investingfromtheright

November 10, 2011: Long Live The ETF Permanent Portfolio

2011-11-10T16:38:00.011-05:00

I believe that many retail investors (and probably pros, too) entangle security investments so as to render them impractical at best, hopelessly confusing at worst.This is why it is wise to divide one's portfolio into three distinct parts. I recommend an Income Portfolio, a Permanent Portfolio and a Speculative Portfolio - kept at three divorced discount brokerages. ETrade, Schwab and Scottrade will suffice nicely. Why three brokerages? Think diversification if sophisticated hacking invades, which is not if, but when. Keep a paper trail of each account as a backup.

For relatively conservative investors, 35% of assets in the Income Portfolio, 55% in the Permanent Portfolio and 10% in the Speculative Portfolio makes sense. Regarding the moving parts, I defer the Income Portfolio to the "experts" that regularly grant one the wisdom of their knowledge (plus a healthy dose of self-esteem) on sites such as SeekingAlpha.com, and your own taste for yield. The Speculative Portfolio should only contain funds that are not precious to you and are limited to "bets" based upon solid research from multiple sources, which abound. The three portfolio approach encourages self-discipline.

I will focus upon the Permanent Portfolio, which is a must core holding for all investment seasons. The objective should be preservation of capital with modest total appreciation. Probably the best model is the Cuggino Permanent Portfolio Fund, which has stood the test of time. My bias against investing in this fund is the large cash position it maintains to account for redemptions and portfolio rebalancing. And the fund expenses, of course. Establishing a Permanent Portfolio on your own using ETFs and rebalancing every five months or so is a better idea if your nest egg totals $50,000 plus (maybe less). With no cash wasting away my experience has been that performance will be superior, even adding the modest transaction costs.

The following portfolio is not new for my readers, and has been favorably commented upon earlier by fee-based investment professionals and others. Granted, some think it sucks, but it admittedly gave them pause to think and devise their own.

PERMANENT PORTFOLIO:

Precious Metals: 20%

iShares Comex Gold Trust ETF (IAU) 15%
iShares Silver Trust ETF (SLV) 5%

Swiss Franc Assets: 10%

Currency Shares Swiss Franc Trust ETF (FXF) 5%
iShares MSCI Switzerland Index ETF (EWL) 5%

Singapore Assets: 5%

iShares MSCI Singapore Index Fund ETF (EWS) 5%

Worldwide Real Estate and Natural Resources: 25%

iShares North America Natural Resources Index ETF (IGE) 5%
Vanguard Energy ETF (VDE) 5%
iShares FTSE EPRA/NAREIT Developed World Real Estate ex-US ETF (IFGL) 5%
Vanguard REIT ETF (VNQ) 5%
Market Vectors Agribusiness ETF (MOO) 5%

Dividend/Growth Stocks: 20%

Vanguard Dividend Appreciation Fund ETF (VIG) 10%
iShares Morningstar Small Company Growth Index Fund ETF (JKK) 5%
Guggenheim Frontier Markets ETF (FRN) 5%
Or
Schwab Emerging Markets Equity ETF (SCHE) 5%

U.S. Treasury Bills and Bonds: 20%

Vanguard Total Bond Market ETF (BND) 10%
Vanguard Intermediate Term Government Bond ETF (VGIT) 10%

In hand with this model, I recommend subscribing to an excellent, unbiased predictive world intelligence service. Stratfor (www.stratfor.com) is a worthy choice.

I also recommend that securities be not one's sole place to park all investments. Multiple income streams are needed to keep on track. Find them.

We live in challenging times on many fronts.

June 22, 2011: PNC Moves Into High Gear

2011-06-21T23:20:00.003-04:00

PNC Financial Services Group (PNC)has acquired RBC Bank (USA) for $3.45b, a $112m discount to tangible book value. PNC will likely start making money on this transaction sometime in early 2013. The stock presently trades at $56.80 with a fifty two week range of $49.43-$65.19.The transaction is to close in March, 2012.

One appreciates the long term potential of this deal. PNC has a track record of successful assimilation, notably the National City acquisition. By acquiring the well-placed branches of RBC Bank, PNC moves out southeast, primarily North Carolina, also Virgina, Washington D.C., South Carolina, Georgia, Alabama and Florida (where PNC already has assets from the National City transaction).The direct competitor appears to be BB&T (BBT), the North Carolina-based entrenched regional bank. If PNC employs the characteristics of it's operations elsewhere, BB&T is in for a tussle. BB&T is plagued with spotty customer service, many dated branches and technical problems, not the least being poorly attended ATM machines and check posting service. PNC on the other hand excels in customer service, making banking online and on site a quick task. While this contrast between the two regionals may not translate into an enhanced stock price,it could have a long term impact as loyal BB&T customers discover banking with less annoyance.

The deal between PNC and RBC gives PNC a great entry point into the southeast, and includes $19b in deposits and $16b of loans. PNC has been stellar cutting costs without sacrificing service. RBC had cost containment issues.Thus,investors should expect PNC to substantially improve margins at RBC branches as standard systems and efficiencies are implemented.

PNC is taking into account bad loans with a fair value mark on RBCs loan book of 12.5% ($2.2b). The most aggressive marks were taken on consumer portfolios, including home equity loans.

The deal makes PNC the fifth largest bank by deposits in the country. BB&T is eighth. PNC will be a top ten deposit franchise in North Carolina, Georgia and Alabama with RBC assets in these states.

A price target twelve months hence of $70.00 is not unreasonable, which may include dividend hikes. PNC is set to provide a long term growth and dividend story.

May 24, 2011: Gas Breaks Wind (Power)

2011-05-23T21:05:00.003-04:00

Ignacio Galan, chief executive of the Spain-based energy group Iberdrola, was quoted in the Financial Times (May 23, 2011)stating that the rise in United States shale gas production has transformed the country's power-generating industry, driving down gas and electricity prices. "Shale gas makes the production of electricity from other sources not attractive enough".

This bodes poorly for investors hoping to profit from further wind power development in the United States, and perhaps elsewhere.Even U.S. government subsidies for wind farm construction is insufficient, "It's hard to make an attractive return on investment on these (subsidized) prices".

Although some analysts and wind power industry executives are more optimistic than Mr. Galan, his viewpoint illustrates the realities of the competitive marketplace facing the U.S. wind industry. The wind power industry in the United States lost an estimated 10,000 jobs last year and now employed an estimated 75,000 workers. Evidently, a percentage of these jobs are now in jeopardy.

According to Alex Klein of IHS Energing Energy Research as expressed to the Financial Times, "It's going to be very challenging for the next couple of years. There are a lot of issues hitting the industry."

Iberdrola (IBDRY) is the largest investor in new wind capacity in the U.S. and the second largest wind generator after NextEra Energy (NEE),the owner of Florida Power and Light.

Other companies with a vested interest in seeing this subsidized energy source remain viable include MidAmerican Energy (owned by Warren Buffett's Berkshire Hathaway BRK.A,BRK.B), EDP (EDPFY) of Portugal and Eon (EONGY) of Germany. General Electric (GE) also has a footprint in this endeavor. Investors should be looking carefully at these companies and ETF Funds that bet the house on wind power, such as FAN and PWND.

For the cynics among us, it would be interesting for a bright investigative journalist to tackle the money trail funding current efforts to discredit shale gas extraction in the United States.

Hat tip to the Financial Times for the thrust of his article.

May 23, 2011: A Stockless Portfolio? Yes We Can

2011-05-19T12:29:00.006-04:00

Yes, it is possible to run your portfolio sans stock. I have toyed with this notion on and off for a while. A recent article by Money Morning Chief Investment Strategist Keith Fitz-Gerald addressed this concept quite well.

According to Fitz-Gerald, the allocation model looks like this:
Bonds 45%
Master Limited Partnerships (MLPs) 25%
Commodities 10%
Gold 10%
Preferred Stocks 10% (true, they are stocks but their performance is more bond-like)

Bonds should be split between high-yield corporate bonds and intermediate/short term investment grade municipals. IShares IBoxx $ High Yield Corporate Bond ETF (HYG) is recommended as is Vanguard's Short-Term Corporate Bond ETF (VCSH). PIMCOs Municipal Income Bond Fund (PMF) is an appealing choice to round off this portion of the portfolio.

Gold hedges the principal value of bonds. This is especially true, according to Fitz-Gerald, in a stockless portfolio. A good choice is the SPDR Gold Trust ETF (GLD).

Fitz-Gerald adds a healthy dose of Master Limited Partnerships. MLPs may trade like stocks, but technically they are different in character. J.P. Morgan's Alerian MLP Index ETN (AMJ)provides reasonable coverage for this portion of the portfolio, until a better method and index comes along.

Commodities can be covered by a stake in MarketVectors Agribusiness ETF (MOO) and PowerShares Deutsche Bank Commodity Index Tracking Fund (DBC). A higher yield commodity security is the Pimco Commodity Real Return Fund (PCRDX), yielding over 8%. In all likelihood, the long term trend for commodities is bullish.

Preferred Stocks are needed to include relatively high fixed dividends or inflation protected dividends present in some of these investment vehicles. The ETF choice here is the IShares U.S Preferred Stock Index Fund (PFF).

There are obvious downsides to a stockless portfolio. Fitz-Gerald points out the major hurdles. The current Fed zero interest policy is bullish for common stocks. Investors interested eliminating stocks are introducing additional risks to their portfolio by reducing the level of diversity and balance . Thus, I believe a non-stock portfolio is a significantly more volatile investment using the past four generational metrics for the market.

The much divined dividend appreciation method many investors flock to with common stocks is lacking, although this stockless portfolio appears to contain plenty of fixed income. Those seeking consistently rising dividends from stocks depend upon a company's track record to justify their dividend shill. Since the 1940s, they are correct. But bitter and unforeseen surprises may be in store for those absolutely, definitely sure beyond any doubt that this trend will continue - usually when it is least expected.

Importantly, Fitz-Gerald points out that by cutting common stock from a portfolio, it is definite that one would have to significantly increase personal savings to make up the difference with common stock's century-long historical performance. A 32 year old earning $50,000/year aiming for about $3200/month retirement would have to increase their savings from 12% to 16% of their annual salary. I am of the opinion that saving 20% of gross income is necessary regardless of one's retirement nest egg approach.

The objective of this unusual exercise is not to convince the reader that this type of portfolio is the best road to riches. It is published to encourage investors to think of alternative ways to manage and design a portfolio - to resist following the herd instinct chasing "sure bets" with common stocks, or a sector investment, as we lurch into an uncertain future. The past is littered with foolproof stocks and investment schemes gone awry.

April 24, 2011: Portfolio Gridlock, Diagnosis and Treatment

2011-04-22T21:11:00.015-04:00

The word "gridlock" has several peripheral definitions. Perhaps the best definition for this post is from Webster's New World Dictionary which defines gridlock as "a complete lack of movement or progress resulting in a backup or stagnation; any obstructed condition or impasse".

Does this condition exist in your investment world? If the answer is yes, rest assured you are not alone. I have floated the investment gridlock condition to disparate individual investors over the past month. The admittedly unscientific result appears to indicated that investment gridlock is not uncommon.

I speculate that investment gridlock occurs when too many investment choices are accompanied by a gut feeling that the world is changing, with our(United States) government out of control both at home and abroad. Is "the full faith and credit of the United States" meaningless? Do adversaries - economic and other - view us as weak? Have we traveled a bridge too far trying to police the world and thrown good billions after bad trillions to many nations who show no gratitude? Are we overwhelmed by thousands of investment choices and financial articles so as to throw the best fundamental portfolio intentions into a quagmire? In short, investment gridlock may be a symptom of fear from all of the above.

A typical response I received from investors experiencing portfolio gridlock is not in the construction or allocation into the initial portfolio itself. It occurs when funds piling up in cash or cash equivalents await investment. The trigger to allocate these funds is not pulled because of the fear factor of our present investment and geo-political world. Gold? Already $1500. Silver? North of $40 - is this a bubble?? Foreign stocks? Europe, practically bankrupt. Asia? Inflation, China, war and peace.South America? How many more Chavez's are there to bring that continent back to the days of Juan Peron? Energy? Sector stocks are one tsunami or blown oil rig away from a stock collapse. Alternative energy? With no government subsidy, no profits. U.S. stocks? What if the taxing idea on soaking the investing class actually becomes law - and once it starts, when will it end? Bonds? Commodities? Currencies? Wealth Confiscation?

Mutual Funds, Exchange Traded Funds and the like will spread out risk. But will they withstand global recessions and major armed conflicts? The German stock market was hot in the 1930s. The Russian stock market was hot in the early 20th century.Japan? The place to invest in the 1970s - they were poised to own the world. We know how that ended.

All risk cannot be mitigated. Serious global conflicts, including cyber warfare which would likely compromise and/or destroy all electronically stored financial records along with your internet brokerage will create mayhem. Reality check: one U.S. Air Force facility in Colorado fends off over 15,000 cyber intrusions per day (thank you,China).

No wonder personal variations on the portfolio gridlock theme abound!

How does one treat this condition?

My assessment is to simply keep within your comfort zone with a diversified portfolio.A three-legged stool concept works well for most investors as it promotes both discipline and clarity. Balancing a Permanent Portfolio using ETF's for assets you cherish could include gold (iShares Comex Gold Trust,IAU), Swiss Franc exposure (Currency Shares Swiss Franc Trust,FXF;iShares MSCI Switzerland Index, EWL), Singapore "the Switzerland of Asia" (iShares MSCI Singapore Index, EWS), US and International stock ETFs, REITS foreign and domestic (Vanguard Domestic REIT,VNQ;iShares Developed World Real Estate ex-US,IFGL; Vanguard Dividend Appreciation,VIG; Vanguard Energy,VDE;iShares Morningstar Small Company Growth Index JKK; Schwab Emerging Market Equity,SCHE),a small percentage in U.S. bonds (Vanguard Total Bond Market, BND;Vanguard Intermediate Term Government Bond, VGIT; iShares Barclays Inflation Protected U.S. Securities, TIP), and a commodity ETF (Power Shares DB Commodity Index Tracking Trust, DBC). I would encourage an Income Portfolio consisting of foreign and domestic TIPS, short term bonds and selected preferred securities that have inflation protection features (such as Aegon NV, AEB;Metropolitan Life preferred A, METpA and Deutsche Bank Contingent Capital Trust II,DXB). The final leg of the stool is the Speculative Portfolio, which should be limited to no more than 15% of you total securities funding. This portfolio is where you place bets based upon informed hunches such as the PowerShares ultra long/short ETFs, or to store cash waiting for a compelling buying opportunity. You may find a better product mix that accomplishes an effective result for each of the three portfolios.

Don't vary from your portfolio strategy of sensible allocation. Keep a paper trail of all transactions. Make peace with yourself,as you are executing a prudent investment scheme even when the world around you seems to be falling apart. And maintain a sense of humor - after all, in the long term we're all dead.

April 7, 2011: March Housing Stats Weak

2011-04-07T12:49:00.003-04:00

Credit Suisse released their March housing data yesterday, and the results are not promising. This survey rates the climate for single family home transactions in fifty major U.S. markets coast to coast. I have found this survey to be both timely and predictive.

Significantly, buyer traffic slipped in March from previous months, which were already low. The survey suggests that buyers lack confidence and are continuing to believe that home prices will continue to decline. The survey notes the "wide divide among potential buyers, with the most distressed markets finding significant investor interest whereas (traditional) buyers in other markets are still cautious and plan to wait for home prices to bottom." Investors are paying cash as they take advantage of homeowners caving in to low ball offers and investors who jumped in too early in the housing decline and are cash strapped. Home buyers planning to live in a home are finding it very difficult to obtain an appraisal that meets their home offer price and then are faced with extremely tight lending practices that close the mortgage window. Foreclosures are still a high percentage of property transactions with no letup scene over the next several months.

With this scenario, prices will trend lower, but perhaps not in as rapid a decline as 2009/10.Credit Suisse anticipates additional weakness in the coming months (generally a good sales season). This poses continuing problems for home builders.
The latest home builder stock ratings from Credit Suisse reflects this scenario:

Beazer Homes (BZH) Neutral, Target $4.00
DR Horton (DHI) Neutral, Target $10.00
Hovnanian Enterprises (HOV), Underperform, Target $2.00
KB Home (KBH), Underperform, Target $12.00
Lennar (LEN), Neutral, Target $19.00
M.D.C. Holdings (MDC),Outperform, Target $28.00
Meritage Corp (MTH), Neutral, Target $22.00
NVR Inc. (NVR), Neutral, Target $650.00
Pulte (PHM), Neutral, Target $7.50
Ryland Group (RYL), Underperform, Target $15.00
Toll Brothers (TOL), Neutral, Target $20.00

Of concern looking ahead is the possibility of real estate deductions (especially mortgage interest deductions) being on the table as Congress attempts to control the budget deficit,a double dip recession sparked by inflation and the cost of gasoline and heating oil, competition in the rental market from construction of new apartment complexes to accommodate increased public subsidized housing patrons and a new class of renters that ordinarily would finance/purchase a home, and the overall concern of uncertainty with the economy in general and personal income in particular.

Investors itching to pull the trigger on home builder stocks may want to wait a while longer. Hands-on landlords who can fathom a solid return even without long-standing preferential tax treatment of rental real estate may want to selectively purchase well-located property if the price is compelling.

March 28, 2011: Everyone's World and Your Permanent Portfolio

2011-03-27T09:09:00.018-04:00

Last May, I suggested that for safety a Permanent Portfolio be considered as investors continue to be held hostage to fickle politicians and unpredictable events here and abroad. I designed a Permanent Portfolio using low cost ETFs to closely replicate the portfolio of Michael Cuggino's 5-star Permanent Portfolio Fund. The goal of this ETF mix? To retain absolute value and rise approximately 2% more than the Citigroup 3-month U.S. Treasury Bill index, re-balanced semi-annually or annually.

As Michael Cuggino has massaged the Permanent Portfolio Fund from his predecessors, Harry Browne and Terry Coxon, to reflect different investment avenues and long term trends,I have done likewise for my current ETF Permanent Portfolio. This begs the question, why adjust the allocation and moving parts of a permanent portfolio when it is designed to be permanent? The answer is that the world is changing at warp speed compared to fifty or even five years ago. Investment products better reflecting the world are available to capture long trends while defending against your best intentioned stock selections going haywire (generally, when you least expect it). Whereas the original Browne portfolio relied on stock warrants, physical possession of precious metal to be held in Switzerland and Swiss Francs in banknotes, and Mr. Cuggino's supposition of pure U.S. Dollar assets to be worth 30% of the portfolio, I have attempted to fine tune the portfolio further using low-cost ETFs and acknowledging that, quite possibly (but not certainly), the U.S. dominant position in the world and concurrently the U.S. Dollar are heading south with dispatch. This would favor such Asian banking and corporate areas such as Singapore.

The investor certainly wants exposure to areas presently out of favor. The intent of the ETF Permanent Portfolio is to protect against placing too many eggs in what the best investment basket du jour is for a given cycle.

ETF PERMANENT PORTFOLIO:

Precious Metals: 20%

iShares Comex Gold Trust ETF (IAU) 15%
iShares Silver Trust ETF (SLV) 5%

Swiss Franc Assets: 10%

Currency Shares Swiss Franc Trust ETF (FXF) 5%
iShares MSCI Switzerland Index ETF (EWL) 5%

Singapore Assets: 5%

iShares MSCI Singapore Index Fund ETF (EWS) 5%

Worldwide Real Estate and Natural Resources: 25%

iShares North America Natural Resource Index ETF (IGE) 5%
Vanguard Energy ETF (VDE) 5%
iShares FTSE EPRA/NAREIT Developed World Real Estate ex-U.S. ETF (IFGL) 5%
Vanguard REIT ETF (VNQ) 5%
Market Vectors Agribusiness ETF (MOO) 5%

Growth Stocks: 20%

Vanguard Dividend Appreciation Fund ETF (VIG) 10%
iShares Morningstar Small Company Growth Index Fund ETF (JKK) 5%
Guggenheim Frontier Markets ETF (FRN) 5%
or
Schwab Emerging Markets Equity ETF (SCHE) 5%

U.S. Treasury Bills and Bonds: 20%

Vanguard Total Bond Market ETF (BND) 10%
Vanguard Intermediate Term Government Bond ETF (VGIT) 10%

It is likely that investor's will have a speculative portfolio divorced from a permanent portfolio, the size to vary depending upon investment style and temperament. Having a permanent portfolio anchor allows the investor to place more focused bets on areas of conviction. While you may agree or disagree with my selections, the concept itself may spur you to elect this strategy.

Having a grip on the geo-political landscape becomes more important day by day. A service such as STRATFOR should become a tool in equal measure to your daily perusal through the stocks charts and gurus.

The author has no position in any of the above stock ETFs and has no profit relationship with STRATFOR.

March 12, 2011: Dividend Reservoir: Bank Stocks

2011-03-12T08:17:00.002-05:00

Are you a dividend investor? For many of us the answer is yes. Most of the articles within Seeking Alpha pertaining to dividend-oriented investing have a tendency to look backwards, projecting an income stream through the assumption of what happened in the past to a company's fortunes (and the ability to pay dividends) will continue to occur. Most of us don't have a problem with that concept, especially if one's income portfolio is well diversified.

Jane Kim, in The The Wall Street Journal, presents a well crafted article suggesting that dividend seekers should also look forward and seriously consider within a dividend portfolio securities that are apt to resume or significantly increase their quarterly payout. She focuses upon bank stocks.

Banks, out of federal coercion or corporate necessity cut or suspended dividends due to the financial crisis. It appears that many of these institutions are chomping at the bit to resume healthy dividend payments, contingent upon their receiving a passing grade on the Fed's stress test.

In the article, Gus Zinn of the Waddell and Reed Core Investment Fund states that the investor "will see stronger companies come out with decent-sized dividends and articulate road maps to potentially doubling (dividends) over the next couple of years." According to Zinn, his fund is building up positions in J.P. Morgan (JPM), Wells Fargo(WFC) and Capital One Financial Corp(COF). The fund has increased it's financial stock exposure by 50% from the summer of 2010. Another fund manager quoted, Dave Ellison of the FBR Large Cap Financial Investor Fund, likes banks because of their significant improvement in earnings,warranting a significant dividend increase. "We are on the cusp of seeing some dividend enhancements" says Ellison. Companies such as Bank of America(BAC), J.P, Morgan(JPM),Citigroup(C),PNC(PNC)and U.S. Bancorp(USB) each make up around 5% of his fund.

For those of us that prefer to mitigate risk through diversification, ETF's will, to a degree, participate in this dividend revival. Vanguard Financials ETF (VFH), and iShares Dow Jones U.S. Financial Sector (IYF)show promise. The best pure play ETF to focus on bank stocks may well be the SPDR KBW ETF(KBE) which tracks the nation's largest banks. Investors should also know that according to this WSJ article, the preferred stocks of banks are also being accumulated, which stands to reason since better earnings indicate the ability to pay those preferred dividends which in many instances are not secured. Perhaps the best total return may come from banks "on the margin of being strong" such as Bank of America (BAC).I admit to a personal bias for individual security selection towards banks most likely to resume or raise dividends. ETFs or mutual funds may paint with too broad a brush to gain benefit from selected banks electing to return a share of their increasing profits to investors.

Hurdles for this scenario? Dividend payout ratios by banks have traditionally been in the range of 35%-45%. Stock dilution, with 92% more financial common stock shares than in 2008, is one issue. Secondly, banks, which had been used to paying 35-45% of their after-tax net income pre-2008 out in dividends will be limited to 30% after-tax net income. More will almost surely trigger Fed scrutiny.

For dividend investors, the attractive total return banks that increase dividends will likely provide will add not only zest, but common sense to the dividend portfolio.

March 5, 2011: Coal, Not Yet A "Fossil"

2011-03-05T14:10:00.005-05:00

Most of us know coal as a dirty, black, smelly fossil fuel that has made investors some clean, green and sweet profits recently. I believe that investment in coal remains bullish,and here's why:

1. While the media focuses on new energy technologies, the truth is that less than of power produced worldwide is through solar and wind. While there is obviously growth potential, the cost outweighs the hype in our present economic environment.

2. Natural gas supplies only 20% of electricity globally.

3. Steel production uses over 10% of world coal production. 70$ of the world's steel
production requires coal as the primary energy source. It takes approximately
1300 lbs. of coal (coke) to produce one ton of steel.

4. Over 40% of the world's electricity comes from coal-fired plants.

5. China,the worlds largest consumer of coal, with even more coal-fired power
plants coming online, is betting on fossil fuel even as it sells alternative energy technologies to the West.

6. Coal usage is expected to trend up over the next decade. Cleaner coal technology
is already showing improvements in carbon and other pollutant emissions.

Over 10% of United States coal production is slated for export. This figure may rise to over 20% over the next few years as China continues to grow, India begins to provide more power options and third world economies ramp up to satisfy the increasing power needs of their people. Michael Kijesky, a Senior Research Analyst for the closed-end fund Petroleum and Resources (PEO), continues to hold the following in PEO's portfolio for continued profits: Cliffs Natural Resources (CLF), Consol Energy (CNX),and International Coal Group(ICO). Some investors will recall that PEO is the other closed-end fund within the Adams Express(AEX) brand.

While coal is appealing, my view is investors should be selective about the companies in the sector they select for portfolio inclusion. The quality of reserves, type of coal and easy access to transport are important. This is why I do not subscribe to Market Vectors' Coal ETF (KOL) as the best coal investment vehicle at this time.

February 11. 2011: Housing: Traffic Up, Prices Down

2011-02-11T11:06:00.002-05:00

Credit Suisse has issued their monthly Real Estate Survey. The data from over fifty major markets across the United States indicates that buyer traffic has increased and home prices continue to soften.

For the third straight month buyer traffic has increased. The level for January was the highest since April, 2010 (the last month of the homebuyer tax credit). However, the buyer remains focused on bargains. This creates trouble for new homes, as homebuilders have not reduced prices by as much as existing home prices have fallen. This is in stark contrast to several months ago, when new homes were selling on par with existing homes - evidently home owners to a large degree are now throwing in the towel and selling at what the market dictates.It is noted that much of the increased homebuyer traffic is in warm weather locations such as Arizona, California and Florida.

In addition to the above, positive trends are occurring in Charlotte, Dallas, Minneapolis, and Washington, D.C. As a whole, here is how buyer traffic stacks up over the past twelve months (50 is normal, below 50 graduated weaker, above 50 graduated stronger)

BUYER TRAFFIC INDEX
Feb. 2010 41.1
March 2010 43.1
April 2010 48.7
May 2010 31.5
June 2010 19.1
July 2010 16.9
Aug. 2010 17.0
Sept. 2010 17.9
Oct. 2010 16.3
Nov. 2010 22.1
Dec. 2010 29.1
Jan. 2011 39.1

The Home Price Index sits at 26.9, compared with 43.4 in April 2010. This indicates a continued capitulation of sellers to rid themselves of property. The Time To Sell Index sits at 29,2 compared with 43.1 in April, 2010. This indicates that it is taking longer to sell a home compared with April, 2010 even at reduced prices.

My observation is that another avalanche of foreclosed homes will hit the market during March-June. This will add yet another reason to predict continued falling home prices. Homebuilders will continue to be squeezed between falling existing home prices and rising commodity costs that must be factored into new homes. Investors who thought they were getting "deals" a year ago are learning the hard way that market forces are unpredictable. Most of these investors are likely to pause instead of doubling down ,which may create even more downward pricing pressure. Another issue will be inflation and home mortgage rates. At what point will investors or primary home buyers throw in the towel because of continued stringent stips and higher mortgage rates?

