The High Dividend Stock Investor's Collapsing Dollar Survival Guide, Part 3

Best International Dollar Hedge High Dividend Stocks

<<< Read part 1

<<< Read part 2

1. EXECUTIVE SUMMARY FOR THIS SERIES

HIGH YIELD STOCKS ARE A FORM OF CASH. THUS INFLATION EATS AWAY AT BOTH YIELD AND PRINCIPLE. AS GOVERNMENTS INFLATE THEIR MONEY SUPPLY TO EASE CREDIT, MOST OBSERVERS BELIEVE INFLATION IS INEVITABLE. IN THIS SERIES WE EXPLORE:

THE CURRENT STATE OF THE MARKET THE CASE FOR AND AGAINST THE DOLLAR’S DEMISE

RECOMMENDED CRITERIA FOR SELECTING HIGH DIVIDEND STOCKS THAT ALSO GIVE A HEDGE AGAINST THE U.S. DOLLAR’S LIKELY IMPENDING DEPRECIATION.

SPECIFIC STOCK MARKET HEDGES AND HIGH DIVIDEND STOCKS THAT ARE INFLATION RESISTANT MENTIONED BELOW INCLUDE:

GENERAL MARKET HEDGES

UltraShort S & P 500 Proshares (SDS), UltraShort Financials ProShares (SKF), UltraShort QQQ ProShares (QID), UltraShort Real Estate ProShares (SRS), UltraShort Russell2000 ProShares (TWM)

INTERNATIONAL

Big Oil

BP, plc (BP), CNOOC Ltd. (CEO) , Eni SpA (E), Total Fina Elf (TOT)

Utilities

Veolia Environmental SA (VE), ENEL-SOCIETA PER AZI (ESOCF.PK or ENLAY.PK)

Communications

(Brasil Telecom S.A. (BRP), Cellcom Israel Ltd. (CEL), France Telecom (FTE) Telefonica (TEF)

Shipping

Nordic American Tanker (NAT), Seaspan Corp (SSW)

Canadian Oil/Gas Energy Income Trusts

Advantage Energy Income Fund (AAV, TSX: AVN.UN), Enerplus Resources Fund (ERF), Peyto Energy Trust (PEYUF.PK, TSX: PEY.UN), Provident Energy Trust (PVX, TSX: PVE.UN), Vermillion Energy Trust (VETMF.PK, TSX: VET.UN )

Canadian Clean Energy Income Trusts

Energy Savings Income Fund (ESIUF.PK, TSX: SIF.UN), Innergex Power Income Fund (INRGF.PK, TSX: IEF.UN), Macquarie Power & Infrastructure (MCQPF.PK, TSX: MPT.UN), Great Lakes Hydro Income Fund (GLHIF, TSX: GLH.UN)

Canadian Energy Infrastructure Income Funds

Altagas Income Trust (ATGFF.PK, TSX: ALA.UN), Pembina Pipeline Fund (PMBIF.PK, TSX: PIF.UN)

Canadian Utility Income Trusts

Atlantic Power Corporation (ATPWF.PK, TSX:ATP.UN) and some very positive clarification from their CFO Mr. Patrick Welch, Bell Aliant Regional Comm. Fund (BLIAF.PK, TSX:BA.UN) Canadian Health Care Income Trust CML Healthcare Inc. Fund (CMHIF.PK, TSX: CLC.UN) Canadian Real Estate Income Trusts

Canadian Apartment Properties REIT (CDPYF.PK, TSX: CAR.UN), Northern Property REIT (NPRUF.PK, TSX: NPR.UN), RIOCAN REIT: (RIOCF.PK, TSX: REI.UN

Canadian Misc Business Trusts

Yellow Pages Income Fund (YLWPF.PK, TSX: YLO.UN)

UNITED STATES

Communications

AT &T Inc (T), Verizon (VZ), Otelco (OTT), Windstream Corp (WIN)

