CFA Exam Prep Level 1

Mr Short Missed BP !?

How is it possible? The man noted as the short expert missed a no-brainer. Jim Chanos, founder of Kynikos Assoc. and famous for finding money making opportunities buy shorting stocks missed the whole Gulf of Mexico shorting opportunity in BP and deepwater drillers like TransOcean (RIG). How is this possible? This was a no brainer? Purhaps Jim is just to focused on talking down China stocks and realestate. Purhaps Jim didn't get the news.

PIIGS MUST FACE FACTS - America Next

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What's The Biggest Problem With Socialism?

Margaret Thatcher once said that “the problem with socialism is that eventually you run out of other people’s money.” Right now the PIIGS (Portugal, Italy, Ireland, Greece and Spain) are learning that the hard way.

Greece, on the verge of total economic collapse, has received a $1 trillion bailout from the European Union and the International Monetary Fund. America, as the biggest contributor to the IMF, gave 17% of those funds (China, in comparison, gave 3%). Yes, the same America who's military budget exceeds that of the World combined and who can't even take care of our homeless and budget problems is the largest contributor to helping Greece. Greece the country where a hairdresser qualifies for full social security pension benefits at age 50. German Chancellor Angela Merkel, one of the architects of the bailout, admits that with the bailout “we have done nothing more than to buy time until we have brought order to these competitive differences and to the budget deficits of individual Euro countries.”

Things have gotten so bad that even the so called "liberal media" has started to call it to our attention. The Washington Post warns that “one false move in Europe could set off a global chain reaction.” Though Greece and Portugal are usually the focus of the conversation, the debt crisis is bigger than them. Spain, in a similar debt crisis, recently had their credit rating downgraded by Standard & Poor. They two had a realestate bubble and now have 19% unemployment. A failing Spain, whose economy dwarfs that of Greece and Portugal, would be a much bigger problem. According to Angelos Pangratis, head of the European Union delegation to the United States, “if what happened in Greece were to happen in a large country, it could fundamentally mark our times.” Royal Bank of Scotland analyst Jacques Cailloux warned that Europe faces “the biggest coordination failure in modern history.”

What Caused The Current European Economic Crisis?

But what caused the economic crisis to begin with? Doesn't take a PhD in accounting to know the government continued for decades to spend more than it had in tax revenues. They continued to expand social benefits beyond even the most liberal American's view of entitlements. The socialist programs in Europe bought votes and were treasured by all to the point where 50% of the population worked for the government. As Ronald Reagan loved to say, "The government consumes tax dollars and produces nothing." Does anyone know of a product made in Greece that the world wants to buy? You'd think with all the paid vacation time and retirees on full pension benefits they'd have invented Face Book instead of a 20 something American college kid.

Paul Volcker, former Federal Reserve Chairman and current Obama financial advisor, said that Europe shows the repercussions of “uncontrolled borrowing.” Volcker, who sits on Obama’s Economic Recovery Advisory Board, stated that the “time is growing short” for America to restore economic prosperity. He stated that the biggest problem relates to “the sustainability of our commitment to growing entitlement programs.” In short, our government cannot continue to spend on the scale that it is spending and pay out more money in benefits to the citizens than it is taking in.

Why Do We Continue With Our Wealth Transfer From Savers To Spenders Program?

Baby Boomers remember Volcker , as one tuff cookie, who bashed inflation with ultra high interest rates. Ultra high interest rates motive every American to save more and spend less. Over the last decade our economic policies have been to create bubbles and reward the spenders by transferring wealth away from the savers. The savers earning near zero on their Money Market Mutual Funds for years forgo their earnings so others can buy $35,000 luxury vehicles and get six years free financing. Our government forces saves to give up their interest earnings so spenders can afford luxury homes twice the size of their parents. And no worries if you can't pay for it, turn in the keys and walk away from the debt. Your free to make it somebody else's problem.

Are We Really Even Close To A Greece Crisis?

A recent study by the Bureau of Economic Analysis concluded that income from the private sector is at an all-time low of 42%. Meanwhile, a historic high of 32% of America’s income now comes from the government, whether it’s government jobs or handouts. If the government uses private wages to generate tax revenue for their spending and Americans as a whole now have less than half of their income coming from private wages, that economic model can't work in the long-run, as seen in Greece.

Yes, the “stimulus” bill "saved jobs" but through increasing spending on more government jobs. Those jobs stimulate the economy less, considering government salaries are paid with taxpayer money.

What Are Three Simple Examples Of Fiscal Solutions We Can Do Today?

Here's three that neither Republican or Democrat Politian's will talk about. Why not? Simple, for fear of losing votes, from the many who pay no taxes, get the freebie gifts and the mighty military spending promoters.

#1) In America today, almost 47% pay No federal tax. A large segment of American's actual welcome the annual tax filing! The bottom 40% of earners in this country actually make more money from refundable tax credits than they pay in income tax. That's a serious fiscal problem. And it's been on-going for years.

How can we continued to expand social programs, and refundable credits with 47% of Americans paying NO federal tax? The same group pays very little to no state tax too. Surely everyone should pay a nominal 5% minimum federal tax.

#2) America's need to wake-up. We can't continued to be the Worlds Private Police and Military Force. Sure we want to keep fighting terrorist but Ronald Reagan did it with a very tiny middle-eastern footprint through a policy of funding your enemies - enemy, not building expensive military bases in every country.

This isn't the cold-war where the terrorist have real WMDs like the Russian's. The rag-tag Al-Qaeda has no nation; doesn't have a nuclear navy; nor intercontinental ballistic missiles with thousands of nukes inside MRV's pointing at every American military base and major city.

This isn't WWI, WWII, Korea or even Vietnam. So why are we spending like it is? True, it does create jobs and profits. But, American military spending promoters will say we can't afford to provide shelter for American's homeless but we'll spent billions to rebuild a nation we had no reason to invade nor occupy.

The U.S. spends almost as much on its military as the rest of the world combine. No wonder other countries have better health care and social security systems.

Many attributed the rapid rise of Japan's economy, after WWII, to its absents of military spending and total economic focus. The oil rich kings and princess of the middle-east enjoy our military protection with out paying a dime to the US taxpayers.