The Credit Suisse monthly Real Estate Survey is a dense, boots on the ground compilation of local practitioners who have been shown to be an excellent predictive resource, based upon the success of this survey over the past few years.

February 9, 2011: Investors, Use Intelligence

2011-02-07T15:44:00.006-05:00

Since I began to invest in 1972, the universe of tools available to assist both professional investors and the rest of us has increased exponentially. I recall going to the public library and pawing through the bible-sized Value Line Investment Survey (Arnold Bernhard) and putting life on hold to watch PBS' Wall Street Week With Louis Rukeyser to gain both stock tips and investment insight for my embryonic portfolio. Computers were a novelty and news was ABC,NBC or CBS. There was also The Wall Street Journal and Barrons as they are today.

Today, investors of all stripes are barraged with news networks, talking heads, scores of investment vehicles and plain hype with enough kill power to make one's head explode.Yet one source has yet to be explored by most investors and that is worldwide intelligence reports from experts in the field. Why this type of service has not been promoted to investors escapes me.

Google "investor intelligence" and "business intelligence" and you will find a plethora of sites featuring charts, graphs, security reports, analyst findings and newsletters telling you what and when to buy (or sell) securities. What you rarely find is pure intelligence to alert you to social,political and international military event probability in the future.I have found one service out of several that should be useful to investors. That service is STRATFOR (www.stratfor.com),

Founded by George Friedman, STRATFOR provides timely intelligence pertaining to worldwide security, financial and economic events, regional issues, regional/ worldwide defense and energy reports,making this service a valuable investigative tool for investments here and abroad.

A sampling of articles posted today on the STRATFOR site includes China Security Memo, U.S Strategy Toward Preserving the Egyptian Regime, Nordic-Baltic Alliance and NATOs Arctic Thaw, U.S. 2011 National Military Strategy, China and the Offshore Yuan Market, Australian South Pacific Ties, ASEAN and the Geopolitics of Trade Agreements,Egypt and Israel Strategic Reconsiderations, Japan's New Military Units and Military Stance, Guinea Government Revising Mining Laws, Japan Looking to Invest Billions in Africa,China and Iran Railway Network Deal Signed, South Africa Unlikely to Nationalize Mines, U.S Panel's Decision to Raise Drilling Pipe Duties Up To 450%, of many. Importantly, investors receive in-depth intelligence and predictive data which, combined with the usual financial idea and research tools such as Seeking Alpha, should result in a more informed investment decision.

Investor's interested in exploring what STRATFOR predicts nationally and internationally for the next decade may want to read the "hot off the press" book by George Friedman entitled The Next Decade. His pronouncements may surprise investors obsessed with China and the Pacific Rim. Russia again will menace the West. Germany may again look eastward and "new Europe" countries of Poland, Hungary, The Czech Republic and Slovakia become more importsnt to U.S interests. Brazil will be problematic.

Investors not reaching for another valid and useful source of information as worldwide investing becomes the new normal for even the smallest of investors could be making a tactical mistake.

January 25, 2011: WIN (Whip Inflation Now) With Inflation Protected Preferreds

2011-01-24T19:47:00.005-05:00

As investors struggle selecting appropriate income streams for their portfolios, I believe that consideration should be dedicated to the under followed and under appreciated realm of inflation-protected preferred stock.

First,a basic explanation of preferred stocks:

A preferred stock is somewhat of a hybrid security instrument, with characteristics of both stocks and bonds. The investor is promised a stated and enticing yield (or terms as per the Prospectus) in lieu of not capturing a company's growth (as with common stock) and without the same guarantees of interest and certainty of principle as bonds.In some instances, the issuer of the preferred security can defer dividend payments at their discretion. Like bonds, preferred securities usually are blessed with a rating from a recognized rating agency.

There are three dominant types of preferred securities:

Fixed-Rate Preferred Stock is the most common type of preferred stock. If dividends are deferred for "cumulative" preferred shares, the funds accumulate and must be paid to the investor unless bankruptcy occurs.

Non-Cumulative Preferred Stock is less desirable than the cumulative preferred shares. The company does not only may defer dividends, but may escape paying them altogether. In trade-off, yields on these type of shares are usually higher than on traditional preferred securities.

Trust-Preferred Stock is a hybrid preferred security essentially constructed to exploit a loophole in the U.S. tax code. Issued beginning in 2000, these shares are created by an issuing company (or a brokerage house)which places bonds issued by that company into a trust. The trust creates preferred shares that are bought by investors. This process provides certain tax advantages to the issuer. For investors,trust preferred stock is considered safer than other preferred's because dividends are paid, essentially, from interest paid to the trust by underlying bonds.Trust-preferred's generally have a certain fixed maturity date schedule.

Preferred stock issues may be treated differently for tax purposes, have a call price and feature many other qualities which are peculiar to the security. The investor absolutely MUST understand the qualities of a preferred security prior to investment. As many preferred stocks are thinly traded, the investor should always buy with a limit order. Selling some thinly traded issues could be problematic in a market free-fall.

There are approximately thirty investment-grade preferred securities with inflation protection characteristics in the market. Many of these securities offer a more handsome payout than TIPs.Buying below the call price could result in a modest capital gain if the security is redeemed. Here are a few favorites:

MetLife Preferred Series A (METpfA): $23.57/share, currently yields 4.29%. Inflation protection is 4.00% plus 1.00% over the three month LIBOR rate. Call price is $25.00 after 9/15/2010. Rated BBB-.

Prudential Financial Inflation-Linked Notes (PFK): $25.98/share, currently yielding 3.44% (interest paid monthly). Inflation protection is 2.40% plus the current U.S. Consumer Price Index (CPI). Matures 4/10/2018. Rated A-.

Tennessee Valley Authority Series A (TVE): $24.75/share, currently yielding 4.55%. Inflation protection is 0.84% plus the thirty year constant maturity rate (CMT). Not redeemable, matures 5/1/29. Rated AAA.

U.S. Bancorp Funding Trust IV (UBSpfD):$22.11/share, currently yielding 4.06%. Inflation protection is 3.50% floor or .60% plus the three-month LIBOR rate, whichever is higher.$25.00 call price after 4/15/2011. Rated BBB+.

Note: The few ETF's (such as PFF)featuring preferred stocks that are popular with retail investors do not make my recommended list at this time, because more than a few portfolio selections are trading over their call price. When inflation kicks up, that spells trouble.

January 11, 2011:December Housing Traffic Up. Why?

2011-01-11T14:02:00.003-05:00

Credit Suisse has issued their time-tested monthly housing survey which covers over fifty major real estate markets in the United States. Credit Suisse compiles survey results from boots on the ground brokers who know their markets well. With this survey, after all data is put into the hopper, a score of 50 is historically average, with scores below 50 worse and over 50 better. The CS survey is my favorite housing tool. It is accurate, predictive and free of twisted jargon.

For December, 2010, home buyer traffic was modestly higher which was still at a very weak level, but better than the previous few months.Brokers reported that buyers were brought into the market by combination of negotiating a good deal and a fear that mortgage rates would continue to tick upwards (inflation tremors). On the downside, continued high stipulations for conventional mortgages have left even more buyers without a source to borrow funds. Overall, the traffic index increased to 29.1 in December from 22.1 in November. Home prices were up marginally to 23.0 in December from 21.6 in November. Credit Suisse does not believe that there will be any meaningful price increase for homes in the Spring, due to continued weak demand and a new wave of foreclosures slated to hit the markets, Credit Suisse also states the recent court mortgage documentation issue is apt to be resolved quickly.

Importantly, no markets showed abysmal traffic in December. Markets with the greatest improvement included Atlanta (to 33.0 from 19.0), Austin (to 39 from 23), Denver (to 35from 12), Houston (to 41 from 26), New York (to 33 from 18) and Seattle (to 41 from 23).

The CS home index pertaining to buyer traffic,home price,buyer incentives, home listings and the time to sell a home remain well below average except for home listings (to 51.2 in December from 41.3 in November).

For investors interested in home builder stocks, an interesting part of the survey had brokers nationwide rank twelve prominent home builders in order of preference (quality, price, value). From worst to best:

12. KB Home (KBH) (5%)
11. Beazer Homes (BZH) 2%
10. Hovanian Ent. (HOV) 5%
9. MDC Holdings (MDC) 8%
8. NVR, Inc. (NVR) 10%
7. Ryland Group (RYL) 10%
6. Meritage Homes (MTH) 13%
5. Standard Pacific (SPF) 16%
4. Lennar Corp (LEN) 17%
3. D.R. Horton (DHI) 22%
2. Pulte Home (PHM) 26%
1. Toll Brothers (TOL) 29%

January 5, 2011: Cuba Drills Deep, Losers And Winners

2011-01-04T22:01:00.002-05:00

Well, well. In early March, Cuba will commence with deep water drilling under contract with Repsol (YPF)and Statoil ASA (STO), using an older rig that was recently rehabbed by the Chinese. Reports indicate that it has fewer safety features than the BP's infamous Deepwater Horizon. The site is located a scant sixty miles southeast of Key West, Florida.

How can this be? Thank President Jimmy Carter, who etched a 1977 agreement essentially splitting the Straits of Florida 50/50 between the US and Cuba. Expect scores of deep water wells around Cuba's multi-billion barrel oil pool over the next few years. Eight companies are presently working to quickly expand Cuba's fossil fuel capacity, including Brazil's Petrobas (PBR) and Sherritt International (SHERF.PK).Venezuela,India and China oil interests have diminished Sherritt's originally large role, thanks to providing Cuba with goodies necessary to keep the Cuban economy afloat. Spain has done likewise, based upon my observations as a legal visitor to Havana indicate.Many foodstuffs in the state-run groceries were Spanish and Brazilian in origin.

Winners in the deep water projects are the above-named companies and government-owned oil production companies, Hugo Chavez (he is already being thanked with billboards in and around Havana) and the Castro Brothers, for whom the oil revenue comes in the nick of time to avoid further economic distress.

Losers will be the unprotected, rich fishing areas and beaches of coastal North Carolina, which is where oil spilled from the first deep water drilling projects will almost certainly have a profound impact. Ironically, a modern Wilmington, NC container port that would have provided that economically depressed area with thousands of jobs and an enhanced Coast Guard environmental presence to contain oil spills has been effectively shut down by Democratic Congressman Michael McIntyre, environmental extremists and an organization called NoPort. So much for unintended consequences. Additional losers will be American deep water drilling companies that are not able to extract oil in and about Florida, which may be drawn into some Cuban deep water wells, all American coastal areas adjacent to the Gulf of Mexico (Cuba is planning wells from east of Havana to the western tip of the island near the Yucatan Peninsula), and the Cuban people who will see small benefits at the market but a further entrenchment of the communist regime.

Investors are likely to see opportunities in developing the woeful Cuban infrastructure with companies such as Halliburton (HAL) and interior mineral extraction by companies such as Freeport-McMoran (FCX). Certainly, the situation warrants investor interest, with many companies bidding to partner with the Cuban leadership to tackle problems on an island with one foot in the 1950s and the other foot implanted in the groin of the U.S. as the money from oil rolls in.

December 19, 2010: Bait And Switch, Time To Exit (Most) Bonds

2010-12-18T09:41:00.006-05:00

Every investment has a season. For bonds, the season is "Fall". The vast majority of bond holders of almost all sorts have seen their values head south. What to do? Odds are, one should not take the bait of doubling down on bond holdings, but should rotate to a portfolio containing a hefty percentage of dividend-paying common stocks that hold hope of maintaining absolute value plus a capital gain.

I believe that being flexible is superior than being locked into one strict index ETF as the world economy moans, groans and lurches forward. Asia should be overweight,Latin America should be underweight as history tells us that periodic confiscatory politics of our southern neighbors have often times destroyed the best-laid Latin American investment scheme. Europe as a stand-alone is also off limits, although investors know that there is a bleed-through of many Asian and North American companies with Euroland. Within these arbitrary (some would argue, capricious) parameters, here are a few ETF investment ideas to pursue:

POWERSHARES DIVIDEND ACHIEVERS PORTFOLIO ETF (PFM): This $188m market cap fund corresponds to the price and yield of the Broad Dividend Achievers Index. A minimum of 80% of the fund's holdings have raised annual dividend payments for ten or more consecutive years. Trading at $13.98/share PFM has a 3.75% yield. It features a 4-Star Morningstar Rating.

GUGGENHEIM MULTI-ASSET INCOME ETF (CVY): This $356m market cap fund corresponds to the Zacks Multi-Asset Income Index, which includes U.S. stocks, ADRs, REIT's, MLP's, CEF's and traditional preferred stocks, all paying dividends. Trading at $19.91/share,CVY has a yield of 4.50%. It features a 4-Star Morningstar Rating.

VANGUARD DIVIDEND APPRECIATION INDEX ETF (VIG): This $4.4b market cap fund corresponds to the Mergent Dividend Achievers Select Index.Trading at $52.80/share, VIG has a yield of 2.02% The index measures the investment return of common stocks of companies that have a record of increasing dividends over time. It features a 5-Star Morningstar Rating.

POWERSHARES DYNAMIC SMALL CAP VALUE PORTFOLIO ETF (PWY): This small $65m market cap fund corresponds to the Small Cap Value Intellidex. Trading at $15.08/share, PWY fund has a yield of 3.45% This index is comprised of 100 U.S. small-cap value stocks selected primarily on the basis of their capital appreciation potential as identified by the AMEX (the Intellidex provider). Morningstar has it assigned only a 2-Star Rating, however, I believe this index hits a sweet spot as we head into 2011.

WISDOMTREE PACIFIC EX-JAPAN EQUITY INCOME ETF (DNH). This small $77m market cap fund self-servingly corresponds to the Wisdom Tree Equity Income Index. Trading at $59.01/share,DNH has a yield of 6.51%.Morningstar has it assigned a 4-Star Rating. Finding a high yielding far eastern fund is not common. The yield should mitigate serious downside risk compared too other funds focusing on that region.

VANGUARD HIGH DIVIDEND YIELD INDEX ETF (VYM): This $1.0b market cap fund tracks the performance of the FTSE/High Dividend Yield Index. Trading at $42.32/share, the fund has a yield of 2.61%. Morningstar has it assigned a 4-Star Rating.

WISDOMTREE EMERGING MARKETS SMALL CAP DIVIDEND ETF (DGS): This $879m fund tracks WisdomTree's own Emerging Markets Small Cap Dividend Index. Trading at $52.91/share, the fund has a yield of 3.42%. Morningstar has it assigned a 5-Star Rating.

The investor is encouraged to examine the moving parts of each fund (and any fund, for that matter) so there is not unintentional overlap of sectors or individual holdings. I have deliberately avoided TIP funds. I prefer to buy TIPS directly from the Treasury to avoid dilution and unnecessary expenses. Further, investors can find some preferred stocks with better-than-treasury inflation features. Metropolitan's MetpA and the Prudential' PFK come to mind.

Even though the Fed speaks of holding interest rates close to zero, the money printing presses here and elsewhere in the world are minting 24/7. Inflation is the easiest way for a government to monetize extreme debt to (in their mind) a resolvable level. This bodes disaster for bond holders, but is a mild blessing for holders of companies who can raise prices (and dividends). For investors diversified with dividend stocks in strong economic regions and sectors, opportunities to be successful are self-evident. Despite higher expenses,appropriate traditional mutual funds should also be on your shopping list to accomodate this portfolio scenario.

AUTHOR HAS NO POSITION IN THE ABOVE ETFs.

December 11, 2010: Momentarily, Housing Barely Trends Up

2010-12-08T09:45:00.010-05:00

The November Credit-Suisse monthly housing survey of fifty U.S. markets was released yesterday. Although the sector is still a mess, there were a few bright spots, as illustrated below. Still, interested parties in my world are not celebrating yet. They see banks continuing to withhold foreclosures from the auction block, maddening tight policies on foreclosures, short sales, financing stips and the availability of amortized credit. The unemployment rate,job insecurity, the sum of all local/state/ federal taxes and a sense that property values will continue to drift lower adds further angst to the mix. On the plus side,a temporary taxation regimen may be emerging from the carnage of the Beltway and may propel some further positive movement in the housing sector.This, along with buyers sensing that current interest rates and home prices may be a close-to-final opportunity to execute real estate deals.

Here is some selected data from the exhaustive and proven forward looking report: With a score of 50 being the norm, the overall foot traffic index moved upwards to 22.1 from 16.3 in October. pressure on home prices continues, with high inventory likely to add to challenges to sellers. The home price index crept upward to 21.6 from 20.5 in October. Credit Suisse expects this will continue for the next several months as many sellers choose to lower prices in order to complete a sale, and also into 2011 when foreclosures will likely return to the market, The home listing level (inventory) index stood at 41.3 vs. 35.5 in October.

In major markets, the survey indicated that Dallas (traffic index up to 28 from 14) and Houston traffic index of 26, up from 3 in October) along with better trends in Atlanta, Ft. Meyers, Jacksonville, Phoenix, the Inland Empire and Washington, D.C. Many other markets are problematic with a declines in all categories mentioned above at odds with the modest still-below norm results for the areas mentioned above.

The takeaway is there is no apparent lasting trend upwards that some have been predicting. The percentage improvement in all areas remains well below historic norms. No builders or sub sector material providers to the construction industry are recommended. On a valuation basis, investors may want to look at Home Depot (HD) as the home improvement business is picking up in property interior repairs, perhaps in part because of new home buyers and investors fixing up the trashed foreclosed homes purchased.

November 11, 2010: Credit Suisse Nixes Housing Optomism

2010-11-11T00:01:00.005-05:00

The monthly Credit Suisse Housing Survey was released for October. This dense, reliable document reports on each of the fifty largest real estate markets. Relying upon boots on the ground seasoned contributors, the monthly survey is considered essential for many real estate practitioners. The October results overall show continued snail's pace traffic and sales volume. With a score of fifty(50) being the norm, buyer traffic declined to 16.3 from September's 17.9 - a fresh multi-year low. This comes at a time when there are generally more homes on the market than in September.

Specifically, CS reports that the down tick in October prospective buyer traffic guarantees that the next several months will not foster any hope of a recovery in the non-commercial real estate market with seasonality factored in. Brokers cite buyer uncertainty, an anticipation of still lower price points and worries about the ramifications pertaining to the backlog of foreclosures as major issues. CS believes that home prices are apt to fall even through the Spring of 2011 as banks unload further inventory after the traditionally weak sales months of November-March. Of all the markets surveyed, Austin, Texas showed noteworthy improvement while Ft. Meyers, Florida and Washington, D.C. worsened from previously depressed levels. A strong majority of the regions have seen increased buyer incentives, perhaps mitigating even a larger market downdraft.

Here are a few markets in greater detail. A score of 50 is average:

New York-Northern New Jersey buyer traffic fell from 22 in September to 16 last month. This is the lowest level recorded since November of 2008. Home listing were marked at 23 vs. 15 with sales time increased - both negative indicators. "Sellers are unwilling to accept reality. Buyers know prices are falling", according to a CS source. Another source reports "Buyers know the economy is not improving and that scares them."

Seattle, Washington buyer traffic came in at 30, which was below brokerage expectations given the current price points. Home prices continue to fall, scoring a 25 which reinforces continued lower prices. Homes are taking longer to sell with a score of 25. A quoted source for CS states that "the poor job outlook does not sit well with buyers. They have little confidence."

Chicago, Illinois buyer traffic was unchanged from September at 12. Reports from the field indicate that "the foreclosure freeze dampened the market and the new investor guidelines have hurt substantially." The home price index checked in at 11, the lowest ever on record for Chicagoland. The time to sell a property was ranked a 18, indicating an almost stagnant market. As with many of the markets, "buyers are waiting for things to bottom out."

Miami, Florida buyer traffic decreased to 19 in October from 29 the previous month. The economy and consumer confidence topped the list of reasons not to buy. On the bright side, home listings remained stable compared to September. With increased time necessary to sell a home, further price declines appear to be in store for this area (and almost everywhere else).

Denver, Colorado showed slightly better traffic with a 16 compared to a 13 in September. Both numbers are abysmal. Lower mortgage rates in this area are listed as the primary reason to buy. Prices declined to a 18 from 22 the previous month. A weak employment situation and financial insecurity are high on the list of why homes are not moving in spite of continuing price cuts.

Dallas, Texas showed slightly improved buyer traffic, increasing to 14 from 12 in September. The home inventory appears stable, but CS believes that falling home prices and a more stable inventory rank of 46 may be a temporary statistic pop because of seasonality and the removal of foreclosed listings due to bank re-evaluations. Time to sell came in at 11 from 17 in September, so the data in total is poor.

The takeaway for October is that economic stability,consumer confidence,properties priced to market and low mortgage rates may not be enough to jump start the industry until the mass of foreclosures dwindles and the national mood is encouraged by positive workmanship from political leaders at all levels.

October 25, 2010: Five Overlooked Dividend-Rich Stocks

2010-10-24T23:55:00.007-04:00

Investors are generally a creative lot. We yearn for our inner voice to approvingly utter the classic Indiana Jones line when the old knight tells Indiana Jones, upon selecting the correct chalice from the many pretenders, "You Have Chosen Wisely". But there is more to the passion for many. I enjoy reading old predictions from the likes of Barrons, Forbes, Fortune, The Wall Street Journal and Money print media - and in retrospect find humor in how most did not stand the test of time. I also enjoy a few bloggers and journalists such as Roger Nusbaum and Malcolm Berko, and brief moments of the talking heads on CNBC and the Fox Business Channel (much improved in recent months with the addition of Charles Gasparino). Financial opinions and chatter, for me, is therapeutic. Saturday,I read an article touting a long term retirement portfolio strategy. While I did not agree with the allocation and diversification model, five securities appealed to me for high income with growth potential. Perhaps you may find them worthwhile to explore. Here they are:

Copano Enerrgy LLC (CPNO):Yielding 8.10% and trading at $28.60, this $1.9b energy company provides a myriad of essential and value-added midstream services to natural gas producers. Copano's hard assets include 6,400 miles of natural gas gathering and transmission pipelines and seven natural gas processing plants. CPNO also operates over 300 miles of NGL and crude oil pipelines. The company operates in Oklahoma, Texas and the Rocky Mountain region.

Atlas Pipeline Partners LP (APL):Yielding 7% and trading at $20.07, this $1.1b energy company is a provider of natural gas gathering services in the Anadarko and Permian Basins. It owns and operates eight natural gas processing plants with a capacity of over 900 million cubic feet/day and a treating facility with approximately 200 million cubic feet/day. It partners with other companies such as Laurel Mountain to leverage interests.

TC Pipelines LP (TCLP):Yielding 6.20% and trading at $48.43, this $3.2b company was formed by TransCanada Corporation to manage energy infrastructure businesses in North America. TCLP earns revenue from the transportation of natural gas through investments in natural gas pipeline systems in the United States, Eastern Canada and Mexico. Partners include the aforementioned TransCanada and other such as ONEOK Partners and the Northern Border Pipeline Company. It owns Tuscora Gas Transmission Company and North Baja Pipeline.

Compass Diversified (CODI):Yielding 8.22% and trading at $16.55, this $691m company acquires controlling interests in businesses and actively manages them. CODI has six business segments, Compass AG Holdings, American Furniture Manufacturing, Fox Factory, Anodyne Medical Devices, HALO Branded Solutions, and CBS Personal Holdings.Recent acquisitions include Liberty Safe and Security Products and Circuit Express.

PennantPark (PNNT):Yielding 9.37% and trading at $11.10, this $351m company is a closed end, eternally managed non-diversified investment company. The investment objectives are to generate both current income and capital appreciation through debt and equity investments, primarily in the United States using such techniques as mezzanine debt, senior secured loans and equity investments.

October 11, 2010: Credit Suisse First Boston September Housing Survey: Ouch

2010-10-11T12:28:00.003-04:00

Amongst the first to release valuable data and forward-looking prognostications on a comprehensive roster of nationwide real estate markets is CSFB. I have followed this report and have found it to be long on facts and observations from those with boots on the ground and short on political spin.

September results were released late last week, and they vividly present a toxic brew of falling sales, prices and a malaise present in buyers, sellers and intermediaries that is too ingrained to be wished away.

Real estate agents noticed a marked decline in prices at the end of the summer. With a score of "50" being average, the scale stood at "22". CSFB anticipates a continuing drift downwards as builders attempt to capture as much business as possible before the winter months. An already high (and rising) inventory is apt to worsen the situation. Look for increasing incentives and a lowering of prices, which is not good news for stockholders of big box builders such as D.R. Horton, NVR, Pulte and Beazer.

Although the overall home market was very weak, there was a slight monthly uptick in Washington D.C. and Phoenix. Worsening conditions prevailed in areas such as Dallas, Jacksonville and Southern California. No sign of a rebound is detected by CSFB nationwide.

Of increasing concern is decreased buyer traffic. The following is illustrative of the magnitude of this issue. With "50" being the norm, here is a bi-monthly sample:

January 2009: 36.5
March: 36.0
May: 45.4
July: 43.4
September: 44.8
November: 43.0
January 2010: 43.5
March: 43.1
May: 31.5
July: 19.1
September: 17.9

Here are comments from the field:

Atlanta - "Poor economic conditions and higher unemployment translates to terrible traffic."
Austin - "People have pre-election jitters. They want more clarity before they buy."
Charlotte - "The number of showings on my listing has dropped 60%. There is no motivation."
Chicago - "Buyers think there is still more downside to price."
Denver - "People are giving up hope because they don't think they can get financed."
Ft. Meyers - "Buyers keep mentioning the economy. They are concerned."
Las Vegas - "My clients are waiting for the bottom. They don't think we are there yet."
Los Angeles - "Buyers are taking their time to make a decision because they have such as selection to choose from."
Minneapolis - "Economic uncertainty has been a major problem."
Washington D.C. -"Move up buyers can't sell."
Boston - "Economic uncertainty has people not even thinking about new homes."
San Francisco - "There is no urgency and consumer confidence is awful."

There has been recent chatter about the halting of foreclosures by financial institutions due to technical issues. Several of my mortgage banker friends have an interesting take on the action. In their view, there is such a backlog of foreclosed properties dead on the market, and so many in the pipeline, banks have concluded that it is better to keep people in a house than leave it to plethora of bad things that can occur if it is unattended. Under this scenario, banks are not stopping foreclosures for any reason other than to mitigate losses.

October 1, 2010: 12-Pack, Worthy Dividend Income Portfolio

2010-09-30T14:24:00.005-04:00

I have been a long time proponent of a two portfolio investment approach. Following in the footsteps of Harry Browne, who brought the idea to the fore in the 1970s, I assembled a Permanent Portfolio which was designed as an all-season capital preservation, modest appreciation vehicle, and a Speculative Portfolio which was designed to place bets on high risk securities that offered the possibility of high reward. Given the era in which we live, perhaps it is time to adjust the mindset of the concept and add a third leg to your investment scheme. You may want to consider an Income Portfolio which would be designed to obtain a current satisfactory yield using a mix of ETF's and stocks, with an awareness of the possibility of deflation, inflation and currency fluctuations.

If this tweaks your curiosity, examine the following twelve securities for starters in your search:

PIMCO Enhanced Short Term Maturity Strtegy ETF (MINT) $100.83/share 0.84% yield
Best used as a money market-type fund.

IShares S&P U.S. Preferred Stock Index ETF (PFF) $39.78/share 7% yield
Nice yield, but more than a few securities are trading over the call price, which
could negatively impact long term performance.

