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.
Thursday, March 31, 2011
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.
Monday, March 21, 2011
This Week (more or less) In Inflation
March 10: New York Federal Reserve Chairman William Dudley states “Today you can buy an iPad 2 that costs the same as an iPad 1 that is twice as powerful. You have to look at the prices of all things.” Unfortunately, he was not praising the new technology used in the iPad 2, but rather was offering an explanation as to why inflation is not as bad as it seems. The aghast audience, likely unable to afford either iPad version and struggling with the cost of more basic needs, left with thoughts of Marie-Antoinette raging in their heads.
March 16: Wholesale prices jumped last month by the most in nearly two years due to higher energy costs and the steepest rise in food prices in 36 years. Food prices soared 3.9 percent last month, the biggest gain since November 1974. Most of that increase was due to a sharp rise in vegetable costs, which increased nearly 50 percent. That was the most in almost a year. Meat and dairy products also rose. Energy prices rose 3.3 percent last month, led by a 3.7 percent increase in gasoline costs.
March 20: A man, unhappy with the rise in price from 99 cents to $1.49 for a Taco Bell burrito, opened fire on the restaurant manager with an air gun. Also carrying a semiautomatic assault rifle and pistol, the man exchanged gunfire with police and drove off. Tear gas was later used to end a stand off at a nearby motel.
March 21: US existing home sales numbers for February show a 9.6 percent decline from the previous month and a 4 percent drop in prices from last year. Unless you're buying real estate, falling home prices have little effect on your spending. Phil notes that "housing is 42% of the CPI and declining housing costs have masked rising inflation for 5 years now". This, and the exclusion of food and energy from core CPI, explains why there's less money at the end of the month despite the reported low CPI numbers.
March 21: The premium of a share of the Sprott Physical Silver Trust (PSLV) is 21%. The demand for physical silver is extraordinarily high. Meanwhile the dollar is in long-term reverse gear as shown in this chart from Jesse:
March 16: Wholesale prices jumped last month by the most in nearly two years due to higher energy costs and the steepest rise in food prices in 36 years. Food prices soared 3.9 percent last month, the biggest gain since November 1974. Most of that increase was due to a sharp rise in vegetable costs, which increased nearly 50 percent. That was the most in almost a year. Meat and dairy products also rose. Energy prices rose 3.3 percent last month, led by a 3.7 percent increase in gasoline costs.
March 20: A man, unhappy with the rise in price from 99 cents to $1.49 for a Taco Bell burrito, opened fire on the restaurant manager with an air gun. Also carrying a semiautomatic assault rifle and pistol, the man exchanged gunfire with police and drove off. Tear gas was later used to end a stand off at a nearby motel.
March 21: US existing home sales numbers for February show a 9.6 percent decline from the previous month and a 4 percent drop in prices from last year. Unless you're buying real estate, falling home prices have little effect on your spending. Phil notes that "housing is 42% of the CPI and declining housing costs have masked rising inflation for 5 years now". This, and the exclusion of food and energy from core CPI, explains why there's less money at the end of the month despite the reported low CPI numbers.
March 21: The premium of a share of the Sprott Physical Silver Trust (PSLV) is 21%. The demand for physical silver is extraordinarily high. Meanwhile the dollar is in long-term reverse gear as shown in this chart from Jesse:
Sunday, March 20, 2011
Vermont Trip
We made a trip to Vermont to see new granddaughter Miel. Life off the grid is different, but I can appreciate the appeal. Little noise, no TV, no internet-- hold on now, that's going too far. We opted not to rough it and holed up in a Comfort Inn.
Vermont is an odd state in many ways. Montpelier hasn't changed much since our last visit. Just a few more empty store fronts. Same thing in one of the "gold" towns, Manchester. I did not get the sense the economy had turned the corner in either location. Still, the state presses on. The legislature is about ready to pass a single payer medical insurance plan. To close the budget gap, one proposal adds a 1.5% income tax surcharge for anyone making more than $75K. Also in the works is a 3% dental services tax. Gee, isn't going to the dentist painful enough?
Shifting gears, I did get margin approved for the non-IRA account. In the weeks ahead we'll keep working with our market neutral portfolio and perhaps try a short sale or two. This week's worst performers were the international REITs WPS and RWX, each off nearly 3% even after a nice bounce back Friday. RWX is paying a lofty dividend of about 8.5% which makes the bad week palatable.
