I am retired and take educated guesses on all things financial.

May 29, 2008

May 29, 2008: Respecting Uncertainty

The most important feature that distinguishes an investment strategy from a fantasy is the acceptance of uncertainty. Fantasies claim to eliminate uncertainty. Strategies deal with it.

The worth of a strategy can be judged by how well it allows for uncertainty, rather than how it claims to overcome it. The investor must accept uncertainty before an investment strategy can have a chance to perform in a positive way. With that in mind, here are some tips to help wring investment fantasies out of your thoughts:

No one accurately predicts human behavior in other matters, so there is no reason to expect anyone to predict future investment prices.

Coincidence and luck play a large part in any investor's results. These can make a nonsensical technique appear to have been confirmed by history. So, be sceptical of "past performance".

Truth is often stretched in the investment business, just as it is elsewhere. Take all claims from talking heads, a trading system or any method of analysis with a grain of salt.

Any assertion that a particular method of investment analysis is scientific should be ignored. Controlled tests are not possible for economic theories.

Don't believe an investment scenario because it seems to be widely respected.

If there were a single trading system or school of investment analysis that could beat the market, the investment community would not be continually devising new systems to beat the market.

If anyone had found the magic key to investment riches, they would not be telling anyone about the profits the system "would" have produced (hypothetically). They would be telling you of the profits it "did" produce.

Testimonials for investment systems or gurus are of no more value than they are for astrologers and used-car dealers.

Some people are especially talented as investors or speculators - just as some people are talented as musicians or athletes. Don't expect to imitate them successfully unless you have similar talents.

Since we should not expect an athlete to explain how they run so fast, we should not expect a successful investor or speculator to show us how to acquire the Midas touch.

Being realistic in a turbulent market may not make you Warren Buffet - but it will save you the frustration of losses and angst.

May 27, 2008

May 27, 2008: Time To Change The Oil With COSWF

Commodities, especially oil, have had a remarkable run. When, not if, the bubble bursts in oil, it will still be essential to have some of the gooey substance in your portfolio. After researching oil companies, I believe I have found a long term gusher on shore, in a stable country and with a great long term future. This company is a trust located in the Alberta, Canada Oil Sands region, (COSWF).

Trading at US$51.83 and yielding over 8%, Canadian Oil Sands presents the investor with an excellent game plan for stability, value and total return even when oil price slips and Canadian taxes are raised.

COSWF offers the only pure play within Syncrude and its associated long-term growth. With an estimated 4.7b barrels of syncrude oil, trust holders assume none of the usual risk associated with conventional 20th century oil and gas exploration. As their product receives WTI equivalent prices, cash flow is not overly sensitive to swings in crude oil prices. We all know of the Canadian government's plan to raise taxes on the oil trusts after 2011. COSWF,with its under-leveraged balance sheet has indicated that long term debt will be increased in order to maximize distributions of income ahead of the taxation timeframe. Assuming oil prices in a range of US$90-140/barrel through 2011, Canadian Oil Sands can provide unitholders with a total return of over 40% over the next three years and solid returns thereafter.

Canadian Oil Sands owns 36.74% of the oil sands region (Syncrude) that is currently or shortly to be developed in Alberta. These oil sands represent long-life, no decline underpins to COSWL as much of the oil product is still in the ground. Management has been outstanding in the operation of the company, and decisions are transparent, conservative and appear to be consistently in the interest of unitholders. Current production is unhedged, unlike most other Canadian oil and gas trusts. Relatively low risk growth should ocur should production ramp up due to the massive untapped reserve potential. Whereas many mature oil fields are experiencing a slow decline, Canadiamn Oil Sands is not. A prototype facility to test a new oil sands slurry preparation technology was commissioned late last year. The technology is designed to allow shovels in oil "mines" to feed ore directly into mobile crushers and slurry preparation plants. Starting the slurry process closer to the mine allows for more extensive use of hydrotransport, which moves oil sand more cheaply than trucks or conveyors. The technology will improve recovery rates and reduce equipment down time, which has been a concern in Alberta. Even better, the reserve life of the oil sands of COSWF is more than 40 years - and that estimate could be raised further as new discoveries and advanced technologies are realised. Readily assessible markets for Canadian Oil Sands product are located in over twenty states, including large metropolitan areas of Salt Lake City, Chicago, Detroit, Seattle, etc. through an expanding delivery system.