SPDR Barclay's Capital Convertible Securities ETF (CWB) $38.87/share 3.99% yield
Ditto the PFF red flag.

Guggenheim International Multi-Asset Income ETF (CVY) $19.18/share 4.69% yield
The old "yield hog" ETF. Excellent basket of US (78%) and International stocks.

Vanguard Short Term U.S. Bond ETF (BSV) $80.74/share 2.34% yield
Vanilla, ultra low expense ETF.

Market Vectors Emerging Markets Local Currency Bond ETF $27.03/share 4.79% yield
Interesting foreign currency exposure with an attractive stated yield.

One to watch:

Alerian Master Limited Partnership ETF (AMLP)
Basket of twenty-five midstream energy MLP's.

Preferred Securities may well be an integral portion of the Income Portfolio. Here are four rules to follow in their selection:
Yield a minimum of 2.25x that of the Vanguard Short Term Bond Fund ETF.
Investment grade rating.
Purchased below the call price.
Sufficient share volume to facilitate a reasonable trade (buy on a limit order, sell when security trades 3% above the call price), such as:

Deutsche Bank Contingent Capital Trust Fund II (DXB) $24.56/share 6.65% yield

National City Capital Trust II (NCCpA) $24.91/share 6.63% yield

KeyCorp Capital Enhanced Trust IX (KEYpE) $24.94/share 6.77% yield

Securities with a degree of inflation protection are in order, such as:

Metropolitan Life Preferred A (METpA): $23.32/share 4,36% yield with inflation protection features.

PIMCO 1-5 Year U.S. TIPS Index Fund ETF: $52.28/share 1.58% yield +/-, providing a conservative measure of inflation protection.

Certainly, there is a universe of common stock that provides dividend income, be it more or less. There are many avenues to devise an income portfolio - different from the somewhat eclectic teasers above. My belief is that total returns from a common stock portfolio will be nowhere near the 8% assumed by pension funds and other investors over the coming years. Tangible returns from a separate Income Portfolio, coupled with the Permanent and Speculative Portfolios will add both discipline and thoughtfulness to your investment scheme.

September 20, 2010: Fantasy Football and Your Income Portfolio

2010-09-19T20:08:00.009-04:00

Is there a potential Bill Gross or Sir John Templeton who consistently assembles the winning fantasy football team? Effective portfolio selection and constructing the moving parts of a fantasy football team utilize similar concepts. The list below illustrates the premise.

1. Admit you are probably not the most astute member of the league. You probably aren't. Warren Buffett is fond of saying "if you are playing poker and ... don't know who the patsy is, it's you." A well prepared investor knows that there are many investors who know more about any given acquisition at any time, given the advanced information gathering techniques available. Play to win, but don't get cocky.

2. Be prepared in advance for acquisition. Have a plan. You should know your risk tolerance and begin to implement a strategy to suit your long term needs.In fantasy football roster assimilation, one does not chose a tight end, kicker and an aged running back with the first few selections to form a core holding. The core holding for stability is a quarterback. For most investors a portfolio of relatively stable, diversified low cost income etf's should be at the center of one's portfolio. Other, more speculative securities may be added to provide zest for your planned acquisitions to fill out the portfolio.

3. Acquire proven quality with your first picks. Don't speculate at this stage. You need Drew Brees, not Seneca Wallace. At this time, Vanguard's Short Term Corporate Bond ETF (BSV), Templeton's Global Income Fund (GIM) and PIMCO's Short Term Maturity Strategy ETF (MINT) fit the bill.

4. Create a balanced roster. Don't overload in one yield field. Drew Brees alone won't guarantee your fantasy football team a victory, nor will government bonds do likewise for your portfolio. You need a productive running back, wide receiver, tight end, kicker, defensive unit and a flexible bench. Weak or under-represented income sectors will cause you to under perform. Solid picks in this category are IShare's U.S. Preferred Stock Index ETF (PFF), Powershare's Commodity Index Tracking ETF (DBC),Barclay's Capital Convertible Securities ETF (CWB), Barclay's Capital Aggregate Short/Intermediate Bond ETF (LAG),IShare's Emerging Market Debt ETF (EMB) and for your defense, the Permanent Portfolio Fund (PRPFX). In a previous column, I outlined a "do-it-yourself" permanent portfolio fund using etf's that will likely mimic PRPFX. Gold alone as a hedge is best purchased through IShare's Gold ETF (IAU).

5. Work hardest to find overlooked acquisitions. Sweat the details. Some of my finest fantasy picks and securities have been chosen by digging through details to discover overlooked gems. Arian Foster and Wes Cooley come to mind. High yields can be achieved through disciplined acquisition of preferred stocks, especially structured preferreds. My criteria for selecting these 6.75-8% gems is a multi-step process: investment grade, decent trading volume, yield is compelling (you will regularly find mispriced preferreds as the computer model fast traders generally don't appear to hit them hard), buy below the call price and sell when the stock price is 5% or greater over the call. An example is Deutsche Bank Capital Trust II (DXB). I also like preferred securities that play a nice dividend plus have inflation protection over and above TIPS, such as Prudential Financial, Inc. Preferred (PFK).

6. Always look to upgrade your roster. Don't hesitate to jettison a weak performer, but don't churn your roster. When an acquisition goes down due to injury or poor performance, dump it. Why hold into a Ryan Grant or Sidney Rice, hoping against hope they return from an injury? Why hold significant positions in long duration bonds or solely in U.S. Dollars just to tweak yield when the present economic climate begs for future inflation to pay off our trillions of dollars in debt with cheap dollars? Explore select Master Limited Partnership's individually, not bundled into an etf at this time.

7. Be gracious in victory. Learn from your defeats. While winning with well-chosen acquisitions provide a measure of wealth (monetary, ego or both), defeat - losing with your best laid strategy - offers an opportunity to learn and better prepare for the next round of opportunities.

8. Luck does play a part in success. Remember that the more prepared you are, the luckier you get.

September 8, 2010: August Housing Data Miserable (Again)

2010-09-08T15:56:00.003-04:00

The August Credit Suisse First Boston Survey of Real Estate was released today. The results of the comprehensive (fifty major residential markets), boots on the ground, reliable yardstick for residential home predictive behavior paints another gloomy picture for the housing market despite record low mortgage rates.

Home prices are declining across the country at a faster rate and are now at early 2009 levels, which correlates to the depths of the (first) recession plunge. Key factors are depressed buyer traffic which has forced sellers to become more realistic about their bottom line selling price,rising inventory, a sense amongst many buyers that prices will continue to slide, additional foreclosures and, anecdotal fears about government policies that may impact taxes and job prospects.

The lowest major market traffic readings were in Minneapolis, Chicago, Phoenix, Denver and Charlotte and in foreclosure-heavy markets such as the New York metro area and Ft. Meyers. Investors, data indicates, are not buying as they were previously.

CSFB expects further home price weakness in the coming months based upon the trends outlined in their survey. With 3.98 million existing homes for sale nationwide and more foreclosures to come, I suspect that stocks of companies in the home building (new construction) sector should be in no hurry to be bought for inclusion within your portfolio.

The CSFB Survey did not recommend a time frame for buying into the residential home market as a customer or investor. I view this as a significant and persuasive omission.

August 30, 2010: October Suprise? Cuba Opens (A Little) For Business.

2010-08-29T19:30:00.012-04:00

The planets are aligned for the entry of companies into Cuba. Yes, one of the worst places on earth to do business may well be open for business soon, and on terms to entice investment. True, this has been stated in previous years, but "this time it's different".

Think China and Richard Nixon's surprise detente that opened the communist giant to relations and profitable trade with the United States. The first inkling of a thaw was the arrival of a U.S. table tennis team, followed by an easing of student and professional travel, then a secret visit by Secretary of State Henry Kissinger followed by the big splash - Nixon, himself.

Now, Cuba. Last week, in a barely noticed news release, Cuba will allow foreigners to lease government-owned land on the island (which is almost the entire nation) for up to ninety-nine years. What are the initial plans for the land? Golf courses ringed by luxury resorts, according to Robin Connors, CEO of Leisure Canada. "We see the times are changing, so to speak", remarked Robin. In addition to the private long term leasing of land, the Castro Brothers also ruled last week that private agricultural operations can exist and prosper. Old commodities of sugar and tobacco may be significantly supplanted by 21st century product. This opens the way for organic and other specialty crop commodity operations to exist and thrive. Make no mistake, these are landmark decisions for Cuba as they move towards a Socialist/Capitalist blend, perhaps to preserve a ruling class.

The icing on the cake is President Obama's progressive agenda towards Cuba. Recently, he proposed the loosening student and professional travel to Cuba. He eliminated several layers of the half century-old embargo. Nothing much came of that move because it was not reciprocated by Cuba. That is changing now. All that is needed is a meeting between Secretary of State Hillary Clinton and her counterpart in Havana to precede a presidential visit to match the China connection of 1973. While Nixon wanted China as a foil to the Soviet Union, Obama wants Cuba as a non-belligerent and dependent trading partner to foil growing Russian and Chinese influence in the Americas - something Raul Castro may find interesting as he competes with Venezuelan El Presidente Hugo Chavez for hemispheric prestige and influence. Raul may also be tired of Mr. Chavex claiming to be the heir to The Revolution. Cuba needs to propel and enhance their stagnant and, in many respects, third world economy into the upcoming decade to insure against civil unrest and, perhaps a regime change. Cigars, sugar and rent-a-doctor schemes won't do the trick.

The United States is presently Cuba's largest food supplier and fifth largest import partner with the present rules in place. This decade, America has done over $2b of business with Cuba, not counting donations from Cuban exiles (millions of dollars more). Counting all humanitarian aid, the U.S. ranks right behind China and ahead of Venezuela in total dollar volume as the Castro Brother's business partner.

What in Cuba looks profitable for companies in the near future?
Land-based tourism,telecommunications, organic and specialty commodity agriculture, fossil fuels and minerals.

Here are a few companies that have an active interest or may have an interest in Cuba (they have something to trade for franchise grants) and vice versa:

Vodaphone (VOD)
Statoil ASA (STO)
Petrobas (PBR)
Freeport McMoran (FCX)
Sherrit International (SHER.PK)
Repsol (REP)
Leisure Canada- Toronto Stock Exchange (LCN)
HJ Heinz (HNZ)
JM Smucker (JSM)
Monsanto (MON)
PetSmart (PETM)
Hain Celestial Group (HAIN)
Marriott (MAR)

Participation in the Cuban economy will not necessarily translate into a significant bottom line growth story for many of the above. All will be interesting to follow along the journey when it commences.

Companies that do business within Cuba will negotiate with the strong hand of the Cuban government. A lion's share of State profits from taxes and joint ventures will go into the socialist till to perpetuate opulence for a relative few, and perhaps marginally raise the standard of living for the many. That hasn't stopped the globalisation effort of companies elsewhere in the world - it is business as usual.

August 24, 2010: Preferred Stock Picking Gets A Lift From Schwab

2010-08-23T15:08:00.004-04:00

Recently, with little fanfare, Charles Schwab introduced a preferred stock screen device on it's research platform that allows investors to screen by current yield, S&P credit ratings, sector and company names for approximately five hundred securities. Indeed, the basics are there for the investor seeking to spice up income within a portfolio.

I set the screen for yields of greater than 6% and an S&P rating of "A" for all ten sectors Schwab provided. Here is what showed up (all were rated A-):

Ameriprise Financial 7.75 Sr. Notes (AMPpA)
Barclays Bank 6.625% Series 2 ADS (BCSpR)
Barclays Bank 7.75% Series 4 (BCSpC)
BNY Capital IV 6.875% (BKpE)
Harris Preferred Capital "A" 7.735% (HBCpR)
HSBC Holdings 6.2% Exch (HBCpA)
HSBC USA $2.8575 cumulative (HBApZ)
HSBC USA 6.50% (HBApH)
Prudential 6.5% (PUKpA)
Prudential 6.75% (PUKpR)
Santander 6.5% (STDpC)
Santander 6.8% (STDpA)
Wachovia Capital Trust IV 6.375% (WBpB)
Wachovia Capital Trust IX 6.375% (WBpC)
Wachovia Capital Trust X 7.85% (WBpD)
Wachovia Pref Fdg 7.25% (WNApR)
Wells Fargo 7.5% Convertible Pref. (WFCpL)
Wells Fargo 8% (WFCpJ)
Wells Fargo Capital Trust IV (WSF)

For less experienced investors the screen tool could induce one to become too smart by half. Although the call price is listed on the screen, there is no date of the call listed and the information tag on the right side of each security line provides only the most elementary of data. Many of the preferred securities are priced over their call, and other qualities unique to each preferred are not referenced. This could well create an "oops" result and unexpected losses of capital.

That said, the screening tool is a useful first step for users of the Schwab online brokerage.

August 16, 2010: High Yields/Moderate Risk/Excellent Theme

2010-08-15T13:24:00.005-04:00

I read an article today written for the "old media" by financial observer Malcom Berko. I enjoy Berko's work, as he rarely hedges an opinion and takes to task those company managements that do not consistently serve the interests of their owners (shareholders). He has been lurking about the investment forest long enough to identify the dangers within.

Searching for a high yield investment that carries a solid theme, a rather obscure sector of the market was brought to my attention - business development companies. Business development companies are similar in some respects to a REIT in that they must pass on 90% of their income to shareholders. In addition BDC's may not place more than 5% of assets in one company, can't own more than 10% of the voting stock and can't invest more than 25% of their assets in companies that are considered to be in the same industry. This provides a modicum of diversification.

The current allure is that with loans being hard to come by for small companies, more appear to be opting for funding through companies in the business development area. BDC's are making good loans when banks can't, or won't.BDC's generally loan to companies where they can exert influence over the direction of the enterprise, earning consultant fees and/or gaining representation on the board of directors to protect their loan quality.

Here are three recommendations from Mr. Berko. I have looked into the companies and agree with the threesome.

Ares Capital (ARCC),trading at $14.26/share with a $2.7b cap and a 9.82% yield.

PennantPark Investment(PNNT),trading at $10.05/share with a $318m cap and 10.35% yield.

Apollo (AINV) trading at $9.20/share with a $1.8b cap and a 12.17% yield.

As with many securities, if a full blown double dip recession occurs, all bets are off. Investors should know that brokerage ratings on these stocks are all over the map.

August 9, 2010: July Housing Data Continues Downward Trend

2010-08-08T11:15:00.003-04:00

The July Credit Suisse First Boston Monthly Real Estate Survey was released this weekend and data points to the housing market in a continued decline. CSFB states that "prices remain under pressure, with weak demand and rising inventory" that indicates "further declines are likely." I prefer the CSFB Survey because of it's boots on the ground approach to detailed data collection across fifty major real estate markets nationwide. The predictive accuracy of the report over the long haul has been exemplary.

Illustrating buyer traffic since April, 2008 puts the present situation in perspective. With a score of "50" being average (1=worst 100=best), here is the situation in which we now find ourselves:

04/08: 33.1
05/08: 31.5
06/08: 29.0
07/08: 27.4
08/08: 25.9
09/08: 24.0
10/08: 19.6
11/08: 19.8
12/08: 25.3
01/09: 36.5
02/09: 36.0
03/09: 39.5
04/09: 48.4
05/09: 45.4
06/09: 43.1
07/09: 43.4
08/09: 44.5
09/09: 44.8
10/09: 43.5
11/09: 43.0
12/09: 41.1
01/10: 43.5
02/10: 41.4
03/10: 43.1
04/10: 48.7
05/10: 31.5
06/10: 19.1
07/10: 16.9

The report highlights the downturn after the artificial tax credit. A score of even average has not been reached in any month listed above. Survey consultants in summation declared that potential buyers "lack confidence, motivation and urgency as they confront lingering economic and employment concerns".

CSFB reports that home prices suffered nationwide, as all but two of the top twenty markets (Ft. Meyers and the New York City area)fell. The greatest declines occurred in Chicago, Phoenix, Florida ex-Ft. Meyers and Texas. Home builders have written down over $34b in land impairment charges over the past four years, and lower prices "likely continue to limit construction activity even further."

An interesting takeaway is that although some investors and primary home buyers have made successful deals in the residential market since the real estate bubble was pricked, it appears as though many others may have bought too early, and thus suffer from the effects of still another downturn in price. I suspect that government-inspired incentives are on the way to artificially prop up demand through no down payment loans (already coming into the picture) and other devices....at least through this election cycle.

July 30, 2010: Dividends You Want? Dividends You Get

2010-07-29T20:58:00.004-04:00

Apparently,inflation that many expected with the government printing presses running red hot is not imminent or likely to appear soon. Many articles have been written about dividend explorations seeking companies that pay a regular dividend and will likely raise dividends a few cents per year. Sorry, that is not for me.

I don't want to wait eons for the dividend to show meaningful growth within my portfolio. And, with the present world order and Beltway economic geniuses working hard to separate you from your wealth, staying married to a stock for a paltry annual raise in a dividend may be bad portfolio management.

Why not hefty dividends now? Why wait? Balanced with other securities and hard asset investments, the investor will create a diversified and enriched portfolio.

Here are some current choices for consideration:

Recommended are trust preferred investment grade securities that are priced below the call price (usually $25.00). A screened list is available at Quantum Online and likely available elsewhere. If they are not priced below the call price and/or rarely traded, don't buy them.Use limit orders.The yield should be north of 6.25%.

For those wanting instant yield through preferred stocks, I recommend the iShares Preferred Stock Index Fund (PFF), trading at $39.24 and yielding 7.57%.

Here are a few individual securities that I like and in some instances own:

National City Capital Trust II (NCCpA): $24.22/ahare, 6.92% yield, ex 8/12,average 10-day volume 75g.

Commonwealth REIT 7.5% Senior Notes (CWHN): $19.99/share,7.42% yield, ex-10/29, average 10-day volume 24g.

Deutsche Bank Capital Funding Trust X (DCE): $24.50/share, 7.52% yield, ex-9/10, average 10-day volume 63g.

Bank of America Preferred J (BACpJ): $23.43/share, 7.73% yield, ex-10/13, average 10-day volume 225g.

Archer Daniels Midland Preferred A (ADMpA): $37.98/share, 8.04% yield, ex 8/12, average 10-day volume 145g. This security is convertible at $50.00/share with consideration for stock price targets within the prospectus.

For those seeking inflation protection diversified away from TIPs, two securities out of several with inflation protection features are worth exploring:

MetLife Preferred A(METpA): $23.25/share,4.42% yield, ex 8/26, average 10-day volume 125g. The minimum dividend is 4% or 1% above the 3 month LIBOR.

Prudential Financial(PFK): $24.92/share,4.68% yield, monthly dividends, average 10-day volume 9g. The minimum dividend is the CPI plus 2.40%.

Certainly, some Master Limited Partnerships would qualify as immediate dividend-rich securities, so long as the profits are earned to support the dividend.

Above all, be nimble as the economic and political winds change in both course and intensity.

July 23, 2010: Is The U.S. In Terminal Condition?

2010-07-23T14:16:00.002-04:00

"The democracy will cease to exist when you take away from those who are willing to work and give to those who would not." - Thomas Jefferson

Roger Nusbaum, a widely quoted and successful financial planner and blogger (Random Roger's Big Picture) issued a great post today on problems confronting productive workers in our economy, who expect some benefit from their efforts later in life. I responded to Roger's post as follows:

"You bring to the fore issues that politicians are loathe to deal with. Our bad - we vote for (them).

Those with a knowledge of history understand that the greatest empires were not conquered - they rotted from within. We are following that same path. Less-advanced cultures now dominate our remarkably successful Judea-Christian heritage, endless sport spectacles are a narcotic for increasingly undereducated and mis-focused masses, a crumbling military and infrastructure (and) the colossal failure of our ruling class to command and navigate the ship of state in an appropriate manner seals the deal.

The world is changing, and an unsustainable number of Americans sit on our overweight, government-subsidized asses confident that higher taxes, endless lawsuits, windmills and playing nice to adversaries is our final solution.

Rome, 2020? Or, do we wake up?"

"My reading of history convinces me that most bad government results from too much government." - Thomas Jefferson

"To compel a man to subsidize with his taxes the propagation of ideas which he disbelieves and abhors is sinful and tyrannical." - Thomas Jefferson

Note: The three quotes are attributed to Thomas Jefferson from multiple sources, but I have not verified them through Mr. Jefferson, himself.

July 19, 2010: Fannie ,Freddie, Dodd and Frank: Real Estate Practices Adjusted

2010-07-19T19:15:00.004-04:00

It is a largely unanimous opinion that the ongoing real estate collapse in almost all areas of the country was in large part caused by lenders lowering, or ignoring, standards relating to home mortgage qualifications. Lending institutions were bailed out, closed and re-packaged under another brand, and forced to tighten lending requirements. The medicine was bitter, but necessary.

Apparently, the medicine was unacceptable to the wrong patients.

Kenneth Harney, a respected columnist for the Washington Post, published a most interesting article today that states, effective September 1, 2010,that Fannie Mae will prohibit mortgage lenders who sell it loans from adjusting appraisal numbers. Lenders were often refusing to accept appraisals that appeared high to avoid the wrath of the Feds who accused mortgage lenders regularly after the 2008 debacle of inflating property values for unsavory reasons.

The National Association of Realtor's seems to have lobbied hard to influence Fannie and Freddie to step in and prevent bank's lowering of appraisals on or about closing to avoid stopping questionable appraisals voiding realty transactions (this practice hurts the commissions of involved parties that benefit from a successful transaction). The NAR accused lenders of "sabotage....arbitrarily reducing the value estimate" of the appraiser.

As of September 1st, Fannie Mae will prohibit lenders from changing appraisal numbers. According to Harney, "lenders must contact appraisers to resolve and disagreement about property valuation. If that is not possible, they should order a second appraisal - not just chop the value surrounding the real estate contract." Needless to say, appraisers applaud the new rule. Realtors applaud the new rule. Title Agencies and lawyers likely applaud the new rule. Taxpayers?

The dirty little secret is that many appraisers, especially local appraisers, are beholden to others involved in the transaction who stand to gain commission as property values are not appropriately challenged for mortgage loans. Quite likely, here we go again. Is it no surprise that Fannie Mae and Freddie Mac are immune from the recently passed financial reform bill?

The NAR reports that the Dodd-Frank Wall Street Reform and Consumer Protection Act included a number of provisions impacting real estate. The NAR secured an exemption for Realtors performing traditional activities from the long arm of CFPB, although the Real Estate Settlement Procedures Act (RESPA) is now under the eye of the CFPB. Other aspects of the bill impacting real estate and the mortgage lending industry include new rules on seller financing (predatory landing protection),establishment of a "Qualified Mortgage" safe harbor from risk retention rules, sunset of the Home Valuation Code of the Conduct (HVCC), risk retention rules for commercial mortgage backed securities, re-defining the "accredited investor", and a 3% cap on fees and points for transaction entities as a part of the qualified mortgage safe harbor.

This complex legislation surely will produce unintended as well as intended consequences yet to be discovered. A lobbyist's field day, perhaps?

July 8, 2010: June Housing Data Stinks

2010-07-08T18:22:00.004-04:00

The monthly real estate results are in, and the Credit Suisse Monthly Survey Of Real Estate for institutional investors (my favorite professionally adjudicated document because of its boots on the ground approach and demonstrated predictive accuracy) tells a simple tale. Economic concerns + a tax credit hangover = plunging traffic and a deepening fiasco in the single family home market.

Nationally, the home traffic index dropped to a level not seen since the credit crises during the latter months of 2008. This drop is more serious, as it is compounding the initial plunge reported for May, after the tax credit expiration.

According to CSFB, another round of declining home prices is inevitable because of high inventory coupled with limited traffic. Real estate professionals report that sellers are capitulating on prices in most markets. Inventory is expected to increase significantly with increasing foreclosures flooding markets again. The time needed to sell a home increased by almost 20% in June compared to May, which was a bad month in itself.

Dallas, Orlando, Southern California and Las Vegas slowed the most of the fifty nationwide markets in the survey. Every one of the twenty largest real estate markets slowed.

Builders, as predicted in this survey in prior months, are in a state of desperation, with land impairment charges in the cards for builders in the third and fourth quarters of this year. CSFB believes that stocks of builders may be attractive at that time, but only if the economy pulls out of the doldrums.

Here are some headline takeaways from several large markets followed in the survey:

Atlanta,GA:"No stability following tax credit expiration".
Austin, Tx: "Traffic continues to slip. Buyers anxious over the economy."
Charlotte, NC:"Weakness continues. Traffic takes another step lower."
Chicago,IL:"Where are the buyers, on tax credit vacation?"
Dallas,TX:"Traffic falls off a cliff."
Denver,CO: "No more rebates, no more buyers."
Jacksonville, FL:"Traffic falls on further economic concerns."
Las Vegas, NV:"Buyers lack confidence."
Los Angeles, CA:"State tax credit has little impact."
Miami, FL:"Weak entry level demand, Appraisals low."
Minneapolis, MN:"No first time buyers left."
New York Metro:"There is no confidence, no tax credit, no money, no jobs."
Orlando, FL:"Worse than expected traffic in June."
Phoenix, AZ:"Price does not meet income." Another bubble is apparent, from investors.
Seattle, WA:"Many agents have had contracts fail even after buyer was pre-approved."
Tampa, FL:"Prices show signs of cracking as demand continues to slip."
Washington, D.C.Metro:"Traffic continues to weaken as buyers lack motivation."

A few areas, such as Ft, Meyers, FL, are experiencing an uptick as investors buy property at a fraction of the price point a few months ago.

I do not take pleasure reporting on the current real estate downward spiral. Many involved in the housing industry are getting sucker-punched on a regular basis.

July 2, 2010: Well, Well, Cuba Drills Deep

2010-07-02T15:39:00.004-04:00

As reported in Friday's Wall Street Journal, Cuba will begin deep water drilling early next year. The first well to be drilled will be done by Repsol YPF a scant sixty miles south of Key West. Repsol (REP) will use a floating drill rig presently being repaired in a Chinese shipyard which is almost identical to the Deepwater Horizon unit of BP fame,with the addition of five blowout devices instead of the four on Deepwater Horizon. Almost all parts and components of the rig, reports the WSJ, are from non-US companies. Thanks to a 1977 treaty between Jimmy Carter and Fidel, the Straits of Florida were divided equally between Cuba and the United States, which gives Cuba the right to drill so close to the U.S. land boundary.

Inspires hope and confidence,doesn't it? And there are many more oil projects off the Cuban coast from Havana to the Yucatan Channel to follow. Repsol's partners in Cuba include Statoil ASA (STO) and India's state-run Oil and Natural Gas. Eight other oil companies hold fossil fuel leases from the Castro Brothers, including Petrobas(PBR)and Sherrit International (SHERF.PK).

It appears as though anything that President Obama does to curtail drilling for fossil fuels in the Gulf of Mexico fails to stop other countries from exploiting the billions of dollars in fossil fuel energy stored beneath the waves.We lose.Cuba,Mexico,Venezuela and other Caribbean countries win.

Investors should monitor this series of events, as well as Cuba's efforts to extract fossil fuels and minerals on land, via companies such as Freeport-McMoran (FCX).

By most measures, Cuba itself is an awful place to do business. Cuba,for the companies named above, is a small part of their overall operation. The takeway is that the United States can remove U.S. Gulf of Mexico oil production through regulation, Florida Governor and Senate hopeful Charlie Christ can propose an amendment to the Florida constitution to forever ban drilling off the Florida coast and we can spend our way to alternative energy oblivion while right under the nose of the most powerful nation on earth, deepwater drilling en masse will commence with the lion's share of profits going to our adversaries.