Energy Infrastructure Master Limited Partnerships (MLPs)

Buckeye Partners (BPL), El Paso Pipeline Partners (EPB), Enterprise Products Partners (EPD), Energy Transfer Partners (ETP), Kinder Morgan Energy Partners (KMP), Magellan Midstream Partners (MMP), Nustar Energy (NS), ONEOK Partners (OKS), Sunoco Logistics Partners (SXL), TEPPCO Partners (TPP),Tortoise Energy Infrastructure Partners(TYG) Coal MLPs

Alliance Resource Partners (ARLP), Northern Resource Partners (NRP), Penn Virginia Resources Partners (PVR) Other MLPs

Terra Nitrogen Company, L.P. (TNH), StoneMor Partners (STON) Utilities

Dominion Resources Inc. (D), Duke Energy Corp (DUK), Progress Energy (PGN), Southern Company (SO)

2. MARKET STATUS

No changes to report since Part II. Short term rally at some point, no reason to believe the overall downward trend has changed.

A. Ramifications for High Dividend Stock Investors

In sum, we’re still in in a near term trading range, with the overall trend continuing down. Continue to invest only with funds allocated for longer term investment. you don’t need for the next six to eighteen months at least. What you buy now may well go lower.

1. Consider a Partial Hedge with Selected Ultrashort ETFs

When that rally comes and begins to fade, take a third of your planned total positions in the below short ETFs. Beware not to chase them, since these can move very fast. Take second and third portions of your position only at the below strong support zones.

• UltraShort S & P 500 Proshares (SDS) – Buy under $75, Strong Buy under $65
• UltraShort Financials ProShares (SKF) -- Buy Under $141; Strong Buy below $125
• UltraShort QQQ ProShares (QID) – Buy Under $55, Strong Buy under $50
• UltraShort Real Estate ProShares (SRS) – Buy Under $58, Strong Buy under $48
• UltraShort Russell2000 ProShares (TWM) – Buy Under $75, Strong Buy under $65

2. Continue to Take Partial Positions at Our Recommended Strong Support Levels

Beyond the Ultrashort ETFs if you can earn reliable dividends from 8-12 percent or more while you wait for recovery, ongoing investment makes sense. You just need to find the best bargain priced quality high yield stocks, and collect your income while waiting for the market to improve and offer additional options.

That’s my focus at HighDividendStocksGuide.

As noted earlier in this series, with a confirmed downtrend and good evidence for a further 20% or more overall drop, refer to our below recommended buy levels, which are at strong support levels.

3. INTRODUCTION TO PART III

In Part II, we briefly covered the case for and against the USD, and criteria for selecting high dividend stocks that also provide a USD hedge.

The key concluding point of Part II:

In short, we’re seeking stocks of strong companies that mostly earn and distribute a high dividend in a non-USD currency and have a dominant position in a market for an essential product or service.

Here in Part III, we provide a superficial overview of the top international sectors and stocks, ETFs, Canadian Income Trusts that provide the best combination of high yield and dollar hedge.

The below list is not comprehensive, nor is it the result of a simple mechanical screening. Rather, these are the stocks which my preliminary or ongoing research has revealed thus far.

Suggestions are welcomed for additional combination high dividend and U.S. dollar hedge stocks, ETFs, Income Trusts, etc.

4. AN OVERVIEW OF STOCKS THAT HAVE ALL THREE CRITERIA

Perhaps the one distinct upside of a world-wide stock market collapse is that prices get so beaten down that the previously modest yields of many blue chip companies suddenly become high, as scared investors demand a higher risk premium.

For the best of these, their price declines are not due to deteriorating fundamentals, but mostly due to hedge and mutual funds dumping shares to meet redemption and/or other requirements.

