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Bruce Vanderveen
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The Federal Reserve has pegged interest rates to all time lows. This leaves income investors in a quandary. Bruce looks at the best income, growth, natural resource, and technology equities while taking a contrarian approach. ETFs can often be used to manage risk for investors who wish to take a... More
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  • It's Time for Public Sector Haircuts
    The private sector has born the brunt of this recession with layoffs, benefit losses, pay cuts, etc.  This has cut a deep swath of distress across America.

    Not so the public sector.  19% of federal employees make over $100,000 a year, up from 14% just 18 months ago according to USA Today.  It is highly questionable whether these people do anything useful.  Shuffling papers and going to meetings is today's equivalent of digging and filling a hole in the ground, (only it doesn't keep them in as good physical shape).

    Consider the Department of Energy with its $25 billion budget.  Originally established to promote US energy independence it has failed miserably in its goal.  The DOE, of course, works on other things, same questionable results, things the free market could handle much more efficiently, at no cost to tax payers.

    I guess governmental employees could claim they spend their earnings in the private sector, thus stimulating the economy.  If that is so great let's double or triple the number of federal employees.  Heck, while were at it, lets pay em all over $100,000.  Break out the band boys, the party is rolling again!

    Then, consider the beneficiaries of government spending, everyone from bank executives to social program beneficiaries.  In order to solve our problems they ALL need haircuts, especially at the upper end.  AIG executives should be getting pay cuts not bonus's, same for Fannie and Freddie and the other beneficiaries of governmental largess.  Will this happen?  Will pigs fly?

    Think of California.  California is in danger of default on its obligations.  They could do it orderly with haircuts or disorderly with default.  Since no one wants haircuts the disorderly option becomes increasingly likely.

    Oh, of course, I'm forgetting something:  The cavalry (Feds) could ride to the rescue.  The governator is already writing his proposal.  Other financially strapped states will surely follow.  This is how it all will probably play out.

    California's dismal options now become the US's dismal options.  Again: "Since no one wants haircuts the disorderly option becomes increasingly likely".   We are well down that road.

    Jan 10 2:02 PM | Link | Comment!
  • Not Telling Jennifer . . .
    "I'm not telling Jennifer" he said.  This from the man selling wooden chopping blocks last summer at a Michigan craft festival.  He was responding to my query concerning sales tax.

    Not tell Jennifer? . . . Who is Jennifer? . . .   His wife? . . . Co-worker? . . . Why would she care?

    Then I got it.  Jennifer Granholm is the governor of Michigan.  Conditions in Michigan are really bad right now, and may be looking worse for the future.  The state,  businesses, residents . . .  everyone is scrambling!  Unemployment is 14.3%, up from 8.7% a year ago.

    A recent, and rather frightening article, predicts that Michigan's General and School Aid funds will need to be cut almost 50% by 2017 (see here)  if the budget is to be balanced   More and more residents are revolting, clamoring that state employees along with their benefits and social welfare recipients also need to start sharing the pain.  Its a mess.

    In a way ,the state brings on its own problems.  We collect sales tax on summer rentals in Michigan.  What I found quite astounding was how difficult it was to just send money to the state.  You need to fill out forms, go to cumberson websites and jump through a lot of hoops -- just to send money to them!

    The state doesn't seem to have a provision for individuals to pay sales or use tax, even if they owe it.  The forms are all company oriented, but there is less and less traditional employment in Michigan.  After unproductive phone calls and emails I finally gave up and just put my last name in the "Company Name" field.  Not sure if it was correct, but they are accepting and cashing the checks.

    Untaxed, unregulated, unlicensed, unreported . . . America's underground economy keeps growing.  The Christian Science Monitor recently estimated the shadow economy to be as big as $1 trillion or 8% of GDP  (see here).  Every uptick in unemployment, every tax increase, and every new regulation drives the figures up.

    If you are unemployed and ambitious you do what it takes to get by.  Telling Jennifer is, all too often, just not a priority.
    Dec 02 3:36 PM | Link | Comment!
  • ETFs for Bear Markets
    The dollar keeps falling while "real" assets such as gold, oil, and equities continue to march ever upward.  Its great to go along for the ride but keep in mind that "all good things must come to an end someday".  Sometimes a violent end! When the tide turns ... and you know it will ... how can you position yourself?

    Just about anyone with an elementary school education can make money when equities, commodities and bonds all go up at the same time.  However, investments that do well when things go the other way are much harder to find.  Here are some ideas on how to hold your own, if not profit.

    First, get into a healthy cash position, then consider these ETFs.  Most did well or at least held their own in the 2008 bear market.  Two are currency ETFs.  Currency markets are much larger and independent of equity markets.
    1. UUP  Yes, the much maligned US dollar.  Just how low can it go?  Well, don't answer that question, but do consider that UUP was probably the best performing ETF in the second half of 2008.
    2. CYB  The Chinese yuan.  This is an interesting play.  Currently the yuan is pegged to the US dollar but any change will most likely have the yuan appreciating versus the dollar.  Note that the yuan mostly held its own during the second half of 2008.  China is also printing money but doesn't have the deficit problems the US does.
    3. TIP and BND  TIP invests in inflation protected US bonds and did not do well the second half of 2008.   However, if you see a stagflation scenario ahead TIP may be a good place to be. BND tracks a "broad, market weighed index" of bonds and except for a violent but brief spike down in September, when everyone was panicking, held its own throughout 2008.
    4. DOG, SH, PSQ and RWM.  These inverse ETFs are a convenient way for investors to "short" the market and a great place to be in falling markets.  But, remember these ETFs are subject to tracking error and values decay over periods of time.  Also, see the comment about "bear" ETFs below.
    5. GLD  Gold is commonly thought of as an inflation hedge.  Yet, more than anything, it is a store of value in uncertain times.  If you see greater than normal financial and social unrest ahead -- and most of us do -- you may want some gold investments.
    If you are a day trader you can see a list of Yahoo Finance's "bear" ETFs here. Remember, most if not all, of these are for day traders only because of daily rebalancing.  Held long term, they not only can, but will, destroy your portfolio.  Click the "Return (Mkt)" tab on the Yahoo site to view the "Red Sea" of three year returns, losses run up to 70, 80, even 90 percent.  Only one, UDN, shows a positive three year return -- wonder why?

    So, when will the equity-commodity-bond market run end?  Consider these potential early warning signs:  long term treasury rates start rising, the Fed is really ending Quantitative Easing, and an improving US economy which
    may cause the US Federal Reserve to raise rates.  For now the "herd" is jumping on the band wagon -- and more are boarding every day --  so enjoy the party.  But, be ready to jump when the music gets out of tune and the wagon starts swaying.

    Disclosure:  I have a small "precautionary" position in SH
    Nov 10 10:32 AM | Link | Comment!
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