March 29, 2009: Do No Harm To Your Capital - and Read

This weekend, I have had the luxury of time review more than the usual share of national and international economic news and commentary. Experts range from those predicting the demise of capitalism to the beginning of a new super-bull market and many somewhere in between, provided intellectual fodder for the brain.

As a result, I have determined that no one knows what the hell to do, unless you want to roll the dice and hope for luck. In this environment, my advice is to play it safe with your money with short term corporate bond ETFs such as Vanguard's Short Term Corporate ETF (BSV), inflation protected securities such as iShares' Inflation Protected Treasury Bonds (TIP), higher yield, shorter term corporate bonds such as iShares' LQD and an ETF or two of high rated foreign government bonds. There is no harm in preparing for another round of bear market antics. Or, inflation dictated by a massive government spending scheme.

Which leads me to the Panic of 1857.

Banks were faulted for this deep recession. Crowds of unemployed and professional agitators flocked through the financial district of New York, and throughout the Central Park area targeting banks and the homes of bankers. The Ohio Life Insurance and Trust Company failed, ruining the financial lives of thousands of investors and the insured.

President Buchanan, in December of 1857 noted:

"We have possessed all the elements of material wealth in rich abundance, and yet, notwithstanding all these advantages, our country in its monetary interests is at present in a deplorable condition. In the midst of unsurpassed plenty in all the productions of agriculture and in all the elements of national wealth, we find our manufactures suspended, our public works retarded, our private enterprises of different kinds abandoned and thousands of useful laborers thrown out of employment and reduced to want......

It is apparent that our existing misfortunes have proceeded solely from our extravagant and vicious system of paper currency and bank credits, exciting the public to wild speculations and gambling in stocks. These revulsions must continue to recur at successive intervals so long as the amount of paper currency and bank loans and discounts of the country shall be left to the discretion of 1,400 irresponsible banking institutions, which from the very law of their nature will consult the interest of the stockholders rather than the public welfare......

It is one of the highest and responsible duties of Government to insure to the people a sound circulating medium, the amount which ought to be adapted with the utmost possible wisdom and skill to the wants of internal trade and foreign exchange."

President Buchanan, meet President Obama.

Historians generally rank Buchanan as amongst the worst of Presidents, primarily for his reluctance to deal with the misery of human slavery. However, in his time, it is likely that the economic distress and poorly timed government policy towards a deep recession (called a "panic" in those days) led to increasing animosity with productive citizens and enterprises and thus exacerbated social tensions that may have prevented a non-violent end to slavery instead of a civil war. Buchanan made tactical errors trying to rectify the recession - especially with currency manipulations.

One hopes that sinister animosities do not fester out of our current situation.

March 15, 2009: How About A Quickie Portfolio for Income?

Many investors as simply saying "screw it" and ditching securities in favor of The Select Comfort National Bank and Trust. I say, go for a quickie fix with a small portfolio of funds that may give you a chance for both decent yield and capital appreciation.

Not necessarily Viagra for the long haul, these selections appear to be, in proportion, good for now and the immediate future. Your risk tolerance will determine what dose of each Mr. or Ms. Portfolio can stomach. Get on top of, not inside, the mattress and squeak some bucks out of those springs.

Fidelity Strategic Income Fund (FSICX). Priced at $8.57 with an expense ratio of 0.73%, this $4b fund yields 6.45% and has been a stalwart performer in its class for years. Managed effectively with the goal of high current income and the chance of capital appreciation, FSICX had a recent mix of 32% U.S. government agency debt, 27% corporate bonds, 23% foreign government bonds, 10% short term cash assets, 7% floating rate loans, and a smidgen of preferred shares and stocks. I believe that many of the fund's assets are under priced vs. risk, and that the few securities in the fund that may go belly up will not have a material impact upon FSCIX's ability to deliver cash into your portfolio.

IShares' TIPS Bond Fund (TIP). Priced at $98.40 with an expense ratio of 0.20%, this inflation protected U.S. government security ETF with a current cap of $10.7b yields 5.26%. If you believe that the United States Congress is spending just a little bit too much money which may result in not so insignificant inflation fairly soon, this ETF will provide current and future gratification. TIP pays you a nice dividend to wait until that time arrives. Or, open an account with Treasury Direct (U.S Government securities web site) and buy your own without the ETF in the way.

IShares 1-3 Year Treasury Bond Fund (SHY). Priced at $83.98 with an expense ratio of 0.15%, this ETF is will definitely give you a good night's sleep. Extremely conservative and resistant to what many experts are calling a bubble in government bonds because of the short portfolio duration, SHY yields 3.30% and has a current market cap of $7.7b.

Vanguard Short Term Bond (BSV). Priced at $78.18 with an expense ratio of 0.10%, this one-five year corporate debt fund yields 3.56%. BSV has a $1.5b market cap and is a nice complement to SHY if you believe that most corporate short term debt is attractive for potential capital appreciation as the recession eventually lifts.

IShares iBOXX Investment Grade Corporate Bond ETF (LQD). Priced at $92.65 with an expense ratio of 0.15%, this is a fairly risky ETF is spite of being touted as investment grade. Yielding 5.93% with a market cap of $7.7b, LQD goes out and reaches for yield with a maturity duration and quality stretch. That said, size matters and the holdings should offset the risk of default in certain securities for good total return. I believe it compliments FSCIX quite well.

State Street Barclays International Government Bond ETF (BWX). Priced at $49.72 with an expense ratio of 0.50% and a market cap of $877m, this world bond ETF yields 2.56%and provides diversification with high quality international government bonds.

IShares Preferred Stock Index ETF (PFF). Priced at $20.70 with a 12.61% yield, PFF has had a large move upwards over the past week. Too much, in my opinion. The large majority of this index consists of bank preferred stock, thus the strong performance.I would pull the trigger on a pullback if you believe we are in a bear market rally. $17.00 would be a nice entry point. Risky, but a better bet than common stock for this quickie income portfolio.

I am not advocating exclusively purchasing the above securities, sell everything else and head to the hills with your sack of gold, shotgun, dried foods and a cask of Jack Daniels. I am advocating proportional risk yield, expectation of inflation, international diversity to a degree and confidence that many corporate bonds and preferred stocks are priced to give you a nice enhancement to an otherwise conservative investment scheme.


Importantly, don't make one big mistake and risk not reasonably protecting your assets.

March 9, 2009: Waiting, waiting.....waiting

As mentioned in previous posts, I am reluctant at this stage to provide any commentary that is just meant to fill space on a daily basis. Yes, there are a few securities and eclectic strategies that are modestly successful, but most everything from the markets to national and international economic policy is presently a disaster with no meaningful end in sight. Thus, I remain quiet for now.

Almost.

There was a curious article published today on www.bloomberg.com that was entitled The Manchurian Candidate. It was out of character for Bloomberg to diss BHO. It is worth reading. Comments by James Cramer, Warren Buffett and others are beginning to surface that are quite critical of the current political leadership. What is perhaps most surprising is that members of the President's inner circle seem bent upon immediate and personal attacks to silence or marginalize critics - or both. This is not healthy in a democracy, and reminds some of dramatic shift to an intolerant brand of socialism which is not what made the country the "last, best hope on earth" (Ronald Reagan) for democracy and the opportunity to excel free of government intrusion.

Meanwhile, having multiple income streams - a holistic investment approach over and above securities - allows one to not lose too much sleep at night as almost all other investments decline. And we could be living in Haiti, so all is not lost.