Investors concered about tax increases on oil trusts should be aware that the Government of Alberta recently agreed to cap Suncor's oil sands mining royalties at 30% of net profits through 2016. Canadian Oil Sands and other trusts are likely to settle for the same tax level, which is a better deal than originally floated last year.

Oil may not sustain the present high price, but COSWF is likely to sustain investors with a nice yield. long term oil reserves and management that is benevolent to unitholders.

May 24, 2008

May 24, 2008: PowerShares Autonomic Growth NFA Global Asset Portfolio: Yes

A rule of thumb is that managed diversified Funds for long term holding survive a three year wait and see period to provide the investor with data to support a manager's competence prior to accumulation. I have violated this practice and purchased a position in PowerShares' Autonomic Growth NFA Global Asset Portfolio on May 23rd, three days after its inception. I wrote a brief article two weeks ago on the three managed ETFs of ETFs PowerShares was going to introduce, waited, studied their model, and decided that this ETF, ticker symbol PTO, was a nice initial fit into my Speculative Portfolio for now. If the ETF performs as I anticipate, it will be transferred into my Permanent Portfolio as a core holding.

PowerShares Autonomic Growth NFA Global Asset Allocation is based on the New Frontier Global Dynamic Growth Index (primarily consisting of PowerShares ETFs). The ETFs and their weightings are chosen through a proprietary and patented Resampled Efficiency process - only backtested for now, but which looks good based upon the present portfolio mix. The process is designed to maximize returns and minimize risk, something we have all been told before - I prefer to let the portfolio speak for itself.

Long term balanced funds used to contain a large majority of U.S. stocks and bonds. No longer. PTO's ETF mix is 49.36% International Equity, 41.14% Domestic Equity, 7.88% Fixed Income and 1.81% Commodity/Currency as of May 23rd. This 21st Century Model will be adjusted slightly on a quarterly basis, or more frequently if markets become volatile and a higher risk than warranted by the Resampled Efficiency process occurs. This managed ETF does not need a "hot hand" to excel. It is a disciplined model-based approach which should serve the investor well over time.

The ETF mix of PTO is as follows on May 23rd: (PS=PowerShares)


PFA - PS Dynamic Developed International Opportunities 22.60%
PEH - PS Dynamic Europe Portfolio 7.71%
EEM - iShares MSCI Emerging Markets 4.69%
VWO - Vanguard ETF Emerging Markets 4.67%
PUA - PS Dynamic Asia Pacific Opportunities Portfolio 4.63%
VEA - Vanguard Europe Pacific ETF 3.03%
VGK - Vanguard ETF European 2.00%


PJF - PS Dynamic Large Cap Portfolio 12.96%
PWJ - PS Dynamic Mid Cap Growth Portfolio 4.66%
PWV - PS Dynamic Large Cap Value Portfolio 4.38%
PWB - PS Dynamic Large Cap Growth Portfolio 4.02%
PWY - PS Dynamic Small Cap Value Portfolio 3.37%
PWT - PS Dynamic Small Cap Growth Portfolio 2.87%
PWP - PS Dynamic Mid Cap Value Portfolio 2.53%
RWR - SPDR DJ Willshire REIT ETF 2.32%
VNQ - Vanguard ETF REIT 2.31%
FZI - PS Zacks Micro Cap Portfolio 1.20%
PJG - PS Dynamic Mid Cap Portfolio 0.52%


PCY - PS Emerging Markets Sovereign Debt Portfolio 1.64%
LQD - iShares iBoxx $ InvesTop Investment Grade Bond Portfolio 1.42%
PLW - PS 1-30 Laddered Treasury Portfolio 1.23%
BWX - SPDR Lehman International Treasury Bond ETF 1.18%
MBB - iShares Trust Lehman MBS Fixed Rate Bond Fund 0.86%
TIP - iShares Lehman TIPS Bond Fund 0.76%
PHB - PS High Yield Corporate Bond Portfolio 0.51%
TLT - iShares Lehman 20+Year Treasury Bond Fund 0.23%
SHY - iShares Lehman 1-3 Year Treasury Bond Fund 0.05%