Vermont is an odd state in many ways. Montpelier hasn't changed much since our last visit. Just a few more empty store fronts. Same thing in one of the "gold" towns, Manchester. I did not get the sense the economy had turned the corner in either location. Still, the state presses on. The legislature is about ready to pass a single payer medical insurance plan. To close the budget gap, one proposal adds a 1.5% income tax surcharge for anyone making more than $75K. Also in the works is a 3% dental services tax. Gee, isn't going to the dentist painful enough?
Shifting gears, I did get margin approved for the non-IRA account. In the weeks ahead we'll keep working with our market neutral portfolio and perhaps try a short sale or two. This week's worst performers were the international REITs WPS and RWX, each off nearly 3% even after a nice bounce back Friday. RWX is paying a lofty dividend of about 8.5% which makes the bad week palatable.
Monday, March 14, 2011
Are We Broke Yet?
Times are changing. It used to be you'd run across news stories headlined something like Social Security Bankrupt by 20XX. Or Medicare Won't Help Boomers. These were certainly problems, even big problems, but at least according to the reporting, we didn't have to worry about fixing the problem right this minute. Some very recent news on pending financial disaster has a different time frame: days, weeks, months. Not years or decades.
Last week it was reported that the "U.S. Treasury is depleting its cash at an accelerating pace, drawing down its cash balance by $81.6 billion in the just the first four days of March, leaving the Federal Government with only $108.9 billion on hand, according to the Daily Treasury Statement release Monday afternoon." Today Zerohedge provides an update noting Treasury is now down to $14.2 billion. Given that the government has been spending about $12 billion a day, Geithner better bebalancing juggling the government's checkbook nightly.
Others see the matter much differently. "Make no mistake about it, we're not broke," Rangel said in a floor discussion...". Paul Krugman, taking issue with "right-wingers", says the U.S. Government is not broke in any normal sense of the term and there's no need for immediate austerity. Michael Moore knows the country's not broke because some rich people live here.
Who's right? To paraphrase an ex president, it probably depends on the what the meaning of broke is. As for me, I'm going to keep reading the likes of Zerohedge and greet government's every word with skepticism.
Lastly, just a bit of housekeeping. We sold the SPDR S&P Metals and Mining ETF (XME) today, one of our best performers that was up 32% annualized. We were outside the hard asset allocation limits, want to consolidate around HAP, likely were too heavy with miners, and were not enamored with the current XME chart.
Last week it was reported that the "U.S. Treasury is depleting its cash at an accelerating pace, drawing down its cash balance by $81.6 billion in the just the first four days of March, leaving the Federal Government with only $108.9 billion on hand, according to the Daily Treasury Statement release Monday afternoon." Today Zerohedge provides an update noting Treasury is now down to $14.2 billion. Given that the government has been spending about $12 billion a day, Geithner better be
Others see the matter much differently. "Make no mistake about it, we're not broke," Rangel said in a floor discussion...". Paul Krugman, taking issue with "right-wingers", says the U.S. Government is not broke in any normal sense of the term and there's no need for immediate austerity. Michael Moore knows the country's not broke because some rich people live here.
Who's right? To paraphrase an ex president, it probably depends on the what the meaning of broke is. As for me, I'm going to keep reading the likes of Zerohedge and greet government's every word with skepticism.
Lastly, just a bit of housekeeping. We sold the SPDR S&P Metals and Mining ETF (XME) today, one of our best performers that was up 32% annualized. We were outside the hard asset allocation limits, want to consolidate around HAP, likely were too heavy with miners, and were not enamored with the current XME chart.
Sunday, March 13, 2011
Market Neutral-- Theory and Reality
It was interesting to read of the various types of portfolio long-short strategies. Here's a good overview. Mergers and pair trading are the inspiration for some strategies. Strategies have even been designed to play on seasonal anomalies and takeover rumors. What I had in mind is called a market neutral strategy. Purchase both long and short equities in equal dollar amounts to take market variations out of performance. The return achieved would depend strictly on stock selection and be largely independent of general market moves. This is exactly what I was contemplating given the promising performance to date of our Change of Heart portfolio.
