Joseph L. Shaefer

Wall Street Breakfast: Must-Know News

"U.S. bank overseers were poor policemen. The inspectors general of the Federal Reserve and Treasury criticized both agencies for being too slow to prevent risky lending..."

Kudos to the Office of the Inspector General for its blinding insight. Just one thought here -- next time, could they notice that BEFORE 26 books, 10,943 articles and 87,453,627 investors pointed it out to them??

The New Normal Could Be That Way for a While

I agree there is a mis-distribution of income. But I don't see government-determined redistribution of income as the solution.

The "maldistribution" is that folks who saved, paid their bills on time, didn't try to flip real estate and didn't get in over their heads are now making .05% on their money market fund and, with luck, a little less than 2% on a one-year CD -- while those who bought to flip can walk away from a mortgage, stranding someone else with a $100,000 loss, and get $6500 toward a different house courtesy of the taxes paid by the folks who saved and paid their bills on time!

What numbers like "60% [of the people only] get 21% of the income" fail to consider is that Americans have very fluid economic and social opportunities. Every year some move up, some move down, then the same folks reverse it or add to the overall amplitude.

When I was a 2nd Lieutenant making $361 a month, I was in that "underclass" -- but I didn't stay there. When I later left a high-paying job to start my business, my income plunged to zero until I got the business going. Should I have been the beneficiary of a "redistribution of income" from my fellow citizens? Hell, no. In each case I made the decision to start anew. Let the marketplace determine an equitable distribution of income -- with no RE-distribution by some government hack who gets a salary (overhead) for taking from one citizen (income producer) to give to another (overhead).

The equation is much simpler than most would admit -- as long as overhead is greater than income, we will fail. The moment we reverse that equation, we will succeed...

Four Claymore ETFs to Close

Wall Street marketers are like network television programmers. If one of them, uncharacteristically, has a good idea that is fresh and valuable and interesting, all the others will create their own "me too" reality show or cop drama or, in the case of Wall Street, yet another mutual fund or ETF that nobody needs or wants.

There are now more mutual funds than there are stocks on listed exchanges. Really now, how good can they all be? It's the same with ETFs -- every time there is a glimmer of interest in a sector, someone rushes to market with a new ETF.

Caveat emptor: Always go to their websites and see just what they are actually holding. The thinner the sector, the more likely their "index" defines the sector far more broadly than you or I would.

These are not the first to close and, as long as ETFs are treated like television pilot shows, floated out there to see if anybody responds, I predict there will be a long line of closures following them...

Did the January Effect Start on November 1st This Year?

On Nov 24 06:35 PM Curious Bystander wrote:

> I'm not being argumentative, but when exactly have you been in a
> situation even remotely like what we have now? The economy has fallen off the edge of the map, you know that one part that says "Beyond here, There Be Monsters".

----------------------...
Yours is a question that deserves an answer, Curious Bystander. And it is:

I began investing in 1969, and entered the securities business after leaving the United States Army in 1972. What ensued was the best possible preparation imaginable for the current times.

From January, 1973 to October 1974, the market slid sickeningly day after day with almost no respite, from 120 on the S&P 500 (a number that must seem quaint to younger investors) down to 62 -- a 48% decline not unlike the most recent tumble

Worse, while it “rallied” over the ensuing years, by March 1978, it was still only at 88 – taking 4 years to rise just 25% -- and in April 1980 it was only at 102. It took the election of Ronald Reagan and the diligence of Paul Volcker to shake off the lethargy and begin moving the economy forward. Still, the malaise they had to overcome left the S&P at just 103 in August 1982. When lower taxes, tighter credit and higher rates to reward saving finally kicked in, the markets recovered.

So I spent 8 years “before the mast” in a market that not only fell as far as the most recent but took much longer to recover much less than this one has. (Not to mention the Crash of 87 which saw the S&P drop from 328 to 223 in six weeks, the Asian Contagion, the Latin American credit debacle, Long Term Capital, and other problems too numerous to mention.)

Taking just the 1970s for illustration, the prognosis was every bit as bad as it is today. Every lousy employment or home price or consumer confidence report today you can find by looking at the microfiche in your local library during the 1970s market. The thinking shared by nearly everyone was that America’s best days were behind us. The problems were too overwhelming to be solved. "Beyond here, There Be Monsters" was the ruling belief. And yet we recovered.

That is why I will go short individual issues for weeks or even months when I expect declines, but I won’t sell this country short. West of Wall Street and Washington, we still know how to roll up our sleeves and get the job done.

Should Emerging Markets be Renamed 'Emerged Markets'?

Kill Me -- You seem to have posted the exact same message on my most recent article -- and on a dozen others. That makes it difficult to take your remarks seriously as being germane to each discussion, but makes it seem more as a tirade to give greater visibility to your opinion.

Regulars at SA always appreciate a brilliant riposte or critique as it makes us re-evaluate our own comments, but senseless population of sites with the same exact verbiage may make you seem like a spammer -- as I'm sure you aren't.

