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

January 30, 2009

January 30, 2009: Ready, Set, Buy ....Preferred PFF/PGF

President Obama cannot permit continued failure and a loud "no confidence" vote directed towards the financial sector. He will act boldly, probably next week, to announce a very large and very public TARP 2 initiative designed to restore confidence and stability. If, indeed, he does act, it will make my adding to PFF and PGF on Monday an astute move. If not, I still have a nice dividend cushion one big step removed from bank common shares.

Although I do like certain banks over others, in this economic climate not diversifying risk within a sector (especially financials) seems foolhardy.
Going a step further, I believe that the current proposed and House-passed stimulus bill (called in some quarters "porkulus") will not do much of anything to jump start anything except pet progressive social programs and to buy votes for 2010. Surely President Obama knows this, and needs a huge TARP 2, attacking the deep recession with a surge of support for financials, and by extrapolation, housing and the markets. I won't quarrel with this approach. That's politics.

Purchasing the common stock of financials may be a tactical mistake, as surely there will be conditions attached to any financial institutions that accept TARP 2 funds. One stipulation will almost certainly be common stock dividends. Another may be an equity stake within the common shares by the Feds. I do not think that bonds or preferred shares will be impacted, in part because they are not as valuable a political currency bacause they are not as newsworthy an entity to attack.

If "change" is coming to Washington with my prediction of a massive TARP 2 next week, I anticipate with some audacity of hope that a share of change will shower my brokerage accounts through preferred shares' total return.

IShares U.S. Preferred Stock Index ETF (PFF) trades around $26.00 and has a current yield of 9.50%. Expenses are .48%. 85% of this ETF consists of financials. The average quality of the portfolio is BB+.

PowerShares Preferred Financial Portfolio ETF (PGF) trades at $11.07 and has a current yield of 12.51%. Expenses are .60%. The average quality of the portfolio is A2.

Of the two, I prefer the iShares' PFF. It is 100% in the U.S., where the TARP 2 will occur, and the portfolio contains many more securities for appropriate diversification. PowerShares PGF has about forty five securities, quite a few outside of the United States as compared to PFF. Still. PGF will benefit, moreso if European governments deploy their version of a bailout in coordination with the U.S.

With the nice yield and the chance for some capital appreciation forthcoming, the investor giving these ETF's consideration early this upcoming week may be well rewarded.

January 23, 2009

January 23, 2009: Priorities, President Obama. Priorities.

Each year the Pew Research Center for the People and the Press take a scientific sample of the priorities of the American people for the coming year. Just released, the results may not reflect what some of our ardent liberal friends desire, but nonetheless reveal a true sense of what is really on the minds and in the pocketbook priorities of Americans - at least in mid-January of 2009.

Here is the list:

Top Priorities for 2009

85% Economy
82% Jobs
76% Terrorism
63% Social Security
61% Education
60% Medicare
59% Health Care
53% Deficit Reduction
52% Health Insurance
50% Helping the Poor
46% Crime
45% Moral Decline
44% Military
43% Tax Cuts
41% Environment
41% Immigration
36% Lobbyists
31% Trade Policy
30% Global Warming

Assuming that focus groups drive public policy at the national level - very similar to the Clinton presidential years, I leave to the investor to heed the prority list in some way. The wants (or lack of wants) polled through the American people may shape the Obama Presidency over the initial stages of his term.

If B.H. Obama is paying attention, Al Gore had better find a creative way to heat up the planet. Fast.

January 16, 2009

January 18, 2009: Ruminations For President Obama

We are witnessing four days of unprecedented pomp and circumstance as President-elect Obama becomes the media's larger than life President, with over $115 million dollars being spent on ceremonies that the same media savaged former President Bush in 2005 for its paltry $40 million.

That said, I believe that all Americans should wish both he and his administration the best of success. Our country depends upon it.

Most Presidents admit to being admirers of certain former Presidents. I think all Presidents in total deserve some time in a new President's mind. All had something to offer.