Then reality showed up as usual. I never shorted a stock and it's apparently not easy. You must use a margin account which rules out IRAs. Wouldn't want those savers to have a chance to hedge. The stock you want to short might not be "readily" available so transaction fees go up or the whole trade might fold. Even if the short trade is accomplished, there's the risk it could be unwound at anytime without your agreement because you actually are only "borrowing" the shares.
Alternatively, could one execute a market neutral strategy with options? Many new pitfalls pop up. You now have to get a grip on the strike price and the time premium of the option because there's an option expiration date. Bid and ask spreads can be large and many options are thinly traded. And the jargon-- "iron condors" and "butterflies"-- it's just intimidating.
I have requested our non IRA account be changed to margin eligible. Even if implementing a market neutral portfolio never happens, I'm determined to short a stock one day just for the experience.
Then reality showed up as usual. I never shorted a stock and it's apparently not easy. You must use a margin account which rules out IRAs. Wouldn't want those savers to have a chance to hedge. The stock you want to short might not be "readily" available so transaction fees go up or the whole trade might fold. Even if the short trade is accomplished, there's the risk it could be unwound at anytime without your agreement because you actually are only "borrowing" the shares.
Alternatively, could one execute a market neutral strategy with options? Many new pitfalls pop up. You now have to get a grip on the strike price and the time premium of the option because there's an option expiration date. Bid and ask spreads can be large and many options are thinly traded. And the jargon-- "iron condors" and "butterflies"-- it's just intimidating.
I have requested our non IRA account be changed to margin eligible. Even if implementing a market neutral portfolio never happens, I'm determined to short a stock one day just for the experience.
Thursday, March 10, 2011
On a Day Like This
On a day like this in the markets, moving into the imaginary world is an appealing option. Our imaginary portfolio, a game really, is named "Change of Heart" and is tracked by Tickerspy. With Tickerspy, stocks you've sold short are indicated by "-" in front of the stock name. The object of the Change of Heart game is to outperform the S&P 500 long term. To meet the objective, we hold an even number of long and short stocks. Change of Heart now has 24 stocks, but not an equal number of long and short so we have some work to do. Stocks are selected by looking at chart patterns and following trends. Fundamentals play no role in the game.
We've been playing the game for about three months during which time we're up 19% and the S&P 500 is up 5%. There are some caveats to this good performance. One trade was responsible for much of our advantage. Commissions costs aren't included. Three months is not a very long test. Perhaps most important, playing a game is easier and less stressful than risking real money.
On the other hand, a mix of long and short investments seems like a reasonable way to reduce portfolio volatility. One highly rated fund of this ilk is the TFS Capital's Market Neutral fund (TFSMX). They limit fund expenses to 2.5%, but that's still too rich for me. If you have $5,000,000 minimum to invest you could try Vanguard's market neutral fund VMNIX as the fees are a bit less. Realistically then, it's Change of Heart or nothing for me. For now, we'll continue playing the game. Never having sold short, I also need to get guidance from a broker or two. Let's see what happens down the road.
Back in the real world, just a quick note that we did buy UDN on Tuesday for $27.84. Given two days hindsight, this was most likely a poor choice for a Whim. We held this previously and it's a slow mover.
We've been playing the game for about three months during which time we're up 19% and the S&P 500 is up 5%. There are some caveats to this good performance. One trade was responsible for much of our advantage. Commissions costs aren't included. Three months is not a very long test. Perhaps most important, playing a game is easier and less stressful than risking real money.
On the other hand, a mix of long and short investments seems like a reasonable way to reduce portfolio volatility. One highly rated fund of this ilk is the TFS Capital's Market Neutral fund (TFSMX). They limit fund expenses to 2.5%, but that's still too rich for me. If you have $5,000,000 minimum to invest you could try Vanguard's market neutral fund VMNIX as the fees are a bit less. Realistically then, it's Change of Heart or nothing for me. For now, we'll continue playing the game. Never having sold short, I also need to get guidance from a broker or two. Let's see what happens down the road.
Back in the real world, just a quick note that we did buy UDN on Tuesday for $27.84. Given two days hindsight, this was most likely a poor choice for a Whim. We held this previously and it's a slow mover.
Wednesday, March 9, 2011
Miel Rose
Our seventh grandchild was born yesterday, a beautiful baby if ever there was one. We're heading up to Montpelier next week to see Mom, Dad, and Miel, all reportedly doing well. All other news seems supefluous, so we'll call fini right here.