Compare China's economy during its military focus years (50's, 60s & 70s) to its record breaking growth economy over the last 20 years.
"For 45 years of the Cold War we were in an arms race with the Soviet Union. Now it appears we're in an arms race with ourselves." Admiral Eugene Carroll, Jr., U.S. Navy

We spend SIX TIMES MORE than the second-largest spender, China. We now spent TEN TIMES MORE than Russia. Even as the U.S. sunk under increasingly crippling levels of debt over the last decade, defense spending rose steadily. Why has China and even Russia become such growing economic powerhouses? Because, they chose to focus more on their economic might then military might.

It's time we do the same.

#3) Keynesian economics, doesn't mean taxpayers need to give $8,000 gifts to first-time home buyers to benefit realestate brokers and give sellers a more inflated price. It doesn't guarantee every American a home nor profit. It doesn't have to mean $3,000 cash-for-clunkers. Although, with that program the states got most of the federal money back in the form of a sales tax and you keep factor workers employeed.

But not even during the recessions of the 70's and early 80's did we force interest rates to historic lows for homeowners and homebuyers. Nor did we giveaway $8,000 house warming gifts. So why did we feel the need to do have to do it this time?

During the depression government worried about providing food and shelter and work for people. So, let's just keep it simple and get back to real Keynesian economics and focus on non-government job creation.

Facelift A Work Of Art & Security

Benjamin Franklin gets a facelift as the Treasury Department just unveiled a new $100 bill, the first remake of the denomination since 1996.




The $100 note is the highest value denomination of U.S. currency in general circulation and 2/3 circulate outside the USA. The denomination is popular when large amounts of cash need to be carried internationally.

Anti-counterfeiting measures are the main reason the United States has been making changes in currency. The currency changes started in 1996 with the $100 bill, followed by a new $20 bill in 2003. The $50 bill got an overhaul in 2004, and the $10 was redesigned in 2006. The $5 bill was upgraded in 2008.

The US government is redesigning the $100 bill to incorporate advances in currency security to make it more difficult to counterfeit and easier for the public to authenticate. The $100 is the highest denomination the US government issues and the most widely circulated outside the US. Although less than 1/100th of 1% of the value of US currency in circulation is reported counterfeit, the $100 note is the most often counterfeited denomination outside the US, according to the US Treasury department.

The new security features added to the $100 bill will help people spot bogus bills. The new security features include:

1. a 3-D security ribbon that runs vertically across the note, with images of bells that turn into 100’s and back into bells as the note is tilted back and forth;

2. and a bell within the inkwell, found on the front of the note, whose color turns to green from copper as the note is tilted.

3. The new note retains the old bill’s security features that have been found effective against counterfeiting: a portrait watermark of Benjamin Franklin, whose image graces the front, that is visible on both sides;

4. a security thread running vertically through the note which glows pink when exposed to ultraviolet light; and

5. the number 100 on the face of the bill that turns to green from copper when the note is tilted.

Mother-of-all-V Recoveries Continues

The steady economic recovery is continuing according to the Conference Board economic indicators released on Monday.

The US has major long-term economic and social issues to manage. Still, there can be no denying that this Stock Market and Leading Economic Indicators (LEI) has been the greatest V shaped recovery of my lifetime.

The index of leading economic indicators beat even the most optimistic forecasts and rose 1.4% in March. Following upward revisions for Jan and Feb, the surprise surge in March now completes 12 consecutive gains for the index.

The coincident index, which measures the current economic conditions, also rose 0.1% in March. Of the four indicators in the coincident index, the largest positive contribution came from nonfarm payrolls. You'll recall that for March, the Labor Department reported that the U.S. economy netted 162,000 jobs -- the largest seasonally adjusted increase in three years.

Ataman Ozyildirim, an economist with The Conference Board, highlighted the positive jobs metric: "Payroll employment made its first substantial contribution to the coincident economic index, suggesting a recovery that is beginning to gain traction."

Now 12 Months Strong of LEI Increases

While recovery skeptics remain, it will be difficult for the economic naysayers to find any negative news should the labor market continue its positive momentum toward significant net new jobs in 2010.

The index LEI has shot above the levels it saw during the 2007 USA stock market run up to DJIA 14,400 levels. But note how the coincident index indicators look like they've barely begun to rise. I've never seen this great of a divergence, has anyone else? Is this a good or bad sign? Does this foretell a reversion to the mean?

Corporate Short-Term Bonds A Safe Play

If you were smart enough to have invested during the dark days of 2008's fourth quarter and 2009's first quarter congradulations. Now what? Well, one alternative is to just let it ride. The market is always forward looking and all leading economic indicators remain high. If you have a long-term plan then stick to it.

But like all markets nothing ever goes straight up or down so you may want to protect a large percentage of your gains by moving into something more conservative. And if you liquidated your stock investments during those dark days now's probable not the time to jump back in. You'd be better off hoping for another 5-8% pull back. Whatever your situation one conservative alternative to doing nothing or hiding your money under the mattress is to invest in Short-Term (no-load)Bond Funds.

Steven Huber, co-manager of the T. Rowe Price Strategic Income fund, says corporate bonds - domestic and foreign - are a good conservative investment within a improving economy and near-term ultra low interest rate enviorment.

Here's a list of some Short term: Bond Funds with the best performance in their category for the last 3 months.

My favorites for those who want no risk but seek yields above the Mutual Fund Money Market Funds (MMF) less than 1/2% yield is to just move your money to an FDIC insured US bank MMF which currently pay just over 1%. It's a pittance return but that's still a 50% increase over Mutual Fund Money Market Funds which are not FDIC insured. So, it's more yield, less risk.