Here are stocks I’ll be discussing in my next article as candidates for my list of Best Dollar Hedge High Yield Stocks

ALL AMOUNTS QUOTED ARE IN U.S. DOLLARS (USD) UNLESS OTHERWISE NOTED. ALL STOCK SYMBOLS ARE NEW YORK STOCK EXCHANGE UNLESS OTHERWISE NOTED (OTC = OVER THE COUNTER, TSX = TORONTO EXCHANGE). YIELDS ARE ANNUALIZED, BASED ON CURRENT PRICES AND DIVIDENDS.

A. International

Because one of our criteria is that the stock price and distribution must be pegged to a non-USD currency, no surprise that most of the best USD hedge high yield stocks based outside of the U.S.

1. Energy

The return of high oil and gas prices is a matter of when, not if. Some of the best income plays are in energy, and the stock prices and dividends of many have been beaten down along with oil and gas prices.

Big Integrated Oil: Yes, definite risk of further price and even dividend cuts while oil prices remain low. At the below recommended buy prices, most of that risk is priced in, and far outweighed by the rewards when energy prices resume their long term uptrends.

• BP, plc (BP): Buy below 40, Strong Buy Below 36. Yield over 9%.
• CNOOC Ltd. (CEO): Buy below 85, Strong Buy below 80. Yield over 6%.
• Eni SpA (E): Buy below 40, Strong Buy below 35. Yield over 11%.

2. Communications

Like their US counterparts, these foreign blue chips’ formerly modest dividends way up due to the overall market selloff. Fundamentals remain steady.

• (Brasil Telecom S.A. (BRP), Buy below 32.5, Strong Buy below 30. Yield 16%.
• Cellcom Israel Ltd. (CEL): Buy below 22, Strong Buy below 20. Yield 11%.
• France Telecom (FTE): Buy under 24, Strong Buy under 20. Yield over 13%.
• Telefonica, S.A (TEF): Buy under 52, Strong Buy under 48. Yield over 7%.

3. Utilities

• Veolia Environmental SA (VE): Buy under 25, Strong Buy under 21. Yield over 9%.
• ENEL-SOCIETA PER AZI (ENLAY.PK): Buy under 5.50, Strong Buy under 4.50.

4. Shipping

Yes, many currently are down on this sector, but like energy it will return and meanwhile pay you well for the wait, even with risk of dividend cut.

• Nordic American Tanker (NAT): Buy under 27, Strong Buy under 22. Yield over 20% suggests investors are pricing in a dividend cut.
• Seaspan Corp.(SSW): Buy under 10, Strong Buy under 8. Yield over 20% suggests investors are pricing in a dividend cut.

B. Canada

Due to the abundance of stocks with solid fundamentals, low tax structures, and their CAD denominated prices and very high yields I give “my Canadians” their own category. In addition to great fundamentals and dividends, these stocks and their yields are in Canadian dollars. The CAD is a prime commodity based currency backed by one of the healthier banking systems. In addition to their share prices being down with the overall market, these carry an extra discount due to the CAD’s recent decline against the USD.

Note that prices quoted are in USD, and that many of these are thinly traded. Low average shares traded volume can make getting out fast costly because bid/ask spreads can be wide if there is a sudden volume spike. The benefit of this is that you can try to place lowball orders 10% or more below current prices and have a better chance of getting your price as the latest waves of fear and selling hit the market.

1. Energy Income Trusts

All will continue to suffer price and dividend declines along with energy prices, but will soar when they recover, even with the higher taxes from 2011 onward. These are priced so low, and their distributions are so high (many at the assumption of oil at far lower prices) that the risk is worth the reward. I’ll discuss these in greater detail later, but the short version is that their beaten down prices already include lower energy prices and they still pay high yields. Take only partial positions until energy prices appear to have stabilized, but be ready to load up on these as the market begins to show interest.