Monday, March 7, 2011
Out With The Whim
We were stopped out of our Whim this morning. Total SA (TOT) opened up with the overall market but then quickly headed south. I had placed a tight stop on Sunday night. Nothing against TOT at all-- I just wanted to grab a profit on this Whim. We earned a 4% return, annualized it was 55%. A few of these a year could put a little excitement in our conservative portfolio. Hope it keeps up.
Speaking of which, tomorrow I'm going to try and buy UDN, the dollar short ETF. I have some work to do in the AM so we'll see how our new darling is doing about noon.
So what caused the market swoon today? Some possibilities I've seen mentioned: Greece bond downgrade, Ireland's finance woes (right before St Patrick's Day no less), Saudi discontent, possible US military engagement in Libya, rising oil prices, rising food prices, buzz about ending quantitative easing, the largest monthly federal deficit in history. Say what-- repeat that last one. OK, the Washington Times reports the government has chalked up the largest monthly federal deficit in history.
Even at a time when the word "trillion" is freely bandied about, coming up $223 billion short in just a short 28 day month is simply game over. Facing a problem of this magnitude, Congress can't even agree on cutting a paltry $62 billion from next year's annual budget. Remember the scene in the movie Titanic with a string quartet playing beautiful music as the ship goes down. In a way, that scene was sort of uplifting. What our leaders are doing, fiddling away as the ship of state sinks, hits all the wrong notes. Not to worry, we're simply going to have to raise the debt limit ceiling soon to make this growing debt all tidy and legal.
Speaking of which, tomorrow I'm going to try and buy UDN, the dollar short ETF. I have some work to do in the AM so we'll see how our new darling is doing about noon.
So what caused the market swoon today? Some possibilities I've seen mentioned: Greece bond downgrade, Ireland's finance woes (right before St Patrick's Day no less), Saudi discontent, possible US military engagement in Libya, rising oil prices, rising food prices, buzz about ending quantitative easing, the largest monthly federal deficit in history. Say what-- repeat that last one. OK, the Washington Times reports the government has chalked up the largest monthly federal deficit in history.
Even at a time when the word "trillion" is freely bandied about, coming up $223 billion short in just a short 28 day month is simply game over. Facing a problem of this magnitude, Congress can't even agree on cutting a paltry $62 billion from next year's annual budget. Remember the scene in the movie Titanic with a string quartet playing beautiful music as the ship goes down. In a way, that scene was sort of uplifting. What our leaders are doing, fiddling away as the ship of state sinks, hits all the wrong notes. Not to worry, we're simply going to have to raise the debt limit ceiling soon to make this growing debt all tidy and legal.
Sunday, March 6, 2011
Beast of The Week-- VNQ
Vanguard's REIT ETF, VNQ, is our loser of the week, down 1%. Despite this week's setback, REITs have had a good run. VNQ has a total return of 29% for the latest 12 months and just over 7.3% since its inception in September 2004. The meager dividend of late has been supplemented by a rising price.
VNQ is a passive ETF tracking the MSCI US REIT Index. Mirroring the index, VNQ has a wide range of holdings that include REITs of all types: residential, diversified, office, retail, industrial. The largest holdings are the Simon Property Group, Public Storage, Vornado Realty Trust, HCP Inc, and Equity Residential.
VNQ compares favorably with other choices such as RWR, IYR, and PSR, an actively managed REIT ETF. A minuscule expense ratio of .13% will certainly help long term performance. Vanguard's "objective" for VNQ is a high level of income and moderate long term capital appreciation. I'd say So Far So Good.
VNQ is a passive ETF tracking the MSCI US REIT Index. Mirroring the index, VNQ has a wide range of holdings that include REITs of all types: residential, diversified, office, retail, industrial. The largest holdings are the Simon Property Group, Public Storage, Vornado Realty Trust, HCP Inc, and Equity Residential.
VNQ compares favorably with other choices such as RWR, IYR, and PSR, an actively managed REIT ETF. A minuscule expense ratio of .13% will certainly help long term performance. Vanguard's "objective" for VNQ is a high level of income and moderate long term capital appreciation. I'd say So Far So Good.