June 28, 2010: 11 Service Sector Micro-Cap Growth Ideas

2010-06-27T19:09:00.003-04:00

Investors regularly need fresh ideas to explore. I ran a screen on micro-cap stocks with company values in the $100-300m range within the service sector. These stocks beat the S&P 500 average by 20% or more over the past 52 weeks. All stocks were rated a SmartConsensus Buy.

The list should be used as a starting point for investors, and, as with all stock lists, it "is what it is". No more, or less.

Autobytel(ABTL): Ten day trading average of 160g shares, it is priced at $1.15/share with a 52 week spread of $0.40-1.42.

ChipMOS Technologies Bermuda, Ltd.(IMOS): Ten day trading average of 234g shares, it is priced at $1.55/share with a 52 week spread of $0.57-2.00.

Collectors Universe (CLCT): Ten day trading average of 27g shares, it is priced at $13.10 with a 52 week spread of $3.47-14.89.

Cost Plus (CPWM): Ten day trading average of 137g shares, it is priced at $3.83 with a 52 week spread of $0.95-5.98.

Diamond Mgt. and Technology Consultants (DTPI): Ten day trading average of 281g shares, it is priced at $10.96 with a 52 week spread of $3.78-11.49.

Emmis Communications (EMMS): Ten day trading average of 237g shares, it is priced at $2.19 with a 52 week spread of $0.24-2.45.

Gray Television (GTN): Ten day trading average of 716g shares, it is priced at $2.90/shares with a 52 week spread of $0.38-4.88.

Hastings Entertainment (HAST): Ten day trading average of 30g shares, it is priced at $7.62 with a 52 week spread of $3.60-9.38.

IDT Corporation (IDT): Ten day trading average of 30g shares, it is priced at $9.79/share with a 52 week spread of $1.56-11.38.

Journal Communications (JRN): Ten day trading average of 215g shares, it is priced at $4.57/share with a 52 week spread of $0.86-6.52.

The Providence Service Corporation (PRSC): Ten day trading average of 171g shares, it is priced at $15.48/share with a 52 week trading range of $8.80-18.57.

Be careful to use limit orders on micro-cap stocks.

The Author has no position in any of the above securities.

June 24, 2010: 21 Large Cap/Low PE Stocks

2010-06-24T19:02:00.002-04:00

Occasionally, investors shake the tree with a broad screen to see what securities fall to the ground. Today,I programmed a Standard and Poors Large Cap screen. The following large cap ($10-50b) securities have a four or five star S&P rating coupled with a low PE and PEG valuations. For brevity, just the securities (in no particular order) and their recent closing price are reported. The reader is encouraged to use this list as a starting point for further research.

WellPoint (WLP) $53.03
ACE Limited (ACE) $52.88
Prudential Financial (PRU) $57.03
Chubb (CB)$51.90
Credit Suisse Group (CS) $40.13
Freeport McMoran (FCX) $65.06
UnitedHealth Group (UNH) $30.21
Aetna (AET) $28.93
POSCO (PKX) $105.14
Corning (GLW) $18.14
State Street Corp (STT) $35.81
National-Oilwell Varco (NOV) $35.75
Chevron (CVX) $72.26
Gilead Sciences (GILD) $36.21
CVS Caremark (CVS)$31.43
Murphy Oil (MUR) $53.50
Walgreen (WAG) $26.13
Research In Motion (RIMM) $59.64
Taiwan Semiconductor (TSM) $10.15
Conoco Phillips (COP) $53.51
Sterlite Industries India (SLT) $15.06

I would encourage income-oriented investors to use screens such as the above to investigate preferred and bond components in addition to the common stock listing, as these may represent attractive value at this time.

June 16,2010: Want Income? Here are a few ideas.

2010-06-15T20:20:00.002-04:00

For some reason, many investors look for yield in the wrong places. How about those "can't miss" accidental high yields from the likes of BP? Are you satisfied hoping that, over time, yields will grow on common stock when the paradigm is changing before our eyes?

Here are a few preferred stocks that merit attention from income-oriented investors that in most cases will also have some upside call protection.

My favorite is Archer Daniels Midland Preferred A (ADMpA).Yielding 8.57% and trading at $37.62/share, ADMpA has a call at $50.00. It trades an average of 73,000 shares/day. This security has a 52-week trading range of $33.80-$51.81.

Another is HRPT Properties Trust(HRPN). Yielding 7.65% and trading at $19.61/share, HRPT has a call of $20.00. It trades an average of 16,000 shares/day. This security has a trading range since issue of $18.58-20.35.

Prudential Financial Inflation-Linked Notes (PFK). Want yield plus inflation protection? Yielding 4.58% and trading at $24.82/share, PFK has a floating rate based upon the CPI plus 2.40%. It has a call of $25.00. It trades an average of 28,000 shares/day. This security has a 52-week trading range of $17.35-25.51.Of interest, this security pays a monthly dividend.

If one is inclined to look at ETFs, you may wish to explore several of the preferred ETFs such as iShares' PFF ETF, which most readers are familiar with. One not so well known is the Barclays Capital Convertible Securities ETF (CWB), which invests in many interesting convertible securities and has a current yield of 4.74%. CWB trades at $33.21 and pays a monthly dividend. The market cap is 276m.

These ideas may entice you to explore the world of overlooked and not infrequently mispriced preferred securities. Each security has specific characteristics, some good and some dicey. And always remember to avoid market price orders. Know your "limit".

June 5,2010: Real Estate Flops In May

2010-06-04T22:43:00.003-04:00

The latest Credit Suisse First Boston Monthly Survey of Real Estate Agents has been released (taken last week). I prefer this survey because it relies on timely reports from active Realtors and other real estate professionals in the top fifty metropolitan areas of the country. CSFB cuts through the hype and spin,instead, relying upon boots on the ground to assess and predict.

The results for the home market are poor, post tax-credit. Traffic levels were weak at the beginning of May and remained weak thereafter. CSFB will be following traffic patterns carefully to determine how long the post tax credit slowdown will last, with their expectation being that it will not improve from depressed levels anytime soon (perhaps in the Fall,if the stars align to improve the economy).

The worst declines occurred in Texas (Austin, Dallas, and Houston),Florida (Jacksonville and Orlando), Seattle and Washington D.C. metro. Decreased traffic nationwide was most evident in areas with relatively low average selling prices (high proportion of first time buyers). California appears to be less daunting, as the California tax credit assisted home buyers.

Renewed pricing pressure is appearing again, with the largest decrease in home prices reported since November, 2009. CSFB believes that price pressure downward is and will be commonplace, still. High existing home inventories remain.

From a securities standpoint, new home builders/developers are more reasonably valued now after an average 28% decline in recent prices as a whole. Builders now trade at an average 1.25x adjusted book value. CSFB believes that further declines are likely in stock prices this summer, at which time they may be prone to recommend buying the strongest of the lot.

Building supply companies face further weakness as product volume and pricing slips, in spite of the efforts of companies such as USG and MHK to hold the line.

Agents, in a monthly exercise, were asked to rate home builders. Highest were Toll Brothers (TOLL), Pulte Group (PHM) amd D.R. Horton (DHI). Lowest were Hovanian Enterprises (HOV), NVR, Inc. (NVR) and KB Home (KBH). It should be noted that some may rate a home builder based upon incentives given to compensate the real estate professional.

The over fifty-page document presented the mild to horrific problems facing the real estate industry, city by city and region by region. There were but a few spots of hope. Quotes from agents were generally discouraging in almost every respect.

Those involved in real estate know that there is always a good deal somewhere, especially for the experienced property investor. This survey generally does not focus on this relatively small group, nor on commercial and industrial property. A review of prior CSFB survey reports displays that their methodology in the compilation of the monthly report is a valid assessment tool.

June 1, 2010: Cuba, Si? Investment, Si?

2010-05-30T10:20:00.008-04:00

Recently, the New-York based Americas Society, in conjunction with the Council of the Americas, issued an assessment of the climate for U.S. investment in Cuba.

"Cuba has persistently ranked as one of the worst business environments in the world", stated Maria Werlau, a consultant specializing in Cuban affairs."The economy is in shambles, suffers from a high external debt and has investment rules that stifle international investments in and about the country."

Anna Szterenfeld, Latin American Editor for The Economist Intelligence Unit ranks Cuba 79th of 82 countries as a place to do business - the worst in Latin America.

Dismal indeed. And just the place where investors should be sniffing about for investment opportunities for the long term.

Cuba has an estimated 4.8 billion barrels of oil off their northern coast. Their economy has dictated that favorable exploration and drilling opportunities are now present. Investment in this area is better than in any other Latin American country, according to Juan Belt of the consulting firm Chemonics International. Environmental concerns? Betcha there is practically none, unless an oil spill comes from the "gringos". Drill where you want using the methods that are most economically favorable. With the recent BP rig blowout, US drilling is likely curtailed, or at least made cost prohibitive with litigation and environmental impact roadblocks . The northern Caribbean is now Cuba's oil patch to exploit. Investment is coming from China and Venezuela as well as publicly traded companies such as Canada-based Sherrit International, Norway's Norsk-Hydro, Spain's Repsol and Brazil's Petrobas.

Also interesting are the abundant mineral reserves Cuba possesses. Reliable studies indicate that the Castro brother's island produces over 70,000 metric tonnes of nickel annually, making this commodity Cubas's most important export. Cuba may seek partners to make their production more efficient. Holgiun province alone holds 34 per cent of the world's known reserves. Cuba supplies 10 per cent of the world's cobalt, a critical component of making super alloys. The U.S. considers cobalt to be a strategic metal. Cuba has a large supply of manganese and the U.S. has practically none, importing from countries such as Gabon and Brazil.

Cuba has a developing telecommunications infrastructure. President Obama has opened this sector to bids from U.S. companies. With one of the the lowest cell phone penetrations in the Western Hemisphere, opportunities abound.

Tourism is huge in Cuba. Private homes are for sale to non-U.S. foreigners for the first time in fifty years. British companies such as Esencia are constructing Florida-style golf course communities along the coasts. Cruise lines are poised to include the island as an important part of travel packages.

Sugar, tobacco and other agricultural commodity investments are problematic due to climate vagaries such as hurricanes and the belief that these will remain under strict government control.

Companies to look at according to Market Oracle, include: Repsol (REP),Petrobas (PBR), Freeport-McMoRan (FCX), Royal Carribbean (RCL), Carnival (CCL), Vodaphone (VOD) and a favorite amongst early and optimistic investors, Sherrit International (SHERF). Your research will no doubt produce more ideas than the above.

Investing in Cuba is challenging and speculative. Companies that have a manageable portion, not all, of their capital tied up in the island nation will be a starting point to begin your quest. Don't sell either Cuba or it's people short. Who knows? Investing there may be easier and more rewarding than in the U.S. down the road. It is not too early to think about the possibilities.

No position in the above securities.

May 14, 2010: Time For A Permanent Portfolio Using ETFs?

2010-05-14T09:04:00.006-04:00

With investors held hostage to government whimsy both here and abroad, coupled with the vagaries of trying to game the market only to be disappointed time and again with one's best laid investment plans going haywire, it may be time to structure a Permanent Portfolio with wealth that is both precious and essential to your long term expectations.

The Permanent Portfolio concept was explained to the average investor in the 1970's by the late Harry Browne. Having a Speculative Portfolio for making educated guesses on the market and a Permanent Portfolio, designed to hold long term investments theoretically assembled to account for the unexpected while producing tangible gains is a seasoned idea which at present merits your consideration.

Inspired by Browne and the steady success of his portfolio successor Michael Cuggino, here is a proposal to construct a Permanent Portfolio on your own, using Exchange Traded Funds.

The premise is to have five categories of investment which will rise or fall independently.This portfolio should be rebalanced every six months to retain the ratio of one category to the others. The goal is to have the portfolio retain absolute value and rise approximately 2% better than the Citigroup 3-month U.S. Treasury Bill Index annually.

Precious metals: 25%

iShares Comex Gold Trust ETF (IAU)15%
iShares Silver Trust ETF (SLV)5%
First Trust Global Platinum Index ETF (PLTM)5%

Swiss Franc Assets: 10%

Currency Shares Swiss Franc Trust ETF (FXF) 5%
iShares MSCI Switzerland Index ETF (EWL) 5%

Worldwide Real Estate and Natural Resources: 20%

iShares North America Natural Resource Index ETF (IGE) 5%
Vanguard Energy ETF (VDE) 5%
iShares FTSE EPRA/NAREIT Developed World Real Estate ex-U.S. ETF (IFGL)5%
Vanguard REIT ETF(VNQ) 5%

Agressive Growth Stocks: 15%

iShares Morningstar Small Company Growth Index Fund ETF (JKK)10%
ProShares Credit Suisse 130/30 ETF (CSM)5%

U.S. Treasury Bills, Bonds and Other Dollar Assets: 30%

Vanguard Total Bond Market ETF (BND)10%
Vanguard Short Term Government Bond ETF (VGSH) 10%
Vanguard Intermediate Term Government Bond ETF (VGIT) 10%

I have attempted to propose ETFs from established companies that are actively traded (the Swiss Franc ETF excepted) and have low transaction costs and management fees. The percentage allocations to ETF's within a category is not a mandate.

Permanent Portfolio purists have generally invested in gold and silver coins and bars rather than through funds, have used Swiss Confederation Bonds as SF currency and have laddered U.S. government obligations individually.

THE AUTHOR HAS NO POSITIONS IN THE ABOVE SECURITIES AT THIS TIME.

May 5, 2010: Why Rent When You Can Buy? Four Interesting Rental Companies

2010-05-05T13:44:00.005-04:00

In most instances, rental companies deal in aircraft, vehicles and rent-to-own home basics. I have never found these areas to be fertile ground for my investments. By chance, I screened some niche rental players that usually fall under the radar screen, yet are unique, large enough to warrant confidence that trading volume and stable management present, and pay a noteworthy dividend.

Here are four companies that you may want to explore:

McGrath RentCorp (MGRC): Trading at $24.80 with a 52-week trading range of $17.01-27.41, a market cap of $595m and yielding 3.58%, McGrath RentCorp is a provider of rental modular buildings for classroom and office space. MGRC also rents electronic test equipment for general purpose and communication needs, and liquid and solid containment tanks and boxes (including hazardous material). It also sells products they rent, much of it through MRGC's Enviroplex subsidiary.

Electra Rent Corporation (ELRC): Trading at $14.35 with a 52-week trading range of $8.24-14.95, a market cap of $345m and yielding 4.21%, Electro Rent is engaged in the rental, lease and sale of electronic equipment, primarily test and measurement data and personal computer data (DP) equipment. A significant portion of ELRC's portfolio of equipment is rented or leased to the aerospace and defense, semiconductor, electronics and telecommunications industries.

Textainer Group Holdings Ltd.(TGH): Trading at $22.92 with a 52-week trading range of $8.81-24.48, a market cap of $1.1b and yielding 3.89%, Textainer is a holding company of companies involved in the purchase, management, ownership, leasing and disposal of a fleet of intermodal containers. TGH plays all sides of the container niche they have carved for themselves, from working with investors in containers to military management of cargo, and everything in between.

Tal International Group (TAL): Trading at $25.44 with a 52-week trading range of $8.81-26.98, a market cap of $782m and yielding 3.93%, Tal International, founded in 1963, is a lessor of intermodal freight containers. Operating in 37 countries, TAL operations includes the acquisition, leasing, re-leasing and sale of multiple types of intermodel containers which includes dry freight, refrigerated and special containers for heavy and oversized cargo such as construction products. TAL has 702,000 containers (1,140,000 twenty-foot equivalent units or, TEUs) in use at present,which places the company third amongst independent intermodal lessors by fleet size.

April 25, 2010: American Century Launches Strategic Inflation Opportunities Fund

2010-04-24T14:26:00.002-04:00

Many seasoned investors have come to the conclusion that all "good" things will come to an end regarding low interest rates and government-stimulated schemes. It is surmised that the end game will be inflation and a depressed dollar coupled with higher taxes to claw out of the massive debt.

Of course, the exact path will be muddy, and to some extent unpredictable. Thus, bets must be placed on a variety of securities, currencies and commodities while still grasping for some yield.

On April 30th, American Century Investments will launch what may be a very comfortable no-load fund to address the above - the Strategic Inflation Opportunities Fund. This investment vehicle will be managed by both fixed income and quantitative equity experts from American Century's stable of respected professionals, including senior portfolio managers Robert Gahagan, William Martin, Scott Wittman, Federica Garcia, John Lovito and Brian Howell.

Fifty percent of the fund will invest in US fixed income securities, including inflation-indexed securities issued by corporations and the US government. Twenty-five percent of the fund will be invested in commodity-related investments such as commodity-linked notes and stocks of companies engaged in the commodity oriented businesses. And, twenty-five percent of the portfolio will be invested in non-US dollar investments such as currency instruments, foreign government or corporate high quality debt and inflation-indexed securities.

The benchmark will be achieving a total return of three percentage points above the Barclays Capital 1-3 Month Treasury Bill Index.

With some excellent leadership aboard, this new fund may be worthwhile to explore as an addition to your portfolio. As with all new fund launches, make sure to be patient and look under the hood for the asset roster. And, of course, the "hidden" costs of ownership.

I believe a managed fund with the stated goal of being mindful of inflation in many forms may well perform in a superior way to an index-based entity. Flexibility counts.

April 15, 2010: A Tasty Stock Is J&J Snack Foods

2010-04-15T23:40:00.004-04:00

If you are a vegan or into organic locally-grown foodstuffs, leave the room now.

Anyone with a taste for Cinnabon Cinna Pretzel, Funnel Cake, Mrs. GoodCookie,Texas Twist,Slush Puppie, Minute Maid Juice Bars, Luigi's Italian Ices? How about a nice super-stuffed PretzelFil or an Arctic Blast?

J&J Snack Foods (JJSF) is a nationwide purveyor of tasty treats and snacks. The distributor of all the above and more (a Mary B's Biscuit, perhaps?), J&J has done a commendable job successfully marketing quality snack food. The company also has Whole Fruit and California Natural within it's stable of tummy satisfying treats.

Of interest to shareholders, the company will announce its results and projections in a conference call April 23rd. Last quarter (January 2010), the company handily beat street expectations, earning $0.38/ share vs. the $0.27 prediction average.

JJSF trades at $43.30/share, with a 52 week range of $32.10/44.90. It sports a 1% yield and has a market cap of approximately $797m. The company has show steady growth both internally and through strategic acquisitions. J&J Snack Foods has no debt.

President and Chairman Gerald Shreiber proudly states that JJSF was "born of ashes and dust by destiny, and represents all of what is right in this country. This tiny eight employee company that was purchased out of bankruptcy in 1971 found niches, gathered special people and products and mixed them together carefully, with the passion and pride that is the essence of the American Dream. We are and will remain conservative with our discipline and liberal with our thinking."

You have to root for a President that is so proud of his company.

And while I do not recommend an "overweight" position, JJSF itself may be a wholesome addition to your portfolio.

The author has no position in JJSF at this time.

April 5, 2010: Hyundai Forges Ahead

2010-04-04T22:10:00.005-04:00

Hyundai Automotive Group posted record sales in March, 15.4% over March 2009. The Sonata, Hyundai's excellent mid-sized sedan, came in third place after the Toyota Camry and Honda Accord.

During the current economic downdraft, two primary events have occurred to propel Hyundai forward. The quality, style, fit and finish of Hyundai vehicles have been widely judged to be very good to excellent, and the price point has been thousands less than comparable vehicles.

Some analysts have attributed Hyundai's performance to generous discounts on vehicles, higher sales to rental-car operators and accepting buyers with higher credit default risks than competitors. Recent sales, though, may have dispelled those notions, as the discounts are less than most competitors and sales to rental-car operators have flattened. In short, buyers coming into Hyundai showrooms like the quality and love the price for the product they see. Kia, intertwined with Hyundai, attracts a lower-end buyer, yet the quality is still better than expected, and several Kia vehicles have received good reviews.

This week, Hyundai announced a new hybrid 2011 Sonata to be unleashed in late November with a better-than-Toyota battery that can run fully on electricity at speeds up to up to 62 m.p.h., ideally suited for commuters. It is said to be more efficient than the Prius. Also coming shortly, a 4 cylinder 274-horse Sonata with a price point of under $25g.Lately, several international brokerage houses have mentioned Hyundai in glowing terms.

Investors wanting to jump onto the Hyundai bandwagon may want to investigate Hyundai Motor Company on the OTC Pink Sheets, symbols HYMTF or HYMLF.The adventuresome may want to look into the stock on the Korean exchange (011760). The Hyundai name is a part of many Korean heavy industry components, so know what you are looking at before you invest. Trading on the pink sheets can be flaccid and pricey.

With Hyundai making major inroads into the US and world auto markets, exploring ways to latch onto this company may be well worth your effort. When Toyota and Honda are concerned about Hyundai's steady progress taking world market share of automotive product, that is a good sign.

March 31, 2010: Three Very Nice Inflation-Adjusted Securities

2010-03-31T13:41:00.006-04:00

Within my own blog and outside for other publications such as Seeking Alpha, I have been recommending that investors unhappy with miserly dividends from short and intermediate term government securities and worried about stretching out too far on the maturity curve because of the distinct possibility of inflation should investigate trust preferred securities and inflation-adjusted preferred securities.

Three out of the larger number I have written about may be appropriate for you at this time.

Cusip 59156R504
MetLife Floating Rate Preferred Series A (METpA)
This security trades at $23.82 and currently yields 4.18%.The floating rate is based upon the 3-month LIBOR rate plus 1% with a floor of 4%.The call is at $25.00. Dividends are paid quarterly, with the next payout being June 15th.

Cusip 902973155
U.S. Bancorp Floating Rate Perpetual Preferred Series B (USBpH)
This security trades at $22.67 and currently yields 3.87%. The floating rate is based upon the 3-month LIBOR rate plus .60% with a floor of 3.5%. The call is at $25.00 Dividends are paid quarterly with the next payout being April 15th.

Cusip 744320409
Prudential Financial Inflation-Linked Notes due 4/10/2018 (PFK)
This is my personal favorite. The security trades at $24.44 and currently yields 5.22%.The floating rate is based upon the CPI plus 2.40% with. The call is at $25.00.
Dividends are paid monthly.

Preferred securities that are investment grade, liquid, priced below the call and offering a generous fixed rate or, as the above, a rate that will drift higher as our inflationary cycle begins, are a stable, easy and low-priced way to keep income-oriented portfolios diversified, viable and current with prevailing economic conditions.

March 27,2010: Inflation Protected Securities. Good Insurance For The Income Investor.

2010-03-25T00:14:00.010-04:00

Many investors are weary of the miserly interest rates at their local bank and through Uncle Sam. They want safety. They do not want to loan out money practically free. They would like inflation protection over and above what TIPS provide.

The following select roster of securities will provide a stout yield with protection from inflation. All are rated Moody's Baa3 or higher. Most are trading at a discount from their $25.00 (or, rarely, $100.00) call price. Libor's are three month rates unless indicated differently. No caps for a maximum rate unless indicated.

This article is not to be considered a portfolio recommendation. The securities listed may be investigated for inclusion as a part of a diversified investment scheme. Most are thinly traded.

Aegeon Floating Rate(AEB) Libor+.875 with 4.00% floor. $20.22/share.
CABCO Trust (GYB) Libor+.85 with 3.25% floor and 8.25% cap. $19.12/share.
CABCO Trust (GYC) Libor+.65 with 3.25% floor and 8.00% cap. $20.62/share.
Goldman Sachs Pref. A (GSPRA) Libor+.75 with a 3.75% floor. $22.15/share.
Goldman Sachs Pref. C (GSPRC) Libor+.75 with a 4.00% floor. $23.98/share
Goldman Sachs Pref. D (GSPRD) Libor+.67 with a 4.00% floor. $22.39/share
HSBC Pref. D(HBAPRD) based upon 1-30 year T-bill basket with a 4.50% floor. 10.5% cap.$23.90/share.
HSBC Pref. G (HBAPRG)Libor+.75 with a 4.00% floor.$23.39/share.
HSBC Pref. F (HBAPRF) Libor+.75 with a 3.5% floor. $22.50/share
Lehman Trust Cert. (JBK) Libor+.75 with a 3.50% floor and 7.5% cap. $19.70/share.
MetLife Pref. A (METPRA) Libor+1.00 with a 4.00% floor. $23.79/share.
Goldman Sachs Cap I Certificates (PYT)Libor+.85 with a 3.00% floor and 8.00% cap. $18.29/share.
JP Morgan Floating Rate Certificates (PYV) 83% of CMT with a 3.00% floor and 9.25% cap. $25.40/share.
Morgan Stanley Pref. Series A (MSPFA) Libor+.70 with a 4.00% floor. $21.80/share.
Prudential Financial Inflation-Linked Notes (PFK) CPI+2.40%. $24.39/share.
Santander Finance Series 6 Pref. (STDPFB) Libor+.52 with a 4.00% floor. $18.80/share.
Southern California Edison Series A Pref.(SCEDN) Highest of Libor, 10-year CMT or 30-year CMT+1.45%.$99.75/share.
Tennessee Valley Authority PARRS/A Power Bond (TVE) 30-year CMT+.84%. $26.00/share.
Tennessee Valley Authority PARRS/B Power Bond (TVC) 30-year CMT+.94%. $26.58/share.
U.S. Bancorp Series B Pref. (USBPRH) Libor+.60 with a 3.5% floor.$21.86/share.
UBS Pref. Trust IV (UBSPRD) 1-month Libor+.70. $16.89/share.

My favorites are PFK and SCEDN. The author has a position in PFK.

March 15, 2010: Shaking The Tree, A Few Eclectic ETFs/ETNs.

2010-03-15T00:23:00.002-04:00

We all enjoy searching for profit in an expanding universe of security opportunities. Sometimes it is fun to search recreationally for a few ideas, some of which are eclectic. Here are a few you may find fitting that descriptor:

FaithShares Christian Value ETF (FOC): Trading at $27.17 with a trading range since the late 2009 inception of $24.86-28.60. Average volume 2,200 shares. Yield .34% and expenses .84%. The fund is designed to invest at least 80% of assets in securities that comprise the CHV index, which measures the performance of large cap U.S. companies screened based upon Christian Best Practices. Some companies qualifying may surprise you. Market cap to date is $2.6m. FaithShares also offer Catholic, Baptist and other religious-centric ETFs. Many of the same companies are in each.

Credit Suisse Nassau Global Warming ETN (GWO): Trading at $6.97 with a trading range since inception in September, 2009 of $3.09-9.59. Average volume is 865 shares. Yield is nil and expenses are .75%. The fund seeks to replicate the Credit Suisse Global Warming Index. The index covers a wide spectrum of green companies that meet the index criteria. I suspect it was just bad luck that GWO appeared very close to the oft-derided Copenhagen Global Warming Summit and the frauds and fiasco's that exposed a great deal of global warming science as suspect. The ETN has a market cap of $2.8m. Maybe there will be more interest when companies in this sector actually display a profit without government subsidies.

Now, three that show promise:

Claymore Global Shipping ETF (SEA): Trading at %15.05 with a 52-week trading range of $7.76-15.40. Average volume is a hefty 152,000 shares. Yield is .90% and expenses are .65%. This timely ETF seeks to track the performance of the Delta Global Shipping index. SEA will hold at least 90% of total assets in common stocks, ADRs, global depositary receipts (GDRs) and MLPs of qualifying companies. This is an interesting play on world trade and a gradual recovery from deep recession. The ETF has a market cap of $136.1m.