Individuals with more than $3,000, willing to take a tiny bit more risk, should consider my favorite four no-load, extra conservative Bond Funds, from Vanguard:

#1)Vanguard Short Term Bond Index Fund - Investor Shares Class - VBISX
Annual Management Expense Ratio _____0.19%
Annual Portfolio Turnover _____________101%
Total Portfolio Assets ($B) _____________$10.5
Minimum Investment ____$3,000

#2) Vanguard Intermediate Term Bond Index Fund - Investor Shares Class - VBIIX
Annual Management Expense Ratio _____0.18%
Annual Portfolio Turnover _____________86%
Total Portfolio Assets ($B) _____________$3.2
Minimum Investment ____$3,000

#3) Vanguard Short Term Federal Fund - Investor Shares Class - VSGBX
Annual Management Expense Ratio _____0.19%
Annual Portfolio Turnover _____________89%
Total Portfolio Assets ($B) _____________$8.6
Minimum Investment ____$3,000

#4) Vanguard Inflation-Protected Securities Fund - Investor Shares Class - VIPSX
Annual Management Expense Ratio _____0.20%
Annual Portfolio Turnover _____________28%
Total Portfolio Assets ($B) _____________$19.3
Minimum Investment ____$3,000

#5) Vanguard Short Term Investment Grade Fund - Investor Shares Class - VFSTX
Annual Management Expense Ratio _____0.21%
Annual Portfolio Turnover _____________49%
Total Portfolio Assets ($B) _____________$20.4
Minimum Investment ____$3,000

#6) Vanguard GNMA Fund - Investor Shares Class - VFIIX
Annual Management Expense Ratio _____0.21%
Annual Portfolio Turnover _____________63%
Total Portfolio Assets ($B) _____________$32.6
Minimum Investment ____$3,000

#7) Vanguard Intermediate Term Investment Grade Fund - Investor Shares Class - VFICX
Annual Management Expense Ratio _____0.21%
Annual Portfolio Turnover _____________48%
Total Portfolio Assets ($B) _____________$9.6
Minimum Investment ____$3,000

Investment research overwhelmingly shows that lower cost fixed income funds tend to yield higher bond investing returns.
The fixed income asset market is no place for you to try to beat the market and to attempt to get higher returns by picking your own bond. Even professional fixed income asset market money managers do not beat the bond market. The higher the mutual fund company expenses, the lower the net returns to individual investors.

Why Not Long Term Treasuries Bonds Now?
If Treasuries have been such a success story, why not stick with what’s worked? Here’s why: Because they were too successful. When investors rushed into the safe arms of a U.S. government guarantee last in the fourth quarter of 2008, Treasury prices soared and yields evaporated.

Yields have been slowly rising on long-term government bonds. Between the Federal Reserve’s recession-fighting rate cuts and the panicky investors flooding the market, Treasury yields are so low that prices have nowhere to go but down. Bond prices and yields move in opposite directions which is the primary reason I'm suggesting short-term investment grade corporate bonds. “For the most part, today’s Treasury market is a place where the average investor can only lose money,” says 80-year-old Ben Jacoby, co-founder of Brinton Eaton Wealth Advisors and a veteran of the long bear market of the 1970s.

Going forward, the picture looks bleak for Uncle Sam’s bonds. To pay for the gargantuan stimulus package, the government will issue even more of them, flooding the market. “Yields will have to rise for those bonds to find buyers,” says Dan Fuss, vice chairman of fund company Loomis Sayles, and that will depress the value of existing bonds. Now that investors may have regained their appetite for stocks, it’s entirely possible that they’ll dump bonds, further driving up supply. Another threat to bond values is inflation, which, by reducing the future value of bond yields, also puts downward pressure on prices.

You might think that if the stimulus spending proves inflationary, you should take a look at Treasury inflation-protected securities, or TIPS. But those have low yields too, and Fuss isn’t upbeat about their prospects. “It will be a while before there is any inflation to protect yourself from,” he notes. Still, everyone agrees as the economy continues to improve inflation will return. The price of Oil has already doubled from 2008's fourth quarter low.

Investing : Iraq vs. California Bonds

I have never considered the relative merits of an Iraqi bond versus a California state bond, but a reader of my toolbox for finance article, Military Entitlements Are Impoverishing Us, forwarded me an article from the Boston Globe on investing. This short excerpt from the Boston Globe makes an alarming comparison that indirectly makes one of my articles points. The piece is about two intrepid buyers of really scary emerging markets bonds from places like Venezuela, Dubai, Pakistan and Iraq. The comments about California and Iraq are most amazing.

Michael O’Hanlon, who tracks indicators of progress for the Brookings Institution’s Iraq Index, said that “Iraq has continued its remarkable trajectory of improvement.’’

“It is still fairly violent by Mideast standards, but many countries in places like South America have higher overall levels of violence now from crime,’’ he said.

Traditional Wall Street investors have taken note. Iraq is now considered a safer bet than Argentina, Venezuela, Pakistan, and Dubai — and is nearly on par with the State of California, according to Bloomberg statistics on credit default swaps, which are considered a raw indicator of default risk.

“Compared to California, I’d rather bet on Iraq,’’ [Emerging market bond investor Saleh] Daher said. “Iraq is a country where there are still bombs going off and people getting murdered, but they are less indebted than the United States. California is likely to have more demands on its resources, and there is no miracle where California is going to have more revenue coming out of the sky. Iraq has prospects for tremendously higher revenues, if they can manage to get their act halfway together, which they seem to be doing.’’…

America has wasted a fortune to invade and occupy a nation that was no military treat to the US nor did it have WMDs. Now America Taxpayers are forced to spend another fortune to maintain security and rebuild Iraq at no cost to Iraq. We got the world to forgive Iraq debt as we piled up debt. Iran loved the fact taxpayers paid the cost of eliminating their number one enemy, Saddam. Now the Middle East, Oil Sheiks enjoy $85 dollar oil and the protection of the American taxpayer military, thanks to their Uncle Sam.

The cost of Iraq and Afganistan occupation nearing ONE TRILLION DOLLARS.
Now this astronomical number doesn't include the cost of a life time of medical and psychiatric care nor disability payments for wounded soldiers.

It's time the US concentrate more on its Economic Might, if it wishes to keep its Military Might.

Mother-of-all-LEI Recovers

Did you find the sharp turn in the market upward last year surprising? Is the continued thundering stampede of bulls running upward still totally baffling to you? Yes. Well then, take a look at one of America's most accurate predictors of future economic health (above).

The LEI index (leading economic indicators) has gone straight upward,for one year. It now stands at a new four year high. A high point above the 2007 level when the DJIA reached the 14,000 level.

This has been the mother of all LEI recovers. While we're not experiencing a V shaped employment recover we sure had one of the sharpest V shaped LEI recovers in history.