DBO - PS DB Oil Fund 0.58%
DBV - PS DB G10 Currency Harvest Fund 0.53%
DGL - PS DB Gold Fund 0.51%

Trading at $14.88/share, just a notch above NAV, PTO has an expense rate of 0.25% plus the expense of the ETFs. I calculate the total expenses to be in the neighborhood of 0.79%, which is acceptable to me considering the asset mix. As with most ETF startups the market value is tiny, a paltry $1.5m. The ETF has had decent volume for a new Fund this week. Although jumping in on Friday may have indicated an itchy trigger finger (and some cash yearning to be put to work) on my part, I liked the mix, method and company standing behind the ETF. Over the past thirty-six years of investing, I recall buying securities for my Speculative Portfolio with less chance of success. A managed ETF such as PTO may well allow me to take risk with less risk.

May 20, 2008

May 20, 2008: Kimberly-Clark, Absorbing New Markets

Kimberly-Clark is a company that has experienced ups, downs and, generally, stagnation. An institutional favorite, and especially a darling of American Century and Vanguard Fund families, KMB is lurching forward and may add some spice to its vanilla image.

Emerging market sales are now 31% of revenues, up from 25% a few years ago. Part of the success is driven by KMB's thorough consumer research, which includes home visits and shopping trips with consumers to better understand purchase decisions. The bottom line is now growing faster than the top line.

Kimberly-Clark does not wish the company to be grouped in with paper companies. Only 50% of KMB's portfolio of products is paper based (primarily due to a reduction of paper in diapers). That said, commodity prices will continue to have an impact on KMB's bottom line. The company at a recent conference stated that a large part of the recent surge in commodity prices was attributed to speculation, and that commodities the company uses should cost less down the road. A stronger U.S dollar may make their hopes become true.

Private label competition does not appear to be an issue at present. KMB brands are strong and growing stronger worldwide. Worldwide growth is an excellent story in process for Kimberly-Clark. For instance, only 20% of the families in emerging countries presently use diapers on a regular basis. KMB is using local market strategies and packaging to attract buyers with increasing success.

Competitors such as Proctor and Gamble (PG) are growing through acquisitions. KMB is not actively pursuing this mode of expansion. According to the company, acquisitions are only of interest if it can broaden the company's geography or help expand existing businesses such as in Health Care.

Trading below its 200-day average, this defensive stock may make a mildly attractive addition to a diversified portfolio. There is little downside risk,with the stock trading at $63.72 per share(52 week range of $61.94-$72.79), a dividend of 3.65% and a modest PE of 16.3. Kimberly-Clark appears to be a well run company. Return on assets is 9.87%, return on equity 30.39% and return on investment capital 13.95%. Gross profit margins are 31.07%, operating margin 14,25%, EBITDA margin 18.49% and overall profit margin 9.53%. Not a growth company, but an increasingly attractive, not-so-stodgy performer that will let you sleep at night.

May 18, 2008

May 19, 2008: Reverse Convertibles, An Interesting Speculation

A reverse convertible investment offers investors an opportunity to receive a high coupon and a predictable income stream. At maturity, the investor will receive either their original investment amount or a predetermined number of shares of the underlying stock whose value will be lower than the investor's original investment amount.

Speculators who might consider reverse convertible investments in their portfolio includes those seeking a higher interest rate than can be found on conventional fixed-income investments, individuals willing to accept the risk of owning the underlying equity, investors knowledgeable and comfortable investing in options and those seeking to diversify and spice up their overall portfolio return.

Reverse convertibles, sometimes called reverse exchangeables, are a short term investment linked to an underlying stock. At maturity, the investor will receive either 100% of their original investment amount or stock, in addition to the stated coupon payment. If shares of stock are given to the investor, their value will almost surely be less than the original investment amount. It is important to note that the investor's earning potential is limited to the security's stated coupon.

Reverse convertibles are generally issued with maturities of six months to two years. They are typically issued with above market rate coupons that range from 8-15%per annum. The coupon is paid regardless of whether the investor receives stock or cash at maturity. Most reverse convertibles can be purchased for a minimum of $1,000.00 and in increments of $1,000.00 thereafter. Reverse convertibles usually maintain a rather thin secondary market. Because reverse convertibles consist of two components, a debt instrument and an option, they are subject to special tax treatment (consult your accountant).Many reverse convertibles feature what is called "knock-in" protection that limits loss. This downside protection is a laudable feature. Almost all reverse convertibles are originated from large worldwide bank holding companies in Western Europe.

