodities Exchange viability. But again, I really need someone to give me the Commodity Futures For Dummies explanation.
Fortunately, another blogger, Turd Ferguson, penned a post at Along The Watchtower the other day that fits the bill and has a high learning density. I'll attempt a brief synopsis here but you really should hit the link and read the entire piece.
As of Feb 15, there were 59,851 open March silver contracts at the Comex. Let's say you have one of these contracts to buy silver. A contract is for 5000 ounces and at the current silver price of $34.19 that means the silver will cost you $170,950. As the holder of the contract you have until the Feb 28th to show good faith intent to purchase by depositing the $170,950 in your account. Most of the time coming up with the money is not a problem as the majority of contract holders have no intention of buying the silver and simply move on to speculate in later months. With Feb 28 looming on the horizon, what's different is that there are still 59,851 open contracts, an unusually high number for so late in the cycle.
Silver is in "backwardation" meaning the price of silver for the current contract is higher than later contracts. Silver backwardation is an anomalous situation implying strong demand for physical silver. With strong demand as the prevailing mood, how many of those 59,851 contracts will actually pay up and purchase the silver? If many chose to take delivery, is there enough silver to go around? Reading Harvey and Turd this coming week will be like reading a whodunit-- every day the plot thickens.
Fortunately, another blogger, Turd Ferguson, penned a post at Along The Watchtower the other day that fits the bill and has a high learning density. I'll attempt a brief synopsis here but you really should hit the link and read the entire piece.
As of Feb 15, there were 59,851 open March silver contracts at the Comex. Let's say you have one of these contracts to buy silver. A contract is for 5000 ounces and at the current silver price of $34.19 that means the silver will cost you $170,950. As the holder of the contract you have until the Feb 28th to show good faith intent to purchase by depositing the $170,950 in your account. Most of the time coming up with the money is not a problem as the majority of contract holders have no intention of buying the silver and simply move on to speculate in later months. With Feb 28 looming on the horizon, what's different is that there are still 59,851 open contracts, an unusually high number for so late in the cycle.
Silver is in "backwardation" meaning the price of silver for the current contract is higher than later contracts. Silver backwardation is an anomalous situation implying strong demand for physical silver. With strong demand as the prevailing mood, how many of those 59,851 contracts will actually pay up and purchase the silver? If many chose to take delivery, is there enough silver to go around? Reading Harvey and Turd this coming week will be like reading a whodunit-- every day the plot thickens.
Saturday, February 19, 2011
Employee Of The Week (CEF)
SIVR had the best performance this week with an 8.9% rise. But we can't just keep singing the praises of silver so we happily turn to the Central Fund of Canada Limited (CEF) in place position. CEF finished the week up 5.8% at $20.89 which looks to me like an all time high.
CEF is a Canadian closed-end fund. In business since 1961, CEF started out as a more typical fund holding a variety of precious metal related investments. Now CEF simply stores and safeguards gold and silver bullion in vaults on behalf of their investors. The CEF schedule of investments is as follows: gold- 45.6%, silver- 52.7%, cash and other- 1.7%. Right now the shares are trading at a 9% premium to net asset value, on the high side reflecting the strength of the precious metals. Here's a link to their website if you want to learn more.
Canadian company that passively holds gold and silver bullion which are both priced worldwide in U.S. Fund of Canada is an Alberta based Canadian company that passively holds gold and silver bullion which areand silver bullion which are both priced worldwide in U.S. dollars.Central Fund of Canada is an Alberta based Canadian company that passively holds gold and silver bullion which are both priced worldwide in U.S. dollars.Central Fund of Canada is an Alberta based Canadian company that passively holds gold and silver bullion which are both priced worldwide in U.S. dollars.Central Fund of Canada is an Alberta based Canadian company that passively holds gold and silver bullion which are both priced worldwide in U.S. dollars.Central Fund of Canada is an Alberta based Canadian company that passively holds gold and silver bullion which are both priced worldwide in U.S. dollars.Central Fund of Canada is an Alberta based Canadian company that passively holds gold and silver bullion which are both priced worldwide in U.S. dollars.Central Fund of Canada is an Alberta based Canadian company that passively holds gold and silver bullion which are both priced worldwide in U.S. dollars.Central Fund of Canada is an Alberta based Canadian company that passively holds gold and silver bullion which are both priced worldwide in U.S. dollars.iced worldwide in U.S. dollars.Fund of Canada is an Alberta based Canadian company that passively holds gold and silver bullion which are both priced worldwide in U.S. dollars.