Hopefully this sharp 2009 market reversal, which was even greater than the 2003 bull run has convinced everyone that, if you're going to invest in the market, you need a long-term plan. No, your plan shouldn't be: I'll only invest after everyone agrees the economy is firing on all cylinders and sell only after I've watch my portfolio decline by 50%.

Over 35 years of market experience has taught me, more than all my finance classes, that stock markets are forward looking not backward looking.

Too many people choose to liquidate all of their stock holdings during the horrible market down days of November 2009 through February 2010. Worse yet, many choose to lock in their market losses AND take the money out ignoring their Uncle Sam's 10% early distribution penalty.

So, they: 1) Locked in there market losses; 2) Where not able to take any capital loss deductions on their tax returns; 3) Had to pay a tax 10% penalty for early withdrawal; 4) Most likely where pushed into a higher tax bracket which resulted in more tax due than normal; 5) Missed out on a once-in-a-life-time market turn around.

Below are the micro details of the LEI along with economist comments. The Conference Board Leading Economic Index® (LEI) for the U.S. increased 0.1 percent in February, following a 0.3 percent gain in January, and a 1.2 percent rise in December.

Ataman Ozyildirim, Economist at The Conference Board: “The LEI for the U.S. has risen rapidly for almost a year now and it has reached its highest level. But, the sharp pick up in the LEI appears to be stabilizing. As the economy moves from recovery into early phases of an expansion, the leading economic index points to moderately improving economic conditions in the near term. Correspondingly, the coincident economic index has been rising since July 2009, albeit slightly because of continued weakness in employment.”

Adds Ken Goldstein, Economist at The Conference Board: “The indicators point to a slow recovery this summer. Going forward, the big question remains the strength of demand. Without increased consumer demand, job growth will likely be minimal over the next few months. ”

The Conference Board Coincident Economic Index® (CEI) for the U.S. rose 0.1 percent in February, following no change in January, and a 0.1 percent increase in December. The Conference Board Lagging Economic Index® (LAG) increased 0.3 percent in February, following a 0.2 percent decline in January, and a 0.4 percent decline in December.

Note: I'm still sticking to my prior post regarding caution, buying more conservative dividend plays and selling the biggest winners into this advance now. It's possible we can hit Dow 11,000, before any pull back. But I'll be selling into advances and still betting we see another 5-10% pull back beginning no later than May. See prior post for more details.

Pause or Pull Back Time ?

Ok, so we made some more money, now what? Hold'em or fold'em? I'm in agreement with Mr. DoJo above. I'll keep it simple. The probability of another two weeks like the last two is slim and none. I hate to try to play the market timing game but after a monumental run up this is a better time to sell than buy. At best I'd guess we have a sideways zigzag trending to the downside. So if you're in an index type fund and want to be safe rather than sorry sell Monday or into the next up day.

Now this is not to say in a pull back all stocks will fall. No. Some stocks will hold ground and some will even rise. But can you tell me which ones? If you're smart enough to know which ones those are please post your picks for all to see. Since I'm not that smart I'd say if you want to hold or buy some stock now than first look at those blue chips paying fat dividends which have not enjoyed any big increases like BP, XOM, LLY, VZ, T, PFE and MO. Utilities can work here too.

The oil sector service stocks that were sizzling hot in 2009's first two quarters look sick and weak. Still if you get a chance to buy RIG or DO around $80 or below do so. Mr. Cramer says buy WFT. The natural gas index UNG declined the whole month of March. While there is good reason not to like this ETF index I'm buying at $7.45-7.50 today. This index has now been declining for two years, so I'm betting my downside risk is low. A related stock pick would be CHK.

So, I'd sum up my view as selling all big winners this month and reinvesting ( or holding)1/3 to 1/2 in the areas I've discussed.

Market Making You Nervous Nelly?

In 2009 the USA market had the greatest nine month advance since the 1930's. Now what are you planning to do with your money in 2010? Do you feel like nervous Nelly?

No faith in the stock market, short-term outlook? Worried our government's monetary policy will lead to rapid inflation that will reduce the value of your high grade corporate bonds? No interest in investing in tax-free muni-bonds, because of the rising financial problems within states? Not ready to lock-in your money for 5 years in a CD paying a whopping 2.0%? Tired of sitting safe and liquid inside a stable Money Market Mutual Fund paying a ridiculously low 1/4%?

If you've answered YES, it's time to consider investing in some blue chip dividend paying stocks.

When your money earned 5.5% in safe FDIC insured bank accounts owning a stock paying 2.5% sounded unappealing. But today it's a whole different financial ball game. And you need to wake up and smell the dividends.

These companies recently raised dividend distributions, a sign of positive business outlooks.

AT&T (T), which is one of the top telecommunications companies in the US, increased its quarterly dividend by 2.40% to 42 cents per share. AT&T has increased its quarterly dividend in each of the past twenty-six consecutive years. The stock currently yields 6.00%. (analysis)

“Our 26th consecutive annual dividend increase underscores the Board’s continued commitment to stockholders and confidence in our strong financial position,” said Randall Stephenson, AT&T chairman and chief executive officer."

This was the slowest dividend increase for the telecom company in 8 years. The company already has a very high payout ratio of 83%, which leaves little room for further dividend increases, without a substantial increase in earnings per share. Still a steady rise in smart phones and iPhones sales (with consumers buying more expensive wireless internet connect services) should more than off-set landline sales declines. Verizon (VZ) which I own, is a similar investment play.

Pfizer Inc. (PFE), which engages in the discovery, development, manufacture, and marketing of prescription medicines for humans and animals worldwide, increased its quarterly dividend by 12.5% to 18 cents per share. The stock currently yields 3.90%. The company cut its dividend in early 2009 after announcing its intent to acquire rival Wyeth in a 68 billion deal. Although the dividend appears to be well covered today, the business model which had previously allowed Pfizer to raise dividends for 41 years appears to be broken. Over the past decade the company has acquired new drugs through acquiring rivals and not organically through R&D. Without solid underlying strength in fundamentals, which would propel future earnings growth, the possibility for a long-term sustained dividend growth is low.

