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

June 28, 2009

June 28, 2009: Shariah-Compliant Investing Exploding, In More Ways Than One

Some estimates put the amount of world wealth invested in Shariah-compliant investments at over $2.7 trillion. If the trend continues, such investments may well grow to several times that amount within a few years.

Shariah-compliant investments are those entities that adhere to Islamic Law. Funds boasting the Shariah-compliant claim most often have Muslim clerics(Shariah adviser) as compensated consultants.

Shariah law authorities are paid directly or indirectly as investment blessors by such entities as Dow Jones,Standard and Poors, HSBC, Citibank,Deutsche Bank, Goldman Sachs,UBS, etc. to determine and assure the compliance of these and other linked institutions' products with Shariah.

There appear to be six key drivers of the Shariah compliance finance market:

Specialized law firms such as King and Spaulding, Patton Boggs and Gerystyn Savage; Shariah consulting firms such as Shariah Capital, Shariah Index Providers such as HSBC, Standard and Poors, Dow Jones and FTSE; Accounting firms; Software providers; Global banking institutions.

While many investors choosing Shariah-compliant products as a way to invest in a religious and socially preferred fashion, institutional compliance with Shariah law is a slippery slope. Investor's Business Daily reported that "Wall Street is jumping into this oblivious to the risks not just to the bottom line, but to national security. It knows little about Shariah law and is turning to consultants to create 'ethical' products to sell." One such consultant was the North American Islamic Trust (NAIT). Several months ago, Dow-Jones had to sever its relationship with NAIT after federal agents disclosed that NAIT was a Saudi-tied front for the pro-jihad Muslim Brotherhood that leads some of the most radical mosques in America. The Justice Department in 2008 named NAIT an unindicted co-conspirator in a terror money-laundering scheme to funnel money to Hamas under the banner of charity. Similar situations are not rare.

While not investing in pork product companies, alcohol, tobacco, gambling and entertainment are laudable if that is your view, the Shariah investor is tacitly supporting other aspects of Shariah law.

For instance, Shariah law in regards to women:

Muslim women are prohibited from marrying without parental consent, their wedding can be held without their being present or even in agreement to wed as long as the guardian consents - allowing underage and/or arranged marriages to occur, may only marry men of the Muslim faith, can be divorced simply by her husband repudiating her without obligation to provide child support,cannot divorce her husband without his consent,cannot claim abuse as grounds for divorce,can only inherit 50% of what a brother inherits, and if divorced cannot remarry at the risk of losing custody of her children. I'll leave stoning and other dark age punishments as penalties against women out of the mix.

Devout Muslims living in non-Muslim nations are allowed to use regular financial institutions due to a lack of Shariah-compliant alternatives under the Shariah doctrine of extreme necessity. However, once Shariah banks, for instance, exist in your locale, one is religiously obligated to utilize them exclusively.

Shariah Sovereign Wealth Funds are now pumping hundreds of billions of dollars into the world investor community. One is entitled to speculate that it is only a matter of time until the Islamic advisers controlling these monies use them to destabilize Isreal and other Western democracies or impose distasteful stipulations upon companies in which they acquire a controlling interest.

True, faith-based investing is not limited to Muslims. Catholic, other Christian and, if one wants to be frank, the religion of Environmentalism maintain their own views and investing standards.Investors utilizing a belief system to chose an ETF, Fund or other investment has generally resulted in gains close to that of the S&P 500 since 2000.

If you wish to explore Sharia-compliant Funds, ETFs and the like, you have a world-wide space to investigate. Perhaps you may want to travel to the UK where iShares has the MSCI World Islamic/Sharia ETF (ISWD) and the Emerging Markets Islamic/Sharia ETF (ISEM) and several instruments sponsored by Deutsche Bank. Canada maintains several Funds through Alt Management, Ltd. such as the FrontierAlt Canada, World and Global Income Funds. In the U.S., Sharia-compliant Funds can be via the Halla Mutual Funds run by Azzad ( of Falls Church, Va., the U.S Saturna Amana Funds (including the Amana Trust Growth Fund - AMAGX),amongst others.

