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Joe Eqcome
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Joe Eqcome is the pen name of Robert A. Frank, CFA, a Wall Street executive who has spent over 30 years as an investment professional. Mr. Frank is the founder of GrowthIncome Research & Management, LLC. GrowthIncome Research & Management, LLC’s business mission is focused on generating... More
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  • CEFs Week Of 5/17/13: Aberdeen Indonesia Fund

    Actionable Items:

    Highest Positive Spread: Japan Smaller Capitalization Funds (JOF)

    Focus Stock: Aberdeen Indonesia Fund (IF)

    Last Week's Focus Stock: Mexico Fund (MXF)

    Equities or Bonds: Sales have come in below forecasts for the 1Q. While analysts had expected 0.5% growth, the rate is 0.2%. Among companies that have reported, 48% beat Wall Street's projections for sales, below the average of 52% from the past four years.

    Economists' predict that the second quarter growth rates will not grow at rates beyond 2.5% in the first quarter. The European quagmire has taken its toll, the Sequester and healthcare premiums will have their effects on growth.

    However, the Thomson-Reuters/University of Michigan "early-May" consumers' sentiment index jumped to 83.7 in May from 76.4 at the end of May-the highest in since 2007.

    P/E Ratios: The 2013 P/E ratio is 14.9 times S&P 500 earnings (bottom/up). The average median is 14.9 for the 1942 average (14.8 for the 1871). The average for P/E ratios was 1997 to 2003 over 20.0x time earnings.

    There is little you can do if treasuries are yielding below negative yields. The only thing you can do is invest in equity yields. The bond markets are in crises. If there is a rise in interest rates, the bond markets will come undone.

    Resources: The US Dollar (UUP) is up to 1.4% this week. Gold (GLD) prices are down -6.1%. Gold fell for the seventh day on Friday. Gold Miners Bear 3X Direxion (DUST) and DB Gold Double Short ETN Powershares (DZZ) are likely candidates for a further falling gold. Copper (JJC) is also down -2.0%, while Oil (USO) is up by 0.2%.

    CEF Weekly Fund Type Performance: This week saw price rises for GenEqFnds (1.3%), ConvtSecFnds (1.0%) and WrldEqFnds (0.7%). The laggards were bond funds NatlMuniBndFnds (-1.4) SingleStMuniFnds (-1.4%) and USMrtgBndFnds (-1.7%). NatlMuniBndFnds and SingleStMuniFnds all had their monthly distributions this week. The PrcNAVSprd was USMrtgBndFnds off 1.6%.

    (click to enlarge)

    Highest Spread and Stock for the Week: Japan Smaller Capitalization Funds was ahead by a price increase of +4.3 and NAV per share was down by -1.5%. The PrcNAVSprd was +5.8%. (A positive number may mean a future decline in share price). The annual distribution per share is at 1.2% yield. The net assets are $286 million with no financial leverage. The fee structure is 1.2%. The discount is -3.2% which is a 52 week high discount of -2.8%.

    Japan has lower interest rates and advanced money supply to the tune of 20%. The "three arrows" of Abe's plan for economic stimulus are monetary policy, fiscal policy, and structural growth strategies. The monetary and fiscal policies are two pointing in the right direction. Abe's party is likely to win the elections and gain control of both houses. It's pro-economic growth.

    Lowest Spread and Focus Stock for the Week: Aberdeen Indonesia Fund was our Focus Stock of the Week. IF's share price was negative -1.9% and its NAV per share was a plus +0.5%. Its PrcNAVSprd decline was -2.4%. The discount is -10.4% which is a 52 week average of negative -5.3% (a discount of -13.2% for a 52 week average low). The assets are $138.7 million with cash alternatives of 18.9%. Financial, consumer discretionary and consumer staples add to 66% of the portfolio.

    Focus Stock & High Price for Last Week: Last week's "Focus Stock" for the week was Mexico Fund and closed-out the week at +3.7%. Invesco VK Senior Income (VVR) (Highest Spread-a negative decline in share price) closed-out a negative -2.1% for the stock.

    Joe Eqcome

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Tags: DUST, DZZ, GLD, JJC, JOF, MXF, USO, UUP, VVR, IF
    May 19 7:40 AM | Link | Comment!
  • CEFs Week Of 10/19/12: Break Ahead

    Actionable Items:

    Highest Positive Spread: MS China A Shares (CAF)

    Lowest Negative Spread: Kayne Anderson Energy Development (KMP)

    Focus Stock(s) of the Week: Cohen & Steers Quality Income Realty (RQI)

    Last Week's Focus Stock:

    CEF Weekly Review: On average, the 13 closed-end fund (CEF) types registered a share price increase of 0.1% for the week ending 10/19/12. The high-low spread (average percentage price change difference between the highest and lowest fund types) registered this week was +0.05% versus +0.21% the previous week. On an aggregate unweighted basis, the weekly average price change for the approximately 600 CEFs in the GrowthIncome database was -0.05%.