Here are a few examples of reverse convertibles:

Underlying Stock: Apple (AAPL)
Term: 6 months
Annual Interest Rate: 14% paid monthly
Downside Price Protection:25%
Closing Date: 5/27/08

Underlying Stock: General Electric (GE)
Term: 6 months
Annual Interest Rate: 8.25% paid monthly
Downside Price Protection: 15%
Closing Date: 5/27/2008

Underlying Stock: Arch Coal (ACI)
Term: 6 months
Annual Interest Rate: 13% paid monthly
Downside Price Protection: 35%
Closing Date: 5/27/2008

Underlying Stock: Ford Motor (F)
Term: 6 months
Annual Interest Rate: 14.25% paid monthly
Downside Price Protection: 30%
Closing Date: 5/27/2008

Underlying Stock: First Solar (FSLR)
Term: 6 months
Annual Interest Rate: 20% paid monthly
Downside Price Protection: 50%
Closing Date 5/7/2008

These are a few examples of the scores of reverse convertibles available.

I am a firm believer that one should not invest in a product that is not fully understood.This article scratched the surface. There are facets of reverse convertibles that you should study carefully and comprehend prior to considering an investment in this instrument.

One good source of information is presented on the website of the Federally Insured Savings Network ( Don't confuse the web site title with the speculative nature of this investment.

Exploring eclectic investments such as reverse convertibles is an interesting exercise, and may lead the experienced investor to a rewarding source of income.

May 16, 2008

May 16, 2008: 2008 World Economic Freedom Map

Based upon ten rather complex criteria established by the Heritage Foundation, the old adage "a picture is worth a thousand words" is applicable top this new survey.

Please click on the map to enlarge.

May 15, 2008

May 15, 2008: Crawling SPDR With Potential, State Street's International Small Cap ETF

As I examine recent models on allocation, it is apparent that astute minds are reaching the conclusion that the United States is moving away from global military, economic and political dominance into what can be described as slow decent into a victim-centric redistribution of wealth mentality with third world environments in large areas of our metropolitan areas. What political entities are to blame for this decline are left for the reader to determine. This post is to examine one ETF that will fit nicely into a higher percentage world investment allocation portfolio that is now touted by diversified allocation products. SPDR International Small Cap (GWX) is an excellent choice for a niche in a more global-centric investment scheme.

GWX seeks to replicate the total return performance of the Standard and Poors/ Citigroup World ex-US Cap Range Under $2b Index. The Fund uses a passive management strategy and is non diversified. Although the ETF is listed as a small cap Fund, in reality it looks as though about half the portfolio are Medium Cap companies, with 49% true Small Cap and the rest Micro Cap.

Trading at $33.28 with an expense ration of 0.59%, this ETF is actively traded, has a yield of approximately .95% and a cap rate of approximately $358m. Trading below its 200-day moving average, GWX is likely climbing from its 52-week low of $27.50 towards its high of $39.87. As the Fund invests in developed countries, political risk is minimal.

The lion's share of assets are in small cap Japanese companies (29%). I believe that small-cap Japan is an excellent sector to overweight at this time. The U.K. and Canada each are approximately 11% of the portfolio with over twenty-seven developed countries represented.

The top holdings are as follows (none over .56% of the portfolio)

Nippon Shinyaku
Crescent Pt. Energy
Hong Kong Finance
Randgold Resources
Nankai Electric Railroad
Kas Bank
Eldorado Gold
Miyazaki Bank
Meiji Dairies
Invocare Ltd.

Surprisingly for a Fund of this sort, the PE is only at 14.25 and the Price to Book is 1.55x.

GWX is not apt to either fall off a cliff or shoot to the stars. Instead, as with any solid Permanent Portfolio component, it should provide attractive long term results based upon its positions in smaller companies often times overlooked in developed overseas investment environments. Importantly, it is a good product that would be too daunting to replicate on your own.