Dominion Resources (D), which engages in the generation, transmission, and distribution of electricity. The company generates electricity through coal, nuclear, gas, and oil resources, increased its quarterly dividend by 4.60% to 45.75 cents per share. This is the seventh consecutive year in which Dominion Resources has raised its quarterly dividend. Dominion Resources (D) does look like an interesting utility company, with one of the lowest payout ratios in the industry plus some solid earnings and dividend growth. The only issue is that the company does not have a long history of raising distributions. The stock currently yields 4.50%.

Hatteras Financial Corp (HTS) invests in adjustable-rate and hybrid adjustable-rate single-family residential mortgage pass-through securities guaranteed or issued by the United States Government agency, or by the United States Government-sponsored entity. The company announced its fourth consecutive distribution increase to $1.20/share. The new dividend is 4.3% higher than its Q3 dividend, and 20% higher than the distribution from this time last year. The stock currently yields 15.80%. While the yield might be tempting it is important to understand that the company makes money by borrowing money using short-term rates and then investing it in long-term government agency bonds, while earning a return in the process. This exposes the company to fluctuations in interest rates. If the FED starts raising rates in 2010, companies like HTS might be negatively affected in the process.

Waste Management, Inc. (WM), which offers collection, transfer, recycling, disposal, and waste-to-energy services, increased its quarterly dividend by 8.60% to 31.5 cents per share. This marks the sixth consecutive year that the Company has increased its quarterly dividend. The stock currently yields 3.50%.

BCE Inc. (BCE), which provides a suite of communication services to residential and business customers in Canada, increased its quarterly dividend by 7% to 43.5 cents per share. This is BCE's third increase to the annual common share dividend since the termination of its proposed privatization agreement in December 2008. The stock currently yields 5.90%.

General Mills (GIS), which engages in the manufacture and marketing of branded consumer foods worldwide, increased its quarterly dividend by 4.2% to 49 cents per share. General Mills has increased its quarterly dividend in each of the past six consecutive years. The stock currently yields 2.80%.

This is just a small list of possibilities. I'll share with you in a future blog a list of blue chips many consider the Best-of-Breed.

Remember, I advise low net worth investors, to consider the benefits of a diversified Mutual Fund Portfolio as a safer alternative to putting all your financial eggs into a couple of stocks. The odds of us picking the next GOOGLE or APPLE stock are slim.

Financial Disclosure: On 3/11/2010 of the stocks discussed within this article I held positions in Version and Pfizer

Large-Cap Stocks Are The Cheapest They've Been In 30 Years

Barton Biggs the crusty old 1999 Bear now turned Bull is betting on one more year of another positive market.

Nothing like last year but still something better than a 1.8% Bank CD.

(This guest post comes courtesy of The Mad Hedge Fund Trader)

Confessions of a Bull. Barton Biggs, founder of mega hedge fund Traxis Partners, spent an hour outlining his current investment strategy with me. Barton is a man of strong opinions, backed with intensive research, which he communicates with his characteristic gravel voice. I spent the better part of the eighties debating every pebble of the investment landscape with Barton. As I recall, what to do about Japan was the topic of the day, and I was bullish.

Today, Barton can say with "real certainty" that large cap multinational equities are the cheapest they have been in 30 years using sophisticated models that analyze price/sales, price/free cash flow, price/earnings, and a whole host of other metrics. Looking just at price/book ratios, these stocks have been this cheap only three times in the last 120 years.

Big cap technology stocks, like Microsoft (MSFT), Intel (INTC), Cisco (CSCO), and Oracle (ORCL) are at the top of his list. Other multinationals with plenty of emerging market exposure are attractive, such as Caterpillar (CAT). The easy way in here is to simply buy the S&P 100 ETF (OEF).The market is now at a 15-16 multiple, discounting S&P 500 earnings for 2010 at $75/share. A stronger than expected economy will take that figure as high as $90/share, which the market is not expecting at all.

Barton sees the US as half way through an economic recovery, and the main benchmark indexes could surprise to the upside, as they have such heavy big cap weightings. He would avoid domestic companies, such as those in real estate, as the environment for stocks generally is poor. He foresees a "new normal" of a lot of volatility in stocks for the next 4-5 years. Longer term he sees US GDP growth downshifting from the heady 3.8% annual growth rate of the last decade to only 2.5 % in this one.

But big cap multinationals should be able to bring in a reliable 5%-6% annual return on top of inflation. Looking at the world as a whole, Barton thinks Asia is the place to be. A bubble may be developing in China, but it is at least 3-5 years off, and there will be plenty of money to be made until then. India is another big pick because it is ten years behind China, and has yet to experience its big growth spurt. South Korea, Thailand, H-shares in Hong Kong, and Turkey are also lining up in Barton's sites. Looking at a 1%-1.5% growth rate, things look grim for Europe, with the possible exceptions of Poland and Russia. Traxis is short Brazil, because it has already had a great run, and because the country still faces some severe social problems.

Commodities had their run last year, and won't do much from here, but they aren't going to crash either. He sees oil grinding up because the cost of new sources is becoming astronomically high. Barton avoids gold because it has no yield or PE, and would rather not be associated with the crazies that inhabit that space. Bonds will be deflation driven for the next year, but are definitely not for your "Rip Van Winkle" investor, as they represent poor value for money. Real estate is dead money.

To hear my interview with Barton at length, please click here.

Featured Trades: (MSFT), (INTC), (CSCO), (ORCL), (FXI), (PIN), (EWY), (THD), (EWT), (EWH), (TUR), (PLND), (RSX), (EWZ), (USO).

NOTE: Give me a pat-on-the-back for my last months call on the third mini-market correction (-7%) ending. I'll call your attention to just one good guess...AIG then $23 now $33.

Now lets just hope the market can inch out a new high. But I'd be shocked if we got above 11,000 before May. And the biggest opportunities in this bounce came from the stocks that rolled-over last Sept. many in the Oil Service and Financial sectors, along with my two China small cap. picks.

We Got Our Pull Back

The correction may not yet be over but bears were in covering shorts today after a two day 400 point decline. Best to buy on down days and sell on up days until the market shows signs of life again. We've yet to get one 10% correction but this one should come close. Frankly I'd love to see a pull back to 9,500 but 9,800 may be it (for now).

