May 27, 2009: Five Pack of Ex-US Treasury Bond Funds

Many investors are nervous about the state of the US dollar, probably for good reasons. For conservative investors that want to hedge a little against the greenback and want to minimize the spiked risk of stocks, the following five ETFs may be worth looking into:

iShares 1-3 Year International Treasury Bond Fund (ISHG). This $10m ETF generally corresponds to the S&P/Citigroup International Treasury Bond Index (ex-US). Trading at $102.22 and yielding 1.56%, the ETF trades at light volume (around 2000 shares) with a track record trading range of $92.84-102.87.

Barclays Capital SPDR International Treasury Bond (BWX). This $915m ETF corresponds to an index that tracks fixed-rate local currency sovereign debt of investment-grade countries (ex-US). Trading at $53.84 and yielding 2.71%, the ETF trades at solid volume (around 125,000 shares) with a 52-week trading range of $43.00-56.70.

iShares S&P/Citigroup International Treasury Bond Fund (IGOV). This $19m ETF corresponds to the S&P/Citigroup International Treasury Bond Index (ex-US). Trading at $99.84 and yielding 0.22%, this ETF trades at a light volume (around 4000 shares) with a track record trading range of $91.40-101.03.

Barclays Capital SPDR Sort Term International Treasury Bond Fund (BWZ). The $11m ETF corresponds to an index that measures the 1-3 year fixed rate investment grade debt issued by foreign governments of developed countries. Trading at $35.00, this ETF trades at a light volume (around 2500 shares) with a trading range of $31.25-35.19.

Barclays Capital SPDR DB International Income Fund (WIP). This $255m ETF corresponds to the DB Global Government (ex-US) Inflation-linked Bond Capped Index. Trading at $50.97 and yielding a respectable 4.48%, this ETF trades at a solid volume (around 85000 shares) with a trading range of $42.34-62.78.

This is a basic roster for interested investors to research on your own. I own BWX and WIP at present. BWX is in my Permanent Portfolio and WIP is in my Speculative Portfolio.

Use this post as a first step towards diversifying away from the US dollar conservatively. My advice would be to keep maturities short,and research inflation-protected products ex-US.

As with any investment in the current environment, remember Investment Rule #1:
Nothing ever turns our exactly as planned.

May 23,2009: Memorial Day. Thanks, Kids!

Lt. Commander, Major and Captain. You certainly have made the family proud.

May 22, 2009: Alternative Investment $$ - Multi-Family Housing

As mentioned in my writings on numerous occasions, a holistic investment portfolio is best. This portfolio should include the ownership and active management of real estate.

For the first quarter of 2009, multi-family sales were so slow as to be almost nonexistent in most areas of the country. Roughly $135b worth of commercial
property changed hands in 2008 - 68% less than 2007 in dollar value. The decrease, which was even more pronounced in the first quarter of 2009 reflects far fewer deals and lower selling prices.

Generally, sellers are waiting and hoping they can weather the storm. Buyers are waiting for rents to drop, sellers to throw in the towel and prices to fall even further. This is the perfect storm for the investor to grab a modest multi-unit property, quite possibly through a bank that does not want to publicly foreclose but needs to dispense with a non-performing asset.

Large apartment complexes are generally the domain of institutional investors of large real estate companies such as Avalon Bay and are not really the focus of this post. The sweet spot is the $500g-$5m properties generally owned by a local developer/entrepreneur or consortium's of doctors/lawyers, etc. that may have not been effective property managers, milking the property for rents and not maintaining the premises to continue success. These properties may be in a negative cash flow position with deferred maintenance, having insufficient writeoffs or poor financing which are each, and collectively, reasons to sell.

It is my view, and the view of other professionals in the field that are comfortable in this sector of the real estate market, that deals in the above price range are occurring because properties of this scope and price are viable for individual investors or small investment groups that can pay cash or obtain a loan from a local bank that owns the financing and/or has a good feel for the market. Get to know your local or regional bank's loan officer and real estate portfolio department intimately.