• Advantage Energy Income Fund (AAV, TSX: AVN.UN). Buy under 3, Strong Buy under 2.5. Yield over 20% prices in a dividend cut.
• Enerplus Resources Fund (ERF): Buy under 20, Strong Buy under 15. Yield over 12%. See comments in my prior article Top 10 Energy Stocks...
• Provident Energy Trust (PVX, TSX: PVE.UN): Buy under 3.5, Strong Buy under 2.5. Yield over 24% prices in a dividend cut.
• Vermillion Energy Trust (VETMF.PK, TSX: VET.UN ): Buy under 19.25, Strong Buy under 18.25. Yield over 12%. See comments in my prior article Top 10 Energy Stocks...
• Peyto Energy Trust (PEYUF.PK, TSX: PEY.UN): Buy under 8, Strong Buy under 6. Yield over 20% prices in a dividend cut.
• Claymore/SWM Canadian Energy Income Fund (ENY): Buy under 10, Strong Buy under 8. Yield over 11%. For those that want to buy a basket that attempts to mimic this sector.

2. Clean Energy Income Trusts

These are essentially utilities with heavy focus outside of coal and oil.

• · Energy Savings Income Fund (ESIUF.PK, TSX: SIF.UN):p Buy under 8.50, Strong Buy under 7.50. Yield about 15%.
• · Innergex Power Income Fund (INRGF.PK, TSX: IEF.UN): Buy under 9, Strong Buy under 8. Yield about 14%.
• · Macquarie Power & Infrastructure (MCQPF.PK, TSX: MPT.UN): Buy under 5, Strong Buy under 4. Yield over 25% prices in possible dividend cut.
• Great Lakes Hydro Income Fund (GLHIF.PK, TSX: GLH.UN): Buy under 14, Strong Buy under 12. Yield over 10%.

3. Energy Infrastructure Income Trusts

• Altagas Income Trust (ATGFF.PK, TSX: ALA.UN): Buy under12, Strong Buy under 10. Yield over 20% prices in a dividend cut.
• Pembina Pipeline Fund (PMBIF.PK, TSX: PIF.UN): Buy under 13, Strong Buy under 12.50. Yield about 14%.

4. Utility Income Trusts:

Atlantic Power Corporation (ATPWF.PK, TSX:ATP.UN): Buy under 7.50, Strong Buy under 6.50. They raised dividend 8% over the past year. Yield of about 20% prices in dividend cut, but I don’t see one coming.

I discussed ATPWF recently in my article Top 10 Energy Stocks.... , and mentioned that I had some questions regarding the payout ratio and safety of the distribution.

I recently spoke with Mr. Patrick Welch, the CFO, to clear up these questions. Here are the key points.

• First, due to semi-annual debt payments, quarterly payout ratios can vary from around 50% to 160%, averaging out around 70%. That’s fine for a firm with steady, predictable revenues like this one.
• Second, distributions are pegged in CAD, thus providing a USD hedge. Even though the company earns in USD, it has currency hedges to protect its CAD distributions through 2013.
• Third, while the firm has the right to redeem the bond portion of these Income Participation Securities, it has no current plans to do so because refinancing at current rates would be more expensive. I’ll discuss ramifications of a possible redemption in a future article.

In a market full of bargains, this one appears to be among the best.

Bell Aliant Regional Comm. Income Fund (BLIAF.PK):Buy below 20, Strong Buy below 18. Yield 15%.

5. Healthcare

CML Healthcare Inc. Fund (CMHIF.PK, TSX: CLC.UN): Buy under 11, Strong Buy under 10. Yield over 10%.

6. Real Estate Income Trusts

• Canadian Apartment Properties REIT (CDPYF.PK, TSX: CAR.UN): Buy under 11, Strong Buy under 10. Yield over 10%.
• Northern Property REIT (NPRUF.PK, TSX: NPR.UN): Buy under 13, Strong Buy Under 12.Yield over 12%.
• RIOCAN REIT: (RIOCF.PK, TSX: REI.UN): Buy under 12, Strong Buy under 10. Yield over 14%.