Friday, March 4, 2011
Yields Here And There
There's a considerable difference these days between US yields and international yields. Certainly more than I was aware of. Here's what I mean using mostly our holdings:
US Bonds (BND)- 3.45%
Int'l Bonds (EMB)- 5.18%
US REIT (VNQ)- 3.24%
Int'l REIT (RWX)- 8.49%
Int'l REIT (WPS)- 5.25%
US Oil CO. (XOM)- 2.1%
Int'l Oil CO. (TOT)- 4.27%
These investments must be different in important ways, but still, there's a pattern here. One obvious reason for the comparatively low US yields is that the US has been regarded as the world's safe haven. That could be changing according to the Wall Street Journal. Do non US investments historically have a higher yield than US investments? So far I haven't found the answer though I suspect so.
With regard to bonds, American Century, manager of our international bond mutual fund (BEGBX), wrote the following in May 2010:
Just be aware that bond portfolios utilizing international bonds, especially portfolios that don’t hedge the foreign currency exposure, tend to be more volatile than most other types of fixed income portfolios, and they derive less of their total return from income; they should be viewed as total return/diversification/dollar-hedging vehicles, not income vehicles.
Our investment in VNQ is considerably larger than that of the two international REITs. Given the VNQ yield of 3.24%, am I being adequately compensated for the risk? This article by Jim Fink at Investing Daily makes a strong case for Canadian REITs. Something to think about.
The two equities, Total SA (TOT) and Exxon Mobil (XOM), have similar earnings per share of $6.49 and $6.22 respectively; TOT is just nice enough to return more to its shareholders.
What I got out of writing this post is the need to pay more attention to dividend yields when evaluating investments. Over time seemingly small differences will add up.
US Bonds (BND)- 3.45%
Int'l Bonds (EMB)- 5.18%
US REIT (VNQ)- 3.24%
Int'l REIT (RWX)- 8.49%
Int'l REIT (WPS)- 5.25%
US Oil CO. (XOM)- 2.1%
Int'l Oil CO. (TOT)- 4.27%
These investments must be different in important ways, but still, there's a pattern here. One obvious reason for the comparatively low US yields is that the US has been regarded as the world's safe haven. That could be changing according to the Wall Street Journal. Do non US investments historically have a higher yield than US investments? So far I haven't found the answer though I suspect so.
With regard to bonds, American Century, manager of our international bond mutual fund (BEGBX), wrote the following in May 2010:
Just be aware that bond portfolios utilizing international bonds, especially portfolios that don’t hedge the foreign currency exposure, tend to be more volatile than most other types of fixed income portfolios, and they derive less of their total return from income; they should be viewed as total return/diversification/dollar-hedging vehicles, not income vehicles.
Our investment in VNQ is considerably larger than that of the two international REITs. Given the VNQ yield of 3.24%, am I being adequately compensated for the risk? This article by Jim Fink at Investing Daily makes a strong case for Canadian REITs. Something to think about.
The two equities, Total SA (TOT) and Exxon Mobil (XOM), have similar earnings per share of $6.49 and $6.22 respectively; TOT is just nice enough to return more to its shareholders.
What I got out of writing this post is the need to pay more attention to dividend yields when evaluating investments. Over time seemingly small differences will add up.
Thursday, March 3, 2011
Sold To Me
Quickly settled on the 2011 Hyundai Elantra this morning. Think economy car with some nice luxury trimmings. The type and color I wanted wasn't on the lot so I won't take delivery for a few weeks. There's not that many of these available yet and they go fast. I'm sure I garnered my usual D grade for negotiating skills but nonetheless managed to get a $500 factory rebate. Bottom line is I like the car and believe it's a good value. Today's low financing rates and the potential for price inflation clinched the deal.
Wednesday, March 2, 2011
Auto Shopping
This family has two cars: average vintage 1999, average mileage 96,000. Faced with this reality, we're reluctantly in the market for a new car. As soon as that tax refund check gets here, we'll be able to begin serious dealer negotiations. Or let my son handle this chore-- he's a shark among guppies in this fish bowl. Either way, until the government returns some of my cash, we're in the exploratory stage just trying to see what's out there.
The new Jetta is nice looking but VW's reliability ratings are abysmal. The sales person embodied this sense of futility by seemingly not being very interested in talking about VW cars. Ford's new Fiesta was a fun car to drive but patently geared for the younger generation. The Fiesta brochure reads as if you're buying a laptop/ipod combo with wheels. The Hyundai Sonata was very comfortable, even in the back seat. Gas mileage is good, but not good enough for us. The smaller Elantra seemed to have just enough room and great gas mileage estimates.