ETFs and Funds that cater to Muslim beliefs are still a small part of the investing world, but the potential growth can be nothing short of spectacular. One hopes that these investments have profit and not geo-political interests as the centerpiece of their existence.

June 23, 2009

June 23, 2009: Neural Fair Value Portfolio for Investment Ideas

Amidst the commentary, sometimes investors just need a list of ideas to contemplate. The Standard and Poors' Neural Fair Value Portfolio, updated regularly, provides for the investor a list of their top 25 companies that are considered to have superior price appreciation potential. The Neural roster has generally outperformed the S&P500Index by a significant margin.

Naturally, this list is for your use to begin inquiry into whether one or more of these recommendations will be suitable for your portfolio. Without elaboration, here it is:

Accenture, Ltd. (ACN)
ADC Telecommunications (ADCT)
Allergan, Inc. (AGN)
Immucor, Inc. (BLUD)
BMC Software, Inc. (BMC)
Check Point Software Technologies, Inc. (CHKP)
Capella Education (CPLA)
General Dynamics (GD)
Hanesbrands (HBI)
Herbalife, Ltd. (HLF)
International Business Machines Corp. (IBM)
Lockheed Martin Corp. (LMT)
Macy's, Inc. (M)
NetApp, Inc. (NTAP)
Occidental Petroleum Corp. (OXY)
Petsmart, Inc. (PETM)
Polycam, Inc. (PLCM)
QLogic Corp (QLGC)
Symantec Corp. (SYMC)
Tidewater, Inc. (TDW)
Integrys Energy Group, Inc. (TEG)
Hanover Insurance, Inc. (THG)
Tempur Pedic International, Inc. (TPX)
Tyco International, Ltd. (TYC)

None of these are presently in my portfolios.

June 21, 2009

June 21, 2009: A Portfolio For You, Not Your Financial Planner

As many of you, I have been observing the writings of resume-rich bloggers gaming the Obama economy, new ETFs, gurus-on-call, talking heads (not be be confused with gurus) and listening to the media watchdogs, whether they be in the tank for the present political leaders or not.

Of particular concern to me is the utter lack of commentary (or strategies) to invest holistically. Everyone seems to be focusing on stocks, bonds and/or their cumulative funds and are missing or intentionally ignoring geo-political and taxation realities that the investor must take into account to navigate portfolio currents using the maxim,"it is not what you earn, it is what you keep" as the guiding light of any investment strategy.

Perhaps many are writing more for their audience and web stature.

First: Taxes.

If your financial planner does not include a legal and sound way to avoid taxes as an integral part of your portfolio, at all levels of government, look for someone else. Ditto for planners who will not venture away from paper investments.Most stick with tax "deferred" stances, which is a long term mistake, especially when tax rates rocket higher.

Frustrating for me are some who say that losing less is a victory. The glee from many who lost "only" x-amount of treasure! Pyrrhic, in my opinion. Or, that taxes are not a viable expense when figuring total return. We are taxed, as the Terminator stated when running as a Republican for Governor of California, 24/7. Local, State and Federal debt is going to be funded by taxation, likely coupled with inflated dollars. Your goal, and mine, should be to let others pay their fair share. Settled law states we are to pay the least amount of taxes legally owed.

Overlooked in tax strategy is the huge tax advantages owning and self-managing real estate. I prefer residential real estate. You have write-offs and phantom depreciation galore (which can be deferred until death via 1031 and similar property exchange programs, or simple refinancing). Both political parties are not about to hack away the benefits of owning property (your personal residence is not an investment as it produces no income, save a tax benefit). The real estate lobby rivals the public education and trial layer cartels within the Beltway.