CEF is a Canadian closed-end fund. In business since 1961, CEF started out as a more typical fund holding a variety of precious metal related investments. Now CEF simply stores and safeguards gold and silver bullion in vaults on behalf of their investors. The CEF schedule of investments is as follows: gold- 45.6%, silver- 52.7%, cash and other- 1.7%. Right now the shares are trading at a 9% premium to net asset value, on the high side reflecting the strength of the precious metals. Here's a link to their website if you want to learn more.
Friday, February 18, 2011
Normalcy Bias
Edited from Wikipedia: The normalcy bias refers to a mental state people enter when facing a disaster. It causes people to underestimate both the possibility of a disaster occurring and its possible effects. This often results in situations where people fail to adequately prepare for a disaster. The assumption that is made in the case of the normalcy bias is that since a disaster never has occurred that it never will occur. It also results in the inability of people to cope with a disaster once it occurs. People with a normalcy bias have difficulties reacting to something they have not experienced before. People also tend to interpret warnings in the most optimistic way possible, seizing on any ambiguities to infer a less serious situation.
When it comes to coming to grips with the country's finances, many show clear signs they are afflicted with normalcy bias. Congress spends money we don't have because... well, they've always done that. Some of our fellow citizens in Wisconsin don't do the job they were contracted to do because they won't deal with the first sacrifice asked of them. Let's face it-- "shared sacrifice" in Wisconsin ended faster than the news coverage of Ron Paul's win in the CPAC straw poll. My town is considering purchasing a private golf course that went belly up for lack of customers thus adding to the riskiness of town finances. Add your own examples-- it shouldn't be difficult.
Last evening I attended an excellent seminar titled "The Monetary Breakdown of the West". The presenter was a very capable young man recently out of college with a degree in economics. About 100 attended-- mostly of the elderly persuasion like myself. I suppose Generation X is too busy working and raising a family and Generation Y is too busy looking for someone to start a family with. My other theory is that baby boomers and especially the few remaining of the "greatest generation" can draw upon more life experience to judge what is possible. What is normal. Anyway, the history of the US dollar, the difference between fiat money and commodity money, the role of the Federal Reserve, how money gets created, the national debt, inflation, and reserve currencies were all up for discussion. Very informative and troubling-- that was my take.
Here's what I believe is going to happen. The United States is going to be using a different money. This new money may or may not be called dollars. If the new money is called dollars, no matter, the words printed on the paper bill will be different. The change to the new money would be of little import except the change will be accompanied by a sizable drop in living standards. No one knows when the change will happen-- sooner rather than later is my guess. For one thing, the scale of our debt precludes any remediation. And no fiat currency such as the current dollar has lasted more than 40 years so time is about up. Inevitably, big changes are on the way. Not the end of the world obviously, but something to prepare for as you deem best. Maybe start by curing that pesky normalcy bias.
When it comes to coming to grips with the country's finances, many show clear signs they are afflicted with normalcy bias. Congress spends money we don't have because... well, they've always done that. Some of our fellow citizens in Wisconsin don't do the job they were contracted to do because they won't deal with the first sacrifice asked of them. Let's face it-- "shared sacrifice" in Wisconsin ended faster than the news coverage of Ron Paul's win in the CPAC straw poll. My town is considering purchasing a private golf course that went belly up for lack of customers thus adding to the riskiness of town finances. Add your own examples-- it shouldn't be difficult.
Last evening I attended an excellent seminar titled "The Monetary Breakdown of the West". The presenter was a very capable young man recently out of college with a degree in economics. About 100 attended-- mostly of the elderly persuasion like myself. I suppose Generation X is too busy working and raising a family and Generation Y is too busy looking for someone to start a family with. My other theory is that baby boomers and especially the few remaining of the "greatest generation" can draw upon more life experience to judge what is possible. What is normal. Anyway, the history of the US dollar, the difference between fiat money and commodity money, the role of the Federal Reserve, how money gets created, the national debt, inflation, and reserve currencies were all up for discussion. Very informative and troubling-- that was my take.
