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

October 31, 2008

October 31, 2008: Bloomberg, Smartnotes and Real Estate

I apologize to regular readers for the "time-out" since my last blog post. I have been down South working real estate deals, enjoying southern hospitality and completing an interview with Bloomberg News Service on GMAC SmartNotes,

I remain in the midst of my venture, and will return on Sunday for regular posts.

Congrats to all those having the stomach to stay the course in conservative dividend was a wonderful week!

I am presently in Montgomery, Alabama. Eldestt son, a USAF Major is temporarily stationed here from his regular post in Colorado Springs. We are planning business with pleasure for two days...a real treat.

October 24, 2008

October 25, 2008: Constructing An Inflation-Proof Portfolio

While the whiff of deflation is in the air, it does not take a prodigy to assume that with United States Treasury printing presses running at white-hot speed 24/7, inflation is more than a possibility. Based upon previous episodes of Government Gone Wild, we are about two years away from a significant period of inflation. It is wise to plan for the future.

What is the investor to do?

Importantly, arrange economic affairs in a way that reflects your expectations but, at the same time, allows for the possibility that those expectations may be wrong. You should hedge against your primary portfolio investments so that the inevitable surprises won't be catastrophic.

I have always admired a few of the investment themes published years ago by the late Harry Browne. Browne may have been dismissed by Wall Street elites during his time, but one of his ideas, advocating keeping funds in two distinct portfolios, the Permanent Portfolio (for assets deemed too precious for ego-driven investment whims) and the Speculative Portfolio (assets which could be used as chips placed on economic bets and can afford to be lost) continues to serve me well, since the 1970s.

Anticipating a probability of gradual and pronounced inflation beginning around mid-2010 would fall into the realm of the Speculative Portfolio.

Here are a few ideas that may inflation-proof this portion of your assets:

Gold: Always a store of value, it is generally accepted that the metal should be held during inflationary times through gold coins or in the commodity index itself, which for most investors would be the iShares' COMEX Gold Trust (IAU). Holding gold stocks is not a pure play in gold due to the vagaries of management and the politics where the mines are located.

Japanese Yen and Swiss Francs: The Swiss Franc used to be the currency haven of choice to hold value during hard times. I believe the Japanese Yen may also be useful in this regard. Ideally, a blend of both. Rydex has the product for you. CurrencyShares Swiss Franc (FXF) and CurrencyShares Japanese Yen (FXY) offer low expenses and a convenient method to own foreign currency hassle-free.

Real Estate: During modest inflation, real estate benefits from being able to defer and profit from interest and rental property deductions into limitless 1031 tax free (Starker Exchange)deferred or forever gains, or future capital gains if the property is not exchanged. Accumulating debt via the mortgage at a low interest rate prior to an inflationary spiral is another issue, but worth pondering by the investor. As many people will have to rent rather than buy, the passive investor may consider the iShares' Residential Property ETF (REZ) instead of direct ownership. I believe that no domestic political party will do anything except enhance individual and multi-family tax breaks. Follow the rhetoric. Track the money.

US Stocks:The U.S. stock market will be a poor to mediocre performer when a combination of inflation and, perhaps, tax policy changes occur to the chagrin of investors. Buying ETFs that feature a selection of securities with a long, positive history of performance and dividend increases, or Master Limited Partnerships that, for now, offer tax advantaged yields such as PowerShares' Dividend Achiever ETF (PFM) or MLP's such as Teppco (TPP), Kinder Morgan Energy Partner's Trust (KMP) or Energy Transfer Partners (ETP) may be considered.

US Government Securities: The obvious choice is to invest with inflation-protected securities, or TIPS. IShares' U.S. Tips Bond Fund ETF is a solid choice (TIP), amongst other funds and individual issues via Treasury Direct purchase.