Second: Portfolio

Real Estate: 35%. You must buy right and educate yourself on appropriate management. Now is a great time to launch yourself into this endeavor. My average returns since 1976 have been in handsome double digits each year after considering income plus write offs. No flipping for this buy and hold strategy. You are after total return ("what you keep")for the long haul. The tax advantages of real estate will allow you to go after some income and longer term capital gains regardless of future revenue enhancements courtesy of our political and judicial class. Thus,

World Money: 25%. I believe that most of us know that the United States is not the power it once was, and demographics tell us that it will grow sporadically weaker on the world stage as the welfare state encroaches upon the risk taking and hard work of our forefathers. The Fidelity Strategic Income Fund (FSICX) which is balanced between 31% corporate securities, 32% government agency and 29% securities based in foreign currency yielding 5.61% with $5b in assets priced at $9.75. Complimenting this gem of a fund would be anticipating the rise of inflation/devaluation of the currency that unfortunately appears to be in the cards for we Americans. IShares' Treasury Inflation Protected Securities (TIP) fills the bill here. Trading at $100.17with a current yield of 4.74%, this $13.2b ETF with a .20 expense ratio fits well with the aforementioned fund, or others of like consistency which you may prefer.

Commodities: 15%. A diversified basket of commodities fits with a world paying up for life's necessities and historical wealth preserving entities. I like PowerShares' Commodity Index Fund (DBC) because it does not grossly overweight any one commodity, such as fossil fuel. Trading at $23.20, earning a Morningstar 5 star rating for ETFs in class and possessing a respectable $2.9b in assets, DBC may well provide excellent capital gains without the manic gyrations of just one or a few commodities. If you must hedge towards fossil fuel, I believe Encana(ECA), the huge North American energy company focused in Canada is a worthwhile consideration. This excellently managed company that knows how to appropriately genuflect towards our environmentalist friends sports a 3.1% dividend and currently trades at a paltry price/earnings ratio of 5.6.

Emerging Markets: 15%. Remember when European investors profited billions from developing assets in the emerging United States back in the 1800's? I don't, but history tells us that money is best invested towards emerging societies that crave a better way of life. IShares' Emerging Markets ETF (EEM) trading at $31.75 with a yield of 2.15% and an index to love is a $29b asset play on the rest of the world meeting and eventually surpassing many developed nations of today. Key to their success will be the avoidance of nanny-state welfare and regulation that has stifled old Europe and threatens the United States.

Stock or Rock: 10%. Harry Browne was adamant that money was not only to protect and invest but also to enjoy. Pursuing a hobby, taking that great trip or donating to a favorite charity (remembering the old adage, "charity begins at home") should be within your grasp IF you avoid the stoic securities trap. Real estate business ventures may even allow you to write off a trip. If you prefer to follow investments, then add a domestic common stock fund to your portfolio. There are plenty of ETF's to consider. I like the IShares Preferred Stock Index Fund (PFF) trading at $31.99 and yielding 8.35%, the S&P 1500 Index ETF (ISI)trading at $41.51 and the S&P Small Cap 600 Value Index ETF trading at $47.50.

My portfolio submission may be torn to shreds by the purists, chartists and those Elliot Wave theorists who still thrive to perfect the science of alchemy. However, I suspect there are more than a few investors whom have successfully figured out real estate (not those who blame tenants,repairmen,Realtors,God,etc. for their failure in this area) and reason that the rest of the portfolio serves to enhance the geopolitical realities of investing. If I am incorrect in my assumptions, let me join just about everyone else writing now for the future.

June 10, 2009

June 10, 2009: The More Things Change.....

After a hectic week of surgery and business in between, I took time to prune overripe files. Just as I enjoy reading old financial publications to see the multitude of wrong, really wrong and Bozo the Clown wrong predictions from most experts, reviewing and pitching stock transaction slips from the 1990s was good for a few chuckles. A humbling experience it was, indeed.

Here are a few of my slips. Perhaps you will enjoy this trip down memory lane.