Here's what I believe is going to happen. The United States is going to be using a different money. This new money may or may not be called dollars. If the new money is called dollars, no matter, the words printed on the paper bill will be different. The change to the new money would be of little import except the change will be accompanied by a sizable drop in living standards. No one knows when the change will happen-- sooner rather than later is my guess. For one thing, the scale of our debt precludes any remediation. And no fiat currency such as the current dollar has lasted more than 40 years so time is about up. Inevitably, big changes are on the way. Not the end of the world obviously, but something to prepare for as you deem best. Maybe start by curing that pesky normalcy bias.
Thursday, February 17, 2011
Money Talk
Have to be quick with this entry-- I'm off to a talk about fiat money at the Saratoga VFW. Ponder that for a while-- people are really beginning to catch on. So is it any surprise SIVR was up 3.64% today? We're lucky (?) to have a grandstand seat to events that will change everything. Buckle up, it's going to be a heck of a ride.
I sold USAGX yesterday and will now consolidate around GDX. A few days ago I said USAGX was to be the gold miners centerpiece and not GDX, but I've soured on mutual funds. Typically these days, trading a mutual fund can be a no fee transaction, but you get hit with a hefty charge if you sell before X number of days. We've had USAGX in this particular account since Oct 2007 and it's been profitable. The details are tough (at least for me) to determine what with dividends, additional purchases, etc.
Noticing that our precious metal holdings were below the top line of prescribed allocation we picked up additional shares of the Central Fund of Canada Limited (CEF) at $20.37.
A back of the envelope calculation (if I added right) shows Fiat Fantasy is now about 35% equities. Probably more depending on how you view REITs and MLPs. Some of the equities are in the Hard Asset and Yield Producer classifications. Well and good, but in the end, they are still equities. The point is that's more than enough equity exposure for me. At least until we get past the budget vote, the debt ceiling vote, the end of Quantitative Easing II in June, or a knock your socks off crash. Unless it's a Whim, new equity purchases are off limits.
I sold USAGX yesterday and will now consolidate around GDX. A few days ago I said USAGX was to be the gold miners centerpiece and not GDX, but I've soured on mutual funds. Typically these days, trading a mutual fund can be a no fee transaction, but you get hit with a hefty charge if you sell before X number of days. We've had USAGX in this particular account since Oct 2007 and it's been profitable. The details are tough (at least for me) to determine what with dividends, additional purchases, etc.
Noticing that our precious metal holdings were below the top line of prescribed allocation we picked up additional shares of the Central Fund of Canada Limited (CEF) at $20.37.
A back of the envelope calculation (if I added right) shows Fiat Fantasy is now about 35% equities. Probably more depending on how you view REITs and MLPs. Some of the equities are in the Hard Asset and Yield Producer classifications. Well and good, but in the end, they are still equities. The point is that's more than enough equity exposure for me. At least until we get past the budget vote, the debt ceiling vote, the end of Quantitative Easing II in June, or a knock your socks off crash. Unless it's a Whim, new equity purchases are off limits.
Wednesday, February 16, 2011
"I Suggest You Panic"
The title quote was voiced by Hugh Hendry, an entertaining investment gurus and certainly one of my favorites. Faced with my growing uneasiness about the equity markets in particular, I have begun a "controlled panic", an oxymoron if ever there was one. Here's some charts that helped set off the alarm bells:
The price-earnings ratio of the S&P 500 is at historically high levels.
The dividend payout of the S&P 500 is at historically low levels.
Thanks to multpl.com for the above charts. The lack of volume supporting the non-stop advance since June 2010 is evident in this chart of monthly SPY prices.
Today's objective was to raise cash and lighten up on other asset classes, especially equities. I'd like to be at or below the lower asset class limits for equities and at least consider reducing our exposure in all other asset classes except precious metals. There are active stops in place for several several holdings. Here's a snapshot of progress so far:
* sold IDX @ $26.31. loss of less than .1%
* sold DGS @ $51.38 gain of 12%
* sold EWS @ $13.31 gain of 3%
The price-earnings ratio of the S&P 500 is at historically high levels.
The dividend payout of the S&P 500 is at historically low levels.
Thanks to multpl.com for the above charts. The lack of volume supporting the non-stop advance since June 2010 is evident in this chart of monthly SPY prices.
Bond prices are falling putting the housing rebound in jeopardy. Putting bank balance sheets in jeopardy as well. Investors will eventually chose bonds over equities if this trend continues. Can the Federal Reserve make everything OK with quantitative easing? I'm a Nay vote. Here's the weekly chart of TLT, the 20 year treasury bond ETF.