My intent was to try to "buy American" but what does that mean given globalization. Car and Driver magazine reports the Ford Fiesta is assembled in Mexico with 10% North American parts. The Toyota Camry is built in Indiana with 80% North American parts. The new Chevy Cruze is made in Ohio with 45% North American parts. So how do you best help an American get a job? Buy a Jetta and give a mechanic a job?
One of our present cars is a Pontiac Vibe and I admit being miffed that GM buried the Pontiac division. My Dad had a big Pontiac Catalina that was very sharp. Yesterday GM reported February sales were up 49% though some question profitability given the big incentives offered. Another gotcha is that GM's share price is now trading below it's November initial public offering price.
Without question, the funniest post I ever ran across on the web was an ad for Congressional Motors written by Iowahawk, an unrepentant car loving conservative blogger. I won't say more-- read it for yourself and have a good laugh.
The new Jetta is nice looking but VW's reliability ratings are abysmal. The sales person embodied this sense of futility by seemingly not being very interested in talking about VW cars. Ford's new Fiesta was a fun car to drive but patently geared for the younger generation. The Fiesta brochure reads as if you're buying a laptop/ipod combo with wheels. The Hyundai Sonata was very comfortable, even in the back seat. Gas mileage is good, but not good enough for us. The smaller Elantra seemed to have just enough room and great gas mileage estimates.
My intent was to try to "buy American" but what does that mean given globalization. Car and Driver magazine reports the Ford Fiesta is assembled in Mexico with 10% North American parts. The Toyota Camry is built in Indiana with 80% North American parts. The new Chevy Cruze is made in Ohio with 45% North American parts. So how do you best help an American get a job? Buy a Jetta and give a mechanic a job?
One of our present cars is a Pontiac Vibe and I admit being miffed that GM buried the Pontiac division. My Dad had a big Pontiac Catalina that was very sharp. Yesterday GM reported February sales were up 49% though some question profitability given the big incentives offered. Another gotcha is that GM's share price is now trading below it's November initial public offering price.
Without question, the funniest post I ever ran across on the web was an ad for Congressional Motors written by Iowahawk, an unrepentant car loving conservative blogger. I won't say more-- read it for yourself and have a good laugh.
Tuesday, March 1, 2011
Easy Come Easy Go
Monday evening was a great time to see what happened in the markets. Nearly everything was up. On tickerspy.com, there must have been at least eight Fiat Fantasy holdings reaching new 52 week highs. Ah, but then March roared in like a lion and hammered the DOW down 168 points. Looking at the past two days as a whole, the precious metals and USCI (commodities) were nearly alone in managing to post a gain.
As I write, Asia is continuing the slide this evening. The technicians are out in force with comments about today breaking a string of positive first of the month days. Even I can spot a few engulfing candles and failed bounces in the charts. Along with technical weakness, rising oil prices, an insider trading scandal tarnishing Wall Street's image (ha ha), and a Middle East rife with uncertainty couldn't have pumped up trader's morale. Oh, and Bernanke went before Congress and you know everytime Bernanke opens his mouth the markets get a rap on the knuckles.
Another explanation for what is see in the markets is mentioned occasionally in the media but generally given shortschrift Schiff. In the video, the CNBC Fast Money crew dismiss Schiff's viewpoint out of hand. Their forte (giving them the benefit of doubt) is trading, while Schiff looks at the bigger picture. It wouldn't be as scintillating, but how about airing a "Slow Money" show for investors with IRAs and 401Ks. My view is that the strength in gold, silver and other commodities and the relative weakness in the markets is due to a growing number of investors recognizing the diminishing outlook for the US dollar. Actually, the diminishing outlook for all paper currencies-- the only kind we have right now. Here's a chart of the US dollar index, an important set of data to monitor.
As I write, Asia is continuing the slide this evening. The technicians are out in force with comments about today breaking a string of positive first of the month days. Even I can spot a few engulfing candles and failed bounces in the charts. Along with technical weakness, rising oil prices, an insider trading scandal tarnishing Wall Street's image (ha ha), and a Middle East rife with uncertainty couldn't have pumped up trader's morale. Oh, and Bernanke went before Congress and you know everytime Bernanke opens his mouth the markets get a rap on the knuckles.
Another explanation for what is see in the markets is mentioned occasionally in the media but generally given short
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