Tax Avoidance: As Ben Franklin stated, "a penny saved is a penny earned". Financial planners and advisers, including pundits, will be spending a great deal more energy and creativity during an era of inflation advising investors on how to avoid taxes vs. shilling stocks for what I call naked profit (taxed) products. Investors will take advantage of these necessary wealth-preserving schemes to the chagrin of the government. While it is easy to remain one step ahead of fiscally punitive legislation, beware of products that are too complex, too expensive to implement or outright illegal.Avoiding taxes will become an art. You should become appreciative of that form.

Inflation-Protected Annuities (IPAs):More popular overseas than in the U.S., inflation-protected annuities may be worth considering after examining fees, risk and payout limitations. If a long period of inflation (and a more confiscatory tax policy) fit your economic scenario, take a look. IPAs are somewhat of a rarity at this time, and those that are available may have you pay a hefty price for protection. Look for the major players to enhance their IPA offerings in the near future. In the meantime, Vanguard and Fidelity offer non-ipa annuities that feature relatively low fees and basic options to help insulate the annuitant from a fixed payout nightmare during inflationary times. Swiss Franc annuities are available through Swiss banks and insurance companies. This instrument is popular throughout the rest of the world, although fees and payout may be suspect to validate this as a true inflation-taming instrument as it relates to the theme of this article.

I would avoid the temptation to utilize ETFs that juice positive or negative sectors during uncertain times. We have not experienced significant fears of inflation, government intervention into the markets, a marked difference in federal taxation policy or increased free-market regulation and subsidies until recently. These funds (ProShares, etc.) may come with unintended consequences that cannot be predicted or foreseen.

The above thoughts on this topic may assist the investor through an inflationary environment. The allocation of each facet is entirely a personal matter. Importantly, never bet the house on a likely economic scenario. You, and I, may be wrong.

October 21, 2008

October 21, 2008: Strong Dollar? Consider Higher Yield Foreign Securities

In line with recent stock lists on my blog, the following securities ex-US may be appropriate for inclusion on your watch list for accumulation. These are not recommendations. This is a list for you to further investigate to discover if they are a fit for your Permanent or Speculative Portfolios.

My screen targeted foreign large cap stocks, recommended as an Outperform or Buy per Reuters and throwing off a dividend of at least 5%.

AZ Allianz 8.93%
MT ArcelorMittal 5.075
AXA Axa 8.48%
BCS Barclays 11.26%
BBL BHP Billiton 5.26%
BP British Petroleum 7.58%
CM Canadian Imperial Bank of Commerce 6.02%
CHT Chungwa Telecom 7.73%
CS Credit Suisse 5.52%
DB Deutsche Bank 16.05%
DT Deutsche Telecom 7.88%
DEO Diageo 5.26%
EVNGY E.ON 5.42%
EDPFY EDP Energias de Portugal 5.64%
E ENI 9.18%
PHG Phillips Electric NV 5.85%
LFRGY Lafarge 8.72%
NGG National Grid 7.16%
NSANY Nissan Motors 7.88%
TLK PT Telekomunikasi Indonesia 10.79%
REP Repsol 6.90%
RDS Royal Dutch Shell 6.59%
SNY Sanofi Aventis 5.56%
SSL Sasol 7.67%
SCMWY Swisscom 5.64%
TI Telecom Italia 10.59%
TEF Telefonica SA 5.95%
TELNY Telenor ASA 7.77%
TLSYY Telstra 8.18%
TOT Total 6.88%
VOD Vodaphone 9.93%

Taking into consideration a strong dollar, it makes sense to look at the "rest of the world" to find stocks that will pay you to wait for the recovery and, perhaps, also provide a cheap entry point with our strong greenback.Research appropriately and choose from the list to discover the best of the lot for you.

October 18, 2008

October 19, 2008: What Is The Investor To Do?