Claymore Canadian Energy ETF (ENY): Trading at $18.12 with a 52-week trading range of $8.25-18.48. Average volume is about 32,500 shares. Yield is 2.53% and expenses are .65%. ENY tracks the Sustainable Canadian Energy Income index. The index is comprised of thirty stocks qualifying from the Toronto Stock Exchange. The mix is varied and subject to "other criteria" vs. proven results and weighting. I believe that the yield is paltry compared to what an investor may select independently. However, the performance has been good overall and the $83m market cap indicates that this ETF is going to be around indefinitely. Average volume is approximately 33,700 shares.

ETFS Palladium ETF (PALL): This newcomer trades at $46.27 with a trading range of $38.49-47.78 since inception in early February of his year. With a market cap of over $234m and average trading volume of over 217,000 shares, this ETF is very popular and one of many that are presently or going to be involved in the direct purchase and storage of metals other than gold and silver. Expenses are .60%. The sub-sector of storage commodities should prove to be very interesting to investors that want some direct exposure to product rather than indirectly through securities of commodity companies.

As investors seek out funds in specific niche areas, it is a good idea to take a hard look at market cap, daily volume and expenses. Like micro-cap stocks, many of these so-called boutique funds may be destined to end their stint on the ash heap of history sooner rather than later.

March 8, 2010: A Yen for Asian Pacific Banks

2010-03-08T00:43:00.002-05:00

Jimmy Rogers, traveling the world from his Singapore home base, is adamant when he states that most western countries in debt up to their eyeballs to the Asian Pacific world face an economic holocaust. How this plays out is open to speculation, but many scenarios look grim for the spenders and bright for the lenders.

Investors who want to explore exposure the Asian Pacific region may want to explore regional banks with a strong yield that are traded in US markets. I like three of them:

Malayan Banking (MLYBY): Trading at $4.18/share and yielding 3.08%, Malayan Banking is a $14.8b southeast Asia banking conglomerate. MLYBY has a stake in countries such as Indonesia, Pakistan, Cambodia, Viet Nam, the Philippines, Brunei, Singapore, New Guinea, Hong Kong, PRChina, the UK and the US, amongst others.It is a player in Islamic banking practices and has operations in banking,finance, stock brokering, insurance, asset management and venture capital. Malayan Banking's 52-week trading range is $2.00-9.75/share. It appears to be solidly traded.

DBS Group Holdings (DBSBY): Trading at $40.45/share and yielding 3.99%, this $23b Singapore-headquartered holding company operates through its main subsidiary, DBC Bank. DBSBY is engaged in all levels of retail banking, and does a brisk business in corporate and investment banking services. DBS Group's 52-week trading range is $16.35-45.00/share. It is thinly traded in the US, but has a following footprint overseas.

Westpac Banking Corporation (WBK): Trading at $123.04/share and yielding 4.30%, this $72b Australian-based bank has a strong balance sheet and is well-positioned in the South Pacific, managing six units: Wespac Retail, Westpac Business Banking, St. George Bank, Ltd.,BT Financial Group, Westpac Institutional Banking, New Zealand Banking and other entities. Thinly traded in the US, like DBSBY, it appears to be expanding into very profitable ventures through organic growth and strategic acquisitions. With a 52-week trading range of $48.63-128.48, WBK may be looked to for purchase on weakness.

I believe that owning strong, diverse banks in the Asian-Pacific sector is a conservative, long term way to game the continuing growth of that region. There are other banks in the region worthy of consideration, but these three look appealing to me at this time.

February 28, 2010: Chile, No Cause To Tremor.

2010-02-28T16:50:00.003-05:00

The devastation of wide areas within Chile may give investors pause. The Bolsa de Commercio de Santiago will likely expect some selling pressure as the country sorts out the damage from the powerful earthquake Saturday. As the market has been one of the best performers in thew world over the past year, this expected pullback may give investors an opportunity to selectively enter and wait for this resilient country to come back.

Fortunately, Chile has positive investing attributes such as almost nil corruption compared to Latin American neighbors, a liberal capital market, free trade policies. low debt (which will be of benefit during the current crisis) and a democratically elected conservative government leader in Sebastian Pinera.

Investors may wish to closely follow, and buy on dips, the Chile Fund,Inc.(CH) which traded at $18.05 on Friday, with a 52-week trading range of $9.66-19.66/share and the iShares Chile ETF (ECH) which traded at $56.75 on Friday, with a 52-week trading range of $30.02-60.94/share. Utilities, materials and industrial stocks make up the lion's share of holdings.

I believe that the following Chilean ADRs are worth looking at for purchase on dips:

Sociedad Quimica y Minera de Chile (SQM): Trading at $36.55 with a 52-week trading range of $22.61-43.93/ADR share, SQM is a leading producer of fertilizers and speciality chemicals in Chile. Average daily volume for the past ten days was over 685,000 shares. It has a yield of a little over 2.00%.

Vina Concho y Toro (VC0): Trading at $47.00 with a 52-week trading range of $29.82-50.89/ADR share, very thinly traded VCO is one of the leading wine producers in the world. It has a yield of approximately 0.90%. This stock may be quite volatile.

Compania Cervecerias Unidas (CCU): Trading at $38.68 with a 52-week trading range of $25.93-42.89/ADR share, CCU is somewhat thinly traded. This company is a leading producer and licensee of beer, wine, water and soft drinks in Chile and Argentina. It's most well-known license is Heineken, which it produces regionally. CCU yields 3.15%.

Due to prospective property damage claims and an impaired infrastructure, I would avoid individual financial and power-generating and supply company stocks for now until further information is made available. If you disagree, the two funds above contain these and other sectors within their portfolios.

February 21, 2010: National Bank of Greece Not An Achilles Heel

2010-02-20T19:40:00.010-05:00

As the Greek philosopher extraordinaire Plato would have it, the realm of ideas is absolute reality, and truth itself is an abstraction. The Greek government(s) have been denying truth, reality and ideas for too long, and now they will be, in part, held to account. If the assumption that the EU will not let Greece fail is correct, there is an opportunity in Greek securities that may be appropriate for their speculative portfolio.

I have been following three Greek stocks that are traded as ADR's. These are Coca-Cola Hellenic (CCH) which trades at $23.17 with a 1.70% yield and has a wide presence outside of Greece, Hellenic Telecom (OTE) which trades at $6.35 with a 8.17%yield and may be at some risk short term to the Greek meltdown, and the National Bank of Greece(NBG) which trades at $3.71 with no dividend.

None of the three common stocks listed above thrill me. CCH appears fully priced, OTE may not hold the dividend and also will suffer distress from a very weak Greek consumer, and the NBG common stock, while holding promise, does not pay you to wait for better times.

What to do? Investors may want to explore the National Bank of Greece $2.25 Preferred Shares (Euronext symbol NBGPRA, or look for the National Bank of Greece Preferred Class A security, NBGpA). This security is liquid, averaging about 160,000 shares traded over the latest 10-day period. Trading at $20.80 and yielding 10.82%, investors stand a good chance to be handsomely rewarded with a high yield and the possibility of a capital appreciation as the security has a $25.00 call feature which can be exercised in 2013. Note that the preferred goes "ex" on March 3rd with the dividend paid shortly thereafter. Dividend are in US dollars taxed at the low 15%rate.

A downside to this security is that the dividends are not cumulative. In case they are skipped,or dropped, you lose. I view this as unlikely now that Europe is propping up the monetary system. The National Bank of Greece, like J.P. Morgan in the US at the height of the banking crisis, may pay little or no common stock dividends but will likely continue to pay on the preferred.

As James Altucher, managing director at Formula Capital, stated on CNBC recently, "It's the safest bank in Greece....they've got a solid balance sheet and trade at seven times earnings."

If you are gaming Greece, it may be better to hopefully control your bat for a line drive hit rather than swinging for the fences.

February 12, 2010: John Burns' Take On Housing

2010-02-12T15:01:00.003-05:00

I would hazard a guess that few investors have heard of John Burns. Burns is "Best of Breed" from my vantage point analyzing and predicting real estate trends. He publishes a subscription service which comprehensively slices and dices all things related to the housing industry entitled The U.S. Housing Forecast. In addition, he provides a free monthly newsletter which is precise, readable and thought-provoking under the banner U.S. Building Market Intelligence.

The February newsletter, about seven pages in length, summarizes the current state of housing affordability and grades out key factors. In addition, additional facets under the categories of economic growth, leading indicators, consumer behavior,affordability index, existing home market, new home market, repairs and remodeling and housing supply are quantified.

Burns computes complex and seasonally adjusted data and then summarizes,assigning a grade. The grade is based on a bell curve with an "A" historically best, a "C" historically average and an "F" for historically worst. Those easily glazed over by numbers appreciate this.

Burns grades out current home affordability as a "C-". Why? Although he assigns a grade of an "A-" for the affordability index and an "A+" for mortgage rates, he sees problems.

"Only 50% of new home buyers traditionally are coming out of an apartment. The other half need a down payment. Here is what weighs down the grade:

Equity: Average equity in a home is $82,471, which is a "D".
Loan To Value (LTV): Loan-to-value,at 62.5% is an "F" because of the historical norm of 34.5% (this statistic includes the almost 1/3 of all homeowners who do not have a mortgage).
Income Growth: Incomes have declined 3.9% in the past year, which is the worst on record.

While affordability has rarely been better for an entry-level buyer, affordability has rarely been worse for the many potential move up/move down buyers who bought or refinanced their home in the past ten years."

Here are Burns' other grades:

Economic Growth: D+
subsets: real GDP C+, employment growth 1-year D, employment growth rate D, unemployment rate F, mass initial layoffs B+, productivity B-, retail sales C,capacity utilization F, inflation core B+, full CPI C,personal income F, federal deficit F, household growth rate D, owned households D, rented households C+.

Leading Indicators: C+
subsets: leading economic index B, ECRI leading index A-, manpower employment outlook D, temporary employed workers F, corporate profit growth D, corporate bond spread (vs. 10-year treasuries) D,capital goods new orders D,money supply M2 C-, 2-year treasury A-, 3-month treasury B, Dow Jones return C, S&P 500 return C+, NASDAQ return B-, Willshire 500 B-,S&P Super Home building C, large firm standards on business loans B, small firm standards on business loans C+, crude oil price D, ISM manufacturing index C+, ISM non-manufacturing index C-.

Consumer Behavior: D
subsets: consumer confidence D, consumer sentiment D+, consumer comfort F,revolving credit per household growth rate A+, personal savings C-, net worth growth rate D, financial obligation ration D+,misery index (unemployment plus inflation) D+.

Existing Home Market: D+
subsets:Case-Shiller price index D,NAR single family annual price appreciation C-, Freddie Mac price appreciation F, annual sales volume B, existing home inventory D+,months supply of unsold homes C, purchase mortgage application index C-, pending home sales index D+, home ownership rate B.

New Home Market: D+
subsets: housing market index F,multi-family condo market index D, annual appreciation rate D, constant quality price index D+, sales volume F,new home inventory for sale B+, months supply of unsold homes B-, months of homes completed B-,months of homes under construction C,months of homes not started C+.

Repairs and Remodeling: D-
subsets: home ownership improvement activity D-, remodeling market index D-,remodeling market future D+, private residential construction D, residential investment as % of GDP, F.

Housing Supply: F
new housing completed F, single family starts F, multifamily starts F, single family permits F, multifamily permits F, manufactured housing placements F,total housing stock F, homeowner vacancy rate F.

Some of the categories may be fuzzy, although a careful reading of Burns' work makes it sensible and thorough.

In short, we are not our of the woods in the housing industry, though the demise of the American dream of home ownership is greatly exaggerated.

John Burns is a first-rate analyst who deserves your attention.

January 30, 2010: Dividend Hungry? A Buffet Of Higher Yields

2010-01-29T16:12:00.006-05:00

For investors tired of miserly yields with minuscule annual increases from common stock,let alone trying to squeeze out another 1/8 percent on a cd or money market fund, the selected purchase of preferred stock may be a much better alternative at this time.

My criteria for initially screening preferreds is simple. The call price (if applicable) is $25.00, buy at a discount from that price, a company rating that is in the investment grade realm with solvent prospects and the security being researched is liquid(trading over 20,000 shares per day). Those investors with a more liberal screen will find a large number of investment-grade preferreds with yields over those listed below, though they are generally trading over the $25.00 call price.

Investors reluctant to purchase individual securities are encouraged to look at the SPDR Barclay's Capital Convertible Bond ETF (CWB), trading at $36.26 and yielding 6.30%, or the IShares' US Preferred Stock ETF (PFF), trading at $37.03 and yielding 7.45%.

The following individual issues illustrate what the investor can harvest from the preferred security roster using my standard:

Barclays Bank Preferred C (BCSpC): $23.92, yielding 8.05%.

Comcast 6.625% Notes (CCS): $24.13, yielding 6.90%.

CBS (CPV): $21.85, yielding 7.71%.

J P Morgan Chase Preferred P (JPMpP): $23.65, yielding 6.61%

Deutsche Bank Capital Trust II (DXB): $21.98, yielding 7.39%.

National City Preferred A (NCCpA): $22.70,yielding 7.26%

HRPT Property Trust Preferred (HRPN): $19.00. yielding 6.98%

General Electric Credit (GEJ): $24.28, yielding 6.20%

Bank of America Preferred J (BACpJ): $22.70, yielding 7.98%

Zions Bancorporation Preferred C (ZBpC): $24.15, yielding 9.96%
This is my recent favorite, with ZB appartently on the road to a solid recovery.

Archer Daniels Midland Preferred A (ADMpA): $42.90, yielding 7.27%
Another favorite, this security has an interesting convertible feature.

Investors should be aware that some preferreds do not qualify for 15% tax treatment, and that companies may suspend quarterly payments if compelled which may induce adverse tax consequences. No security is without risk. Use due diligence.

That stated, I believe that trust preferred and preferred securities represent an excellent vehicle to obtain solid income with the potential for modest capital appreciation if the %25.00 call provision is exercised (on those with that feature).

For your initial research, use the resources of Seeking Alpha. Quantumonline also presents a very commendable starting point to inventory a list of preferred securities.

January 27, 2010: Big Banks' New Money Pit

2010-01-26T16:06:00.006-05:00

If you thought the recent tax juggernaut against Big Banks was huge, how about this?

According to a New York Times article, e-mailed to me in part:

The IRS is set to claim that "equity swaps" are in effect tax avoidance tactics leading to tax evasion schemes.

The feds are scrutinizing financial derivatives they claim Wall Street banks have been using to avoid collecting scores of billions of dollars in withholding taxes on stock dividends. These equity swaps mimic ordinary shares and give investors such as hedge funds the benefits of stock ownership without actually owning the shares. Big Banks also benefit from the swaps because, under federal tax rules, the banks may avoid paying a 30 percent tax that is normally present on stock trades.

The IRS is closely examining whether banks are using the swaps to mask who really owns the shares underlying the instruments, thereby clouding the reporting and collection of dividend withholding taxes.

IRS field auditors have been given marching orders on how to aggressively pursue these type of equity transactions. In part,the IRS directive states that audit guidelines reflect suspicion that ALL cross-border equity swaps are tax avoidance transactions, even though IRS regulations had previously treated these transactions favorably.

Tax lawyers regard the IRS pursuit at this time as significant because it concerns a vast, unregulated market and could lead to hundreds of billions of dollars in tax disputes between the IRS and Wall Street banks.

Four types of swaps are in for an IRS cleansing: cross in-cross out, cross in-interbroker dealer out, cross in-foreign affiliate out, and synthetic equity transactions.

The assault on Big Banks continues. Is it not of humor, then, that the more publicized Financial Crisis Responsibility Fee is now affectionately called the F_C_ _R Fee by some clever potential victims in the world of Big Banks?

I believe that investing in the common stock of Big Banks, even such stalwarts as J.P. Morgan (JPM) and Goldman Sachs (GS) at this time is a mistake. However, the preferreds, especially trust preferred securities from Big Banks,should remain a hefty and safe dividend play in this troubled investment sector.

Thanks to a tax attorney who provided the inspiration for this article.

January 26, 2010:Thoughts On D.C., China and Investing

2010-01-25T23:26:00.003-05:00

Sometimes it is useful to get away from routine. Since I am at a stage in life where I can kiss any routine goodbye, I know it is easier for me than others. Still, I do recall relishing outlets during my years of steady work endeavors, perhaps more so than today.

I returned from a useful and exhilarating trip to Washington, D.C. Five days of observation, touring, culture and culinary excess overcame the cold weather and sometimes biting rain.

Perhaps my most interesting conversation was a chance encounter with a thirty-something portfolio manager on business from Seattle. We were both scheduled for a Senator-scheduled tour of the White House at the same time, so we had almost two hours to exchange pleasantries and thoughts. Our conversation, of course, centered on investment strategy, the political challenges of the time in which we live and possible solutions. She was an admitted Libertarian, which was no issue for me to contest. She told me that she has to keep up with the committee hearings and political winds in Washington to validate her investment instincts and protect her clients, worldwide. I respect that, as so many money managers hibernate in their home or office with the triple screen computer, dependent on old news to formulate an investment strategy. No, not this pro - she was in the thick of things! I never ask an investment pro for inside picks, but it was evident we shared a smilier investment philosophy and love of "the game". She is well known in the investment community, having worked previously at Merrill Lynch and Salomon, but will be a nameless Seattle money honey for this post.

Outside of some personal business there, three things impressed me: the mammoth Right To Life march (what a wonderful, huge, polite and sincere army for good), the fantastic tapas at Veracan, a Spanish restaurant near the Verizon Center (the paella, seafood, sangria, steak, wonderfully prepared veggies, Spanish olives couples with fresh breads and fresh infused olive oil dips - the best) and the Pentagon, where the professionalism of everyone protecting our country is quietly and superbly crafted.

I received many e-mails regarding a post I did on China's industrial and other cyber warfare espionage - several very supportive from from Taiwan and Japan. It appears as though I "hit" on something, as my own computer was a victim of an attempted series of hacks that were identified as coming from Asia the day after I posted.
I stand by my post on the seriousness of China's grand plan of conquest using our technology against us.

And don't forget GLDD -- this little dredging company is picking up contracts along our coasts left and right. I now own stock in the company at a cost basis of $6.21.

January 19, 2010: A Conglomeration of Conglomerates

2010-01-18T15:56:00.004-05:00

There used to be lots of conglomerates. Back in the "go-go" days of the early 1960s, conglomerates as a species were the equivalent of tech stocks in the 1990s. Just about every investment guru had their favorites to recommend. All good things must come to and end, and almost all conglomerates fell out of favor (and profits), sinking mightily into the abyss of the Investment Sea. Truth is, most conglomerate managements had no idea how to run disparate companies - many CEOs simply tried to diversify their way out of incompetence. So what's going on now?

There is a small stable of conglomerates to research. Some are well known, others not. In some cases, management has performed quite well creating slow but steady company value that should benefit the long term investor. A few are just getting started (more so in 2009 than in recent years). I omitted several from the list below because they were, under any criteria, dogs. You may find one or more of the stocks I list below to be of value within a diversified portfolio.

3M (MMM)- trading at $83.37 with a yield of 2.45%. 52-week trading range of $40.87-84.60.

7 Days Group Holdings (SVN) - trading at $14.70. 52-week trading range of $10.80-15.25. SVN owns seven hotels in China and operates other hospitality service offshoots.

General Electric (GE)- trading at $16.44 with a yield of 2.43%. 52-week trading range of $5.73-17.52. Reinventing itself,some say not for the better, after the legendary Jack Welch built this into a "best in class" conglomerate.

Leucadia National (LUK)- trading at $24.81. 52-week trading range of $10.26-26.47. LUK has operations in real estate, property management services, the gaming industry, telecommunications, manufacturing and medical product development.

Pampa Energia SA (PAM)- trading at $11.03 with a yield of 0.69%.52-week trading range of $9.33-13.83. This Argentine energy conglomerate is not widely known in the U.S., but was the big winner when it was more heavily weighted in the Buenos Aires Merval Index. PAM has many facets to its energy businesses.

Seahawk Drilling (HAWK) - trading at $23.53. A recent spin off from Pride. Focuses on drilling in the Gulf of Mexico environs.Some say this spin off did not create long-term value for newly-minted HAWK shareholders.

Starwood Property Trust (STWD)- trading at $19.88 with a yield of 2.01%. 52-week trading range of $18.26-21.71. STWD has operations within the real estate industry.

Textron (TXT)- trading at $21.88. 52-week trading range of $3.57-23.06. TXT has operations in commercial jets, defense, aerospace, general aviation and manufacturing entities such as Kantex, Greelee and E-Z-Go. Textron also has interests in the financial sector.

Tyco (TYC)- trading at $37.54. 52-week trading range of $17.25-37.66. TYC has operations in the security system industry, flow control systems (pipes, valves, etc.), heat sensing products, fire protection services, fire detection systems and many other products to promote and remediate safety. The center of controversy under a former CEO, Tyco appears to be poised to provide continued growth for long-term investors, although it may be pricey at this moment.

Wasatch Food Services (WTFS)- trading at $4.05, this company went public in early January of 2010. With a market cap of $125m, shares have edge up for a double digit percentage gain since trading commenced. Trading volume for this new entry average about 14,000/day.

Some investors, with good reason, have labeled conglomerates a poor man's mutual fund. I do not know where the winners will be in this sector. However, they deserve to be researched and followed, as diamonds sometime appear in the most unlikely places.

January 13, 2010: Investors Should See "Red" Over Massive Corporate Espionage

2010-01-13T14:54:00.006-05:00

Enough is enough.

Corporate espionage emanating from China has reached too far. It is high time that investors recognize that western business in China, and in most democratic industrial societies, is under relentless attack by computer hackers and other agents under the watchful, deliberate eye of mainland China's government apparatus. Tens of thousands of times a day, corporate data systems are hacked. Proprietary information worth billions of dollars is stolen as a routine matter, sanctioned by the Chinese government. A recent German finding concluded that Germany loses over $50b annually in product and 30,000 jobs due to industrial espionage coming from "over a million" worldwide Chinese data mining assets. German intelligence reports that many companies are reluctant to report Chinese espionage due to fear of losing markets in China. In the United States, the estimate is almost incalculable. Do a google search on Chinese Industrial Espionage and you receive 110,000 hits. Within the US military, it is well known that Chinese hackers and other intelligence assets are probing everything from infrastructure to our space defense program. At one secret US base, Chinese computer intrusions number over 13,000 per day (yes, per day, at one facility). We are spending billions to keep ahead of China while losing hundreds of billions to them in product and proprietary information. As one business leader stated recently, any Chinese national or Chinese-related individual almost should be assumed to be mining data for the mother country. Yes,it is that bad.

Russia is on par with China gathering data. A Google search indicates over 72,000 hits on this scourge. Computer networks tied to Russian Intelligence are sophisticated and relentless, obtaining hundreds of billions of dollars worth of information and military data. Russian hackers number an estimated 100,000, based in Russia and elsewhere, feeding mined information to improve Russian technology on the cheap at western company's expense. Even more brazen, Russia ignores contract law, inviting companies into the country to, say, explore for natural resources. When these companies build infrastructure and provide technology to finally make a profit, they are often mysteriously thrown out and their assets gulped up by a Russian court, then given to an oligarch-run entity under the watchful eye of Moscow with profits propping up the Russia regime.

Neither China or Russia deserve to be held in esteem or as equal trading partners on the world stage. They are predatory, criminal operations that hark back to their formative, communist years. Both want to be the dominant players on the world stage by 2020 (generally the date estimated by major western intelligence agencies), overwhelming "corrupt" western democracies by using our technology against us. Meekly ignoring or trying to negotiate an end to their grotesque espionage tactics is done at our peril. Western companies that continue to exercise business as usual with these two dictator-centric nations are foolish and expressly complicit promoting illegal and dangerous power-politic designs.

Those that witnessed the pleasure Baidu employees expressed with massive street demonstrations and fireworks celebrating Google's threat to leave the country because of a rash of industrial espionage directed against their company (Wednesday) are seeing but one manifestation of the joy Russia and China take at ripping off other nation's best and brightest technologies and in the case of Africa, natural resources through bribes and payoffs to African state leaders.

They are winning. We are losing. It is time to stop the insanity. As many companies and almost all investors pulled out of Hitler's Germany, so should we contemplate doing as such to Russia and China. Make no mistake, they are our enemies and wish to do us harm.

January 9, 2010: Seven Ideas For 2010, So Says The Screen

2010-01-08T18:51:00.007-05:00

Occasionally I will prepare a screen with parameters that bring far-fetched criteria into play to create a list of stocks for potential inclusion within my portfolio. Most stocks that turn up on this type of list are discarded. But, like my visual scanning years ago of Barrons and the Wall Street Journal in the 1970s and 1980s, a great (some may call lucky) stock pops up and proves a winner.

Again on the hunt for uncommon stocks to investigate, I established the following parameters for all domestic mid-cap stocks (market cap of US$2-10b). For 2009, their price performance was 20-40% below the S&P 500 Index. They had to have a current Four-Star S&P Rating, have a current PE below their sector average, be rated a Long (Buy) via Market Edge nad have a positive revenue growth projection. Here are the seven that appeared:

Cephalon, Inc, (CEPH), biotechnology and drug, trading at $63.01/share.

Continental Airlines, Inc. (CAL), airline, trading at $19.95/share.

Hudson City Bancorp, Inc. (HCBX), regional savings bank, trading at $14.33/share.

NASDAQ OMX Group, Inc. (NDAQ), investment services, trading at $20.23/share.

Pulte Homes, Inc. (PHM), construction services, trading at $11.03/share.

SAIC, Inc. (SAI), software and programming, trading at $19.06/ share.

UGI Corp. (UGI), oil and gas operations, trading at $24.01/share.

From the screen, UGI appears interesting for its blend of propane business and utility assets. The yield is currently 3.3%. NASDAQ may well rise quickly once all of its moving parts in Europe are in a stronger mode. Hudson Bancorp, yielding 4.19% has an excellent franchise and may benefit if there is a move away from so-called Big Banking urged by certain politicians and progressives. None appear to be pathetic.

I encourage investors to compile your own random screens from time to time. It refreshes the portfolio palate and stimulates curiosity not to follow the latest pontifications from the experts. There may be value as an independent thinker.

THE AUTHOR OWNS NONE OF THE ABOVE AT THIS TIME.

January 8, 2010: Excavating A Winner: Great Lakes Dredge And Dock

2010-01-07T23:25:00.005-05:00

What is a dredging and demolition business doing headquartered in upscale Oak Brook, Illinois? The only thing that needs dredging and demolition in that locale are some worn out restaurants and a permanent fix for the pot holes and traffic stagnation off Cermak, Wolf and Butterfield Roads. The Kingery, too, as it spurts and stops to the frustration of commuters anxious to get home to their apartment,bungalows or mansions ringing the area.

Great Lakes Dredge and Dock has a fascinating history dating from 1890, when it moved the City of Chicago water supply intakes farther into Lake Michigan to avoid the highly contaminated waters close to shore. It dredged the land where the Museum of Science and Industry now stands off Lake Shore Drive, and much more.

