bearfund

• When the Market Runs Out of Lifeguards, Will You Sink or Swim? [view article]

  Marvin, think what you're saying. If we're going to pay through the nose for years and years because regulators keep screwing the pooch, what form do you think that payment is going to take? That's right: more borrowing. Those "stimulus checks" you heard about (but almost surely didn't receive)? Borrowed money. The next ones will be, too. Raising taxes will only lead to capital flight and deepening of the recession. The bottom line is that Treasury supply is huge and only going higher. The market is betting big on the dollar going higher, but wait until the Fed starts printing in earnest. I've gone on record as saying the Fed's next move will be down, and I stand by that assessment. ZIRP anyone? Sep 05 12:02 AM

• 10-Year TIPS: An Investor's Benchmark [view article]

  coherent, I'd agree that in a Roth TIPS would be slightly more attractive, but they'd offer no advantage in a regular IRA. Still, the worst problem with these instruments is that they are based on an index controlled by their issuer. It's as if you took a loan from a bank and each month when it's time to make a payment the bank asks you "So, Mr. Commentary, what interest rate would you like to pay this month?" - and whatever rate you name is the rate you pay. Sweet deal for you. For the bank, not so much. Sep 04 09:25 AM

• 2 Top Energy Sector Bets [view article]

  Electric cars: everything that's bad about cars, but the pollution comes out of a bigger pipe farther away! Gee, what's not to love? Sep 04 12:12 AM

• 10-Year TIPS: An Investor's Benchmark [view article]

  Don't forget to pay ordinary income tax on the accretion! That's right; the "gain" that even the government openly admits is not a gain at all is subject to taxation at the max rate.
  
  TIPS are a horrible investment. They pay a miniscule return on top of a mind-bogglingly defective index controlled by their issuer, and when taxes are factored in you're lucky if you have a paper profit at all, much less a real profit. With debasement running 7-12%, the CPI at 5%, and taxes at 35%, you'll be lucky to lose only 30% of your purchasing power over your 10-year holding period. Sep 03 11:50 PM

• Four Reasons Why Gold's a Slam Dunk Investment [view article]

  barrick, sure, the "gold/oil ratio" is nothing but measuring the true price of oil. Why should it be constant? As you note, oil is being consumed and not replaced. That does not mean that the value of gold falls; the supply of gold does indeed rise over time, but the real economy grows as well. What grows fastest of all? The supply of fiat money, of course. Gold priced in goods and services is unlikely to appreciate or depreciate much at all. Gold priced in fiat money is holding a one-way ticket to infinity. Does that mean you should "buy" gold? Meh. Hold gold, hold dollars, it's all the same to me. If you don't care about preserving your purchasing power over time, the dollar is great for making you feel wealthier while you become poorer. If you do, gold is really the only game in town. Your portfolio, your call. I know where my wealth is, and I'm quite happy with gold, thanks. Sep 02 11:28 PM

• Decoupling Of Physical Gold And Paper Gold Prices [view article]

  Margin calls? On gold? You must be insane. Gold isn't a trade and it isn't an investment; it's how you preserve your wealth. Borrowing dollars and selling them for gold is best described as being short dollars. It's a costly bet that may or may not pay off. Why gamble? Owning physical gold free and clear is a sure thing. Save in gold, hold it forever. Sep 02 04:31 AM

• Four Reasons Why Gold's a Slam Dunk Investment [view article]

  SWRichmond, it's best just to ignore CLH and his twin JasonC. They either work for the government or are well qualified to do so. Keep your backside covered when they're around unless you want a hefty dose of sunshine blown up it.
  
  In the meantime I'll continue using gold (which is neither an investment nor a trade) as my functional store of value and my metric for the worth of investments. Gold does not "go up" or "go down"; it simply stores value. Paper money goes up and down, and the prices of goods and services denominated in that paper lag the paper's moves (wrongly leading people to believe it's the metal what's changing in value). In the long run CLH and his kind will be broke and the government they worship will have only more worthless paper to offer for their sacrifices. Those of us who saw through their lies and impossible promises will still have about the same amount of purchasing power we have now, which is to say the same amount of purchasing power we'd have had in 1975, 1925, or 1725.
  