7. Business Trusts

Yellow Pages Income Fund (YLWPF.PK, TSX: YLO.UN): Buy under 6, Strong Buy under 4. Yield over 27% prices in dividend cut though fundamentals have held thus far.

Conclusion, Disclosure & More Info

In Part I we looked at the current market, and the case against the US Dollar.

In Part II we reviewed the current market, the case for the USD, and the key criteria that make a high dividend stock a USD hedge.

In Part III we briefly described the best sectors and listed specific recommendations that fit these criteria. Thus we saw a listing of the best high dividend stocks outside of the U.S.

In Part IV we’ll look at the best high yield dollar hedges among the U.S. stocks.

The coming articles will examine individual categories and stocks in greater detail.

Disclosure: I have positions in most of the above mentioned investments.

Comments

[2banana:]

Any kind of mutual fund/ETF come close to a portfolio like this?

Mar 05 01:45 PM

[silverwood:]

Look at AOD a closed end fund which is high yielding and trades like a stock. It has similiar criteria as they are internationally orientated.


On Mar 05 01:45 PM 2banana wrote:

> Any kind of mutual fund/ETF come close to a portfolio like this?

Mar 05 02:26 PM

[Dividend Gr...:]

What happens if the dollar does not collapse, but all the other currencies depreciate against it? When the WHOLE WORLD quotes their currencies exclusively against the dollar, and any major central bank in developed or developing countries is happy to keep dollar reserves you are talking about collapse of the dollar. Has it ever occured to you that the dollar is a global currency, not a local currency?

What happens if the deflationary cycle keep on going? The portfolio needs some allocation to assets that would do ok in a deflationary environment.

Mar 06 04:53 AM

[macsmart:]

I own several of these stocks; have owned Atlantic Power for years, and the dividends just keep rolling in monthly. It doesn't matter to me that the price has been fluctuating; I've just bought more when it goes down.

Recently bought T and VZ paying over 6% quarterly. They both are well captialized; the dividends appear solid, and people are not going to stop using wireless phones.

Mar 06 09:37 AM

[Skip Olinger:]

I have not fully read your article but intend to but I have a couple of comments:
1) Why are you recommending any Ultra ETF's for long term hedging? That is, I believe, very misguided. Have you read Morningstar's analysis of the compounding issues that occur with these ETF's?
2) Your intro says a) high yield stocks are a form of cash - NO, where did you get that idea and b) inflation eats away at principal and yield. I thought the idea of owning stock in companies was that companies can pass along price increases and are therefore a form of hedging against inflation. Would stocks yielding nothing be a better hedge? I think your analysis is a bit off here.

Mar 06 10:33 AM

[Roger Ramjet:]

The ultra short ETF's haved saved my a**. Your article is the best I have read in awhile. Mabe I missed it in your writing but what about EFU. I have done very well with this one.

Mar 06 11:51 AM

[Skip Olinger:]

Roger,
Again, suggest your read the Morningstar article about the problems with Ultra ETF's long or short. They may have saved your backside, but if you are unaware of the risks over the long term, you may be kissing your backside good bye. But hey, it is your money.

Perhaps you have a counter argument to the compounding issue? I would like to hear it.


On Mar 06 11:51 AM Roger Ramjet wrote:

> The ultra short ETF's haved saved my a**. Your article is the best
> I have read in awhile. Mabe I missed it in your writing but what
> about EFU. I have done very well with this one.

Mar 06 12:29 PM

[SA Editor M...:]

This via email from Philip D.Roos:
I wish that I could "grade" the articles. Cliff Wachtel's three-part-er would get an A triple + (collegiate) or 5 stars (conventional zero through 5 stars) or 4 bulls (unconventional nine-point scale from 4 bulls through zero to 4 bears).
His contribution is so far above the average as to be at the 99.999th percentile!