GLDD, trading at $6.92/share, appears poised to be the right business at the right time with a global presence in marine construction, dredging, and commercial and industrial demolition. Great Lakes Dredge and Dock provides service enhancements and/or preservation of waterways and shorelines. This company replenishes and restores beaches on the perimeters of both salt and fresh water.The dredging part of the business has foreign and domestic operations, working for general contractors, corporations, non-profits such as hospitals and universities,and governmental bodies. GLDD is fully certified with its over 218 marine assets to restore wetlands, harbors, shipping channels and mitigate storm damage caused by events such as hurricanes. This company, while true to its roots, is morphing into areas which are deemed environmentally vital in addition to their over century-old core businesses. Twety-five per cent of GLDD's operations are overseas, with most in the Middle East.

Great Lakes Dredge and Dock is a $405m company. The average share volume for a recent ten day period was approximately 325,000. GLDD yields 1%. One analyst estimates company growth at over 50% over the next five years. I do not see excessive competition for the services it provides.

I do not see a significant downside to this security. The upside potential warrants a close look. Examining the company's history is a worthwhile exercise in itself.

NO POSITION IS HELD BY THE AUTHOR AT THIS TIME.

January 5, 2010: Faber, El-Erian and Roach on 2010

2010-01-05T16:42:00.003-05:00

The Financial Times featured basic comments from Marc Faber, Mohamed El-Erian and Stephen Roach. Readers know all about the first two, Stephen Roach is the Chairman of Morgan Stanley Asia.

Faber state that while 2009 produced life-time buying opportunities, 2010 will be a year of capital preservation. If asset markets were to weaken again, more fiscal and monetary stimulus would be implemented. If markets were to gain another 20 per cent, fiscal and monetary restraint would probably be applied. Faber's bet for asset markets is a volatile trading range, an outperformance of Japan and the S&P 500 compared to emerging markets. 2010 should also be, in his opinion, a good year for grains.

El-Erian looks for a multi-speed global economy, resistance to the days of carefree check-writing by governments, further steps in the journey from a uni-global economy to a multi-polar one and, as advanced economies struggle with chronic high unemployment, for policies that forgo some growth promotion for income and wealth redistribution. El-Erian states that to prosper in such a world, investors should maintain dry powder for sudden "air-pockets" in equity markets, demand better compensation for the surge in industrial country sovereign debt, and to resist the deceptive comfort of positioning portfolios for the familiar pre-crisis world rather than a more complex crisis-prone world, which is reality now.

Roach maintains that a growth scare is likely to be the major investment event of 2010. Post-crisis recoveries are typically anemic and at odds with the vigorous rebound now in favor as a dominant portfolio course in world financial markets. Battered financial institutions will be unable to sustain normal credit practices for years to come. Roach states that the deleveraging of a saving-prone American consumer is likely to hobble the demand side of the global economy. 2010 world GDP will average about 2.5% over the next three years. This anemic growth will not allow the world to have the cushion it needs to shrug off additional economic shocks if (when) they occur. A failed exit strategy by monetary authorities, or an outbreak of protectionism, are especially worrisome. Thus, a double dip or multi-dip recession is on the table. Corrections would be most severe in export-led emerging markets that are not in any sense decoupled from more mature economies. Global bond markets may rally as commodity markets correct. The past nine months of 2009 could well run in reverse.

Granted these are generally thrusts and not meant to be advice for specific securities. Nonetheless. all three are worried to one degree or another, especially about poor government decisions that will pose more problems than solutions.

December 30, 2009: Retirement Portfolio Concepts For The Average Joe and Josephine

2009-12-30T10:44:00.006-05:00

There are as many formulas for retirement planning as there are financial planners and talking heads. Here is my view, inspired in part from an article by two well known financial advisers.

This program is not designed for the sophisticated investor, but I have found that at times simplicity is divine. There are takeaways here for everyone.

The retiree will likely need to replace 100% of pre-retirement final salary income. Many retirees are finding that their expenses don't actually get lower in retirement.

Four big costs can almost guarantee rising aren't often on the average retiree's radar screen:

1. Inflation. Since 1992, Americans have been lucky. Inflation has not been an issue. The end is near for this period. As recently as 1990 America had 5% inflation, and double digit inflation was the norm in the 1970s-80s. A few percentage points difference in the inflation rate can have a huge impact on how long your savings last.

2. A Longer Life. The average life expectancy is rising. That's good. But, many people haven't factored that into their retirement planning. It's not unreasonable to live thirty or more years after officially retiring.

3. Health Care. Health care costs have tripled since 2001. Despite government's efforts at health care reform, costs will continue to rise, whether as insurance premiums or taxes to pay for the largess associated with practically every government-run program.

4. Taxes. Government cannot keep printing money and borrowing against itself at a rate of close to 0% interest forever. There are already scores of state and local taxes being levied, Fees are being increased for essential services and licenses. Federal tax rates are going up for the gainfully employed.One can only imagine what type of "revenue enhancement" scheme will be floated next.

Retirement poorly planned is failure. Here are a few investment ideas and tactics to assist towards tilting the odds in one's favor to enjoy the golden years.

1. Social Security. It may or may not happen in total. Right now, the average retiree receives approximately 39% of their income from social security. Apply for benefits at the right time and maximize the abundant gifts government provides within this program.

2. Manage expenses. Pay off your mortgage and other financial obligations. Don't retire with an overhang of debt. The retiree will still have fixed expenses such as insurance, utilities, property and other taxes, maintenance and repairs. These costs will rise, not decrease, in retirement.

3. Lifestyle. Entertainment, transportation and travel costs will likely increase in retirement. There is nothing wrong with enjoying a full and active lifestyle, but you need to account for higher expenditures in this area. Few want to be reclusive, living a hermit-like existence caused in large part by poor money management.

4. Inflation. Already discussed.

5. Rate Of Return on Investments. How many average people do you know whom have earned 10%/year over the past twenty years in the stock market? Plan on earning 6-8%annual return with conservative investments, factored for inflation.

6. Move to a temperate climate,avoiding extreme seasonal utility bills and high property taxes. There are plenty of "halfbacks" in North and South Carolina. Halfbacks are northeasterners who moved to the far South, became frustrated for one reason or another, and moved, literally "halfway back" to their original locale.

Some investment ideas:

1. The obvious ones are to educate yourself early and continue to educate yourself as a lifelong strategy, live within your means,save at least 20% of your net income, invest regularly and holistically within your comfort zone, choose your mate wisely,avoid divorce and take care of your mental and physical health.

2. Don't try to be too smart by half with your investment decisions. For most, that means to keep it simple using the magic of compounding interest and index ETFs. Divide your retirement pay (sans social security and/or a defined benefit pension)into five categories. For simplicity, here is a 20x5 approach (five categories with twenty-per cent investment monies in each).

1. Open up a U.S Treasury Direct account,purchase six month t-bills and roll them over upon maturity. This gives you protection (laddering effect) as inflation ebbs and flows.

2. Open an on-line brokerage account. Scottrade is easy and cheap to use. Others as fine, too. Purchase Vanguard's Total World Stock Market ETF (VT).

3. Purchase Barclays SPDR Capital Convertible Bond Fund ETF (CWB) and iShares' iBoxx Investment Grade Index ETF (LQD) in equal share.

4. Purchase iShares' MSCI Emerging Market ETF(EEM)and PowerShares' DB Commodity Trading Index ETF (DBC) in equal share.

5. Purchase iShares' International Dividend Fund (IDV) and iShares' US Select Dividend Fund (DVY) in equal share.

Rebalance this portfolio every six months. Maximize your tax-advantaged accounts (although tax rates rates may be so high in the future that some of these type of strategies may be neutered). For those with the correct temperament, rental real estate offers outstanding income potential and tax advantages, which would be used to augment the above retirement strategy.

One additional, and vital point. I believe that pure retirement is becoming a rare event. You will most likely morph into a different type of job or career upon your initial "retirement". Educate and further prepare yourself for obtaining a job you love when that time arrives. Or, don't retire at all. Playing golf while hearing about your foursome's health problems and is not exactly living halfway to heaven.

December 26, 2009: Are You Ready To Yield?

2009-12-25T14:11:00.002-05:00

For 2010, I believe that we will experience one of those years where the markets move sideways. Certainly there will be individual security and sector exceptions, but this article will focus upon a few random investment-worthy securities that you may wish to consider to obtain a high yield.

Here they are:

Alpine Global Dynamic Dividend Fund (AGD). Slaughtered in 2008 through most of 2009, this CEF appears back on its feet and presents an excellent monthly distribution with capital gain potential. AGD is also a modest hedge against a weak greenback. Trading at $10.15 with a market cap of $240m, AGD holds approximately 45% in U.S. securities and 55% in ROW. The fund at present pays a 13% yield.

Petroleum and Resources Corporation, a CEF, has been producing yield and total return since 1934. PEO fails to make headlines and talking head touts, but this well-run, conservative ETF annually throws out a total distribution between 7-12%. Trading at $24.02, PEO has a $570.4m market cap. It is presently trading at an almost 12% discount, so this may be a great time to consider PEO for your 2010 portfolio.

Barclays Convertible/SPDR Bond ETF (CWB). This ETF deserves more respect. This ETF tracks the >$500m Barclays U.S. Cnvertible Bond Index. CWB trades at $38.23 with a market cap of $237m. I like the holdings in this ETF, which may provide modest capital appreciation in addition to the nice yield, which is 5.67%.

IShares Preferred Stock Index ETF (PFF) tracks the S&P Preferred Stock Index. Trading at $36.85 this $3.1b fund yields 8.72%. It is by nature heavy into financials, but I do not believe that the integrity of PFF or its juicy yield are threatened. This is my favorite preferred ETF amongst the several available.

IShares iBoxx Corporate Grade Bond ETF (LQD) follows the iBOXX Liquid Investment Grade Index. Trading at $104.57, this $12.9b market cap ETF yields 5.24%. LQD is wildly popular, but there is a risk due to the lower investment grade ratings of holdings. That said, diversification and size does make this concern a small one.

I enjoy the hunt for juicy hybrid preferred stocks. Although some of the characteristics can be complex, if successfully researched, one can find high yields that appear to be mispriced based upon the underlying asset mix. A few examples:

Archer Daniels Midland 6.25% (ADMpfA) trades at $43.65 and yields 7.16%. Par is $50.00 if it is called.

Bank of America Preferrred Series J (BACpfJ) trades at $22.32 and yields 8.12%. Par is $25.00 if it is called.

National City Bank 6.625% (NCCpfA) trades at $22.29 and yields 7.43%. Par is $25.00 if it is called.

I do not want to create the impression that one should only invest for yield. Commodity ETFs such as DBC, foreign bond ETFs such s BWX, inflation-protected security ETFs such as TIP and a dose of precious metals and wisely purchased real estate should tendered as a portion of the well-rounded portfolio.

The author will not take an additional position, if any, on the above securities for seven trading days beginning December 26th, 2009.

December 24, 2009: Be Thankful

2009-12-24T20:55:00.002-05:00

As we begin to close out 2009, and celebrate Christmas, why not take a few quiet moments and give thanks for the things that make your life worth living. As one becomes older, it is easy to become a cynic. It is easy to find the bad, or the "what-ifs" in life. Envy may take hold. But for what? Do we realise how good we actually have it compared to so many others.

Two day ago I received a cheerful Christmas card from an old neighborhood friend close to Chicago. She is in her mid-40s. She lost her first husband to a prescription drug interaction twenty years ago. She lost her job at the community college after 24 years and nine months, in realty, because she did not speak fluent Spanish. Yet, she was positive with a ready smile and always willing to help the neighbors.

Her hand-written note was inquiring about my family, how my mother (her old neighbor) was doing at age 100, and other family-centered things. Then she casually mentioned that her father was killed in a head-on car accident in Wisconsin in October. Her mother only recently was released from the hospital and lives alone. Two weeks after her father's death, she was diagnosed with breast cancer and is presently undergoing chemotherapy - which is pretty expensive since her health insurance was cancelled. It has spread to her lymph nodes.

Yet, she is celebrating Christmas, with two close friends and her cat, and mentioned that she looked forward towards seeing me next time I entered Chicago. Always positive and optimistic.

Measure that against monetary losses, or being mad about trivial things.

Be thankful at Christmas. And approach the New Year with confidence.

December 19,2009: Ares Capital, 11.8% + Astute Management = A Winning Combination

2009-12-19T13:06:00.006-05:00

For investors who are looking for a high dividend with upside potential for superior growth, Ares Capital Corporation (ARCC) may well fulfill that hope.

ARCC is a closed-end, non-diversified finance company called a Business Development Company (or, BDC). Ares Capital went public in 2004 with proceeds of $140m. It now has approximately $30b of committed capital. This company, with offices in Los Angeles, New York, London, Chicago, Atlanta, Paris Stockholm and Frankfurt has the global reach and seasoned managerial expertise to spot under performing assets and acquire them or provide financing and other services when the price is right. ARCC's most recent deal was taking possession of Allied Capital, once a behemoth in real estate areas which had fallen on hard times. The smart money says Ares got a great deal in buying Allied Capital for less than $4.00 per share.

Ares also provides a one-stop solution to meet the distinct and underserved financing needs of private middle market companies across diverse industries. With traditional banks squeezing these type entities, Ares is there to assist deserving companies finance necessary operations. Being a patient, long-term investor with permanent capital, Ares has developed a reputation for flexibility, a willingness to hold large positions, and the ability to offer sponsors and management teams to increase the chances of a mutually successful relationship.

ARCC runs many Limited Liability Corporations under their corporate umbrella. Ivy Hill Middle Market Credit Fund, Ivy Hill Asset Management Company and Ares Capital Management Company are but a few. The asset balance is diverse and not widely susceptible to a sector contagion. The overall quality of assets appear lower investment-grade, as the company has a S&P BBB rating. I have looked at a few of the deals, and they appear to have excellent collateral and other guarantees cooked into them. That said, do not confuse my document skimming with a thorough analysis.

Trading at $11.89 per share, ARCC sports an 11.80% dividend and trades a hefty volume for liquidity. Technical trends for this $1.3b market cap company are strong, overall.

In short, Ares Capital should be on investors' short list of worthwhile inclusions as they look for growth and income clout for their 2010 portfolios.

The author does not hold a position in ARCC at this writing.

December 15, 2009: My Favorite Author, Paul Johnson

2009-12-16T10:37:00.005-05:00

In a world of blogs, twitter, 24 hour news cycles and instant analysis, it is a welcome respite to indulge intellectual curiosity through a great book penned by a master author. My favorite author is Paul Johnson.

Paul Johnson has kept me engaged in history through a dense, yet superbly entertaining and engaging style. A one-time socialist turned realist, this 81-year old English Catholic craftsman has published books that are richly researched on a variety of topics that only a pure genius could entertain.

Known as an historian, Paul Johnson's works ranges over the millennia and practically the entire gamut of human activities. He is not a prolific author, but every few years concocts a brilliant book. I can imagine his intellectual wheels turning and a smile appear on his noble face when he decides to write. All of his books have opened my eyes to little-known facts and anecdotal situations that had a profound impact upon the subject being parsed. Even if I was not especially keen on the subject, Paul Johnson's style MADE me gain interest. I have enjoyed his monthly feature in Forbes magazine for years.

I recently finished reading his 2008 book, "Heroes". This three hundred page masterpiece visit such diverse personages as Henry V, George Washington, Emily Dickinson, Abraham Lincoln, Robert E. Lee, Marilyn Monroe, Margaret Thatcher, Ronald Reagan and Pope John Paul II. The Washington Post Book World had it right when the reviewer stated, "It is Johnson's gift that he can make his subjects human and fallible enough that we would, indeed, recognize them instantly, while also illuminating what made them heroes."

Most, if not all of Johnson's works are available in paperback. www.amazon.com. is a good source. I recommend all of his books. Here are my favorites:

A History of the American People
The Birth of the Modern Era - a lengthy, colorful look at the world from 1800-1830.
Intellectuals - my favorite, which strips the veneer from history's most self-righteous leftists.
Modern Times - the 20th century
A History Of Christianity - written in the mid-1970s, this is his most detailed, dense and solemn book.
Napoleon - a pocket biography
Washington - a pocket biography
Art: A New History - absolutely fascinating read on a subject that had little interest to me, until I read the book.

There are others, and I hope Johnson continues to write as long as he as able.

Paul Johnson has stepped into criticism for some of his views and stands, but that makes his works even more interesting, as he backs up with facts everything he presents, oftentimes with the best English wit. He has made some enemies along the way.

His comment on history: "The study of history is a powerful antidote to contemporary arrogance.

Read Paul Johnson, and be entertained and informed.

December 13, 2009: Fifteen Dividend Ideas For The Gift That Keeps On Giving

2009-12-13T19:01:00.006-05:00

Dividends are important to many investors. They are important to me, more so than years ago when I was happy with only growth. Instead of being satisfied with dividend yields of companies that are raised by a pittance and lowly corporate and government bond rates, I believe that investors serious about seeking higher yields need to be a bit more creative using securities that are not generally on the radar of retail investors to achieve meaningful dividends and interest.

Some ETFs provide higher yields with safety. Certainly, preferred stock ETFs such as PowerShares Financial Preferred Stock (PGF), PowerShares Preferred Stock (PGX) and iShares' U.S. Preferred Stock Index (PFF) are worthy for consideration within an income-oriented portfolio.

One asset class that is seldom discussed is a preferred security called a trust preferred, which is a listed entity brought to market by major companies. The trust preferred is a hybrid security consisting of a preferred stock issued by a trust and a debt security issued by the company. The trust is a subsidiary of the company set up solely for the purpose of selling and administering the preferred trust.

Companies issue this debt because the interest (dividend) paid on a preferred trust share is deductible from corporate income taxes, whereas normal dividends are not. Trust preferreds are subject to redemption at the company's option, so buying a solid company trust preferred at a discount from the redemption price is wise. It creates the ability to gain from the appreciation of the security as well as the quarterly payout.

The history of payment on trust preferred securities as far as I know has been excellent, so long as the company does not crash. The roster of trust preferred securities is long, and the vagaries of the market appear to have mispriced a number of them. If receiving 6.5-9% on a security is of interest, take note of the following examples to initiate your search. I have included the cusip numbers since these liquid securities may be hard to find with online brokerage searches. Quantumonline has all you need to know regarding these and many other trust preferred securities:

BAC Capital Trust I, 7.00 (cusip 055187207) $21.91
BAC Capital Trust II, 7.00% (cusip 055188205) $21.80
Deutsche Bank Capital Trust V, 8.05% (cusip 25150L108) $24.90
Fifth Third Bank Capital Trust VII, 8.875% (cusip 316780204) $24.37
HECO Capital Trust III, 6.50% (cusip 404156200) $24.20
J P Morgan Capital Trust XI, 5.875% (cusip 46626V207) $21.57
J P Morgan Capital Trust XII, 6.25% (cusip 46626X203) $23.80
KeyCorp Capital Trust X, 8.00% (cusip 49327R103) $22.00
MBNA Capital D TRUPS, 8.125% (cusip 55266J200), $24.17
Merrill Lynch Capital Trust III, 7.375% (cusip 59025D207), $21.66

All of the above have a $25.00 call.

Master Limited Partnerships are tax advantaged vehicles that provide a steady income stream that is usually enhanced each fiscal year. Although there is a downside element to these securities due stock price fluctuation, I believe the following five are solid enough to warrant examination for income with modest price appreciation.

Teekay Offshore Partners (TOO) $17.60/share, 10.35% yield
Enbridge Energy Partners (EEP) $50.65/share, 8.5% yield
Regency Energy Partners (RGNC) $19.10/share, 10.3% yield
Energy Transfer Partners (ETP) $43.87/share, 8.16% yield
Suburban Propane Partners (SPH)$45.45/share, 7.40% yield

Investing for income is noble. To reap high dividends and/or interest by investing in carefully researched securities via preferred trusts and MLP's is divine.

The author holds positions in three of the mentioned securities.

December 3, 2009: Prestige Brands On The Move

2009-12-03T13:17:00.003-05:00

Occasionally, I find a stock worth mentioning as an interesting speculation. Such is Prestige Brands (PBH).

Ever see Clear Eyes, Murine, Compound W, New Skin, Dermoplast, Freeze Off, Pergogisic, Compoz, Comet cleanser, Choir Boy, Spic and Span, Cutex on your merchant's shwlves? These are but some of the product brands under the PBH umbrella which market to the entire United States, Canada and elsewhere to a degree.

Prestige Brands has underperformed and has not been viewed with love and respect by the analysts following the stock. That is beginning to change now that new CEO Matthew Mannelly, who began his tenure in September, is having his expertise realised. His successful past experience includes highly successful brand exploitation with Cannondale, Nike, Quaker Oats, Gatorade and a stint with the US Olympic Committee. The new CEO appears to be ideal for this company.

Mannelly has instituted a staff reduction program of 10% (a $2 million dollar reduction to start) and in late October jettisoned the Prell and Denorex shampoo brands to concentrate on other, more promising brand sectors and strategic acquisitions. This CEO is setting the stage for a company turnaround. The Board of Directors is also undergoing changes to accommodate the aggressive brand management style of Mr. Mannelly. He is hitting the ground running.

Presently trading around $7.25/share, the $361.7m company has had a fifty-two week trading range of $3.92-10.78. It does not pay a dividend, but that may change. Interestingly, institutional ownership has risen to 82%.

Investors should note that by acquiring brand names, Prestige Brands does not inherit high-cost production costs. PBH outsources all of their brands to low-cost plants.

Very recently, a couple of analysts have recognized the internal dynamics that speak to a turnaround from a substantial loss and under performance the past several quarters and have blessed the stock.

PBH has popped a bit lately, but my opinion is that this stock is ripe for accumulation around the $7.00 range.

The author initiated a position recently in PBH.

November 28, 2009: Dubai Illustrates That Sukuks May Be Junk Bonds

2009-11-28T13:29:00.003-05:00

Shariah compliant bonds skirt the Islamic dictum that no interest is to be received from loaning money by linking bonds to an underlying asset, say, real estate, that throws off income. This arms-length strategy is designed to permit Islamic investors to receive money on their investment that is not technically interest. Recently, as pointed out in the Financial Times, there has been growing concern about whether these bonds, called sukuks, are the conservative investment vehicles they were made out to be.

Enter Dubai. It seems as though shariah-compliant bonds issued to expand this Islamic Beverly Hills are deemed to have little asset quality behind them. One bond analyst stated on Friday "We are of the opinion that the underlying assets are worth very little." It appears that the biggest losses may be those investors that held sukuks in Nakheel, whose bonds went from $1.11 to the dollar on Thursday to 85 cents to the 40 cent level Friday.

Bondholders are getting lawyered-up and will likely demand that assets such as the QE2 liner and other so-called investments in entities such as the eclectic Cirque du Soleil be used to buoy the sukuk bonds' underlying value. Whether this will be successful remains to be seen.

In short, unless Dubai or their neighbor Abu Dhabi ponies up with government backing, sukuks as an investment may be in deep trouble throughout the Islamic investment community. So much for trying to do an endaround on a religious principle.

November 23, 2009: Is Sovereign Debt Stable?

2009-11-23T12:55:00.002-05:00

An interesting point of view was articulated by FT's Assistant Editor Gillian Tett. According to Tett,"It is easy to imagine that some countries will end up eroding the value of their bonds by debasing their currencies." I believe he is correct.

Government bonds of the industrial world are believed to be a top drawer, AAA-rated safe investment. Investors have flocked to them. G-20 regulators are holding meetings in Basel to draw up new rules on how banks should protect themselves from another financial meltdown by investing a greater proportion of their in less risky assets such as stable government bonds.

Tett point out that this flight to safety through the accumulation of government bonds in itself may well be creating investment dangers. Government debt has skyrocketed to levels not seen before. Fiscal deficits are exploding across the western world. Sadly, the level of political commitment to "reign" in the deficits (pun intended) is not present, in large part because the yields are so low as to make borrowing practically free. With low interest, what domestic pressure is there on politicians to reduce debt?

Defaults on government bonds remain highly unlikely. But, there is little doubt that some countries will intentionally erode the value of their currency, and thus the total return of their bonds in the coming years. This almost guarantees igniting inflation.

Major industrialized countries will need to sell more than $12,000 billion dollars worth of government bonds next year to fund their current expense models. This is a rise of over thirty-three per cent over the past two years.

Investors who feel safe earning a miserly interest rate because they deem bond holdings safe will find their game plan ruined by inflation coupled with an intentionally debased currency. This will produce a significantly negative total return. Treasury inflation-protected securities(TIPS) will not be exempt from these type of losses, although at least the interest would rise to partially offset falling currencies.

Granted, there are arguments to be made to counter Tett's premise (deflation, high unemployment so there is not too much money chasing too few goods and services, etc.) but his thoughts are worth considering before the investor purchases government bonds. Receiving,say,70% worth of purchasing power when the investor receives 100% of the government bond at maturity is not the best of investments.

Some ETFs to be monitoring closely include Barclays's BWX, BWZ and WIP, iShares' IGOV, PowerShares' Sovereign Debt PCY as well as all U.S. Treasury Bond ETFs, especially those that are intermediate to long term.

November 17, 2009: More Perks For Lucky Homeowners And "Lucky" Taxpayers

2009-11-16T23:43:00.004-05:00

Here are the rules contained in the new legislation regarding tax credits for homeowners and first time homebuyers. I believe that the new extension with added benefits will not cause a pop in sales as did the initial program, which expired November 6th. The reason is that homebuyers rushed to get into a home under the former program. That said, I hope I am wrong and that everything will be coming up roses for participants in the real estate transaction process, and for investors in the home construction sector(s).

Here Are The Rules:

1. The credit is available for homes purchased on or after November 6, 2009 and before June 30, 2010. Contracts must be fully ratified before May 1, 2010.

2. The full $8000.00 Tax Credit is for first-time home buyers (either spouse if filing jointly) who have not owned a principle residence during the three year period prior to the purchase. Ownership of vacation/leisure property or rental property does not disqualify home buyers from the program.

3. The maximum credit is $8000.00 or 10% of the home purchase, whichever is less.

4. To qualify for the full tax credit, married couples' modified adjusted gross income (MAGI) must be under $225,000.00 (raised from $150,000 under the prior program). Single filers' MAGI must be less than $125,000.00 (raised from $75,000.00 under the prior program). Partial tax credits are available for married couples with MAGI incomes of over $225,000.00 but under $245,000.00 and single filers with incomes of over $125,000.00 but under $145,000.00. If married couples who qualify for the first-time tax credit file separately, they would both claim 5% of the home purchase or $4000.00 (whichever is less) on their tax returns.

5. The is no recapture or repayment clause if the home is owned for at least thirty-six months.

6. Current Homeowner(s): An individual (if married, the individual's spouse) who has owned and used the same residence as a principle residence for any consecutive-year period during the eight year period ending on the date of purchase of a new principal residence will be eligible for a $6500.00 tax credit ($3250.00 if filing separately).

7. The full amount of the eligible tax credit is refunded to the buyer, regardless of whether the buyer has paid an equivalent amount in taxes.

8. There is a home purchase cap of $800,000.00. There was no cap in the previous program.

9. Special exemptions and extensions for military, members of the Foreign Service of the United States, and employees of the intelligence community: If the individual serves on official extended duty outside of the United States for at least ninety days between December 31, 2008 and May 1, 2010, the deadline for entering into a binding contract to purchase a home will be extended to April 30, 2011. Closing must occur before July 1,2011.

10. The credit is only available to purchasers eighteen years of age and older.

11. The home purchaser(s) must attach a copy of a properly executed settlement statement used to complete the purchase to the tax return.