This video calls attention to Exxon as hitting a double bottom. Integrated oil stocks often do poorly in the first year of a market bounce. As the market climbed in 2003 most oil names like Exxon, BP and Marathon were flat in 2003 and didn't start climbing until 2004. They tend to lag the market and refiners have been hurt by the high cost of crude oil and relatively low pump prices. Oil stocks not impacted by refining with bounce potential are DVN and service stocks like SLB.

For those who like safe plays with great dividends time to buy Exxon, Lilly, Verizon and Intel. Other low risk plays at current prices are: DELL, PFE, BAC, HIG. For those who want international safe plays with very fat dividends consider VOD, DT or SKM at current price levels. For those looking for long term growth plays in China consider investing in RINO and YONG at these price levels after a major correction in price to both. The China telecom stocks (CHL and CHA) look very interesting at these prices too. Every since China announced they were tighting up on Bank lending the China market has been falling. The inverse ETF FXP hit a record low this fall but has been climbing upward for eight weeks.

All commodities connected stocks have had a major correction. So if you believe in an improving world economy then it's time to buy stocks like US Steel or Alcoa. US Steel below $43. Natural gas in the USA should hold strong after a two year decline. The ETF UNG has issues but more and more people have been buying into it expecting the USA cold winter to increase demand for NG. Lots of oil service plays look like big values e.g. MRO, HLX and ESV at current prices. The worlds largest deepwater driller RIG is always a great buy on pull backs (below $80 is ideal). For those who want a high risk high reward and high octane possible play, consider AIG right now. It was the talk of the town when it went from $10 to $50 last summer (after a major reverse stock split). It's been falling back all fall and winter. AIG is now back down to $22. Insurance companies have all turned in good earnings reports and if Yahoo's earnings forecast for AIG in 2010 are even close with a current market cap of under five billion I'd expect AIG to have lots of upside potential. Citi at these current prices below $3.50 is another low risk wild card play.

Note: I do a lot of USA TAX work during tax season so my post will be fewer from January through March.

2010 Market Probability & 5 Focus Areas

Is it 1931 or 1983? The bulls see the market mimicking 1983, the bears point to 1931. Those in the middle see many similarities with 2004. Barron's Michael Santoli reports. Not that 2010 is likely to disappoint. "We're back to an environment where the fundamentals have to come through," Doll said. "Companies have to deliver the earnings. When it's an earnings-driven market, there are gains but more muted gains."

Indeed, the biggest difference could be that stocks in 2010 are founded on tried-and-true measures -- financial strength, earnings power -- rather than high-octane speculation. That would favor big multinational firms in cyclical and growth industries that stand to benefit from economic improvement, namely technology, energy and industrials.

Technical and historical factors are at work as well. Sam Eisenstadt, former research chairman at Value Line Inc. and a veteran market observer, wrote in a recent MarketWatch commentary that evidence points to an above-average 2010 for stocks.

"After the first nine months of the stock market's rally from recession lows, the average pace of the stock market's advance clearly slowed," he noted. "But, and this is crucial, the market tended nevertheless to continue rising." He pegs the S&P 500 at 1320 by year-end.

MarketWatch commentary. This year the bulls have a good chance to retain the upper hand, though not without setbacks, and investors will have to be more selective. In that light, here are 10 ways to position your portfolio through 2010:

1. Buy stocks with a global footprint
In a slow-growth environment, bigger is better. Big companies have the clout to counter adversity and capitalize on it. "Bigger" in this case also refers to companies of any size with a broad global presence. Global companies have diverse revenues and operations, which both insulates core businesses and fosters innovation and expansion.

U.S. companies in the past decade have been impressive examples of how to operate effectively overseas. Moreover, these companies are exporting their business to fast-growing emerging markets. Almost half of the revenues for companies in the Standard & Poor's 500 stock-index now come from outside of the U.S.
"The demonstrated ability of S&P 500 companies to replicate their business [overseas] and earn attractive margins and returns abroad is the most important development of the decade," wrote David Bianco, Bank of America Merrill Lynch's chief U.S. equity strategist, in a December report.

"The global economy is going to continue to integrate," added Gary Motyl, chief investment officer of Franklin Resources' Templeton Global Equity Group. "Companies that have the best managements, strategies and balance sheets are going to take advantage of this." He said Pfizer Inc., is a good example. "What isn't reflected in the stock price," Motyl said, "is this company's ability to move into the emerging markets."

2. Use stock dividends as a bond substitute
Shares of companies with strong balance sheets and stable earnings growth are not only better-equipped to handle the economy's waves, but their dividend income is a welcome alternative to the uncertainty swirling around bonds.

"Current dividend yields relative to bond yields provide an attractive opportunity for investors," wrote Brian Belski, chief investment strategist at Oppenheimer Asset Management, in a recent research report. "A prolonged period of low bond yields may encourage investors to begin seeking alternative ways to increase income, and high-quality, dividend-paying stocks may be a solution."

Oppenheimer's recommended stocks fitting this bill include Johnson & Johnson, AT&T ( Bill Wright suggest Exxon, VZ, LLY, MO, PFE, VOD and DT at todays prices)

3. Buy larger-cap index funds
Large-cap stocks lagged their small-cap and midcap counterparts in 2009, but many observers say that big firms' time has come.

"Large, blue-chip companies are the last remaining pocket of undervaluation," said Keith Goodard, co-manager of Capital Advisors Growth Fund. "A basket of blue-chip companies with a 3% to 4% dividend is not a bad place to be."

If larger-company U.S. stocks outperform small-caps, then shareholders could do well holding index mutual funds and exchange-traded funds that track plain-vanilla, large-cap benchmarks such as the S&P 500, the Dow Jones Industrial Average .

Many S&P 500 companies, for example, provide global exposure, high-quality earnings, seasoned management and attractive dividends -- attributes that investors could increasingly value as the year unfolds.

"We believe that 2010 will be another positive year for stocks, and we established a 2010 price target of 1,300 for the S&P 500," Oppenheimer's Belski said. That would mean a gain of almost 14% for the index from Friday's close of 1145 -- a standout return for the market.

4. Stick with technology stocks
Technology funds were the best-performing U.S. sector in 2009, up about 63%, and technology is again the largest S&P 500 component. ( Bill Wright says buy intel on the pull back, even Dell at todays prices)

That's a cautionary note, but the sector's earnings prospects are nonetheless strong. S&P analysts are among those upbeat on tech stocks. "The sector is poised to benefit from a healthier global economy, a notable PC replacement cycle and considerable international exposure," the analysts noted in a recent report.