    The PowerShares CEF Income Composite (PCEF), an ETF that invests in taxable fixed-income CEFs, advanced -0.6% for the week. PCEF is now up 9.1% YTD on price appreciation alone. Currently, PCEF's trailing twelve months' yield is 7.9% (an YTD month total return of 17.0%).

    Reality Seeps in Around the Edges: Earlier this week-after some hesitation-investors determined that things were really "that bad". Earnings were not that pretty. The DJIA declined 205.43 points on Friday after escalating on Thursday 1.7%. For the week, the average was +0.3% for the week and +14.0% YTD.

    S&P 500 trading volume (GSPC) this week advanced 17.1% to an average 3.7 billion shares. The 205.43 down day for Friday was that spectacular as only less than 5.0 million shares were traded.

    CEF Weekly Fund Type Performance: The performance of the equity CEFs was late in coming. The LoanPartFnds was up 1.0%, the ConvtSecFnds was up 0.7% and the WrldEqFnds was up a 0.6%. GenEqFnds was up 0.4%. Off for the week was USMrtgBndFnds (1.1%), OtherFnds (0.6%) and HiYldBndFnds (0.3%).

    (click to enlarge)

    MS China "A" Shares was up 3.3% and NAV was up 0.5% for a gain of PrcNAVSprd of 2.8%. Kayne Anderson Energy Development (KMP) was down 6.7% and NAV was off by 0.2% for a PrcNAVSprd of a negative 6.5%. The quarterly dividend was launched last week and was raised by $0.04 for a $0.43 quarterly distribution.

    Focus Stock(s) of the Week: The Cohen & Steers Quality Income Realty fund is priced below the NAV of 4.1%. The distribution is 6.8%. The assets are $1.2 billion and the debt is 27.5% of the assets.

    Joe Eqcome

    Disclosure: I am long RQI, CAF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Oct 22 10:27 AM | Link | 2 Comments
  • Maximizing Retirement Returns Through Social Security Elections

    (This article is being published on my instablog because SeekingAlpha's policy is not to focus on personal finance issues as important as maximizing Social Security benefits which dwarfs any retirement portfolio management or investment strategy it publishes on its "Retirement" section by hundreds of thousands of dollars. Go figure? )

    Most retirement advice dispensed focuses on "maximizing the value" of retirees' investment portfolios. This is a fool's errand.

    Instead, pre-retirement couples would be better served to focus on optimizing Social Security retirement elections to maximize their career payroll contributions in aggregate retirement benefits. The difference could mean multiples of hundreds-of-thousands of dollars-the value of a winning a small lottery. (See example below)

    If You're a Hammer, the World's a Nail. The reason for the sheer volume of advice focusing on retirement investing, i.e., recommendations concerning asset allocations, dividend growth stock purchases, creating bond ladders, purchasing single-premium annuities, etc., is that most of the retirement guidance is disproportionately dispensed by organizations that specialize in the lucrative business of purveying financial products and/or services. These purveyors range from money managers, banks, securities brokers, insurance companies, etc. Yet, for many, portfolio allocation plays only a minor-if not insignificant-role in securing a comfortable retirement.

    The Limited Value of Retirement Investment Strategies: A paper released by the Center for Retirement Research at Boston College states that on average a superior money manager executing an optimal portfolio strategy would only generate an incremental retirement benefit equivalent to six months' salary for the typical retirement saver. The report suggests that this is due in large part to the very fact that few retirees have saved enough money in their retirement accounts for the "magic" of portfolio allocation or investment strategies to have a material, positive impact.

    A Red Herring: The unhappy conclusion facing those born after 1959 and eligible to collect Social Security benefits is simple: without a material increase in their savings, 74% of households will fall short of their income needs at age 62 and 47% will fall short at age 67. Therefore, concentration on investment strategies to maximize investors' retirement "nest egg" is a "red herring", i.e., a questionable strategy for generating a comfortable retirement.

    Alternative Strategies for a Comfortable Retirement: For "Generation X" ("GenX"), those born in the early 60's to the '80's, the message is very clear: save more, spend less and hope your cohort group does not get marginalized by any forthcoming changes in Social Security entitlement programs. Good luck with that!

    Maximization of Social Security Benefits: For the baby boomer generation, where time has run-out to adequately save for retirement, there are strategies for couples to maximize their collective retirement benefits.