The past few months have certainly been a train wreck for most investors. Professional money managers and individual investors alike - and certainly the overwhelming majority of passive investors whom have contributed through thick and thin into their mutual fund retirement accounts, have suffered. Emotions ranged from the initial "buy on the dips" to fearful watching of investment banks and Freddie and Fannie imploding, to anger at the home loan practices dictated by Democratic Party social engineering and the Republican failure of leadership to stand up to such foolishness, to abject fear as the market tanked, to skepticism at a government bailout of poor business models, to brief periods of optimism as the market rallied hundreds of points, to despair as the market tanked yet again. And the roller coaster ride continues.

What is the investor to do?

If you were wise not to throw in the towel on your quality securities and selectively sold less stable investments to raise cash, you are probably in a minority. Congratulations. If you did sell out of fear, that is understandable, so long as you do not sour on the stock market or other potentially lucrative investments in the future. And the future is now.

As things stand, I would put idle funds to work in the following way:

Begin to look at stocks earning 5% or greater yield that are traditionally strong companies with earnings and the ability to maintain or increase the dividend. I am providing screening lists regularly of ideas (not recommendations). Yield is the definitive indicator for the astute investor. You have downside protection and cash returns to satisy until the market rebounds.

Look at ETFs such as the PowerShares Financial Preferred Portfolio (PGF), with an 11.56% yield trading about $13.25/share. Vanguard's Short Term Corporate Bond Fund (BSV) is trading on the low side yielding a notch over 4%. Avoid being so conservative that you plunge into almost negative yield treasuries. High Yield ETFs are too speculative for me at this time.

Absolutely, positively begin to think about being a landlord. Rental real estate remains a superb opportunity for income and tax advantages (regardless of whether "That One" or "Yosemite Sam" gain power).Buying right is key. Tenant pools are expanding. For the first time I can recall, all properties under my watchful eye have a waiting list of renters. This covers all rental classes, from luxury to Section 8 government subsidies to common rentals - single or multi-family.

Be mindful that investors that place too many assets into taxable entities are going to be hammered by the anticipated Democratic Presidential, Senatorial and House of Representative victory beginning in 2009. Absolute power corrupts absolutely. And I am especially cognizant of how Chicago-style Democratic politics are played. Investors had better begin to invest in tax-advantaged instruments. Master Limited Partnerships, Tax Credit Housing, general real estate,low-cost annuities, life insurance and trusts should be on your radar screen. It is my belief that financial planners will begin to focus more on tax avoidance than security recommendations, just as they did in the era pre-Regan.

We will hear many sages giving precise instructions on how and when to invest during current turmoil. Remember, almost everyone is paying their mortgage, curbing their debts, making prudent family spending decisions and intent upon making their lives and their family's lives better in this, the greatest country on earth. Invest your hard-earned money in a deliberate and thoughtful fashion, letting it work for you instead of running away into someone else's greedy pocket.

October 16, 2008

October 16, 2008: Stocks For Your Picking

Following this blog's continuing idea list for investors contemplating speculative buys during this period, I submit the following eleven stocks that filtered through my Thursday screen.

These securities have a market cap between $2,000b and $10,000b, are a component of the S&P500 Index, have a Standard and Poor's Rating of Four Stars or Five Stars, and yield over 6%:

AEE Ameren Corporation 8.47% yield
CTL CenturyTel, Inc. 8.68% yield
DDR Developers Diversified Realty Corp. 16.39% yield
EQ Embarq Corp. 8.15% yield
FTR Frontier Communications Corp. 11.61% yield
KIM Kimco Realty Corp. 7.11% yield
POM Pepco Holdings, Inc. 6.11% yield
PGN Progress Energy, Inc. 6.84% yield
RRD R.R. Donnelley and Sons Company 6.42% yield
WIN Windstream Corp. 11.61% yield
XL XL Capital Ltd. 7.52% yield

My theme is that investors should be using dividends that are likely to be supported (at least by Standard and Poors' Ratings)as a basis for screening stocks that may be researched further for speculative purchase. Only you know your tolerance level for risk. And, if you are considering purchase from this list or any other list, thorough research should proceed any security accumulation.