  Yes, really. The first US gold coins were struck in 1849, had a value of $1, and contained .04837 oz t gold; today that gold is worth $40.15. Between 1849 and 1971, the value of the dollar with respect to gold changed slowly; various forms of gold and/or silver standard were in place. Had you kept the 1849 coin until 1970, you would find that the dollar had declined by about half, so that the coin could then buy $2.04. The coin's purchasing power would have been little changed from 1849, but so too was the dollar's - the government forces setting the value of the dollar in those 122 years did a rather poor job of debasing the currency. Since then, however, the dollar has depreciated rapidly. The coin, ignoring historical value, has not. It remains about as valuable today as it has been every day since it was struck - but no moreso. This is why gold is not an investment; it is unlikely to experience a significant increase in real value, nor does it produce income.
  
  By comparison, a Jan 20, 1880 New York Times article suggests that shares in the newly-formed Union Pacific Company, then worth 4.7 oz t gold ($96.50), would now be worth about 147 oz t gold ($122,000), a 2.7% annualized real return not counting the substantial dividends. A good investment creates value; gold merely stores it. This also highlights both the importance of dividends and the tiny real rates of return on even quality investments. Most of the "capital gains" associated with equities are nothing but debasement at work. For example, had you bought GOOG at $96 in August '04, you would have a nominal annualised return of 48% (367% overall). In real terms, however, that's a somewhat less impressive 24% (135% overall) - for buying on the ground floor of a huge success story. Future returns will surely be much lower. Had you bought the S&P 500 in 1970, you would have paid 2.01 oz t ($85). Today it's worth 1.55 oz t ($1283). This reflects the reality that most companies are not very good investments (or perhaps that unsound money weakens any investment). It also means that dividends matter, a lot. Had one either reinvested the dividends or stored them in gold, the outcome would be dramatically different. Conventional wisdom holds that dividends account for 30-35% of total returns. In fact they account for most or all of the real return. Dividend yields in gold are the same as yields in dollars, but capital gains over time are subject to debasement. This is one of the main reasons I prefer dividend-paying stocks: I have the ability to store my income in gold. Most companies that retain earnings do so in their home fiat currency, so that they lose value over time. With a sufficiently long horizon, the average investment will return no capital appreciation in real terms. Therefore, when considering broad market total returns, dividends are in fact the whole story; this is a natural and expected consequence of a free market (capital will be allocated to those investments that produce greater incomes, expanding capacity and lowering incomes, thereby reducing the equity value greatly). That does not mean that the average investment produces no income, however. Choosing good businesses that generate consistent income, capturing and storing that income (in gold, of course), and reinvesting a portion of it selectively (good businesses at good prices), is how an investor creates long-term growth of real wealth. Everything else is speculation, including owning gold in the hope that it will over some period of time "go up" more rapidly than the dollar declines in purchasing power. You can be assured that such imbalances will be arbitraged away; you are doing nothing more than playing a game of chicken with the market. Aug 31 12:16 PM

• 11 Top Canadian Dividend Stocks Available as ADRs [view article]

  najdorf, very true. There is much to like about Canada, but too much of their otherwise healthy economy remains dependent on the US. Most notable, and worrisome, is the extent to which Ontario and Quebec depend on US automobile manufacturers. The agricultural and materials activities in the west offer far more favourable prospects. Regardless of whether there is a population boom (due to continued arctic warming and/or migration out of the sinking US), these activities will continue to generate demand for transportation of both equipment and supplies and output product. A population boom would only serve to increase demand for transportation of consumer goods, since few are manufactured there. All of this is great news for CNI, by far the best company in your list despite its modest dividend. The others are either banks or oil/mining concerns; CNI will continue to benefit from the boom, and when the inevitable bust comes it will still have an excellent business of lasting value. Picks and shovels... Aug 30 02:33 PM

• Report from the Bond War Frontlines [view article]

  The most interesting bond ETFs on the market are PST and TBT. They offer a convenient way to get long exposure to profligacy, pandering, fraud, political incompetence, and central bank indiscipline. That combination of exposure in a single product is hard to beat. Most of the ETFs you mention have short exposure to these. I do not understand why anyone would want them. Aug 30 02:12 PM

• Will You Look Back on Today as Your Greatest Missed Opportunity? [view article]