May 13, 2008

May 13, 2008: MONEY Mag Proclaims The Perfect Investment Plan

Many readers are beyond the GED-level intellectual stimulation of general finance magazines. However, I find thumbing through them a respite from the more technical and eclectic information more sophisticated investors use as a basis for investigating potential portfolio prospects.

In Money's latest issue, the cover page boldly bellows that inside,on page 72, are "The Only Seven Investments You Need Now". The arrows hitting a bulls eye next to the pronouncement is a nice touch. Not knowing if now meant last Monday, or next week or month, I flipped over to the article which was team-written by a Money Quartet of contributors to see what priceless investment gifts were bestowed upon us.

The article itself is not bad. Some advice on ignoring talking heads and the hype of business tv is correct. Somehow, they fail to mention the hype of magazines such as Money, but I digress. The premise is to invest simply and in proportion to your career stage. This is good advice for the novice and probably a reminder to all of us that we can be too smart by half at times trying to be brilliant strategists within the world of speculating/investing.

The seven investments this team assembled are as follows:

Blue Chip Stock Fund: Fidelity Spartan 500 Index (FSMKX)

Blue Chip Foreign Stock Fund: Vanguard Total International Stock Fung (VGTSX)

Small Company Fund: T. Rowe Price New Horizons (PRNHX)

Value Fund: Vanguard Value Index (VIVAX)

High Quality Bond Fund: Vanguard Total Bond Market Index (VBMFX)

Inflation Protected Bond Fund: Vanguard Inflation Protected Securities Fund (VIPSX)

Money Market Fund: Fidelity Cash Reserves (FDRXX)

What proportion to hold them?
Early to mid-career has the pie sliced at 30% Blue Chip Foreign, 40% Blue Chip U.S., 5% Value, 5% Small-Cap, 10% High Quality Bond, 5% Inflation Protected Bond and 5% Cash.
Late Career has the pie sliced at 25% Blue Chip Foreign, 30% Blue Chip U.S., 2.5% Value, 2.5% Small-Cap, 20% High Quality Bond, 10% Inflation Protected Bond and 10% Cash.
Retirement has the pie sliced as 20% Blue Chip U.S., 15% Blue Chip Foreign, 20% Cash, 30% High Quality Bond, 10% Inflation-Protected Bond, 2.5% Small-Cap and 2.5% Value.

I believe that one can do much better using ETFs and other investment products that capture themes more than an index - especially in what may prove to be extraordinary economic times. I also am skeptical of the one size fits all approach, even if it is stated as in the life of a career (who knows what stage of career one is in, really?). Still, their approach is not bad. It is unlikely to do the average doofus harm.

But how many of these simplistic programs can we honestly take seriously, knowing that the best laid investment plans usually are wrong, given changing world events and time?


May 09, 2008

May 9, 2008: PowerShares To Introduce Their Version of Global Asset Allocation

On May 20, Invesco PowerShares anticipates launching the first family of globally-allocated ETFs of ETFs. They will be called PowerShares Global Asset Portfolios.

According to the PowerShares press release, these Funds are designed to provide investors convenient access to long-term, core asset allocation strategies based on three targeted risk profiles. These are balanced, balanced growth and growth. They will be based upon PowerShares ETFs representing a range of asset classes. Each index will rebalance quarterly, although PowerShares indicates that monthly rebalancing may well occur in volatile markets.

Here are the three ETFs of ETFs:

PCA - PowerShares Autonomic Balanced NFA Global Asset Portfolio
60% equity (23.7% Domestic, 31.3% Foreign, 6.4% Real Estate)
40% Fixed Income (35.8% Fixed Income, 2.8% Commodities and Currency)

PAO - PowerShares Autonomic Balanced Growth NFA Global Asset Portfolio
75% Equity (30.3% Domestic, 39.5% Foreign, 6.4% Real Estate)
25% Fixed Income (21.5% Fixed Income,2.3% Commodities and Currency)

PTO - PowerShares Autonomic Growth NFA Global Asset Portfolio
90% Equity (36.6% Domestic, 49.2% Foreign, 4.8% Real Estate)
10% Fixed Income (7.9% Fixed Income, 1.5% Commodities and Currency)

PowerShares claims that tax efficiency will be one major benefit of their "Fund of Funds". No breakdown of total expenses have been provided. And many investors are aware that investment products of this sort frequently have fallen short of expectations.