With financing tight, the investor may look for transactions that qualify for specialized loans. Buyers of certain multifamily properties could qualify for funds through the HUD 221(d) program. Business owners may be eligible for a Small Business Administration Loan, which can require as little as 10% down (not suitable for residential rentals, but certainly appropriate for retail, warehouses and office properties).

The individual investor should be aware that banks are a great source for properties close to default (foreclosure) status. Banks do not want bad loans on their books. With short sale regulations and procedures being both standardized and simplified by recent legislation, purchasing these properties is easier and less stressful for both buyer and seller.

Make no mistake, there are many thousands of distressed multi-family properties out there. Sometime, perhaps this summer when the next wave of foreclosures hit home (literally), owners who have overleveraged are going to say, "Let's just get rid of this property", and the market is going to reflect in later months, after the downdraft, equilibrium. Myself and others have found tremendous bargains in real estate for years (There is always a bull market somewhere? I digress.). The time for shedding the notion that stocks and bonds are all you need for investment purposes is at hand through the purchase of income producing real estate at the right price and on the right terms.

Another way to sweeten a deal's bottom line is to proceed to obtain tax credits for providing low-income housing to a percentage of tenants. Although federal funding may be hard to come by, state and private tax credits can be solicited. Added to rents, depreciation and other tax benefits, multi-family real estate speaks in no uncertain terms towards the old adage, "it's not what you earn - it's what you keep."

If you are a novice investor, please seek competent advice from a seasoned investor. My experience is that successful investors in modest multi-family properties are usually more than willing to share their successes and failures with you. I am always learning something about real estate investment (often times from my rent-subsidized tenants - they have their world fine tuned). If you are a good observer, good listener and willing to take your investment portfolio, in part, into your own hands, I bet you will achieve not only excellent profits, but a lifelong interest in not only the brick and mortar part of real restate, but in human nature as well.

Real estate can, and should be, be an investment well lived.

May 21, 2009: First-Time Homebuyer Tax Credit (The Essentials)

No need to go to a seminar or be subject to a Realtor sales pitch. Here is all you need to know about the First-Time Homebuyer Tax Credit, current as of May 21, 2009.

AMOUNT OF CREDIT: 10% of purchase price, up to a maximum of $8000.00.

DATES OF ELIGIBILITY: Through December 1st, 2009.

FIRST-TIME HOMEBUYER REQUIREMENT: Buyers may NOT have owned a principal residence in the last three years preceding the purchase.

INCOME LIMITS: Full credit available to individuals with an adjusted gross income (AGI) of no more than $75,000.00 ($150,000.00 on joint return). Credit phases out for AGIs up to $20,000 above those caps.

ELIGIBLE PROPERTY TYPES: Any single family residence that will be used as a primary residence, including condos, co-ops and townhouses.

REPAYMENT: None.

RECAPTURE: If the home is sold within three years of purchase, the entire credit is recaptured upon sale.


I have had many inquiries on this topic. The record should now be straight!

May 11, 2009: Beware The Long Term Bear Market

Financial Times pundit John Authers presented a logical case for investors to be very careful assuming the worst is over for the markets. Four reasons make sense to tread carefully into a long term bullish stance. Beware:

First, someone will have to pay for the stimulus that has been administered. That means inflation, higher interest rates or higher taxes. None would be good for stocks.

Second, companies still have to raise a lot of capital. That will dilute the stock market.

Third, measures of value that have worked as market timing indicators - such as cyclically adjusted price/earnings ratios - show stocks did not get anything like as cheap at the bottom in March as they did at the bottom of the bear markets of the twentieth century.

Fourth, there are demographic issues. The developed world is ageing. This will put a greater drag on public expenditures and lead to sales of stocks as the baby-boom generation retires and cashes in what is left of its savings.

According to Auther, these are overwhelming arguments that the secular bear market is not over.

What will derail the present rally? I agree with Auther that once bond yields go over a certain level - say, 6% or so, they may become a better investment bet than common stock. It is my belief that the enormous debt accumulated (and growing) by the United States alone may well make the Carter years of double digit interest and yield of 1976-80 look meek in comparison.