I offer a few quotes that President Obama may not read or hear, but are appropriate for our time:

"Never spend your money before you have it." - Thomas Jefferson

"It is better to be silent and thought a fool than to open one's mouth and remove all doubt." - Abraham Lincoln

"Be sincere,be brief,be seated." Franklin D. Roosevelt

"You know,everybody makes mistakes when they are President." - William J. Clinton

"A government big enough to give you anything you want is a government big enough to take from you everything you have." - Gerald Ford

"You cannot build character and courage by taking away a man's initiative and independence." - Abraham Lincoln

"We can draw lessons from the past but we cannot live in it." -Lyndon B. Johnson

"If you want to make beautiful music, you must play the black and white notes together." - Richard M. Nixon

"We live in the midst of alarms; anxiety beclouds the future; we expect some new disaster with each newspaper we read." - Abraham Lincoln

"How far would Moses have gone if he had taken a poll in Egypt?" - Harry Truman

"Nine-tenths of wisdom is being right in time."- Theodore Roosevelt

"There is no victory at bargain basement prices." - Dwight D. Eisenhower

"I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them." - Thomas Jefferson

"Always vote for principle, though you may vote alone, and you may cherish the sweetest reflection that your vote is never lost." - John Quincy Adams

"A good many things go around in the dark besides Santa Claus." - Herbert Hoover

"We live in a stage of politics where legislators seem to regard the passage of laws as much more important than the results of their enforcement." - William H. Taft

"If you don't say anything, you won't be called upon to repeat it." Calvin Coolidge

The only fear we have to fear is fear, itself. Godspeed....

January 14, 2009

January 15, 2009: Simplicity Is The Utimate Sophistication

I see no point in attempting to parse securities with today's post. Instead, a few quotes are in order to remind you, and me, of important things in life that we may miss from time to time.

The title of post is a quote from Leonardo da Vinci.

Living within one's means is essential for almost all of us. Here are a few quotes to ponder:

"Nature uses as little as possible of anything." - Johannes Keppler

"For all objects and experiences, there is a quantity that has optimum value. Above that quantity, the variable becomes toxic. To fall below that value is to be deprived." - Gregory Bateson

"The point of life is not to slave away for years until age 65 and then say,"Phew,Glad that's over!". Rather it is to make sure that we do not die with music in our ears." - Lance Secretan

"The bad news is that time flies. The good news is that you're the pilot." -Michael Altshuler

"I'm not sure people are meant to work full time. Life is more complicated than that. We human beings need time to think, make music, play with kids and dogs, bond with each other and care for friends and family. Those of us with demanding jobs that continually spill over into our personal lives often don't have the time for those things while we work full time." - Carol Ostram

"Whether it's the best of times or the worst of times, it's the only time we've got." - Art Buchwald

"Too many people spend money they haven't earned to buy things they don't want, to impress people they don't like." - Will Rogers

"No one can make you feel inferior without your permission." - Eleanor Roosevelt

"There is nothing noble about being superior to some other man. The true nobility is in being superior to your previous self." - Hindu proverb

"Fear less, hope more, eat less, chew more, whine less, breathe more, talk less, say more, hate less, love more, and good things will be yours." -Swedish proverb

"Happiness makes up in height what it lacks in length." - Robert Frost

"It would be possible to describe everything scientifically, but it would make no sense, as if you described a Beethoven symphony as a variation of wave pressure." - Albert Einstein

January 12, 2009

January 13, 2009: Conglomerates, Easy Pickings?

Back in the good old days of Dow 900, the Chevy Nova and Jimmy Carter's brother urinating on an airport runway after a few too many Billy Beers, companies that bought companies for no other reason than to enlarge were blessed as conglomerates and traded in a similar fashion to techs in the mid-90s (without the 24/7 media hype and talking heads goading potential investors, of course). Investors soured on them when the realization set in that many of these acquisitions were bought for no sane reason and then poorly managed into fiscal oblivion.

Conglomerates may well be returning to favor. This time, a few are focused using the Buffet model and others are straight-up value plays that may prove to be winners when the economy rebounds - maybe even a bit earlier.