The economic and political space feels like a dangerous minefield just waiting for someone to make the wrong move. I'm not sufficiently expert to cover this territory, but websites like Zerohedge, Market Ticker, and Chris Martenson give you facts and analyses not often heard from popular pundits and not so popular politicians. What I can say is that as the reality of our financial plight affects an increasing number of Americans, the bloom will come off the rose.
Today's objective was to raise cash and lighten up on other asset classes, especially equities. I'd like to be at or below the lower asset class limits for equities and at least consider reducing our exposure in all other asset classes except precious metals. There are active stops in place for several several holdings. Here's a snapshot of progress so far:
* sold IDX @ $26.31. loss of less than .1%
* sold DGS @ $51.38 gain of 12%
* sold EWS @ $13.31 gain of 3%
Just after making these trades and calling it quits for the day, I went downstairs and turned on the TV. Lo and behold, there was the well-respected Kyle Bass giving his thoughts on several topics. Hats off to CNBC for this must watch interview. I'm more confident shedding equities knowing he's of like mind.
Tuesday, February 15, 2011
Worst Case Scenario
We stopped out of DBA today at 34.48 for a gain of about 17%. I put the stop on as the increasing food price commentary was reaching fever pitch. Plus USCI is a broader commodity holding that attempts to mitigate contango. Though I lightened up today, I believe commodity prices are headed higher. This trade, like most others since we started fiat fantasy, have been favorable, almost too easy. I dwell on portfolio minutia without giving the big picture the attention it deserves. And my brother-in-law is talking Citi stock with not much fear in his eyes. Have we gotten too complacent? What's the worst that can happen?
One could argue that the worst case scenario to date was the 22.6% drop in the Dow on Oct 19, 1987. If we suffered that loss tomorrow, the DOW would be off 2763 points. The question I asked myself was given that size loss, do you still want to be an investor? My answer was "yes", but it certainly is a sobering contemplation. Incidentally, my answer in the affirmative is not because I am confident I can avoid the loss, only that I am willing to accept the loss. Here's a longer term chart of the S&P 500 that gives a perspective much different than all the short-term banter one hears daily.
There's been much written about what caused the crash of 1987 but of course no one really knows for sure. By October 15, stocks were off 12% from their all-time highs. Thirty year Treasuries had fallen 14% in the ten weeks prior to the crash. P/E ratios were high. Sniper lists possibly contributing causes. Investorplace blames rash actions and statements by Treasury Secretary Baker and Federal Reserve Chairman Greenspan. John J. Xenakis, publisher of Generational Dynamics, is a proponent of "reversion to the mean" when it comes to forecasting. Here's a long-term chart from his website showing that the Dow has been above the "mean" since about 1990. He states a move below the blue line is a mathematical certainty-- when is the big question.
We'll never have a repeat of the 1987 crash and the circumstances leading up to it.
One could argue that the worst case scenario to date was the 22.6% drop in the Dow on Oct 19, 1987. If we suffered that loss tomorrow, the DOW would be off 2763 points. The question I asked myself was given that size loss, do you still want to be an investor? My answer was "yes", but it certainly is a sobering contemplation. Incidentally, my answer in the affirmative is not because I am confident I can avoid the loss, only that I am willing to accept the loss. Here's a longer term chart of the S&P 500 that gives a perspective much different than all the short-term banter one hears daily.
There's been much written about what caused the crash of 1987 but of course no one really knows for sure. By October 15, stocks were off 12% from their all-time highs. Thirty year Treasuries had fallen 14% in the ten weeks prior to the crash. P/E ratios were high. Sniper lists possibly contributing causes. Investorplace blames rash actions and statements by Treasury Secretary Baker and Federal Reserve Chairman Greenspan. John J. Xenakis, publisher of Generational Dynamics, is a proponent of "reversion to the mean" when it comes to forecasting. Here's a long-term chart from his website showing that the Dow has been above the "mean" since about 1990. He states a move below the blue line is a mathematical certainty-- when is the big question.
We'll never have a repeat of the 1987 crash and the circumstances leading up to it.
In hindsight, there were hints if you were looking and could recognize them. We are going to suffer another crash and I suspect it will be quick and ferocious. Keep your eyes peeled-- no guarantees, but it might help.
Sunday, February 13, 2011
To Do List
In order to get rid of several scraps of paper buried somewhere on my desk I thought I'd jot down some things I need to do with the fiat fantasy portfolio.