It will be interesting to view the initial portfolios, assess the risk of their security selections and compare these products against others in the target allocation arena.

I think it is a good thing to have more choices available with ETFs advancing beyond one index or another, parsing and dicing allocation products. It will be even better if PowerShares will demonstrate excellent performance and support for these and similar ETFs at a cheap price.

May 08, 2008

May 8, 2008: TEPPCO Partners, L.P. Possibly A Pipeline For Profits

I am a long term owner of Teppco (TPP). This stock, currently paying a well-supported 8.19% dividend (recently raised for the third time in the last four quarters) is trading well below its 200-day average at $34.66 per share. Down from a high of $46.20 last May and seemingly bottomed from a low of $32.91 in late March, TEPPCO has not met street earnings expectations due in large part to recent acquisition synergies, early repayment of debt instruments and hedging. These are in the past. TEPPCO has a solid management team that is trading away under performing assets and acquiring businesses that should excel over the long term. Not just your average pipeline company, TPP aims to maneuver into a comprehensive energy transportation system.

TEPPCO Partners is a carrier of refined petroleum and liquefied petroleum gases. The company owns and operates petrochemical and natural gas liquids pipelines, engaged in crude oil transportation,storage, gathering and marketing, owns and operates natural gas gathering systems and owns the Seaway Crude Pipeline Company, Centennial Pipeline and the Jonah Gas Gathering Company. TPP also has an undivided interest in the Basin Pipeline. TEPPCO operates in three business segments: transportation, marketing and storage of refined products and petrochemicals; gathering, transportation, marketing and storage of crude oil and distribution of lubrication oils and speciality chemicals; and the gathering of natural gas, fractionation of natural gas liquids and transportation of same.

Analysts are neutral to a bit bearish on the company, mainly because of the aforementioned earnings dip. I believe this presents an opportunity for the contrarian to pick up TPP cheap with a superb tax-advantaged dividend floor.

TEPPCO is a company moving forward. Although the past year has not produced the stellar earnings I and, evidently, the analysts expected, the future looks very bright. Holding this stock through both thick and thin as a dividend play has been strategically successful for me. Now, the promise of company performance to propel the stock price upwards may be more than a pipe dream.

May 07, 2008

May 7, 2008: Obama-nation, How To Invest Efficiently and Wisely

Barack Obama has an economic agenda. And investor's had better be prepared for it before 2009. Barack Obama's own "Economic Agenda" provides clues (, economy, pdf file "read the plan"). Here are a few major points, which will be followed by some investment recommendations. Importantly, the reader needs to think ahead and formulate a portfolio strategy for what may well be the most profound changes in American economic policies since F.D Roosevelt.

Mr. Obama denounces NAFTA at every turn. He recently spoke of "entire cities that have been devastated as a consequence of trade agreements that were not adequately structured to make sure that U.S. workers had a fair deal." As President, he has vowed to re-negotiate NAFTA and penalize American companies for outsourcing jobs from the country (and reward those for creating jobs in the U.S.). Obama will out argue John McCain, a strong but inarticulate free-trader, and nudge global opinion in the U.S. in a depressingly protectionist direction.

Obama's chief economic advisor is Austan Goolsbee of the University of Chicago. Goolsbee is a sensible and pragmatic fellow by all accounts. His plan to save millions of Americans from struggling to fill out their tax returns is commendable. Anyone who earns only a salary and bank interest, both of which are reported automatically to the IRS, will be sent a tax form that is already filled in, which the individual can accept or reject. Countless headaches would be averted. Goolsbee also was the architect of Mr. Obama's homeowner bailout program and had a hand in his health care plan - both more modest in scope than Hillary Clinton's sweeping freebie panoramas. Obama loves clean energy, water and infrastructure improvements.

Barack Obama has a keen intellect that has been evident on some economic plans. However, he sometimes lets his far left politics trump his good sense, and that is troublesome. Last year, for example, hoping for support from Sen. Tom Harkin of Iowa,he co-sponsored the Fair Pay Act, which would have obliged firms to pay men and women the same wages, not for the same work, but for work the government deemed "equivalent". Obama also supported the Patriot Employers Act,a bill for rewarding American companies for not expanding overseas that contained some economically toxic components.