Sure, there are companies of this genre that are stinkers, but a few may offer compelling returns over time. Here are some that are presently trading below a PE of 10, based upon their most recent earnings report:

GE - General Electric
Trading at $15.92/share, 52 week range $12.68-38.62, Div. 7.83%

PHG - Philips Electric ADR
Trading at $19.56/share, 52 week range $14.71-41.68, Div. 6.73%

DOV - Dover Corporation
Trading at $31.97/share, 52 week range $23.39-64.67, Div. 3.13%

FO - Fortune Brands
Trading at $40.31/share, 52 week range $30.24-74.44, Div. 4.37%

NHYDY - Norsk Hydro ADR
Trading at $3.83/share, 52 week range $2.72-17.20, Div. 25.91%

LUK - Leucadia National
Trading at $19.39/share, 52 week range $12.19-56.90, Div. 1.29%

TXT - Textron
Trading at $14.50/share, 52 week range $10.09-65.62, Div. 6.19%

TKS - Tomkins ADR
Trading at $7.93/share, 52 week range $5.22-15.25, Div. 11.23%

TIN - Temple-Inland
Trading at $4.70/share, 52 week range $2.34-20.49, Div. 8.62%

As the rumblings of World War 2 were being heard around the world, Sir John Templeton borrowed money and bought $100.00 each of all Dow components. He made a bundle of cash after events which make our current recession appear as child's play successfully concluded, even though some of his holdings performed very poorly.

Could the same scenario occur with today's ultra-low PE conglomerates? For sure, odds are they will outperform a significant percentage of genius talking heads and their hot picks over the duration of this recessionary cycle.

January 09, 2009

January 10, 2009: M. El-Erian's Latest Advice

Mohammed El-Erian, PIMCO's man about the media and their Chief Executive recently penned an opinion piece for the Financial Times. He states three positions based upon the premise that "every official action must trigger investor reaction".

Here are his points:

1. The perception of a level playing field for markets is giving way to "the more random influence of discretionary decisions".

2. Governments and others in financial prominence do "not have the luxury of a master plan". They must respond, often with unconventional vigor, to severe market failures.

3. When governments intervene, they are compelled to have as a goal protecting the taxpayer, at least in the U.S. As such, "they will subordinate somebody in the capital structure - the equity holders for sure." In some instances, El-Erian also suspects that holders of preferred and senior securities will also be vulnerable.

Mohammed's advice is that investors should position their portfolios predominantly under the umbrella of government support This game plan is something I have advocated for a while, although not to El-Erian's extent. Follow the government's money trail and you will find securities in sectors that will not be allowed to collapse.

As an old war-horse, Marty Zweig, stated countless times, "Don't fight the Fed". Somewhere, his buddy, Lou Rukeyser, is winking.

Eventually, this period of economic distress will end and governments will return to being referees and not the starting lineup of the sport we know as investing. In the meantime, they are both. PIMCO's star strongly encourages investors to adjust their portfolios accordingly. Now.

January 9, 2009: PNC Financial Services, Wisely Moving Ahead

The recent acquisition of National City Bank assets by PNC Financial Services Group headquartered in Pittsburgh bodes well for the company. Using TARP funds wisely with an extra incentive from the Feds, PNC moved quickly to capture not-all-that-troubled National City Bank for a song, with the deal closing December 31st. This is a great fit for PNC. The company will ultimately profit handsomely from National City's poorly timed, yet strategically placed expansion into the Chicago and Florida markets. Significantly, National City by luck or design tapped into two significant Latino areas with an expanding and generally fiscally conservative middle class. True, the mortgage business and over extension of generous credit that National City proffered was in retrospect a pathetic business model which led in large part to their demise. PCN gets to write off the bad and keep the best of National City, most of which are solid additions to the PNC portfolio. PNC has to divest National City branches, especially in the Pittsburgh area as part of the deal. That is a non-issue, and PNC will likely slice off even more marginal retail operations to further enhance the bottom line.

PNC is a diversified financial services company that is engaged in retail banking, corporate and institutional banking, asset management and global fund processing services. The company provides services nationally but concentrates its retail operations in Pennsylvania, New Jersey, Washington D.C., Maryland, Virginia, Ohio, Kentucky, Delaware and now Illinois, Indiana and Florida.