October 15, 2008

October 15, 2008: Stocks For Your Buy List

Regular readers know I am running a series of screens to isolate securities that may be researched and included on a "buy" list when individuals speculate that a market bottom is at hand. Knowing that market timing is, at best, a hopeful guess, the stocks I list do not come with any elaborate raging buy scenarios. The list is intended only as a point of reference.

Today I screened the following: Stocks with a market cap of at least $10b, listed on the NYSE, a Standard and Poors Rating of 4-Stars or 5-Stars and a dividend yield of 6% or higher as of the close Wednesday. Eleven stocks made the list:

MO - Altria yielding 6.55%
BBV - Banco Bilbao Vizcaya Argentaria ADR 6.63%
Bristol Myers Squibb 6.63%
France Telecom ADR 10.62%
ING Groep ADR 11.52%
KMP Kinder Morgan Energy MLP 8.20% (note: earnings were lightafter hours Weds., buy on weakness)
NGG National Grid ADR 6.95%
PGN Progress Energy 6.36%
SSL Sasol Limited ADR 7.43%
DOW Dow Chemical 6.47%
VZ Verizon 6.36%

I believe that investors should look at historically exemplary companies that presently have a dividend of at least 5%. This will likely provide a floor for the stock and pay the investor a nice dividend until the markets head north.

October 12, 2008

October 12, 2008: Securities For "The List", Part One

As I posted late last week, it is time to begin making a list of those beaten down sectors and individual securities that may bring life back to your portfolio(s) in the future. I am not, repeat -NOT - recommending immediate purchase. The markets are still too destabilized for considered actions unless your objective is pure speculation.

I am beginning to do screens featuring the worst performing sectors over the past year. Amongst these include Energy (down 40.46%), Financials (down 38.60%), Capital Goods (down 39.80%) and Conglomerates (down 44.50%).

One could consider buying the ETFs for these sectors, perhaps through iShares. However, for the brave, looking at individual stocks for your list might be the way to obtain some very handsome returns.

Here are a few stocks within the above sectors that feature an interesting profit margin (TTM) vs. their five year profit margin average. All have been beaten to death.

ESV - Ensco International
LVMUT - Moet Hennessy Louis Vuitton ADR
LUK - Leucadia National Corp.
UTX - United Technologies
NE - Noble Drilling
SLB - Schlumberger
RIG - TransOcean
LUFK - Lufkin Industries
CNH - CNH Global NV
TMK - Torchmark Corp.
TRH - Transatlantic Holdings
AFL - Aflac

I purposely did not include any data to whet your appetite. At this juncture, I believe it is vital for the individual investor to do primary research solo to select stocks or ETFs that fit one's endurance level.

I will be adding more securities to investigate on a regular basis, with more supportive data as the market makes it way.

I have been "on the road" the past few days with real estate the focus of my attention. Granted, the market in real estate is brutal - just the right time for those with cash to make a move.

October 09, 2008

October 9, 2008: Blood Starting To Run In The Streets

A memorable statement regarding investing is to "buy stocks when there is blood running in the streets".Well.......

Risk itself has as many nuances as there are individuals on the planet. Every one's perception of risk is different to a greater or lesser degree. As the markets continue to deteriorate, I see a glimmer of possibility that the final towel is in the process of being thrown into the abyss.Investors should now look at stock prices and fundamentals of companies that, in the words of Warren Buffet,
"one wouldn't mind holding if there was no stock market for ten years."

To brace yourself, here are a few quotes pertaining to RISK:

There are those who are so scrupulously afraid of doing wrong that they seldom venture to do anything - Vauvenargues

The more chance you have of stubbing your toe,the more chance you have of stepping into success -Samuel Johnson

Nothing will ever be attempted, if all possible objections must first be overcome - Samuel Johnson

The fear of being laughed at makes cowards of us all - Mignon McLaughlin

You'll always miss 100% of the shots you don't take - Wayne Gretzky

What is more mortifying than to feel you've missed the Plum for want of courage to shake the Tree? - Logan Smith

A ship in a harbor is safe - but that is not what ships are for - John Shedd

To win you must have to risk loss - Jean-Claude Killy

The torment of precautions often exceeds the dangers to be avoided - Napoleon

Progress always involve risks. You can't steal second base and keep you foot on first -Frederick Wilcox

While it is foolish to try and catch a falling knife in the present market, worldwide, it is an intelligent choice to begin making your list of world class stocks that will survive and thrive in your future portfolio(s).