  These companies have been around a lot longer than 10 years. Using a period containing an enormous stock bubble for comparison purposes when much longer track records are available will lead to overvaluation. A longer-term view shows that the overall market is still trading above typical multiples; the highest and lowest multiples over the past 50 years were about 7 in 1979 and about 45 in 2001. On a log scale (the appropriate measure here), we're a lot closer to the high end than the low. So if you're buying at today's still-high multiples, you are betting on either explosive growth or a return to bubble conditions. Either is possible, of course; the Fed is printing plenty of money, so another stock bubble is not out of the question, but it would seem unusual to have two bubbles in the same asset class in a single decade. As for growth, I don't really see where it's going to come from. These are US companies and some of them do not or cannot export their products (ED, for example). For those that can, the BRICs are cooling down and Europe is its usual sluggish self. Exports grew rapidly last quarter but with the dollar rising and growth abroad slowing or reversing, that trend seems unlikely to continue. About the only thing I can see driving growth in the next few years is a huge burst of government spending ("infrastructure&... fueled by printed money. In that case, good luck guessing at the real value of your returns (and don't forget that you have to pay taxes on the inflation component).
  
  In the longer term, a decade-long deleveraging and large-scale restructuring of the American economy, its citizens' values, and its system of government could restore the kind of conditions that would lead to solid growth and justify today's valuations. But the probability of that happening is much less than 1/37, so you would achieve a better risk/reward ratio by putting half your portfolio in T-bills and betting the rest on 23. In fact that is very much like buying stocks at today's prices: most likely you'll lose about half your investment as multiples contract toward historical bottoms, but maybe a miracle of some kind will occur and people will once again be willing to pay 25x earnings and 50x dividends for 9% nominal growth in an inflationary environment. A curious position to take, but the market welcomes all kinds. Good luck to you. Aug 30 01:45 PM

• Gold Train: All Aboard [view article]

  tvb, if bank deposits or Treasury bills offered a positive real return, they would be good investment candidates as they are low-risk (not zero risk, however; the dollar can and does drop abruptly in value at times, and it may not be possible to get out of these investments quickly enough to preserve capital in such an event). CDs and Treasury notes and bonds also carry duration and interest rate risk as well; that risk has to be priced into the return. But it turns out that for most of the past decade, these assets have offered large negative real returns. The only upside potential is a sudden large increase in the value of the dollar. This too can and does happen; it has happened twice this year. But these movements are to all appearances random and I do not pretend to the ability to forecast them. Therefore bank deposits, CDs, and Treasuries are not viable investments at the present time.
  
  Long-dated Treasury securities were an excellent investment in November 1981; Volcker was beating the hell out of inflation and coupons were in the 14% range. If one bought 100 oz t worth of such bonds at auction and held them until maturity in 2011, he got about $43,000 in face value. Assuming he did not reinvest any of the coupon payments and that the dollar remains at the same value it is today for the remaining 3 years, he will end up with 490 oz t. Considering the limited downside risks in 1981, that's an excellent real return - about 5.44% annualised on a compound basis. Had he sold out within the dollar's plateau between late 1997 and the end of 2001 and chosen a time when interest rates were especially low, he might have done much better still.
  
  So one should not mistake my hatred of Treasuries for a permanent bias; it is clearly possible to obtain a nice return from them under the right circumstances. However, today's circumstances are not the right ones; nominal yields are paltry, inflation is high, monetary policy is clueless, the public debt is very large by historical measures, and supply is exploding thanks to congressional and public indiscipline. That is why I continue to be short Treasuries. I intend to start covering when yields reach 7% and exit by 10%. If Volcker were back in charge, overnight rates were 15%, and the curve were slightly inverted with the long bond priced at 14%, I would be happy to get long. I might lose anyway, but the risk/reward calculus would be favourable. Today it is not, so gold it is. Aug 30 12:15 PM

• Five Good ETF Ideas That Have Yet to Catch On [view article]

  Then there are the ETFs no one has yet thought to offer. For example, a cash ETF that is designed to function as an effective low-risk, interest-bearing store of value for any investor anywhere in the world at any time. Such an ETF might consist of 25% gold and 15% silver, with the balance in perhaps 8-10 (probably sovereign) issuers' 3-month top-rated paper denominated in a variety of currencies. Reasonable requirements would be that the issuer is investment-grade and has the best credit rating of any issuer offering paper in a given currency, and that the currency itself has ample global liquidity. Using such a fund to store one's uninvested cash would be quite attractive for the global investor; it is unlikely to change much in absolute value, will have much lower volatility than any one currency or metal, and will generate a respectable yield (unlike certain currencies I could name). Where is this ETF? Sadly, it doesn't exist, so anyone with less than a few million in cash will have a hard time getting these benefits. Aug 29 01:11 AM