PNC Financial Services trades at $48.95/share and sports a solid 5.39% dividend. The stock has traded between $39-88/ share over the past twelve months. The market cap is over $17b.

Importantly, investors following government TARP monies have a good idea which banks the Feds are not going to allow to fail. With PNC's government-blessed takeover of the large National City franchise and perhaps another medium acquisition on the horizon, my hunch is to follow the money and invest with Uncle Sam.

Along with BB&T out east, PNC is my other choice for a regional bank that has the capability of delivering strong returns for shareholders betting that this recession is not circa 1931.

January 04, 2009

January 6, 2009: Portfolio Flexibility - Different Paths. Taxes, ETFs and Real Estate

Just about everybody who has an opinion on the markets has offered their view on the upcoming year. In a previous post (December 26), I rostered income producing bond and preferred stock ETF holdings owned. I deliberately neglected to offer proportion, as this is an individual choice, not for me to cloud.

Moving on with my investment scheme, I offer further observations and some investment vehicles that are in my world for 2009 and beyond.

First, avoiding taxes. Investors can only profit from what is kept. I have pounded the table in previous posts that financial planners had better begin to advise and show evidence of appropriate products to implement tax avoidance tactics over and above hot stock picks and micromanaging asset allocation. Creating LLCs, portfolio and income splitting and other tax reduction plans to protect and expand family asset protection is vital. So long as IRS rules are followed, fear not. However, beware of of new and improved tax shelters. My rule is simple, if it sounds too good to be true and you don't understand all the details, pass. Uncle Sam will be looking out for these with a vengeance as our treasury coffers need to be replenished with your money. If your financial guru does not present tax reduction procedures as Plan 1, fire 'em.

Second, proportional bond and preferred stock securities. Season your portfolio to taste from amongst the following (see my December 26th post for rationale):

IDV - IShares Dow Jones Select EPAC Dividend Fund ETF
BWX - SPDR International Treasury Bonds ETF
BSV - Vanguard Short Term Bond Fund ETF
LQD - IShares Investment Grade Corporate Bond ETF
PFF - IShares Preferred Stock Index ETF
SHY - IShares 1-3 Year Treasury Bond Index ETF
TIP - IShares Treasury Inflation-Protected Securities ETF
PGF - PowerShares Preferred Financial Portfolio ETF

I am lightening up a bit on treasuries and stretching to a larger position in corporate bonds and preferred ETFs. History has shown that when the government runs the money presses white hot 24/7, inflation is a matter of when, not if. TIP provides an answer to this situation.

More than a few readers have e-mailed me regarding ProShares' double shorts/longs. While I admit to maintaining a micro speculative position with these instruments a few times, I do not recommend them. I am not sure they perform as advertised, and am very sure that these will be highly regulated in the future.

Third, don't chase stocks. Sit back with some ETFs and a pseudo-ETF stock or two and gradually add as you see fit. Here are several I own or am following for an entry point.

EWL - IShares MSCI Switzerland Index ETF
IAK - IShares US Insurance Index Fund ETF
MDU - MDU Resources (common)
EWS - IShares MSCI Singapore Index Fund ETF
SLV - IShares Silver Trust ETF
BBT - BB&T Bank (common)
AOM - IShares S&P Moderate Allocation Fund ETF - especially noteworthy
PTO - PowerShares International Growth ETF
RJI - Swedish Exportcredit (Jim Rogers' commodity fund)
PHO - PowerShares Water Resources ETF - good infrastructure play

Fourth, rental real estate. Tax benefits liberals and conservatives won't touch, write-offs, depreciation and holding a tangible asset that pays you very well every thirty days. Not for everybody's temperament and must be self-managed to extract the maximum benefits.The media's description of a brutal real estate market be damned, my holdings have been sterling and performed much better than the pundit's chant. Only the over leveraged or the usual critics who are not in the business seem to criticize this part of my investment scheme.

Holistic portfolio management means that the investor should not be content with a stock picking service, double wide computer screen and a twitching hand ready to BUY BUY BUY. Tax avoidance, income streams cascading from several directions, ETFs and like-type investments along with active tangible assets you manage may deliver a satisfying investment result for 2009 and beyond.