In fact, it might be appropriate to bring back one item from the Reagan era - the "Misery Index". This was the addition of unemployment plus inflation plus interest rates. Some just used unemployment plus inflation. Either way, if your bet is that the Obama train will derail, as did Carter's,approximately three years into his presidency, buying iShares Treasury Inflation Protected Securities (TIPS), short term bonds and commodities make sense.

Climate Change (the new "global warming" mantra) may have to take a back seat to just making ends meet within the family budget if the Misery Index becomes pronounced. Legal tax avoidance to sidestep higher taxes, including a wealth tax in addition to an income tax, will likely become Rule #1 for financial planning.

Hopefully, the gloom and doom above will somehow be avoided, and all will be the right with the world. Seasoned investors know that precious few assumptions turn out as expected. Thus, consideration of both positive, neutral and negative investment scenarios is prudent.

May 7, 2009: CSFB Monthly Real Estate Survey

Credit Suisse First Boston publishes what I consider to the the best monthly survey on the nations housing market. This survey is done through the eyes of on-site consultants that know the area where they work. CSFB then assimilates their own proprietary data to then arrive at a general and region specific report.

For the time period ending April 30th, here are general comments from this exhaustive document:

Buyers respond to low mortgage rates and prices, looking for foreclosures. Nationwide, there was increased buyer traffic in April,especially in beaten-down markets where buyers went searching for foreclosures and other bargains. The best markets were those with high levels of foreclosures (Ft. Meyers, Las Vegas, Los Angeles,Orlando, Phoenix and in Inland Empire). However, these are some of the weakest markets for new home sales. Dallas and Atlanta were the two markets with the worst traffic during the month.

Lower mortgage rates and the first-time buyer tax credit generated significant activity at the low end of the housing market.

Home prices remain under pressure with some beaten-down markets showing movement towards stability. Washington and the Inland Empire (CA) posted the highest prices. Elsewhere, new homes are 30% more costly than comparable foreclosed homes, thus new home sales are lousy.

Builders continue to mention their concern about converting contracts into closings due to appraisals that often come in below the purchase price as appraisers use extreme caution - using foreclosures as comps. In addition, foreclosures and short sales remain the toughest competition.

In short, the landscape for real estate favors investor pools snapping up homes and lots at bargain prices. The balance between new and existing real estate sales remains in a state of flux - regardless of what politicians are doing - and the light at the end of the tunnel may still be an oncoming train.

If you are an investor, these are the best of times if you buy right and buy smart.

May 5, 2009: Encana Lookin' Good

Encana is a large North American onshore producer of natural gas and crude oil, with major operations in Alberta, Canada (oil sands) and the United States. ECA's other operations include the transportation and marketing of crude oil, natural gas and natural gas liquids (NGLs), as well as the refining of crude oil and the marketing of petroleum by-products. ECA was the largest producer of natural gas in North America last year.

While divesting oversea operations, Encana is still adding to assets through both acquisition of high-grade fossil fuel property and smart extraction techniques - all in the relative safety of North America. In short, the management team in place within Encana is using, producing and expanding assets better than almost any other company within their sector. A Chesapeake Energy (CHK) it is not - and that is a good thing.

Trading at $50.99/share, ECA has popped up the past few weeks, but I believe it is a great long term play on oil and natural gas. I would use any pullback into the mid-40's as a solid entry point.

Sporting a 3.12% yield, this $38.5b US company is trading at a PE of only 5.8. Encana deserves strong consideration as a stand-alone stock representing the fossil fuel sector.

While I have been preaching ETFs, preferred stocks and inflation-protected securities over recent months, ECA has been traded in and out of my Speculative Portfolio over the past few years. It has made me good money. Recently, I have purchased it (cost basis around $42.) with the intention of holding ECA for the long term.

The market, despite the record run up the past two months is still froth with uncertainty and potential setbacks. Holding a few quality holdings like Encana in addition to your safety net is a worthwhile consideration.