Nippon Telephone and Telegraph @46
US-China Industrial Exchange @2.75

Oxford Health @26.75
Grand Metropolitan @ 36.50
Ocwen Asset Investments @20.75
Newell @32.75
Hoechst @38.75
Easco @14.12
Pool Energy Services @23
Authentic Specialty Foods @14.50
Asia Pulp and Paper @12.50
Espirit Telecom @13
Yasuda Trust and Banking @22.25
Broughton Foods @16.25
Hungarian Telephone and Cable @8
Hurricane Hydrocarbons @7
Life USA Holdings @15.75
Legend Holdings @6.25
Syntel @11.62

A few. I have many more from that period back through the early 70s. Now in the dustbin of history, I think the cumulative effects were lessons learned. The above were some stinkers.Overall my record was profitable - without instant television access, talking heads and 24/7 market sources via the computer.

Am I a better investor today than yesterday? Probably, yes. One learns something new every day,as in other aspects of life.

June 04, 2009

June 6, 2009: Honoring A Family Hero on D-Day

My family history is not unique. Hero's abound within military families during the course of war. My 99 year old mother's brother was one of ours. He never spoke about the war, until near the end of his fruitful life in 1999. He unit's record, meticulously kept and still filed at an obscure base museum on the California Coast, tells a history of daily violence, courage and carnage. He landed in Normandy, fought through brutal battles in France, the Battle of the Bulge, the Rhineland Campaign and into Germany and Czechoslovakia as, beginning in July 1944, an integral part of the Third Army of General George Patton. His weapon, the M-12 155mm self-propelled gun, of which only 72 were built. They were the spear of every major advance by Patton and were assigned to many front line units because of their unique ability to destroy practically anything. They were called into close encounter dirty work because of their powerful and mobile firepower. The Unit's record, known as the 558th self propelled artillery battalion, was magnificent. They wreaked havoc on the Germans, but through the unit's citations by Generals within the Third Army and Patton himself, they saved a great many American and Allied force lives.

He returned to the states in August, 1945 fortunately diverted while on the way to Japan to fight in the Pacific Theatre when hostilities ceased. So,1st Sgt. Uncle George, a man who served humbly, given a battlefield promotion to Lieutenant and returned home to become a husband, father, grandfather and battalion leader in the Chicago Fire Department (and treat my children during their early years as a second grandfather), here's the tribute you richly deserve on the 65th anniversary of D-Day. You made a positive impact upon my family-greater than you ever knew.

June 4, 2009: Low PE Stocks With High Earnings Growth Rates

I am being very selective about purchasing common stock. In fact, my Speculative and to a lesser extent my Permanent Portfolio(s) consist of a higher percentage of bonds, preferred stocks and commodities,almost all via ETFs. Rental real estate has been advanced to a higher amount than ever in my holistic portfolio, as well as tax strategies to keep what I earn. Not one who is prone to panic with each day's news, I try to be well read from a variety of viewpoints, especially the Financial Times and Wall Street Journal, a few blogs and Bloomberg, for starters. I also subscribe to a few eclectic financial and economic publications that I may discuss in a future post.

I am concerned about inflation, creeping socialism, the geo-political status of world hot spots and the victim mentality that appears to be resonating from a form of class warfare not seen in the United States since the 1870s. That said, there is always a bull market somewhere and I have been toying with various stock screens to find gems for possible inclusion to my holdings.

The following stocks have current (and projected) earnings growth of at least 25% and a relatively low PE and PEG ratio. Perhaps you may wish to research them further to see if they are your cup of tea:

AGO Assured Guarantee (Insurance, Re-Insurance) trading recently at $14.00 with an EPS of 128%.

CAST Chinacast Education Corporation (Schools) trading recently at $5.50 with an EPS of 80%.

DENN Denny's (Restaurants) trading recently at $2.50 with an EPS of 67%.