"They've got robust balance sheets, phenomenal free cash flow, and while the stocks have done well and valuations aren't as cheap, there is room for them to outperform," BlackRock's Doll said of the tech sector. He favors computer software and services companies over hardware and semiconductor firms, namely Microsoft, IBM and Oracle

5. Plug into the energy sector
Energy stocks have been on a tear so far this year. Energy-sector mutual funds are up almost 7% on average, on top of a 46% gain in 2009, according to investment researcher Morningstar Inc. The energy bulls are banking on a continuing global recovery and strong emerging-market demand, and strategists at Bank of America Merrill Lynch are squarely in that camp.

"Energy is our preferred global recovery play" and could be the year's best-performing sector, depending on oil prices, Merrill strategists wrote in a recent research report.

S&P analysts are also bullish, particularly for companies in the integrated oil and gas industry. But it's a tempered call that hinges in part on the global economy making a smooth transition from one that has relied on government stimulus to one that is earnings-driven. S&P's favorite energy stocks include Chevron Corp., Exxon Mobil Corp. and Superior Energy Services Inc.

For more market news and education go to Window To Wall Street®.

Note: Small investors should always first consider the benefits of a professionally managed (or unmanaged index) diversified mutual fund portfolio over owning individual stocks and bonds. All investing can result in losses.

Disclosure: At the time of this blog post I hold positions in the following stocks discussed in this article: Exxon, Lilly, Verizon Wireless, Vodafone and ESV.

USA Revenue Tax Facts

How progressive is your tax structure?

This chart illustrates the progressive structure of the federal income tax system as seen in the average tax rates (center column) computed from tax returns filed in 2007. For example, the top left block indicates that the top 1% of tax returns reported $2.0 trillion in adjusted gross income, which was 22.8% of the total adjusted gross income of $8.8 trillion for the year. The top right block indicates that $451 billion in income taxes was collected from that group, which amounted to 40.4% of the total $1.1 trillion of income taxes for the year.

The progressivity of the income tax system is further demonstrated by the fact that the top 1% paid more income taxes ($451 billion) than the bottom 95% ($438 billion).

I'm not at the top or bottom of the USA Tax food chain. No doubt everyone's view is reflective of where they are on the tax ladder. It is no surprise your view on (FICA taxes) Social Security and Medicare taxes (and health insurance) most often reflect ones age.

Instead of the stereotypical conservative or liberal view, I'd like to examine this from a business or investment prospective.

For example, in investing like business, it pays to diversify. A business built on ten jumbo whale clients is at greater financial risk than one built on ten thousand little tuna's. So, I'd say the USA (like any school district) needs to focus on growing a vibrant middle class tax base. We can't continuously seek to fleece the top ten percent. Now just to show I'm not one dimensional in my thinking, I've continued to lobby against the notion that having a ultra low Zero to 15% capital gains rate will reverse the decline of America. A few Conservatives need medication for their Capital Gains OCD. Some liberals need medication for their tax, spend and giveaway OCD.

The linchpin hinges on America's ability to expand taxpaying middle class jobs again.



The Internal Revenue Service uses percentile categories (Top 1%, 95% – 99%, 90% – 95%, etc.) for purposes of analyzing income tax data. A total of 141,070,972 tax returns were filed by individuals in 2007.

The IRS analyzes tax return statistics to determine various percentages. For example, this table indicates that the top 10% of taxpayers paid $794 billion, which accounted for 71.2% of the total income taxes paid by individuals in 2007.

This shows just how progressive a burden is put on upper income earners. One might even gasp with amazement if one saw the tax revenues collected from homes and sales taxes broken down buy income group too.

It will be interesting to see the results for 2008 and 2009 during the Great Recession.

Taxes, even among those who pay no federal taxes, always generates much heated discussion. It's always easy to look at those earning jumbo sums of money and say they can afford to pay any and all taxes.

But seeing how dependent America is on so thin a tax base, makes it even harder to reduce our government debt. I'd rather see more people earning more, who in turn will pay more tax. Building on a broader base (with the upper end never having to pay more than 35%) would be more idea for rich, middle-class and poor alike.

I also found this on IRS.gov Tax Stats at a Glance for 2007

It shows a summary of Collections Before Refunds by Type of Return, FY 2007

This table shows 138,893,908 individual income tax returns that collected $1,366,241 million. This means an additional 2,177,064 returns where filed and rebated $266 Billion. If I remember correctly, the budget in 2007 was $2.8 Trillion. This means the individual income tax was only 39.3 percent of the budget. Corporation income tax was only 14 percent. Employment(FICA)taxes were 30 percent.

Since high earners have their social security taxes capped and many say consumers pay corporation taxes as well as sales taxes, some people say taxes are more evenly spread across the population than simply comparing who pays the most federal income taxes. Still I've got to believe the annual real-estate taxes on those multi-million dollar first and second homes plus sales tax on those million dollar yachts, more than make up for any cap on social security tax.

Any thoughts on the current tax system? Should we raise the marginal tax rate up to 39.5% or cap the top federal tax rate at 33% and just have FICA taxes on incomes up to $250,000? Anyone from another country wish to trade tax systems?

Note: In 2007 no earned income above $97,500 paid FICA taxes of 3.5%. Today FICA has gone up to 4.7% on wages up to $106,800.

Is Another Breakout Possible?

Hard to image, but with the VIX at a 30 month low and Oil sticking again at $80 a barrel we could see many commodities related stocks break to new highs before we roll over.

USA stock fundamentals have been improving. Even if the top lines are not expected to grow, profits will, resulting from two years of layoffs and hiring freezes. This market has been like a snowball rolling downhill and picking up momentum as it goes. It just feels like the worst case scenario near term is only a 5% downside risk. But of course, that's for the aggregate market, not individual stocks. Still plenty of 10-20% pull-back risk in individual stocks. At this point in the game I'd beware playing break-outs and look more for quality names in a pull-back (falling wedge patterns)e.g. Exxon. U.S. Steel for example is back at the top of it's range. It's been climbing for two months to reach new 12 month highs. Purhaps the US declaring China is dumping steel and plans a small but important tariff caused US Steel (X) to hit those highs. Long term you know USA steel is in recover but you can also see how easy it was for it to fall back 20% last fall. Note how it dropped 20% even as the market continued to climb.