Mar 07 10:52 PM

[mplaut:]

Atlantic Power is a good company but it only yields 16% now. It seems like he got 20% by taking the stock price in USD and comparing it to the yield which is really in CAD. Price in USD=$5.29; Yield in CAD=$1.09

Price in CAD=$6.79; so real yield is 16%

It is a good company and is among the best, even with these numbers, IMO.

Mar 08 11:13 AM

[Cliff Wachtel:]

Exactly, I thought I was clear that there is an excellent argument against a dollar collapse. I'm only saying some hedge in addition to high income is an added bonus. I don't see any serious alternative to the USD, battered though it may be.
Thanks for your always worthy comments.


On Mar 06 04:53 AM Dividend Growth Investor wrote:

> What happens if the dollar does not collapse, but all the other currencies
> depreciate against it? When the WHOLE WORLD quotes their currencies
> exclusively against the dollar, and any major central bank in developed
> or developing countries is happy to keep dollar reserves you are
> talking about collapse of the dollar. Has it ever occured to you
> that the dollar is a global currency, not a local currency?
>
> What happens if the deflationary cycle keep on going? The portfolio
> needs some allocation to assets that would do ok in a deflationary
> environment.

Mar 08 04:36 PM

[Cliff Wachtel:]

I'm with you. The really big telecoms are core holdings and one of the only upsides of this meltdown is the chance to get them cheap as long as you can wait. Also love ATP at this levels and don't significant risk to this distribution.


On Mar 06 09:37 AM macsmart wrote:

> I own several of these stocks; have owned Atlantic Power for years,
> and the dividends just keep rolling in monthly. It doesn't matter
> to me that the price has been fluctuating; I've just bought more
> when it goes down.
>
> Recently bought T and VZ paying over 6% quarterly. They both are
> well captialized; the dividends appear solid, and people are not
> going to stop using wireless phones.

Mar 08 04:38 PM

[stocker:]

Your going to get killed when the EFU flips the other way. A 30% rally off the lows will take you down 60% at least. In other words.....use a stop loss if your going to play the run.


On Mar 06 11:51 AM Roger Ramjet wrote:

> The ultra short ETF's haved saved my a**. Your article is the best
> I have read in awhile. Mabe I missed it in your writing but what
> about EFU. I have done very well with this one.

Mar 08 05:53 PM

[Cliff Wachtel:]

Oh, you just say that to all the contributors! Why, I'm blushing! So, since you're one of the editors, how about some cash? Cool prizes like a laptop? An official SA baseball cap? Seriously, thanks for the kind words, much appreciated.


On Mar 07 10:52 PM SA Editor M. Hunt wrote:

> This via email from Philip D.Roos:
> I wish that I could "grade" the articles. Cliff Wachtel's three-part-er
> would get an A triple + (collegiate) or 5 stars (conventional zero
> through 5 stars) or 4 bulls (unconventional nine-point scale from
> 4 bulls through zero to 4 bears).
> His contribution is so far above the average as to be at the 99.999th
> percentile!

Mar 09 09:41 AM

[Cliff Wachtel:]

Thanks for the comments. Legit point, but I don't recall saying they were long term hedges, sorry if that was implied. If you read about the "ultras" they are indeed NOT considered great long plays and lose some of their value over time. As I said, these are for those who feel like trying to time the market - which most of us (myself included, for all my tech analysis) don't do well. That's why I suggest taking only when the market is feeling very optimistic. Not easy to do, but a simple way to hedge for those not wanting to bother with options.


On Mar 06 10:33 AM SkipinCA wrote:

> I have not fully read your article but intend to but I have a couple
> of comments:
> 1) Why are you recommending any Ultra ETF's for long term hedging?
> That is, I believe, very misguided. Have you read Morningstar's analysis
> of the compounding issues that occur with these ETF's?
> 2) Your intro says a) high yield stocks are a form of cash - NO,
> where did you get that idea and b) inflation eats away at principal
> and yield. I thought the idea of owning stock in companies was that
> companies can pass along price increases and are therefore a form
> of hedging against inflation. Would stocks yielding nothing be a
> better hedge? I think your analysis is a bit off here.