Based upon his voting record in Illinois and in Congress, Barack Obama rarely saw a tax he didn't like. This is a major concern to investors. Tax hikes for the rich, who now pay virtually all the income taxes in America, would have to be so high to pay for Obama's so-called middle class tax cuts, health care and infrastructure improvements that the economy would likely suffer. Those with money always find a place to hide it. It is my belief that a tax hike would actually bring fewer dollars into government tax coffers. Obana has floated the idea of letting the payroll tax apply to high incomes and add another 12.4% to be extorted from employee and employer. The Bush tax cuts would be eliminated, capital gains taxes included. And based upon Obama's words and deeds, more taxes in the spirit of class warfare would likely be conjured up.

Investors may want to consider the following basic steps re-aligning their portfolios:

Maximize individual stocks in tax-advantaged accounts.If you qualify for a 529 Plan, obtain one in a friendly tax state, such as Alaska.

Sell individual stocks in trading accounts and purchase tax efficient ETFs and low-load mutual funds.

Avoid health care and pharma stocks,fossil fuel companies headquartered in the US and multi-national companies headquartered in the US with large subsidiaries overseas.

Avoid any company NAFTA-dependent.

Avoid mortgage and loan companies.

Avoid foreign stocks, funds and ETfs that are dependent upon significant trading of goods and services to the U.S.

With higher taxes and historically less revenue as a result, plan on inflation in the 6% range as the government prints paper assets to cover increased social spending largess.

Assume that company headquarters and financial transactions will move offshore to more friendly environs.

ETF ideas:

PowerShares Water Resource Fund (PHO)
iShares S&P Global Infrastructure Fund (IGF)
Vanguard Dividend Appreciation Fund (VIG)
iShares Global Technology Sector Index (IXN)
iShares Lehman 1-3 Years Treasury Bond Fund(SHY)
iShares Dow Jones US Home Construction Index (ITB)
Alternative Energy is a choice, but I cannot recommend any ETFs in that sector now.
iShares Switzerland Index Fund (EWL)
iShares Singapore Index Fund (EWS)
Svensk Exportkredit - Jim Rogers Commodity Index (RJI)


Teppco (TPP)
Enbridge Energy Partners (EEP)
Kinder Morgen Energy Partners (KMP)

Mutual Fund:

Fidelity Strategic Income Fund (FSICX)

A small list list using a broad brush. The key is to plan ahead and execute your plan for your best financial interest.

May 06, 2008

May 5, 2008: Hope for US Regional Banks

The Federal Reserve released its quarterly Senior Loan Officer Opinion Survey on Bank Landing Practices May 5th. Noted was, as expected, historically soft demand and further tightening of lending standards. The number of domestic banks reporting tighter lending standards was near or above historical highs for nearly all loan categories. Home equity lines of credit received the highest level of scrutiny.

Approximately 55% of the banks reported tightened C&I lending standards vs. 30% in January. Increased spreads and premiums have been added to loan products. Eighty per cent of domestic banks reported tightening of lending standards on CRE over the past three months,the highest level since 1990. Thirty-eight per cent of domestic banks reported weaker demand for CRE loans over the same period.

Home mortgages are being written with a higher level of "stips". Actually, more mortgages are being written now than three months ago, so it is quite possible that the bottom of consumer home purchases has been reached. Interestingly,the single family rental residence market is flooded in many areas of the country by those owners who either cannot sell or are expecting too high a price for their residence, preferring to rent out the premises waiting for a market turn.

Multi-family housing has become a very lucrative place for banks to place loan bets as the pool of renters has risen exponentially because many that would have qualified for financing before the era of "liar loans and free money" came to a grinding halt must now rent.

Out of the bowels of the report, which has only been touched upon here, the speculator may want to take a look at the following bank stocks for possible portfolio inclusion. I believe that the investor searching for more obscure, yet transparent banks will stand to profit handsomely from the effort. Here are a few examples:

Charter Financial (CHFN)
6.46% yield

Park National (PRK)
4.98% yield

Lakeland Bancorp (LBAI)
2.52% yield

Pinnacle Financial (PNFP)
0.00% yield

Republic Bancorp KY (RBCAA)
2.12% yield