November 12, 2009: Home Buying Slips in October. Now What?

2009-11-11T23:24:00.002-05:00

The Credit Suisse National Survey of monthly real estate traffic throughout the country by city and region is in, and the results are continued weakness despite the home buyer's credit that expired. This credit scheme was recently extended for another several months (along with tax write offs for current homeowners who meet basic residence longevity criteria).

October traffic slipped from September levels as a whole. The stats do not tell the whole story, however. Traffic early in October was above September levels as last-minute buyers driven by the tax credit hurried to close deals. Later in the October, traffic declined significantly. There is concern that with credit still tight, many first-time buyers have already acted and there will be fewer people participating in the extended tax credit purchase program. Consensus opinion indicates that the tax credit pulled forward demand and that there will likely be a lull in buyer traffic at the end of 2009 into 2010.

A key to what happens next will be homebuyer traffic in late November. If traffic levels improve from current numbers, it would be an indication that the slowdown in traffic may void the consensus view expressed above for early 2010 and beyond.

Selectively, there was a meaningful decline in traffic within the Minneapolis and Seattle areas, whereas most other markets were relatively stable. The best market according to key price and traffic data in October? Las Vegas. The highest levels of traffic were experienced in Ft. Meyers, Orlando, Los Angeles, the Inland Empire and Washington, D.C. Upward pricing trends were noted in Washington, D.C., Ft. Meyers, Los Angeles, Sacramento, San Diego and San Francisco. That stated, the stats strongly indicated that stability and slight improvement in the housing market remains generated on low-end homes and foreclosure transactions. Investors have stepped up to the plate (with a high percentage using cash) to buy distressed property.

Interestingly, as investors gather up single family homes, the rental vacancy percentage is trending higher as renters who qualify for the tax credit, or see a real deal on a short sale/foreclosed home, flee their unit to become homeowners.

It is incumbent for the investor to keep abreast of actual trends versus media hype and carefully monitor home ownership data and the predicted next wave of foreclosures coming in early spring of 2010. Another piece of data to be mined will be the number of homeowners who had their mortgage reset this year and failed to meet the renegotiated terms. Estimates of upcoming flops are as high as 70%. This may set in motion a new housing price downdraft, with the government out of ammunition to stop further mayhem. Investors must be alert to data on all major aspects of this sector.

October 31, 2009: Fixed Rate Capital Securities: An Interesting Alternative For Income Oriented Investors

2009-10-31T14:30:00.004-04:00

In the early 1990s, a product called a fixed rate capital security(FRCS) was introduced to meet the needs of income-oriented investors and provide a cost efficient source of capital for issuers.

These securities combine the features of corporate debt securities and preferred stock:generous yields compared with other investment vehicles, regular income disbursement, predictable investment time frames, liquidity and investment grade quality(in almost every case).

Like corporate debt securities, fixed rate capital securities rank senior to common and preferred shares and have a stated maturity date. Like preferred stock, they have a $25.00 liquidation value (generally) and trade on a major securities exchange.

Unlike preferred stock, fixed rate capital securities offer no tax benefit to corporate investors, carry a "call" risk, the possibility of deferred payments and an "extension" risk which may allow the issuer to extend the time frame for redemption.

Factors that affect the price of fixed rate capital securities include: interest rate risks (inflation, deflation, etc.), credit risk of the issuer, purchasing power risk due to inflation of devaluing of the dollar and price risk. Investors should also be aware of peculiar characteristics of the security they are purchasing, if any.

I prefer to purchase securities with a modest (2-4 year) maturity and also trade at a discount from their $25.00 liquidation price. Assessing the company's prospects to make payments and eventually redeem the security should rank at the top of any investor's benchmarks to purchase.

Here are a few securities, some having all of the characteristics above, you may want to explore:

MetLife (METpfB): $21.75, 7.47% yield, call date 9/15/2010
Gabelli Equity Trust (GAB pf): $25.00. 6.20% yield, call date 11/10/2011
PPL 6.85% Senior Notes (PLV): $24.70, 6.93% yield, call date 07/01/2012
National Bank of Greece (NBGpA): $24.69, 9.19% yield, call date 06/06/2013
General Electric Credit (GEG): $23.85, 6.34% yield, call date 02/06/2012
Deutsche Bank Cap. Funding Trust X (DCE): $22.63, 8.12% yield, call date 12/15/2012
Deutcshe Bank Cap. Funding Trust IX (DTT): $20.96, 7.90% yield, call date 8/20/2012
Comcast 6.625% Notes (CCS): $22.95, 7.22% yield, call date 05/15/2012
Barclays Bank (BCSpA): $21.44, 8.28% yield, call date 12/15/2012
Archer Daniels Midland (ADMpA): $42.68, yield 7.32%, call date 06/01/2011 ($50)
Alabama Power 5.875 Senior Note (ALM): $25.03, yield 5.87%, call date 04/01/2012
National City (PNCpA): $21.19, yield 7.82%, call date 11/15/2011

The author owns ADMpfA, GEG and PNCpfA.

October 25, 2009: Homes Without Equity, Here We Go Again

2009-10-25T18:25:00.002-04:00

John Burns Real Estate Consulting has released some unhealthy statistics regarding new home purchases from January through mid-October,2009. 59% of sales have been dependent upon government financing programs such as FHA, VA and USDA that allow purchases to be financed at 96.5%-100% loan LTV (loan to value). The highest use of FHA financing was in Northern California (68%), while southern Florida builders reported the highest percentage of cash purchases - a good thing(22%).

Two hundred and sixty-two home building industry executives from public and private companies responding to the survey also provided the following statistics, as of early October.

Average net sales per community dropped from 17% nationally, returning to levels last seen this past June and July. While homes were overall much more affordable with low conventional mortgage rates and the federal tax credit continuing to support new home sales,home builders still reported declines in traffic and sales rates in September and early October, seasonally adjusted.

In addition, major banks reinforced by pronouncements from the US Treasury are reporting that foreclosures are expected to bounce upwards again in 2010. As some markets are already 2/3 dominated by foreclosures and short sales, this is not good news for the home building industry.

Extending and/or expanding the home purchase credit due to expire November 30th may bring another stream of buyers back to the market, but if they have questionable budgeting habits and are likely to default, is this really a solution?

With recession unemployment hitting record numbers, the ability to make payments on a home, whatever the initial credit and promotional discounts, will be problematic for many.

Current economic conditions and the continued lack of buying within one's means remain front and center to the home industry problems. Eventually, this situation becomes everyone's "problem".

October 19, 2009: Islamic Debt - The Satan Is In The Details

2009-10-20T14:25:00.003-04:00

The Financial Times had an interesting article buried in the back pages of the second section today regarding Islamic debt defaults.

It seems as though two prominent Middle Eastern investment companies - Kuwait's Investment Dar and Saudi Arabia's Saad Group - are at the cusp of a legal battle that will largely determine the $1,000b Islamic-style bond industry. This bond industry is one of the fastest growing niches of international finance. The deal is simply this: invest in Islamic operations that can technically comply with Islamic law against interest while providing a product that creates a guaranteed or floating interest rate that is, well, not an interest rate. A product such as this is called a sukuk.

Sukuks avoid the Islamic ban on interest by allowing investors to make a steady profit from the income of an underlying asset such as rental income by placing the income in a special purpose vehicle for the duration of the "bond", rather than receive, technically again, a fixed interest rate on a specific non-maturing date.

Lawyers and bankers are now trying to determine what interest these sukuk bondholders have in a bankrupt company. In short, does a sukuk have a claim on the assets of a company which issued the "bonds".

Herein lies the problem. Experts say that the issue of claim may not be clear cut. The defaulted companies claim that "asset-based" is not the same as "asset-backed". It appears that more than a few Islamic bonds are asset-based, not asset-backed. With sukuks being structured to adhere to Islamic principles, a concern is that courts anywhere in the world may rule against the bondholders if the issue is merely asset-based.

Muslim clerics, who have to approve all Islamic products (for a fee, such as an underwriter) often disagree on how closely Islamic bonds act like other bond instruments, and what happens in case of a default.

"If someone has purchased a sukuk assuming that they automatically have recourse to the (company) assets, they might be unpleasantly surprised", stated former sharia scholar Muddassir Siddiqui, now head of Islamic finance at DentonWildeSapte."At the core of this confusion lies the subtle -some would say fictitious- distinction between 'beneficial right' and 'legal right' to the asset."

The outcome of the two legal wranglings will have a dramatic impact upon future sukuk issues. At the least, the Islamic sukuk investor will have to read fine print on so-called guaranteed Islamic bonds to see if they are as such.

Perhaps, like any investment that tries to split too many hairs to avoid offending the law or, worse yet, God, if it looks too good to be true, it is.

October 12, 2009: CRACKER BARREL OLD COUNTRY STORE - Y'ALL LOOK AT THIS ONE, HONEY

2009-10-11T21:49:00.006-04:00

Ordinarily, I examine only three things about a restaurant: the cleanliness rating, the menu (including the specials of the day, which are usually to be avoided from bitter experience), and the price. I haven't eaten at a Cracker Barrel for some time. Per chance, I was driving the family by a Cracker Barrel around brunch time Sunday after church and we agreed to eat there.

I was very impressed by the clean, friendly atmosphere at Cracker Barrel. The menu was refreshed a bit from what I remembered, especially the non-breakfast items. Prices were well within the reach of a family on a budget and the staff was not overly attentive (you know, the "Is everything all right?" every thirty seconds). The gift shop was generating sales and the merchandise did not appear stale and dusty as I recalled on a previous visit many months before. And the food was substantial, properly plated and served quickly.

But this is not supposed to be a restaurant review.

Cracker Barrel (CBRL) is trading at $36.00/share and has a 2.23% yield. The stock goes ex-dividend October 14th. The 52-week price range is $10.67-36.00. CBRL is trading at a 52 week high for two reasons: several analyst upgrades, likely a result of a successful investor's conference in September, and a management team that appears to "get it" with the country casual dining experience, providing exceptional value for the money in a tough economic environment.

CBRL has a ROE of 52%, a net margin of 2.8% with revenues of $2.37b. It's market cap is $755m with five year earnings forecasted around 11%/yr. Institutions own a big chunck of the common stock.

Looking at the company and the sector, I think that lower commodity and utility costs will probably benefit CBRL's margins. This restaurant chain actually has an under priced menu compared with peers so there appears to be room to nudge up the entree prices and still retain a wide customer base. The astute management team is also likely to continue to massage both menu and service. Debt will likely be reduced from ongoing sale-leaseback transactions, the proceeds perhaps going towards a share buyback or dividend increase. New IT systems are being introduced system-wide to ultimately lower labor and food costs.

Yes, there is risk in any restaurant stock. Fuel prices may spike which will hurt both customer traffic, store operating expenses and the cost of procuring foodstuffs. The government may stifle the sector with higher taxes, minimum wage hikes and insurance expectations. And, specifically, Cracker Barrel management must continue to be mindful of never again experiencing widely reported racial slights that cost the company dearly a few years ago.

In total, CRBL is an investment worth exploring, perhaps on a modest pullback in share price. If all cylinders are hitting,this tasty company will earn you more than grits.

The author does not presently own a position in this stock.

October 6, 2009: E*TRADE BONDS TO THE INDIVIDUAL INVESTOR

2009-10-06T10:05:00.002-04:00

I am familiar with the platforms of several online brokerage firms. Trading stocks on every service is generally easy and prompt. However when it comes to bonds, there is definitely a difference. Trying to research and invest in bonds on most of the sites I tested ranged from mediocre to downright awful.

E*Trade was the most comfortable bond service platform I used.

First, E*Trade maintains a large selection of bonds and other fixed-income securities that can be purchased for as little as $1.00 per bond ($10.00 minimum/$250.00 maximum). What E*Trade doesn't have online directly they will procure for the investor promptly and at a satisfactory price. If you want to sell a bond, I found the process to be user-friendly and on target with prices.

Second, their online research tools are easy to manipulate and comprehensive. When I called the bond desk, I was not faced with what seemed like a high school GED candidate - which was my impression from some other brokerages online. Plus, they acted quickly upon my phone inquiry without the usual waiting period which at one brokerage took almost an entire Symphony's worth of time.

Third, the investor will find E*Trade's bond fund selector an easy tool to work with. Locating practically any fund complete with excellent start-up data is at most four clicks of the mouse away.

Finally, for those who need to have their hand held, professional assistance is available.

All in all, E*Trade has their bond system operating to provide excellent service to the investor.

September 30, 2009: Pimco's El-Erian Warns Investors (Again)

2009-09-30T08:22:00.002-04:00

Mohammed El-Erian, Chief Executive and Co-Chief Investment Officer at Pimco has again warned investors of the investment climate ahead.

Through an op-ed piece in the Financial Times, El-Erian warns investors to begin to think and act in terms of absolute and current facts - not the rates of projected change. He used a recent, blunt quote from the Governor of the Bank of England as the foundation of his article. "It's the level, stupid - it's not the growth rates, it's the levels that matter here." Investors have not accepted the reality that absolute levels of income, debt, wealth and unemployment are what really matters today. The outlook for major countries will continue to be driven by the levels of these key variables.

El-Erian goes on:

First, consumer debt is still too high relative to income expectations and credit availability. This will hold back any sustainable bounce in aggregate demand.

Second, many banks' balance sheets are still being manipulated for the comfort of regulators or their own managers. This will inhibit them from lending to important components of the real economy.

Third, unemployment has risen well beyond expectations and is likely to prove unusually protracted. It will take years for US unemployment to return to a natural rate. This will dampen the recovery of consumption and investment, stress social contracts that assume a flexible labor market and endanger political support for essential structural reforms.

Fourth, public debt has grown so rapidly as to spark concerns about future debt dynamics. This would inhibit the effectiveness of future stimulus measures, as well as complicating the formulation of exit strategies. It would also erode the medium-term ability of the US to fund cheaply its large deficits by undermining both the global standing of the dollar as world reserve currency and the attractiveness of US financial markets.

Taken in total, these four issues will make it tough for the global economy to attain Obama confidant Larry Summers' view of "escape velocity" - which translates to the US achieving a sufficiently high and sustained growth to propel the world into recovery.

El-Erian warns that current market valuations assume companies will be able to robustly grow earnings through higher revenues, not renewed reliance on cost reductions that have juiced up earnings over the past six months. This assumes depending on what is likely to prove to be an elusive high-growth scenario for 2010.

Investors need to focus on levels now rather than rates of change later. We are in uncharted waters and predicting a future earnings without taking into consideration the above four issues is a big mistake.

September 22, 2009: H.R 135, A Multi-Family Nightmare

2009-09-21T16:29:00.003-04:00

Rep. Sander Levin (D-Mich) has introduced H.R. 1935 which will gut the carried interest tax treatment of multi-family housing. Carried interest is an interest in the capital gains of a partnership when it sells the property. Investing partners grant this interest to the general partners to recognize the value these partners bring to the venture as well as the risks such as recourse debt. litigation risks,responsibility for cost overruns, etc., posed by the venture. Carried interest has been an integral part of real estate partnerships for decades.

Currently, the carried interest income is taxed at capital gains tax rates - 15%. Under H.R. 1935, lawmakers seek to tax this as ordinary income, which may go as high as 39.6% by 2011. In addition to the draconian increase in the tax rate, reclassifying carried interest income from a capital gains to compensation would also subject that income to self-employment taxes.

It is estimated that 550,000 workers employed by the apartment industry as well as the 16 million apartment dwellers in the United States will be adversely affected by H.R. 1935.

Needless to say, the National Multi Housing Council and other like-minded groups are aggressively lobbying against carried interest taxation. They feel that the current tax treatment is appropriate as it represents a return on the underlying long term capital asset as risk and entrepreneurial activity.

An unintended consequence of H.R.1935 would be it's change upon the economics of apartment construction so significantly that many proposed multi family housing complexes would not be viable and thus cancelled, thus impacting in a negative way the nation's affordable housing shortage.

For information about the carried interest issue, go to:

www.nmhc.org/goto/CarriedInterest

J.B. Gray, vp of the NMHC in Washington, D.C. was a primary source for this post

September 16, 2009: More Price Cuts On Single Family Homes

2009-09-16T12:53:00.004-04:00

Trulia, Inc. announced that 26% of homes currently on the market in the United States have experienced at least one price cut. The data was the fourth straight month of price reduction data and was 10% larger compared to June of 2009. The data on the study was current as of September 1, 2009.

As stated in RISMEDIA,the steady rise in price reductions are a signal that sellers are still trying to adjust to market conditions. Trulia, Inc. states "that the $8000.00 federal tax incentive will extend the home purchasing season beyond the summer months, continuing to drive competition amongst sellers and ultimately leading to more price reductions", creating a great buying opportunity for eligible buyers.

Luxury homes continue to be the hardest hit segment of the market. Discounts of 14% and more off already slashed prices are common. Although luxury homes represent just over 2% of the market, they are responsible, according to Trulia, Inc., of 25% of the $28.5b in home price reductions to date.

September 13, 2009: New Credit Scores Will Help Homebuyers

2009-09-13T16:39:00.002-04:00

Does anyone remember how several States improved their student achievement test scores? Dilute the measurements to obfuscate the result, they did. And no one was the wiser.

Now, a new and improved FICO scoring scheme will allow more individuals access to refinancing their present home or buying a new one. The developer, Fair Isaac Corporation, predicts this new analysis instrument will help lenders reduce default rates on consumer loans from 5 to 15 per cent. One hangup - Fannie Mae and Freddie Mac have yet to approve the new credit score tool. Until they do, the traditional model scores will suffice.

Fair Isaac believes this new system will be a great boost to the housing market. The system takes into account the borrower's history and penalizes them less for a single "unusual" event. It also has more score card levels, allowing for finer adjustment of the credit score. It will also likely reduce the power of collection agencies since a single event will have less significance to the borrower who had that problem.

I believe that current scores, if followed, are plenty liberal to validate one's propensity to pay back a debt.

That said, if the new system is approved by the big boys, plan on a nice bump up in home sales and credit access. Hopefully, we are not planting the seeds for another credit bust down the road.

September 8, 2009: US Dollar Under Assault

2009-09-08T08:23:00.003-04:00

Briefly. Today, the UN has recommended an unprecedented move away from the dollar as the world's reserve currency. A new Bretton-Woods is upon us. Switzerland has surpassed the US in competitiveness with other nations such as Singapore closing fast.

Our world foes are acting like sharks smelling blood in the water to dismantle our dominant economy while our politicians in power spend more, tax more and play class warfare politics. The public schools spawn more ill-prepared citizens in every respect except, perhaps, possessing the knowledge to grope for "free" entitlements.

Evidently, the majority of Americans are oblivious to the national and international train wreck just around the bend. Where are our brains??

September 6, 2009: Tobacco Stocks: Smokin'.

2009-09-06T16:55:00.004-04:00

Tobacco companies jointly filed a lawsuit in Kentucky against the U.S. and the Food and Drug Administration, claiming a law signed by President Obama in June of this year imposes "unprecedented restrictions" on First Amendments Rights.

For instance, the law prohibits tobacco companies from jointly marketing their cigarettes with non-tobacco products. Also, they can't market or describe any products as less harmful than others unless they have approval to do so from the FDA. This includes a new generation of smokeless products, which may be less harmful than cigarettes. Or, not harmful at all.

Interestingly, Altria (MO), the nation's largest cigarette maker, oped out of the group's lawsuit. It appears that Altria is hurt less by the new law than smaller competitors because it already has a huge market share.If fact, Altria backed the new law.

True, cigarette makers have seen sales shrink over the past several years. However, I believe that several American tobacco companies will do very well in the future for several reasons.

As prohibition taught us, the more a government restricts a product, the intrinsic demand rises and the more profitable the product becomes. Well-cured tobacco leaf is still a worldwide indulgence and few areas grow tobacco of better quality than in the United States. Tobacco companies will pursue ways to cut the cost of tobacco products (such as making shorter cigarettes that are being successfully test-marketed in Florida and elsewhere). Tobacco companies will enhance their marketing offshore and offer U.S. quality tobacco and products other countries cannot match.
The huge lawsuits against Big Tobacco are winding down and the Feds and State governments, having squandered most of the billions in tobacco settlement monies, have no legal means to extort more monies from the tobacco companies.

Tobacco users in many states are creatively growing their own tobacco, which is legal. They can also sell it without Federal and State tobacco taxes if sold be the whole leaf (uncut). Some tobacco companies have shown an interest in micro-growers to support their efforts at unique regional blends - adding cachet to their product lines. In northern Ohio, for instance, good quality tobacco is being grown and used to excellent reviews by both producers and users.

Here are some tobacco companies that are likely to thrive under almost any Federal legislation:

Reynolds American (RAI) $46.60/7.30% yield/$13.7b market cap

Vector Group (VGR) $15.87/10.02% yield/$1.1b market cap

Altria (MO) $18.50/7.35% yield/$38.3b market cap

Alliance One International (AOI) $4.10/0% yield/ $356.7m market cap

Universal Corp. of Va. (UVV) $38.07/4.81% yield/$950m market cap

With prescription drugs floating about in our nation's water supply, mass killings on or southern borders and elsewhere as gangs smuggle tons of illegal narcotics into the country, meth labs and worse cooking up fatal brews for hundreds of thousands of addicts nationwide, marijuana a primary income source for many of America's rural counties and alcohol taxed and given a wink and a nod by government so long as taxes are paid, cigarettes seem to be, while not benign, certainly a less fatal avenue of relaxation that society should accept without encouraging.

Tobacco companies know this, and will adjust their product to compete positively with more sinister plants, drugs and other concoctions.

September 5, 2009: Boston Capital Corporation: Questionable Property Management Hurts Investors

2009-09-05T11:28:00.005-04:00

Boston Capital Corporation and its affiliates operate several tax credit and loan schemes to corporations and individual clients. One of their earliest investment pitches was Tax Credit Funds, which implied a handsome return of generated tax losses and to preserve and protect the assets of the investment partnerships resulting in the eventual disposition of apartment complexes around the country that met HUD standards for subsidized housing vouchers.

These investments Funds (called Boston Capital Tax Credit Fund followed by a Roman Numeral to classify the order of these $150-200m offerings) were sold by handsomely commissioned agents, often financial planners. The tax "losses" created by aggressive financing and government tax credits would be valuable as they were used to offset gains on certain income that was taxed, thus creating a positive tax result from negative tax credit application. It made sense, especially since Boston Capital appeared to be politically connected to the Democratic Party which was writing the tax credit legislation. George Mitchell of Democratic Party pedigree was an influential member/advisor of their Board. All went well for some time and tax credit "losses" were paying off for investors. However, the cash investors invested ($1000. per "unit") is now being swept away by inept property management, fees upon fees and poor oversight of the property portfolios.

Take Series XV as a case in point.

Series XV has about forty three apartment complexes. The Fund began operations in 1992 with $38m of investor monies buying 68 properties. Investors have seen practically no return on the sales. Apartment complexes remaining have been documented to have been poorly managed, materially neglected and seem not to have a systemic game plan for resolving issues. Of course, Boston Capital has made their fortune prior to letting apartment complexes deteriorate, and continue to make money hand over fist through additional commissions, fees and "other charges".

Examples of management problems:

Lakeside Apartments: Occupancy 55%.

Livingston Plaza: Occupancy 67%.

Showboat Manor Apartments: Real Estate taxes were delinquent.

A Typical Fee Hit To Investors:

"The investment general partner transferred its interest in Wood Park Pointe to AN ENTITY AFFILIATED WITH THE GENERAL OPERATING PARTNER for its assumption of the outstanding mortgage balance and cash proceeds to the investment partner of $37g. Of the total, $1455.00 represents reporting fees due to an affiliate of the investment partnership and the balance represents the proceeds from the sale. Of the remaining proceeds, $15g was paid to Boston Capital for expenses related to the sale, which includes third party legal costs. The remaining $20,545.00 will be returned to cash reserves..."

These examples are not uncommon.

The frequency of "an entity affiliated with the general operating partner" is an interesting sales tactic, and one that hints to raise red flags somewhere. In addition, fees and management practices certainly do not appear to be in the best interests of unit holders. Perhaps Boston Capital Corporation hopes unit holders are not active investors.

In fairness to Boston Capital, tax credits for several years met or exceeded expectations, and the Reznick Group, P.C. has stated that all financial are in order. Information regarding performance of their programs appears to be readily available.

That said, the questions of extracting maximum value after the initial Lease-up of the apartment complexes remain. And initial investor money appears to be of little consequence to Boston Capital Corporation after the big money has been made.

September 3, 2009: Personality Politics - Slick Words or Substance?

2009-09-03T11:09:00.005-04:00

As Congress, especially the House of Representatives, appears incapable to construct mature legislation, it is up to the President to become less of an orator with a persona and more of a legislator, putting all those IQ points to work.

Here are how two father/son Presidents coped, in their own words:

JOHN ADAMS:

Our Constitution was made only for a moral and religious people. It is wholly inadequate to the government of any other.

Property is surely a right of mankind as real as liberty.

Remember, democracy never lasts long. It soon wastes, exhausts, and murders itself. There never was a democracy yet that did not commit suicide.

Fear is the foundation of most governments.

Great is the guilt of an unnecessary war.

Genius is sorrow's child.

JOHN QUINCY ADAMS:

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

If your actions inspire others to dream more, learn more, do more and become more, you are a leader.

Posterity: you will never know how much it has cost my generation to preserve your freedom. I hope you will make good use of it.

The highest glory of the American Revolution was this: it connected in one indissoluble bond the principles of civil government with the principles of Christianity.

GEORGE H. W. BUSH:

I think I was a better President because I was in combat.

I'm conservative, but I'm not a nut about it.

I am not one who flamboyantly believes in throwing a lot or words around.

America is never wholly herself unless she is engaged in high moral principle.

We are not the sum of our possessions.

You cannot be President of the United States if you don't have faith.

GEORGE W. BUSH:

A dictatorship would be a heck of a lot easier, there's no question about it.

After the chaos and carnage of September 11th, it is not enough to serve our enemies with legal papers.

Americans are rising to the tasks of history, and they expect the same of us.

For diplomacy to be effective, words must be credible.

Government does not create wealth. The major role for the government is to create an environment where people take risks to expand the job rate in the United States.

There is no bigger task than protecting the homeland of our country.

The true history of my administration will be written fifty years from now.

I am mindful not only of preserving executive powers for myself.

It's going to be the year of the sharp elbow and the quick tongue.

Only a liberal senator from Massachusetts would say that a 49% increase in funding for education is not enough.

And, so it goes......

August 28. 2009: Tax Credit Schemes For Green, Both Ways

2009-08-28T08:21:00.007-04:00

Tax Credits for a greener America are in fashion. In each case, we may as well admit up front that these type of programs amount to taking money from all taxpayers to fund pet environmental whimsy of the environmental crowd. The State of Florida, amongst others, had rebate programs to save the planet in place until it ran out of money. The solution? Use federal stimulus money to front it. Astute investors and consumers will take advantage of these programs to a certain degree, hopefully after reading the fine print (such as the up to $4500 of TAXABLE income that was credited to those who transacted in the recent vehicle "clunker" program).

The Miami Herald recently ran a story highlighting several of these programs.

So your car isn't a clunker? And you're not a first-time new home buyer? Maybe your air conditioner is a on it's last legs.

The price for a new Ruud air conditioner is, say, $6295.00. Because of a combination of a rebate from Florida Power and Light, the manufacturer and a $1500.00 credit on his taxes next year means the cost will be $3520. Any air conditioner that qualifies as an Energy Star appliance will qualify for these incentives, in Florida and in other states proffering similar programs.