1. Sell GDX. USAGX and GDX results are very similar even though GDX is a passive index ETF and USAGX is an actively managed mutual fund. GDX has better one year results, USAGX has better two year results. I'm opting to consolidate around USAGX.
2. Sell WPS. Like the USAGX / GDX overlap, we have RWX and WPS stepping all over each other. These are both passively managed index REIT ETFs. For the past several years the correlation between them has been close to .95. Performance wise there's not sliver of a difference. WPS gets the axe only because of a lower average trading volume.
3. Buy More HAP. This is our core hard asset equity holding.
4. Buy WOOD. This ETF tracks the S&P Global Timber & Forestry index. HAP exposure in this area is less than 4%.
These actions will occur when opportunity presents itself and that might take months or even years. However, there is one last "to do" that is so fundamental it can't wait:
5. Be More Consistent and Thorough. Recently I reclassified IXC (energy) and XME (mining) as Hard Asset holdings, yet when I purchased VAW (materials) I assigned it to US Equities. I have no good justification for the difference in asset class assignments. Willy nilly decisions like this will torpedo the asset allocation concept so I need to better define the fiat fantasy asset classes. Once that's accomplished, we need to better assess potential investments, especially ETFs, so we understand what we're buying.
1. Sell GDX. USAGX and GDX results are very similar even though GDX is a passive index ETF and USAGX is an actively managed mutual fund. GDX has better one year results, USAGX has better two year results. I'm opting to consolidate around USAGX.
2. Sell WPS. Like the USAGX / GDX overlap, we have RWX and WPS stepping all over each other. These are both passively managed index REIT ETFs. For the past several years the correlation between them has been close to .95. Performance wise there's not sliver of a difference. WPS gets the axe only because of a lower average trading volume.
3. Buy More HAP. This is our core hard asset equity holding.
4. Buy WOOD. This ETF tracks the S&P Global Timber & Forestry index. HAP exposure in this area is less than 4%.
These actions will occur when opportunity presents itself and that might take months or even years. However, there is one last "to do" that is so fundamental it can't wait:
5. Be More Consistent and Thorough. Recently I reclassified IXC (energy) and XME (mining) as Hard Asset holdings, yet when I purchased VAW (materials) I assigned it to US Equities. I have no good justification for the difference in asset class assignments. Willy nilly decisions like this will torpedo the asset allocation concept so I need to better define the fiat fantasy asset classes. Once that's accomplished, we need to better assess potential investments, especially ETFs, so we understand what we're buying.
Saturday, February 12, 2011
Employee of The Week-- SIVR
The silver ETF is this week's shining star rising 2.8% in a middling kind of week.
What's going to slow silver down? Here's a rant from Jim Willie talking about silver and fiat fantasy concerns more generally. Jim has a way with words and I'm in agreement with his commentary. Just be advised the extent of the chicanery he describes makes you wonder how this can possibly end well which in turn can take the wind out of your sails on an otherwise wonderful weekend.
I reluctantly sold some SIVR recently and it's since rebounded nicely. These are the trades you remember best-- when price moves opposite of your motivation. My grandaughter coined the expression "opposite day". On an opposite day she tries new activities or different scheduling. Pancakes for dinner, a morning movie, nap all day-- that sort of thing. Little does she know it's in the genes as I have all sorts of opposite days. I sell SIVR, it goes up. I put a stop under DBA, it goes up. I buy EWA and it goes down. So what's going to slow silver down? Pssst, I bought a couple of silver coins yesterday from Bullion Direct so watch out next week.
What's going to slow silver down? Here's a rant from Jim Willie talking about silver and fiat fantasy concerns more generally. Jim has a way with words and I'm in agreement with his commentary. Just be advised the extent of the chicanery he describes makes you wonder how this can possibly end well which in turn can take the wind out of your sails on an otherwise wonderful weekend.
I reluctantly sold some SIVR recently and it's since rebounded nicely. These are the trades you remember best-- when price moves opposite of your motivation. My grandaughter coined the expression "opposite day". On an opposite day she tries new activities or different scheduling. Pancakes for dinner, a morning movie, nap all day-- that sort of thing. Little does she know it's in the genes as I have all sorts of opposite days. I sell SIVR, it goes up. I put a stop under DBA, it goes up. I buy EWA and it goes down. So what's going to slow silver down? Pssst, I bought a couple of silver coins yesterday from Bullion Direct so watch out next week.