    Social Security provides a number of legitimate options for couples to elect when and how they will receive their benefits. The choices can result in material differences in the accumulated retirement benefits during a couple's retirement years (see example below). Maximization of your benefits depends on many factors including your relative ages, your scheduled Social Security benefits, individual longevity, projected cost of living adjustments (COLA's) and when and how you elect your benefits-to name just a few.

    Main Concepts: There are a few central concepts necessary to understanding the basic mechanics for optimizing a Social Security retirement benefits' election strategy.

    1. Deferring Retirement Increases Benefits; Early Retirement Decreases Them: Assuming you're eligible, the longer you wait to collect your Social Security benefits the more money you will receive when you do. The earliest you can claim Social Security benefits is 62. However, your benefits will be reduced proportionally based on your age, the year in which you elect the benefits and the nature of elected benefits. Conversely, for each year past your full retirement age ("FRA") (66) you defer retirement, you will earn an annual credit (Delayed Retirement Credit ("DRC")) that increases your annual benefits up to the age of 70 when such credits stop accruing.

    2. Spousal Benefits: As a spouse, you can claim a Social Security benefit based on your own earnings record or you can collect a "Spousal Benefit". A Spousal Benefit will provide one spouse 50% of the amount of the other spouse's Social Security benefits as calculated at the latter's full retirement age. This monthly benefit amount will be discounted to reflect any early retirement election. It will also preclude you from receiving benefit payments based on your own Social Security record-if you are eligible at a later date. Electing Spousal Benefits once you've reached your full retirement age will allow you the flexibility to gain DRC's during the period of Spousal Benefits. You are also eligible to switch to your own Social Security Benefit record at a later date at a higher DRC rate.

    3. File and Suspend: One spouse of the two can file for benefits and then immediately suspend the benefits and not receive payments allowing the other spouse to receive spousal benefits. The spouse who files and suspends provides the mechanism for the other spouse to seek Spousal Benefits. This allows the suspending Spouse to continue to accrue DRC's until a later date when that spouse can elect benefits that reflect a higher rate of payment.

    Why this is Important? Here is just one simple example. Let's assume that Jim and Betty are married. Jim (62) is scheduled to receive $2,000 per month from Social Security at his "FRA" and Betty is scheduled to receive $1,600 per month from Social Security at her "FRA". Their respective life expectancies are 83 and 90.

    1. Scenario 1: Each decides to elect Social Security benefits early, at 62. They would receive in the aggregate $836,640 of Social Security retirement benefits over their retirement years.

    2. Scenario 2: Betty claims her benefits on her record at 62 at a reduced rate of $1,200 per month ($1,600 monthly less a 25% discount for early-retirement at 62). Jim, now 66, claims a spousal benefit on Betty's record after she files for her benefits. He is now able to receive $800 per month (one-half of Betty's 1,600 monthly FRA retirement benefit). Once Jim reaches 70, he claims his benefits on his own record.

    (click to enlarge)

    Utilizing the strategy of Scenario 2, Jim defers his own Social Security benefits until he is 70 years old, allowing him to accrue credits that increase the benefits on his record. During this time, Jim receives the spousal benefits based on Betty's record. By doing this Jim hasn't been deemed to have been using his own record to collect benefits. Once Jim reaches 70 years old, he can begin to collect his benefits at the rate of $2,640 per month. In addition, a further advantage of deferring benefits is that it increases the survivor benefits for his spouse (Betty) upon his passing.

    Impressive Results: In comparing Scenario 2 with Scenario 1, by Betty taking early retirement and Jim taking Spousal Benefits and deferring and electing retirement benefits on his record at age 70 (Scenario 2), they will collectively generate lifetime benefits aggregating $1,043,520. This is an increase of over $200,000 over the same period under Scenario 1. It's the equivalent of winning a small lottery. (Neither the cost-of-living adjustment to benefits or the discounted value of future dollars has been considered in these calculations.)

    What's the Point? It behooves couples approaching retirement, and the 10,000 people that do it every day, to try to maximize their Social Security benefits. It's legal and you may be leaving something on the table that you're legally entitled too.

    Caveats: This article barely skims the surface with respect to permutations for optimizing a couple's Social Security benefits. This is a complex area that is dependent on many factors outside the scope of this article.

    Before electing your Social Security benefits, you should speak with a trusted financial advisor with experience in this complex area and/or contact the Social Security Administration (1-800-772-1213, or go to their website: www.ssa.gov.) regarding information with respect to the election of a couple's retirement benefits. If you don't ask, you don't know. You may be throwing out a winning lottery ticket.

    Joe Eqcome

    Jun 21 4:01 PM | Link | 4 Comments
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