MPAA Motorcar Parts of America (Auto and TRuck Parts) trading recently at $4.50 with an EPS of 59%.

LRN K12 (Schools) trading recently at $16.70 with an EPS of 58%.

HGRD Health Grades (Business Services) trading recently at $3.70 with an EPS of 47%.

CRTP China Ritar Power (Electric Inst. and Controls) trading recently at $2.00 with an EPS of 45%.

DCP DynCorp (Transportation) trading recently at $14.75 with an EPS of 42%.

EGMI Electronic Game Card (Casinos and Gaming) trading recently at $0.90 with an EPS of 40%.

CGA China Green Agriculture (Chemical Manufacturing) trading recently at $7.50 with an EPS of 36%.

HXM Homex Development (Real Estate Operations) trading recently trading at $26.70with an EPS of 27%.

Granted, all of these stocks are growing earnings after some weak fiscal 2008 results. Comps are interesting all over the investment spectrum in this market cycle. But they appear on the right track this year and beyond,and perhaps worth a look as a speculation within your portfolio.

June 02, 2009

June 3, 2009: Hitler, For A Sober Instruction

It is rare that a world-class monster is quoted. As we follow the events of President Obama's venture into Europe to acknowledge the events of World War 2, readers may be interested in a few quotes from Herr Hitler.

"If you tell a big enough lie and tell it frequently enough, it will be believed."

"Success is the sole earthly judge of right and wrong."

"The art of leadership...consists in consolidating the attention of the people against a single adversary and taking care that nothing will split up that attention."

"The broad masses of a population are more amenable to the appeal of rhetoric than to any other force."

"The day of individual happiness has passed."

"The leader of genius must have the ability to make different opponents appear as if they belonged to one category."

"Through clever and constant application of propaganda, people can be made to see paradise as hell, and also the other way round, to consider the most wretched sort of life as paradise."

And, two from his sidekick, Joseph Goebbels:

"It is the absolute right of the State to supervise the formation of public opinion."

"Think of the press as a great keyboard on which government can play."

June 01, 2009

June 2, 2009: Section 8 - Will This Be A Civil Rights Club Against Landlords?

Section 8 is a voluntary program providing qualifying individuals (family unit) with a voucher to rent real estate. I like the Section 8 program. It has made me a lot of money. Still. it can be a nuisance and many landlords want no part of it.

Moves are constantly in motion across the country to make acceptance of Section 8 tenants mandatory. Under the present administration in Washington, a national effort may be shortly in the works. They like to make things easy for voting constituencies, it seems.

The primary argument is that because the majority of Section 8 recipients are minorities, the refusal of Section 8 certificates is discriminatory. The rationale is that the same tenants would not be accepted without the certificates.

All other things equal, tenants might not be accepted simply because their income would not be sufficient to pay rent. Is the next legal claim to be that refusal to rent on the basis of amount of income constitutes discrimination?

The landlord not wanting to accept a Section 8 voucher can gain the upper hand as follows:

Section 8 requires certain property standards, often at the discretion of the Section 8 inspector. If the property does not meet these standards, you are not required to fix it so it conforms. Then, the property will be rejected for Section 8 and you can rent to a non-Section 8 tenant.

Keep rent above what Section 8 will pay.

Require a move-in date earlier than the local Housing Authority can get the paperwork together and send you the rent check.If you have specified in your printed requirements handed to rental applicants that they must be able to move in on the first of the month and that you be paid the entire amount due for rent and deposits then, that will go a long way toward eliminating Section 8 applicants. They can't move in, because they don't have the first and last months' rent plus the deposit.

Check rental application carefully for omissions and errors. If you find an error, reject it.

Look for mandatory Section 8 to be used as a way to solve the nation's urban housing challenges. If you don't like Section 8, you need to discourage and reject at the source. That said, for those of us who use Section 8 vouchers as a part of our rental portfolios, effective selection of tenants with a Section 8 voucher can be a beautiful thing.