October 07, 2008

October 7, 2008: Nothing To Add

No sense being repetitive. My previous blogs over the past several weeks stand so long as the markets are wildly gyrating.

October 03, 2008

October 3, 2008: The Best Offense Is A Solid Defense

President Clinton signing the deregulation act that allowed financial institutions to co-mingle. Courtesy, New York Times, November 13, 1999.

Now that Congress has passed and the President has quickly signed what may well prove to be a rather ineffective piece of pork-laden legislation to inject more failed socialism into our free market economy, I believe that the individual investor should take steps to defend hard-earned assets and protect against what is almost sure to come: a national recession,followed by a global recession, followed by a round of dollar inflation and higher U.S. tax rates that will be described in the next Presidential term as confiscatory.

Licking some wounds in this unforgiving market, I have tried to simplify my portfolios to anticipate the above scenario - knowing that no one can predict the future. So I hedge my own feelings and retain some stocks that are dividend rich in lousy sectors that may turn on a dime into favorites.

The dividend-rich stocks I recommend include Master Limited Partnerships in oil and gas transmission. These include Kinder Morgan Energy Partners (KMP), Energy Transfer Partners (ETP), TEPPCO (TPP) and Enbridge Energy Partners (EEP). I own TPP and EEP.

Other dividend-rich securities examples include out-of-favor stocks such as Dow Chemical (DOW),Annaly Mortgage Perpetual Preferred 7.85% (NLY+A), Monmouth Realty (MNRTA) and the Alpine Global Dynamic Dividend CEF (AGD).

These type of securities are all speculative to a greater or lessor degree, with a secure dividend floor to resist plummeting to ground zero.

To invest as per my prognostication, you may wish to consider the following.

Rental real estate: If you have even the slightest inclination to invest out of the stock and bond market, buy into the real estate fire sale in a neighborhood near you. Bank short sales are easy and common transactions now (offer 40 cents on the list price for a cash offer to start). Rental rates are steady to up, the market is in need of rental units in neighborhoods. Urban subsidized rents are guaranteed and rising. With inflation and higher taxes on the horizon, the tax benefits of direct ownership of real estate is compelling. A 20%+ return before tax benefits is well within reach. Remember that real estate is, in the final analysis, a people business vs. a brick and mortar business, which is one reason why otherwise astute money managers flop as landlords.

Inflation Protected Securities: iShares TIP Inflation-Protected Bond Fund (TIP), or buy TIPs directly from the U.S Treasury web site. Inflation may well come close to 12% or higher as the government printing presses roll 24/7 to bail out liberal-inspired social justice programs and to concurrently stave off a severe recession. Circa 1977-80. One benefit: The new President will be a one term President as we finally get fed up and sort out our political mess.

International Dividend Fund: Fidelity Strategic Income Fund (FSICX).I like the breadth of holdings and the mild diversification of currencies.

Safe Haven Stock Fund: iShares Switzerland (EWL). Gold-plated companies with a world-wide reach in a protective investment environment with a trusted currency. Keeps you in the game for the first stages of an eventual economic recovery.

Gold: First time I have recommended this commodity. 5% in a gold ETF such as iShares COMEX Gold Trust (IAU).

Bond Funds: Vanguard Short-Term Corporate Bond Fund (BSV),iShares Lehman 1-3 Year Treasury Bond Fund (SHY).

Preserving capital and gaining interest to boot is not a lot of fun and adventure. It's your money. Protect it for now to avoid having to fight the urge to become extremely speculative later in a futile attempt to recoup lost monies wasted away trying to game this market.