Thursday, February 10, 2011
Conflict of Interest
Before we get to the conflict of interest I want to note we purchased additional shares of the Permanent Portfolio mutual fund (PRPFX). I would like to see other investment vehicles using the PRPFX approach of fixed asset allocations including investments beyond stocks and bonds. Maybe have other non US currencies in addition to the Swiss franc. Maybe have the fixed income portion include bonds other than US Treasuries.
Here's today's main issue. A few weeks ago I wrote an entry about news I had read regarding municipal bonds. My favorite daughter-in-law, a faithful reader, has reportedly taken offense to this particular post as her job is apparently dependent on a robust muni bond market. In fact, today I received word that she was waiting for a public apology from me.
Keeping peace in the family is high up on my to do list but what about my credibility? It's not like Tinkerbell came flitting along and sprinkled fairy dust on all these muni bonds. See the news from Michigan? They're preparing for a "tsunami of muni financial crises". A tsunami for heavens sake. Remember the horrifying images from Bangladesh after the 2004 tsunami?
I could make a goodwill gesture and send favorite daughter-in-law a picture of a tsunami for her Wall Street office. Perhaps the video below will let her know we love her and are concerned for her welfare. And OK, in the interest of family harmony, I apologize for saying bad things about the municipal bonds my favorite daughter-in-lawfoists unloads dumps sells. I'm sure they're Caa Ba Aaa investments.
Here's today's main issue. A few weeks ago I wrote an entry about news I had read regarding municipal bonds. My favorite daughter-in-law, a faithful reader, has reportedly taken offense to this particular post as her job is apparently dependent on a robust muni bond market. In fact, today I received word that she was waiting for a public apology from me.
Keeping peace in the family is high up on my to do list but what about my credibility? It's not like Tinkerbell came flitting along and sprinkled fairy dust on all these muni bonds. See the news from Michigan? They're preparing for a "tsunami of muni financial crises". A tsunami for heavens sake. Remember the horrifying images from Bangladesh after the 2004 tsunami?
I could make a goodwill gesture and send favorite daughter-in-law a picture of a tsunami for her Wall Street office. Perhaps the video below will let her know we love her and are concerned for her welfare. And OK, in the interest of family harmony, I apologize for saying bad things about the municipal bonds my favorite daughter-in-law
Wednesday, February 9, 2011
Busy Day
Today we added Vanguard Europe Pacific ETF (VEA) at $38.04, iShares MSCI Australia Index (EWA) at $26.02, and Vanguard Materials ETF (VAW) at $84.15 to the portfolio. I have a penchant for Vanguard, all three are trending up, and Benny won't allow me to break even in cash. Other rationale--
VEA: I needed a core non US Developed Equity holding. By core I mean that I will not sell ALL the shares due to a price decline. Vanguard says it's a tax efficient fund which is important as this one is held in a taxable account. Consisting of 946 stocks, yielding 2.37%, and sporting a PE of 12, this is a big neanderthal. Just what I was looking for.
EWA: The story is Australia has what the emerging markets need and I buy the story. Still, there are other realities. The government has proposed a new 40% tax on mining profits from 2012. The miners are pushing back hard so maybe compromise will win the day. I'm also not enamored with the large number of financial holdings. This one's on a short ($24.07) leash-- a bump up and get out may be all we can expect.
VAW: Holds stocks of companies that extract or process raw materials which is a great Fiat Fantasy fit. This one has been going up pretty much non-stop since last summer and may be over extended here. Let's hope the next down turn will be manageable as I'd like to hang on to VAW.
VEA: I needed a core non US Developed Equity holding. By core I mean that I will not sell ALL the shares due to a price decline. Vanguard says it's a tax efficient fund which is important as this one is held in a taxable account. Consisting of 946 stocks, yielding 2.37%, and sporting a PE of 12, this is a big neanderthal. Just what I was looking for.
EWA: The story is Australia has what the emerging markets need and I buy the story. Still, there are other realities. The government has proposed a new 40% tax on mining profits from 2012. The miners are pushing back hard so maybe compromise will win the day. I'm also not enamored with the large number of financial holdings. This one's on a short ($24.07) leash-- a bump up and get out may be all we can expect.
VAW: Holds stocks of companies that extract or process raw materials which is a great Fiat Fantasy fit. This one has been going up pretty much non-stop since last summer and may be over extended here. Let's hope the next down turn will be manageable as I'd like to hang on to VAW.