Mar 09 09:49 AM

[JET1C:]

Sorry that I'm getting into the discussion so late. I have owned NAT for a couple of years and I think that you need to go to their website and read about their model. They distribute 90% of their earnings each quarter to their stockholders. Their ships are leased out on the "Spot Market" for the going rate which fluctuates. They tell us that the operating cost for their tankers is under $10,000 per day and the spot market varies between around $40,000 and $80,000 per day. The only time the dividend goes down is when the "Spot Market" goes down. NAT doesn't just set an arbitrary sum as their didvidend, it is all based on income.

Mar 12 12:42 PM

[Delojozafado:]

Fidelity has the best one! 5 star rated by Morningstar. Unfortunately it is usually not available except by having an account or buying it at Fidelity. The symbol is (FICDX). Of course if you go there you may as well partake of an equally excellent fund (FLATX). Better than EWZ as you get plenty of exposure to Mexico, Oil and metals silver etc, Chile with lots of Copper and other resources including fertilizer, and some aggs in Argentina. The Real at least has as good a chance as the Loonie to out last the US PE$O. Of course the trouble these days with mutuals you can't take off the table for 30-180 days nor can you place a trailing stop. As we evolve through this msarket melt more mutuals will convert an ETF or CEF structure to keep their investors on board. With free to $10 trades you can just pick the top ten or 15 holdings and surrogate the fund with owning the stocks.


On Mar 05 01:45 PM 2banana wrote:

> Any kind of mutual fund/ETF come close to a portfolio like this?

Mar 23 08:46 PM

[RevenueRese...:]

You didn't mention Harvest Energy Trust (HTE) at all. What do you think about them?

Mar 24 04:15 AM

[Judoguy:]

>your comments are spot on what a tremendous piece of research why didn"t you add any agriculture as its also core to the base economic flow that you:ve identified good work !


On Mar 24 04:15 AM Ben Moreno wrote:

> You didn't mention Harvest Energy Trust (seekingalpha.com/symbo...)
> at all. What do you think about them?

Mar 24 11:00 PM

[Jaysan:]

FICDX (Fidelity Canada Fund) is down 42% over the past year.

On Mar 23 08:46 PM Delojozafado wrote:

> Fidelity has the best one! 5 star rated by Morningstar. Unfortunately
> it is usually not available except by having an account or buying
> it at Fidelity. The symbol is (seekingalpha.com/symbo...).
> Of course if you go there you may as well partake of an equally excellent
> fund (seekingalpha.com/symbo...). Better than EWZ as
> you get plenty of exposure to Mexico, Oil and metals silver etc,
> Chile with lots of Copper and other resources including fertilizer,
> and some aggs in Argentina. The Real at least has as good a chance
> as the Loonie to out last the US PE$O. Of course the trouble these
> days with mutuals you can't take off the table for 30-180 days nor
> can you place a trailing stop. As we evolve through this msarket
> melt more mutuals will convert an ETF or CEF structure to keep their
> investors on board. With free to $10 trades you can just pick the
> top ten or 15 holdings and surrogate the fund with owning the stocks.
>

Apr 12 11:49 AM

[Leif Peterson:]

Great series of articles - was exactly what I was looking for. Indeed, owning a heavy stake in KMP, MO, PM, KO, PG, JNJ, XOM over the last 10 years and reinvesting dividends would be "ka-chung" right now. With another 10-15 years of work, you would be in hog heaven. Reinvesting dividends is actually exponential growth right in front of your eyes -- however, the focus gets sidetracked on diversification, price hunting, market corrections, sector rotation, etc.