• Why Core Inflation? [view article]

  zooey, but which household's welfare is being maximised? The one that borrows heavily and spends freely, or the one that earns and saves? There is no level of inflation that will benefit both. The moment you offer the cop-out of "aggregated" or "majority", you are biasing the entire system toward greater borrowing, less saving, and higher inflation, because everyone's incentives will be aligned in that direction. Aug 29 12:57 AM

• Gold Train: All Aboard [view article]

  tvb, I'm not looking for a "greater fool". What I know about gold is that it is an effective store of value and has proven itself so over a very long period of time. A fair sized chunk of my savings/reserves (capital that I have chosen not to invest at the present time) is held in the form of gold. There is a lower limit to the amount of gold I am willing to hold, but there is no upper limit. I am not waiting around for my gold to "go up" so I can sell it and book a "profit" of some number of dollars. The purpose of owning gold is not to generate paper profits; it's to preserve wealth while waiting for opportunities. I consider the value of my gold to be fixed. You may consider the value of your dollars to be fixed; I could as easily say that by holding dollars instead of gold, you are waiting for a greater fool to come along and buy them from you. The difference is that your asset loses purchasing power while you wait. Mine does not (The dollar has lost 96% of its purchasing power in the last 37 years. Gold has lost none). It's all a matter of perspective.
  
  When do I get rid of gold? When there's something in which I can invest that appears likely to deliver a positive risk-adjusted real return. Gold, recall, delivers zero return at zero risk. So because gold, not the dollar, is my functional unit of value, its price in dollars is no more interesting (and quite often much less so) than its price in shares of GE, Brazilian paper, or Vietnamese shoe factories. The US dollar, like virtually all currencies, is a lousy investment: it has a fairly consistent negative yield punctuated by abrupt random changes in value. Unless I were to believe I'd acquired the ability to predict the direction of its next random move, I would have no incentive to exchange my gold for it. But I might well exchange it for something else. Whether and when I do so will depend on the merits of that investment as priced in gold at that time. A lower dollar makes dollar-denominated investments cheaper, but it also cheapens their returns. So what really matters is investment quality. Everything else is irrelevant noise. Aug 28 12:03 AM

• Sharing Speculative Interest in GM [view article]

  Book value is ($101) per share. In truth, it's worse; they still have $4.6b in deferred tax assets on the books, another $1.1b in intangibles, and $18b in "overfunded" pension assets.
  
  TM's return on assets is 4%; let's assume that somehow GM manages to survive and returns to profitability in 2010, and that ROA reaches 5%. Quiz question: when will book value reach zero? Answer: late 2018. One can only look at this stock as an out of the money call. What's the upside? TM trades at 0.6x sales. If we generously assume GM's sales immediately stop falling, our target price would be in the $170 range. In other words, a 10-year turnaround to reach Toyota-like financial health and performance, accompanied by no further decline in sales, would yield an annualised return of 35% plus any dividends.
  
  As an alternative, why not buy the senior notes? They're available at several maturities with yields around 20%. Suppose we buy the 2048 paper, now yielding 18%. If the company does survive we would expect this paper to perhaps double in value; in the meantime we've collected nice fat quarterly coupons. If we reinvest in the (appreciating) paper, we'd expect a 10-year annualised return in the 20% range. Obviously, not as good as the common. But the risk is much better: if, as seems far more likely, the company does not survive, we will likely recover at least some equity in a newly-restructured entity (and keep probably at least 2 or 3 coupon payments as well). Worst-case losses are probably around 50-60%, and we'd end up with equity in a much healthier balance sheet.
  
  If you're really bullish on GM, buy both, consider the preferred, or buy the notes and invest the coupon payments in the common. But I definitely would not hold the common by itself; the risk/reward is highly unfavourable unless you are absolutely convinced there will be no dilutive or destructive restructuring. Aug 27 12:05 PM

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