Keep an eye on those individual stock trendlines and range bands. I've seen to many market tech. newbies only recommending buying individual stocks on breakouts to new highs. At this point in the game thats a very high risk play. Best to buy cyclical stocks only after a falling wedge pullback. I read two Seeking Alpha gurus telling people to by POT after it had a 30-35% run up. POT and gold stocks (GG, ABX) where at the top of their buy list two months ago. Why can't these guys right these articles before the 30-35% run up? As expected the big boys sold into those new breakouts and the stocks just fell back down 20-25% making those recomendations look stupid and sending the sheep to their financial death in a roaing bull market. But you can bet as they hit those imaginary support lines the big boys come into to buy them again. Note how deepwater drillers RIG, DO and ESV had been in a fallen wedge pattern like Steel stock X and Bank stocks C and BAC since early fall. All these stocks began climbing again in December when it was clear oil was not falling below $70.

Now steel stocks like X have hit new highs. I sold my US Steel(X)much to early into this advance. Health care providers like AFAM and AMED hit new highs. Two weeks ago the deepwater drillers began their climb and oil transport tanker FRO is holding close to highs. Now the drybulks shippers like DRYS, GNK and DSX are showing strenght and look set to move backup to their highs from a few months ago.



Over the last three months little money has been made on betting on any 10% move in the index up or down. The market is so stable it's hard to make money with the ususal ETFs. Best to look for turning points and pull backs. One ETF I've continued to make money with in spite of it's issues is Natural Gas play UNG. It fell all last year but on three occassions I made money buying at new low extremes and selling into the bounces that always followed. This year with a recovering economy and winter cold snap I'm betting the institutional buyers will be pushing this into a new upward trend.

In a steady eddie stable market the money has beem made in selling cyclical stocks reaching new highs and buying those stocks on major sector(falling wedge)pull backs.

One need only look at the charts of Steel stock X or Oil driller RIG and ESV along with refiners to see examples. At this point I'm selling airline CAL which recently hit new highs to buy Exxon (XOM) and more drybulk shipping. I loaded the boat on the dog with fleas stock Citi (C) along with a little BAC and GE on this most recent pull back. No need to sell them until they return to their old highs of last year. No need to worry about any panic sell-off in the first quarter like last year with bank stocks.

Health care and big pharma stocks like PFE (3.5% yield) and LLY (5.5%) paying high stable dividends are safe value plays. Lots of telecom dividend plays, with VZ yielding 5.5% and VOD with 5.5%. Korean play SKM and China Mobile paying 3.5% in a strong growth markets have fallen back from last summers highs. I recently picked up both shares alone with steady eddie MO. With USA money market funds paying less than 1/2% any steady eddie 3.5% or higher dividend play is a safe bet in this market.

The eBook Play

Happy New Year! Wishing you all a fantastic happy new year. May good fortune shine it's light on you.

The future is now. Finally we're starting to get serious about digitizing text books. But don't think you'll save hundreds annually by getting all your college text books free throught Bit Torrents. Or am I wrong? Have you already figured out how to get the most current digital versions or just the old versions? Either way I'd image there are problems utilizing them. Students who like digital everything, say they still prefer the printed book at this point. So, it looks like there is lots of product, price and place details to work out. Nothing new, that was true with the cellphone, mp3 players and laptops too.

You know the management teams of printed textbooks don't want to lose their cash cows. You know the thousands of university college bookstores don't want to lose their on campus monopolies'. Each will want a cut of the pie.

Still, you guessed correct...Amazon's Kindle has companies like Sony and Apple scrambling to create a similiar product to sell to you. Early adapters always pay preme prices for the newest must have gadget. These things will are selling for as much as a new mid-level budget PC's or high end notebooks. How many gadgets can we carry at one time? Can Kindle's do text books too? Not at tech issue. It's your basic open source system vs closed code system issues.



On the day after Christmas, Amazon said the Kindle was the most-purchased gift in its history and sales of its electronic books surpassed physical book sales on the holiday itself. Amazon Kindle is a software and hardware platform developed by Amazon.com subsidiary Lab126 for rendering and displaying e-books and other digital media

Now Coursesmart, a joint venture of five textbook publishers, shows how students might use tablet-based textbooks. It is based on their own renderings, not specific applications being developed with Apple. Yes, I said Apple. No suprize Steve Jobs is returning to his special niche with Schools. In the 80's it was a wedding business strategy to give the schools Apple computer at large discounted prices. A loss leader, to capture their hearts and mind for future sales. But by the late 90's many parents wanted their kids to be learning on PC's for the business world which helped Dell and Gateway grow within the school system. And what about Dell? Surely, after watching the Kindle success explode they have been working on a Kindle knock-off? Right?



Now at this point in the game is there an investment play? Clearly in 2009 the play most related to this subject was Amazon and Apple. No Apple's not even announced a Kindle killer. But most Apple investors are holding onto thinking this stock is going higher based upon iPhone China sales alone. At these levels, I can't own either stock but the mighty Jim Cramer says don't sell, he perdicts both will go higher. No question American consumers are hooked on using Amazon and Apple products has become an American status symbol.

Can we see people buying two ebook readers? One for Standard Print Books and one for School Text Books? Gadget lovers yes, but the vast major of budget minded people will want to find just one device that can due multiply funtions. In 2005 the concept of a tablet laptops was gaining momentum -it faded fast. By 2007 the selection, power and price points on laptops under $1,000 was motivating record levels of buyers. In 2009 regardless of the greatest American recession notebooks where flying off the shelf's at $399 price points.

Given there's nothing extremely unique behind any of these technologies, can anyone see one primary light-weight high-powered device that does it all. Assuming we'll always want a very small mobile phone, I'm referring to the possibility of the Tablet PC/Laptop returning to the lime-light. I'm wondering if a Tablet PC as light as Apple Laptop Air and with a phone like slide out or flip up key board can do it all? What do you think? Does anyone have any micro-cap plays related to the future of ebooks?