Have you seen the Fed's plan for the next 10 years? Bailing out the saving & loan (S&L) crisis is ok if happens once, but in the current new (raw) deal the paper printing (inflation) over the next 10 years is equivalent to bailing out 10-15 S&L crises. This is absurd and can only continue up to a breaking point - and it's not clear what is going break at the moment the snap occurs. Dividend capture is a sort of contrarian investor style, which is likely to be one of the more successful approaches over the next 10 years.

For the bad, how long can the economy take on 500-600k people losing their jobs each month? The unemployed aren't likely to be hired back next week after the stimulus kicks in, rather, it's more likely that an unobservable shock wave is going to hit the strip malls and movie theaters -- peak foreclosures on commercial real estate is projected to occur in 2011.

For the ugly, the perfect storm has already started. Looking back, after WWI the country needed an economic rebound but got the Great Depression. After Iraq and Afghanistan, the economy (a) is now on life-support, (b) has a housing sector that had no business running up, and (c) sees a forecast with 10 years of solid out of control money printing (inflation). MT (Arcelor Mittal) and X (US Steel) are going up in price right now; however, steel is projected to drop 20-40% over the next few years (so hold for dollar cost-averaging or get out). Warehouses are full with no buyers. Worse yet, there really isn't much money anywhere since it's all debt. In consideration of the above circumstances, and post-9/11-centric ideology on possibility theory instead of probability theory, what can happen will. Thus, it's possible that half of the equities you list cut their dividends. For international, you didn't list BHP or RIO, which are harvesting huge amounts of iron ore for China. You might also balance your portfolio with CHL (China Mobile), HNP (Huaneng power); and CEO (you did mention CNOOC). For power production, China is like the highly efficient French nuclear energy program on steroids and brings new nuclear plants on line quickly with good international safety standards.

You also seemed to be short on consumer goods (KO, TR) and pharmaceuticals (PG, JNJ, ABT, PFE - I would stay away from Merck since almost all of their new blockbuster drugs were not approvaed by the FDA). PM and Altria will be a good to own, and I know from my travels in Russia after the 1990 dissolution of the USSR (total devaluation of the Ruble literally overnight) that alcohol flourished in an economy whose currency went to near-zero. So DEO may be rewarding (HQ is London, so it's in non-USD currency).

I wouldn't get wrapped up in the dollar - new fiat currency of the world issue so much. Your point about exchanging dollars for another currency based on communism or the Middle East was right on the mark -- it's never going to happen. US Treasuries are being bought up by foreign central markets for one reason: there's no other country on Earth that will pay you back if it owes you money since the honor code is what keeps everything glued together. What we do have to be careful about is what Dick Smalley (Nobel Laureate) said that "money goes where the brains are" referring to the US brain drain and 90% of science and technology moving to Asia (Singapore, China) within the next 10 years. Many of the problems with the economy are due to the Fed not having e.g. a gold standard to keep everything in check. Without standards, deregulation causes governments to wage war, politicians make re-elections promises, and sectors that have no business growing (housing) grow like gangbusters. You can't tax so the only thing you can do is inflate the problem away by printing money.

The ~220 point "crash" in October 1929 was largely responsible for the Great Depression, but was only the beginning of a much worse 2-4 year correction. The current bull market may recede, with a larger and deeper correction on the horizon. Now that you're on the sidelines, the key is to slowly buy up equities that keep raising their dividend throughout the oncoming 10 year storm. By the time everything clears the compound interest from reinvested dividends will have kicked in so much that there'd be no reason to want anything else -- you'll also be invested in energy, pharmaceuticals, and consumer goods which are the 3 essential sectors proven to be worthy for lifetime wealth.

Apr 18 04:40 PM

[Delojozafado:]

Might you consider including Bird Construction BIRDF/BDT.UN as part of the Canadian Energy Infrastructure class?

Apr 29 07:36 AM

[DSS:]

This article was good
It is now 7 months old

It should be updated or removed

DSS

Sep 30 10:33 AM