Federal stimulus laws allow home buyers to receive a tax credit of 30% of the cost of energy efficient windows, water heaters, air conditioners and furnaces, up to a maximum of $1500.00. If you max out your credit this year, you can buy a qualifying item and claim the credit again next year so long as the item is installed by December 31, 2010.

Another tax credit allows homeowners to get up to 30% of the cost of solar energy systems, such as a solar water heater and solar power, small wind systems and geothermal heat pumps if they are installed by December 31, 2016. It's a separate credit from windows, air conditioners, etc., so homeowners can use them both. And there is no cap on the amount of this credit. One fellow from Miami Shores, FL spent $54000.00 to install solar panels and a battery back-up system for his home. He received about $20000.00 from a state solar energy rebate program and will receive a further $10200.00 as a credit on his taxes.

Water heaters are also a hot item because water heaters might also qualify for more money back than just the tax credit.In Florida, a natural tankless water that costs between $1600-$2000.00 would net a $450.00 rebate from the gas company TECO and a 30%tax credit on the purchase price.

A rather obscure tax break allows businesses to claim a bigger deduction for new equipment such as furniture. Land, buildings and items like a new central air conditioner don't count. Section 179 of the tax code, around for a while, doubled the amount deductible to a maximum of $250000. and the 2009 law extended the deductions through the end of 2010. Businesses can claim the entire deduction each year, according to the IRS.

More? Absolutely. Upcoming for everyone is the cash for "clunker" appliances which are rebates to buyers for the right kinds of dishwashers, washing machines, refrigerators, dryers, air conditioners and other items.

What companies may see a rise in their stock price as a result of these type of programs? Here are a few well-worn and new names that will not only sell product or merchandise, but have good fundamentals as well:

Broadwind Energy (BWEN) $7.72/$746m market cap

Helix Wind (HLX) $2.86/$110m market cap

Whirpool (WHR) $65.05/$4.6b market cap/2.67% yield

Herman Miller (MLHR) $16.15/$920m market cap/0.53% yield

Steelcase (SCS) $6.42/$853m market cap/2.38% yield

HNI (HNI) $21.44/$968m market cap/3.27% yield

Home Depot (HD) $27.65/$47B market cap/3.89% yield

First Solar (FSLR) $125.00/$10.7b market cap (beware solar stocks=price war coming)

Lowe's (LOW)$21.67/$32b market cap/1.66% yield

Rinnai (RINIF) $46.75/$2.5b market cap (pink sheets, but a great energy-saving appliance company)

August 23, 2009: Food Processors, A Nutritious Meal

2009-08-23T22:52:00.002-04:00

Many investors, including myself, feel that the market is due for a correction. Some predict with the increased national debt, weaker dollar and a Congress unwilling to grasp both, even worse things may occur that will effect our standard of living now and, especially, in the future.

One sector that may withstand a negative outlook are food processors. I used a computer screen to isolate those with anticipated growth of 10-25% next year. All appear stable and quite a few are international in scope. I must admit to having several obscure companies grace my computer screen. I did investigate all of them to a certain degree and without exception they look quite acceptable for investment consideration.

You may decide to explore the companies on this roster for further study and, perhaps, inclusion within the defensive elements of your portfolio. I am.

Lifeway Foods (LWAY) $13.77/ $231m market cap

Inventura Group (SNAK) $2.87/$53m market cap

Maui Land and Pineapple Company (MLP) $6.50/ $53m market cap

Zhongpin, Inc. (HOGS) $11.37/$331m market cap

J&J Snack Foods Corp. (JJSF) $43.81/$809m market cap

Peet's Coffee and Tea (PEET) $27.27/$354m market cap

United Natural Foods, Inc. (UNFI) $26.61/$1.15b market cap

Yuhe International, Inc. (YUII) $5.40/$85m market cap

Flowers Foods, Inc. (FLO) $23.57/$2.2b market cap

Del Monte Foods Company (DLM) $10.36/$2.1b market cap

Kellogg Comnpany (K) $47.35/$18.2b market cap

Archer Daniels Midland (ADM) $28.67/$18b market cap

Sanderson Farms (SAFM) $39.71/$808m market cap

Food processing is not a sexy sector, but it is a great place to hide as others lose their lunch during the next downturn.

The author does not presently hold a position in the above stocks.

August 19, 2009: Another Reason NOT To Buy A GM Vehicle

2009-08-19T11:46:00.004-04:00

Rumblings abound about a lack of spare parts for GM vehicles, especially SUVs. I had heard rumors of this and now, unfortunately, have experienced this firsthand.

I purchased a 2006 Envoy last year. Last week, the electronics on the driver's arm rest stopped functioning. With the vehicle less than four years old, I assumed having the unit repaired or replaced would not be a problem.

I was wrong.

The major clearinghouse for company manufactured GM parts in Lansing, Michigan informed the authorized Mr. Goodwrench dealer that THEY NO LONGER HAD THAT PART. Now, I can't open the window(s) and lock the vehicle.

If this pattern continues, your GM will be a throw-away vehicle soon enough.

This is how GM services customers, imagine how they will treat stakeholders in the company.

You have been warned.

August 16, 2009: Today's Playbook On Health Insurance Stocks, Post- Public Option

2009-08-16T19:09:00.005-04:00

In an astute political move, Health and Human Services Secretary Kathleen Sibelius on Sunday said that providing citizens with the option of government-run insurance is not essential to the Obama administration's overhaul of U.S. health care. Evidently, the administration has caved on this very important issue, leaving the door open for private health insurance companies to move forward with creative products and profits for shareholders. Of course the devil will be in the details, but at fist glance Team Obama will expand health using cooperatives similar to the public/private scheme in the domestic utility industry.

Here are potential winners for investors to explore. Beware using the insurance index ETFs as your vehicle, as the health care sub-sector is in play now, not all insurance stocks.

Aetna (AET) $28.28/$12.3b market cap/ 0.14%

American Independence Corp. (AMIC) $4.75/$40.4m market cap/0%

AMERIGROUP Corp. (AGP) $23.98/$4.3b market cap/0%

Amerisafe (AMSF) $16.83/$317m market cap/0%

Assurant, Inc. (AIZ) $28.20/$3.3b market cap/2.93%

CIGNA Corp. (CI) $28.82/$7.9b market cap/.14%

Coventry Health Care, Inc. (CVH) $22.60/$3.4b market cap/0%

Health Net, Inc. (HNT) $14.67/$1.5b market cap/0%

Humana, Inc. (HUM) $34.69/$5.9b market cap/0%

Molina Healthcare, Inc. (MOH) $19.90/$508m market cap/ 0%

Triple-S Management Corp. (GTS) $16.45/$335m market cap/0%

UnitedHealth Group, Inc. (UNH) $28.06/$32.6b market cap/0.11%

Universal American Corp. (UAM) $9.10/$702m market cap/0%

WellCare Health Plans, Inc. (WCG) $24.85/$1.0b market cap/0%

Well Point, Inc. (WLP) $52.10/$475m market cap/0%

I like Molina and Health Net as they provide extensive private and government managed health care services, which may be a sweet spot to be focused upon.

As we all know, things turn on a dime in politics. The "progressives" will go nuts without a public option, but it is apparent the country just will not sanction that approach. As Democratic Senator Kent Conrad said Sunday, "There are not the votes in the Senate for the public option.....To continue to chase that rabbit, I think, is a wasted effort."

August 12, 2009: Apartment Rental Rates Set To Spike Upward

2009-08-13T12:37:00.005-04:00

Many apartment owners can't wait until 2012. If the economy recovers, they will be looking at a perfect storm of events - a shortage of available entry-level housing units, a boom in demand driven largely by Millenials (real-estate jargon for those just about ready to strike out on their own), and the ability to push rents significantly higher due to a shortage of suitable apartments.

Tom Bozzuto, CEO of the Bozzuto Group, a Greenbelt, MD.-based multifamily manager overseeing 28,500 units in the Mid-Atlantic states, told Multifamily Executive Magazine recently that "It's not a lot of fun right now to be in the apartment business. But, you take pleasure in knowing that this is the trough in the wave."
Other pros in the field feel exactly the same way.

Ron Terwillinger, chairman of the country's largest multifamily builder, Trammell Crow Residential based in Dallas, TX expects rents to increase 5% in 2010 and another 10% in 2011. "It looks to me like there will be a rental housing shortage in 2012 and 2013", he stated. This is due in part to the number of Milleniums that will need to get a place to rent and the large decrease in the number of new apartments constructed in 2008 and 2009 (the trend continues into 2010 at the earliest). The lead time from land acquisition to finished apartment complex of scale is generally three to four years. Also, there has been a decline in household formation (marriage, other family units) which indicates less demand for homes and more demand for apartments.

Another reason for rental increases is that there has been a rise in the number of (usually) small volume landlords who have begun to disregard preventive maintenance and basic repairs. In essence, they have cut costs short term at the expense of their apartment unit value long term. Some have just walked away from their investments in both urban and suburban neighborhoods and banks are usually terrible landlords, without a clue as to appropriate Property Manager selection or the art of running an apartment complex. These type of apartments often become vacant lots or, creatively, condominiums after a thorough rehab.

How can the investor play this theme? Here are some interesting stocks to consider that are pure apartment plays:

Apartment Investing and Management Company (AIV) $11.50.3.70%/$1.35b market cap

Avalon Bay Communities (AVB) $66.42/5.30%/$5.31b market cap

BRE Properties, Inc. (BRE) $28.13/5.30%/$1.49b market cap

Camden Property Trust (CPT) $34.92/5.20%/$2.24b market cap

Equity Residential (EQR) $27.81/7.00%/$7.63b market cap

Essex Property Trust, Inc. (ESS) $73.47/5.60%/$2.10b market cap

Home Properties (HME) $38.84/6.80%/$1.30b market cap

Mid-America Apartment Communities (MAA) $42.55/5.80%/$1.20b market cap

Post Propreties, Inc. (PPS) $16.04/5.00%/$712m market cap

UDR, Inc. (UDR) $13.25/5.50%/$2.0b market cap

All of the above have sustainable yields to entice the investor to wait for the positive apartment industry action to come.

The author does not presently have a position in any of the above securities. He does own a large position in rental real estate.

August 7, 2009: Nationwide Survey By CSFB Reveals Real Estate Agent Builder Preference

2009-08-06T19:33:00.002-04:00

The July Credit Suisse First Boston Monthly Survey Of Real Estate Agents was made available today fir institutional clients and consultants on the survey. Presented monthly, this 60-page (or thereabouts) publication has been an extremely accurate and predictive document - my first choice when I begin pondering my monthly real estate strategy.

Almost always, I focus on the top fifty metro markets and regions, primarily interested in the pure statistics and opinions of "boots on the ground" agents and investors that make this such an excellent read. Another feature of this monthly survey lists agents recommendations for national builders. The percentage number is based upon positive less negative responses from agents. This is an important reflection on these builders, and thus their stock, as over 40% of new home sales involve a real estate agent.

Here is the list, best to least favored:

Pulte Homes (PHM) 25.2%
Toll Brothers (TOL) 24.7%
D.R. Horton (DHI) 17.6%
Meritage Homes (MTH) 16.2%
Lennar Corporation (LEN) 14.3%
Centex Corporation (CTX) 11.7%
Ryland Group (RYL) 11.4%
Standard Pacific Corporation (SPF) 11.3%
Hovanian (HOV) 6.1%
MDC Holdings (MDC) 5.7%
NVR, Inc. (NVR) 4.3%
WCI Communities (WCI) 0.1%
KB Home (KBH) -12.9% (This is a mighty poor assessment on the product)

It is stated by the CSFB report that homebuilders are increasingly relying on agents as market conditions weaken or remain soft for new product.

One thing for sure, new homebuilders had better improve the design, energy efficiency and internal efficiencies if they expert to compete with the foreclosure, short sale and resale markets.

August 6, 2009: Why We Fight - An Interesting Letter

2009-08-06T00:16:00.004-04:00

(click on letter to enlarge)

I am not a bible-thumper. Far from it. However, the secularization and disdain for the religious aspects of our lives is being inculcated from within at our peril.

Folks need to remember that our military is generally composed of volunteers who have a strong tendency to be not only patriotic, but religious as well.

The letter above (pun addressee shows the sense of humor most servicemen possess)was given to all military personnel parting for the Pacific and European war zones of World War 2.

God is not a forgotten entity.

August 1, 2009: IRA's And Other Employer-Sponsored Retirement Plans Face Uncertain Distribution Fate

2009-08-01T15:38:00.002-04:00

Retirement-bound investors face an uncertain future for mandatory withdrawal of funds from applicable accounts unless Congress acts on one of several pieces of legislation. The Required Minimum Distribution (RMD) will be back in effect for 2010, which means investors must begin withdrawing money from their accounts when they reach 70.5 years of age and pay appropriate taxes, if any. The RMD requirement was waived for 2009 when the Worker, Retiree and Employer Recovery Act of 2008 became law on December 23, 2008.

There have been a number of bills introduced in Congress, any of which would extend the RMD waiver past 2009, or, to increase the minimum age that triggers the RMD from 70.5 to 75 years of age.

Here are the bills to date:

S. 157: Extends the temporary waiver of the RMD rules for certain retirement plans and IRAs through 2010.

H.R. 124: Extends the temporary waiver of the RMD rules for certain retirement plans and IRAs through 2010.

H.R. 882: Increases the age at which RMDs are required to begin from age 70.5 to age 75.

H.R. 2021: Extends the temporary waiver of the RMD rules for certain retirement plans and IRAs through 2012.

H.R. 2331: Increases the age at which RMDs are required to begin from age 70.5 to age 75. This bill also waives the 10% penalty on distributions from qualified retirement plans for mortgage payments on qualified residences and in situations of unemployment.

H.R. 2637: Increases the age at which RMDs are required to begin from age 70.5 to age 75, and extends the temporary waiver of RMD rules for certain retirement plans and accounts through 2010.

None of these bills have reached a terminal status of consideration, and all, some or none may gain momentum.

A friendly call or e-mail to your Representative and Senators to express your view is timely during the upcoming recess.

July 30, 2009: Do As I Write, Not As I Do.Thomas Friedman of the NY Times Perpetuates The Liberal Stereotype

2009-07-30T00:59:00.004-04:00

Tom Friedman is a well-meaning sort. The NY columnist and best-selling author has been telling us for years about carbon footprints, energy conservation and minding our lifestyles to consider emulating those less fortunate.

Well, Mr. Friedman was exposed recently to have as his modest residence a palatial 7.5 acre estate a short distance from the Bethesda, MD, Country Club with a beautiful view overlooking the area replete with manicured (non-native species, perhaps?) landscaping that he can view from his 11,400 square foot house. If Mr. Friedman wishes, he can view his modest environs from sitting on the throne in one of the seven bathrooms within the home.

I do not begrudge Mr. Friedman winning the lottery by cashing in on a wealthy spouse. Those of us that try to save a bit on energy here and there, and do with less, are likely offended by the hypocrisy of this man and the audacity of his lifestyle vs. his expectations for us.

May we all aspire to live Tom Friedman's American Dream. That said, I could do without seven bathrooms.

July 27, 2009: Hybrid Investments: Have Your Cake (And Eat It, If....)

2009-07-26T23:08:00.002-04:00

As investors, we as a species generally like to explore some of the more eclectic investment vehicles for fun, and sometimes for profit. FISN, the Federally Insured Savings Network has been at the forefront of offering sightly off-the-mainstream products to both retail and institutional investors for years.

Here are a few of their current ideas combining an attractive guaranteed interest rate, IF....

10 years (Years 1-10). The interest rate is fixed at 6.50% for one year and accrues daily for every day in the quarter that the 6 month US Dollar LIBOR rate is less than 6.00% and above 0%. Interest is paid quarterly based upon satisfying the above qualification. The interest accrual amount is adjusted each quarter. No interest is paid for any day the 6 month US Dollar LIBOR rate is greater than 6.00%. FDIC insured. $25g minimum. Callable quarterly after one year.

A similar product with slightly different terms is available at 5.75% interest.

5 Years. Interest rate is paid quarterly. The interest rate is fixed for the first year at 3.50%. For the last four years the rate is based upon the 3 month US Dollar LIBOR Rate plus 1%. Rate is adjusted quarterly during the last four years and capped at 5.25%. $25g minimum.

28 Months. S&P 500 Index Market-Linked Deposit. Interest paid at maturity based upon the change in the closing value of the index. Interest is paid at the rate of change, up or down, as long as the daily closing price of the index never exceeds a rate of greater change than 27% to 32% up from the initial value or greater than 15% down from the initial value. If the closing price of the index ever breaks out of the range,no interest is paid. FDIC insured. $25g minimum.

A similar vehicle is based upon the Russell 2000. If the daily closing price does not change greater than 40 to 50% or down 15% from the initial level, you get a nice check.FDIC insured. $25g minimum.

Annual interest is paid on several products based upon a basket of stocks. For instance:

6 years. Basket components are Abbott Laboratories, Amgen, General Electric, Kimberly-Clark, Metronic,Nike, Schlumberger Ltd., Target, Walgreen and Yahoo!.
Annual interest is paid based upon the average gain the 10 Large-Cap US stocks in the equally weighted basket. Each year the gain is recomputed from the initial average value to the year end average value. Interest is paid is there is an applicable increase. The gain is the average change in the basket value. Annual individual stock increases are capped at 11% to 15% per year. No interest is paid if the average is down. FDIC insured. $25g minimum.

Some other baskets include Astra Zeneca, Goldman Sachs, Infosys Technologies, Kraft Foods, PetroChina, Research In Motion, Sony, Toyota Motor, Vale S.A. and Vodophone. And, Wells Fargo, Honeywell, Nokia, CVS Caremark, Monsanto, Microsoft, Home Depot, Exxon Mobil,McDonald's and Costco.

Many others with stocks, various sector averages and maturities abound for the curious eye.

We all know that the "house" is mildly betting against you with the stips, etc. Still, I believe that some of these products look very appealing, especially for investors that are neither heading for the hills with dried food and a shotgun or expecting Dow 15000 anytime soon.

July 23, 2009: An Investment Decision: Rent or Buy?

2009-07-23T15:42:00.002-04:00

How you decide to best allocate housing monies is not often discussed in a financial magazine or blog. Yet,housing generally consumes a large part of our income (unless you are still freeloading off mom and/or dad) and is considered by many financial planners to be the average person's largest single "investment".

What to do in today's housing market? Buy? Rent? Live in your Prius? Discounting option #3, here is a sane approach to determining whether renting or buying is appropriate.

Using a simple Price to Rent (PR) ratio over the largest fifty metropolitan areas which was arrived at by calculated by dividing the annual rental cost for a unit by the price of a single family home in the same area, I arrived at the ratio of 13.9. Thus, a ratio of OVER 13.9 signifies that renting makes more sense than buying.

For example, the average price of a home in a section of Portland, Oregon is $248,600and the median rent is $813. The PR Ratio is 25.5 and indicates that renting is much better than buying. Some other cities where renting is preferable to buying include Seattle,San Francisco, Salt Lake City, San Jose, Washington D.C.,Los Angeles and Chicago.

On the other side of the coin, the average price of a home in a section of Indianapolis is $94,000 and the median rent is $707. The PR Ratio is 11.2 and indicates that buying is preferable to renting. Some other cities where buying is preferable to renting include Memphis, Pittsburgh, Dayton (OH) and Cleveland (OH).

Obviously, there are opportunities in all markets that contradict this simple decision process, but as a rule of thumb it works well - especially for the less sophisticated home buyer. Watch interest rates, the state of the home market in your area and, importantly, the desirability of the area before renting or buying.

On a national average, the medium home price in late June was $169,000, the median rent $1013.00 and the PR rate was 13.9.

June 17, 2009: A Wonderful Day

2009-07-17T23:25:00.003-04:00

I am writing from a suite located on the grounds of Peterson AFB in Colorado Springs, CO. Meeting and conversing on a variety of topics with everyone from Generals to newly enlisted and stalwart civilian employees of the 50th Space Wing is a humble experience. We are very fortunate to have these top-notch intellects and, yes, patriots, successfully defending our country.

I am especially proud today because our eldest son was honored with an important command position after a formal ceremony held on the grounds of Schriever AFB, about 8 miles from Peterson and the nerve center of our Space Intel program. The change of command ceremony featured speeches, a formal military presentation of the unit flag and citations by an honor guard, culminating with Tom's remarks as new commander of this unit. He will be responsible for hundreds of millions of dollars of taxpayer monies and has prepared well for being given this assignment - one of the youngest ever to have held a position of this kind. I know he will do a great job because he works well with individuals of all ranks and, he's cheap, so the taxpayer's money has a great steward.

Maj.Tom has worked in Space Weapons his entire career and has a Master's Degree along with post-graduate advanced training at Squadron Officer School (Air University at Maxwell AFB),Air Command and Staff College,Financial Management Staff Officer training at Keesler AFB and Defense Financial Management and Comptroller School at Maxwell AFB. He was named Distinguished Graduate, Financial Management Staff Officer Course American Society of Military Comptrollers Certified Defense Financial Managers.

Tom's been awarded the Meritorious Service Medal, Air Force Commendation Medal with oak leaf cluster, Air Force Achievement Medal, National Defense Service Medal and the Global War on Terrorism Service Medal.

All before his 35th birthday.

Being at this special occasion with his wife (also a USAF Major) and his two children made this an even better event --it's nice being grandfather!

July 13, 2009: South Korea Poised To Excel

2009-07-12T19:25:00.004-04:00

As South Korea tolerates the threats from the sputtering dictatorship of North Korea, I believe that now is a good time to consider speculating that the wild gyrations of gang up north are a bluff as the government begins to wobble and weave with the ultimate result a change in leadership, father to son or other. In any event, North Korea's feudal state cannot continue and whomever or whatever gains the reigns of power will have to make economic and political accommodations with South Korea as well as her other contiguous neighbors. North Korea's two strongest allies (Cuba, Iran, Syria and Venezuela aside), China and Russia, must be getting fatigued with the pathetic missile tests and computer hacking akin to a child screaming for attention. It is no longer worth their efforts to prop up North Korea, as the geo-political game has changed to other points of focus.

As all of South Korea will stand to prosper with a diminished or collapse of North Korea, I recommend investor's consider iShares' MSCI South Korea Index ETF (EWY). Trading at approximately $35.50/share, this $1.9b ETF with an expense ration of 0.63% presents cheap and diversified entry into this country's stock.

Top holdings include Samsung Electronics (17%, far and away the largest holding), Posco, KB Financial Group, Shinhan Financial Group, Hyundai Motor, LG Electronics, KT&G Corporation, Samsung Electronics Preferred, Korea Electric Power and LG Display Company.

Top sectors within the ETF are:

Information Technology (27.48%)
Industrials (16.68%)
Financials (16.32%)
Materials (13.23%)
Consumer Discretionary (11.05%)
Consumer Staples (5.74%)
Telecommunication Services (3.68%)
Energy (2.70%)
Utilities (2.30%)
Health Care (0.66%)

North Korea is playing war games such as has not been expressed since the mid-1950s. My guess is that this is the beginning of a death spiral that may unify the Korean peninsula with the capital being Seoul - and with democracy and your investment dollars winning big at the expense of the little men of Pyongyang.

I do not own EWY at this time.

July 7, 2009: Billions for Urban Real Estate Investors

2009-07-07T15:05:00.003-04:00

Let the monies roll in! The Housing and Economic Recovery Act of 2008 has arrived in an urban area near you. Almost $4 billion in Federal grants and an almost equal amount of matching State and Local Grants are pouring in to targeted urban areas for the purchase, renovation, demolition and new construction of homes.

My opinion is that this operation will ultimately fail. But for the investor, the ability to purchase and make use, for better or worse, of real estate with this manna from heaven is compelling as an immediate investment opportunity.

If you live near an urban area, make haste wisely to find out through a Realtor, Banker or City Planner (already, politicians are awarding property grants to political friends) about areas approved for investment.Five areas are included in this legislation that opens the gates for investors:

1. Financing Mechanisms (2301-c-3-B) for purchase and redevelopment of foreclosed upon and residential properties, including such mechanisms as soft seconds,loan loss reserves and shared equity loans for low to moderate income buyers.

2. Purchase and Rehabilitation (2301-c-3-B) to purchase and rehabilitate homes and residential properties that have been abandoned or foreclosed upon in order to sell, rent, or redevelop such homes and properties.

Relevant Definitions:

Abandoned: A home is abandoned when mortgage or tax foreclosure proceedings have been initiated for that property, no mortgage or tax payments have been made by the owner for 90 days or more, and the property has been vacant for at least 90 days.

Current Market Appraisal Value: The current market appraisal value means the value of a foreclosed-upon home or residential property that is established through an appraisal made in conformity with the appraisal requirements of the URA at 49 CFR 24.103 and completed within 60 days prior to an offer made for the property by a grantee, subrecipient, developer or individual homebuyer.

Acquisition: Section 2301(d)(1)of HERA requires any purchase of a foreclosed-upon home or residential property under NSP be at a discount from the current market-appraised value of the home or property. Such discount shall ensure that purchasers pay below-market value for the home or property. For the mortgagee foreclosed properties, grantees must seek to obtain the maximum reasonable discount from the the mortgagee, taking into consideration the likely carrying costs of the mortgagee if it were not to sell the property to the grantor or subrecipient.

Rehabilitation: Direct home ownership assistance to persons whose incomes do not exceed 120% of median income.

24 CFR 570.202 states eligible rehabilitation snd preservation activities for homes and other residential properties. Note that rehabilitation may include counseling for those seeking to take part in the activity.

3. Land Banks: 2301 (c-3-C) states that a Land Bank may not hold a property for more than ten years without obligating the property for a specific, eligible development in accordance with NSP requirements. HUD does not believe that holding property alone is sufficient to stabilize most neighborhoods.

4. Demolition:2301 (c-3-D) allows the purchase and demolishment of blighted structures.

5. Redevelopment: 2301(c-3-E) allows redevelopment of vacant or demolished properties. New houses may be constructed.

Well-schooled investors or consortium of investors will do extremely well in all phases of this program. As mentioned above, I do not think this will have a long term positive impact upon urban housing. Tenants determine what remains clan and fit for habitation and what does not. However, the investor(s) will reap a windfall buying distressed real estate and flipping it to builders or local homeowners who can get cheap financing on great terms. Sound familiar? Shades of the housing bubble all over again.

Many years ago, I was rehabilitating properties and innocently asked a long time -and very successful- urban real estate investor "When will A_______run out of properties to rehab?" He laughed and said,"There will never be a time when an urban area runs out of properties to rehab". He was right. And now is a great time to jump on the bandwagon and flip,resell or use the Section 8 program for your rental tenants using other taxpayer monies.

And here I am vactioning in Palm Beach. Time to get on home and get in on the action.

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

2009-06-28T17:28:00.008-04:00

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 hot...market 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 (www.azzad.net) 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: Neural Fair Value Portfolio for Investment Ideas

2009-06-23T23:06:00.002-04:00

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: A Portfolio For You, Not Your Financial Planner

2009-06-21T11:43:00.006-04:00

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: The More Things Change.....

2009-06-10T22:44:00.002-04:00

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.

1998
Nippon Telephone and Telegraph @46
US-China Industrial Exchange @2.75

1997
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 6, 2009: Honoring A Family Hero on D-Day

2009-06-04T01:41:00.006-04:00

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

2009-06-04T01:10:00.002-04:00

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.