Tuesday, February 8, 2011
Feeling TIPsy
Complacency and ignorance is a wicked combination. Take my decision to invest in Treasury Inflation Protected bonds, or TIPS as they're called. Sounds very simple-- a bond that will protect your investment if inflation rises. Like most things, however, the devil is in the details.
In a recent article Charles Farrell discusses some of the not so nice fine points of TIPS. First, the rise in the value of the bond because of a rise in the CPI may not offset the decrease in the bond because of a rise in interest rates. Next, the increase in the value of the bond due to a CPI increase is taxable though you don't actually receive the money until the bond matures. My investment in the iShares Barclays TIPS Bond Fund (TIP) ETF is held in a taxable account. Mr Farrell also points out that the TIPS interest rate is too low to be of much help to retirees looking for cash to live on.
TIP had a nice two year run right up until the time I bought in October 2010. Are they selling off now in anticipation of rising interest rates? Are investors considering the possibility that the government is purposefully underestimating inflation making TIPS less attractive? For more of this flavor, read the comments following Mr Farrell's article. Partly because of Mr Farrell's article, but mostly to cut my losses and reduce exposure to TIPS, I sold the ETF TIP today and took a 4% loss give or take. I still own TIPS via the Vanguard mutual fund VIPSX.
In a recent article Charles Farrell discusses some of the not so nice fine points of TIPS. First, the rise in the value of the bond because of a rise in the CPI may not offset the decrease in the bond because of a rise in interest rates. Next, the increase in the value of the bond due to a CPI increase is taxable though you don't actually receive the money until the bond matures. My investment in the iShares Barclays TIPS Bond Fund (TIP) ETF is held in a taxable account. Mr Farrell also points out that the TIPS interest rate is too low to be of much help to retirees looking for cash to live on.
TIP had a nice two year run right up until the time I bought in October 2010. Are they selling off now in anticipation of rising interest rates? Are investors considering the possibility that the government is purposefully underestimating inflation making TIPS less attractive? For more of this flavor, read the comments following Mr Farrell's article. Partly because of Mr Farrell's article, but mostly to cut my losses and reduce exposure to TIPS, I sold the ETF TIP today and took a 4% loss give or take. I still own TIPS via the Vanguard mutual fund VIPSX.
Saturday, February 5, 2011
Employee of the Week-- HAP
The Market Vectors RVE Hard Assets Producers ETF (HAP), up 4.5% for the week, wins the blue ribbon for the first week in February. HAP may have been our first purchase after committing to the "hard asset" bent of the nascent fiat fantasy portfolio. Finding HAP seemed like the answer to a prayer, but after buying HAP in Oct 2009, it did little until beginning a steady rise in June 2010.
Truth be told, HAP is much the same as MOO with some big oil thrown in. HAP and MOO both have large holdings in Deere, Potash, Archer Daniels Midland, and Monsanto. MOO has outperformed HAP though they are highly correlated. HAP also has much in common with IXC, another ETF we own. For example, HAP and IXC both have large holdings in Exxon and Chevron. Here's a chart of these three amigos:
Is there much to be gained by holding IXC, MOO, and HAP given their commonality? Probably not, but on the other hand, what's the harm? Still, I began this entry thinking I was going to pick up some additional shares of HAP on Monday, but now I think I'll hold off. Maybe something that will add more of a different twist to the portfolio will appear on the horizon. I'd sure like it to be an ETF as my individual stock picks have been more volatile than I prefer. A case in point is CPFL Energia S.A. (CPL) which has dropped more than 5% in less than a month. As we enter the new week, CPL is the holding nearest a sale.
Truth be told, HAP is much the same as MOO with some big oil thrown in. HAP and MOO both have large holdings in Deere, Potash, Archer Daniels Midland, and Monsanto. MOO has outperformed HAP though they are highly correlated. HAP also has much in common with IXC, another ETF we own. For example, HAP and IXC both have large holdings in Exxon and Chevron. Here's a chart of these three amigos:
Is there much to be gained by holding IXC, MOO, and HAP given their commonality? Probably not, but on the other hand, what's the harm? Still, I began this entry thinking I was going to pick up some additional shares of HAP on Monday, but now I think I'll hold off. Maybe something that will add more of a different twist to the portfolio will appear on the horizon. I'd sure like it to be an ETF as my individual stock picks have been more volatile than I prefer. A case in point is CPFL Energia S.A. (CPL) which has dropped more than 5% in less than a month. As we enter the new week, CPL is the holding nearest a sale.
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