Best regards,
JS

Did the January Effect Start on November 1st This Year?

Investing1 just unleashed the following diatribe...
"mindless blather about nothingness is more appropriate. Why is it that financial advisors are always telling their clients to go head long long when the market has turned to a short side bias?"

Ummm -- before getting that off your chest, did you bother to do any research and note that we were SHORT until March, LONG in March, SHORT over (too much of!) the summer, and now LONG again?

No doubt your rant applies to some advisors but, as I'm certain you will learn as you progress toward your degree in finance, RESEARCH will save you embarrassment -- and FLEXIBILITY will save your portfolio!

I don't know what the market is going to do tomorrow. I can only rely on my experience, having been in similar situations a few dozen times over the past 40 years. Since you "know", perhaps your recommendation of MZZ will work better for you. I prefer research and flexibility...

Wishing you much success in your investing endeavors,
JS

Wall Street Breakfast: Must-Know News

"Underwater mortgages could drown housing recovery. 23% of all U.S. homeowners with a mortgage, or 10.7M, now owe more to the bank than their house is worth..."

I don't discount the importance of these numbers one bit. I was among the first to warn of the housing bubble with "clear and present danger" articles during 2005 and 2006. But neither can I accept the shrill conclusion that because 23% are underwater, that some figure close to 23% will walk away from their current home. (Although, in the Unintended Consequences Department, the current $6500 "redistribution" from all taxpayers to any principal residence buyer may tempt many more than otherwise would have walked to do so...)

Still, a house is not a home and a home is much more than a house. If you like the neighborhood, like the school district, like your neighbors and are comfortable in a place you rent, you don't move just because rent somewhere else is $50 a month cheaper. The same is true of your home, especially if have put sweat equity into the yard or painted it recently or done improvements to the interior, etc.

23% underwater doesn't mean that 23% are hundreds of thousands underwater; or that we'll stay underwater as housing prices rebound in many parts of the country; or that we'll walk away from the home we love just because it's underwater TODAY.

I did not share in the irrational euphoria when prices were ridiculously overpriced. But I do not share the shrill hysteria that the sky is now falling, either. We've been here before. "House" prices go up and they go down. But people still want a "home" to call their own...

Wall Street Breakfast: Must-Know News

"Dimon for Treasury Secretary? "

OK, let's accept that it's "possible" for someone on Wall Street to experience remorse. Next, that it's "possible" they may feel just guilty enough to give up their $48 million a year job to take on a role in government. And that it's "possible" they aren't just pandering to the popular anger and might actually allow the occasional Not Too Big To Wail bank to fail ("possibly" into the waiting arms of JPM.)

Even if that were all possible -- isn't it just as possible we could hire someone who WASN'T a hungry fox to guard the henhouse? Who would begin the job with credibility rather than distrust?

Why must our Treasury Secretary come from Wall Street? Are there no Paul Volckers or Milton Friedmans or Alexander Hamiltons out there willing to put the needs of the American people above the markers they owe their cronies on Wall Street?

It's a rhetorical question. Of course there are...

Wall Street Breakfast: Must-Know News

"Geithner defended his position, saying, 'The U.S. ... came into this crisis without anything like the basic tools countries need to contain financial panics. Coming into AIG, we had basically duct tape and string.' "

Duct tape and string? How about common sense, the previous experiences with Long Term Capital, Bear Stearns, Lehman, et al, and half a brain?

I believe we could take a farmer from Iowa, a 3rd-grade schoolteacher from Oregon, and an accountant from South Carolina and, singly or together, they could have used common sense and an honest concern for the American people to figure out that the problem came from Wall Street and should have stayed on Wall Street.

Of course, they would not have been beholden to Wall Street for their job, wouldn't have contempt for the hoi polloi everywhere west of Wall and Broad, and wouldn't have needed to cuddle up with other little masters of the universe in order to ensure their own feathered nest awaits them the second they leave what is more and more humorously referred to as "public service."

Where you sit may depend on where you stand -- but it shouldn't determine whether you have the courage to even take a stand.

11 Stocks Increasing Dividends, Long-Term Return

Thank you for your always-interesting articles, D4L. My watch list is filled with companies like these so I always appreciate seeing new ones to add to the mix.

Though I am solidly in the camp of those who believe in dividend investing, I part company with those who buy companies like WMT, ABT and MCD exclusively, believing an incremental increase from 2% to 2.2% will serve their portfolios well. That level of yield and "safety" that comes only from size may be illusory -- many former "dividend aristocrats" lost their lands and castles and are now begging in the streets for food. (GE, BAC and C were once considered aristocrats and are now paupers...) That's why I think it's essential to look at the up-and-comers, the niche players, and those increasing market share like the ones you have identified here.

While well-managed, growing companies that yield 2-3% and are growing their dividends 10% a year, year after year are good -- those of us older than 20 or 30 need to see some income TODAY as well.

That's why I research, own, and write about food and energy companies whose product will be consumed as long as their are people on earth and who <> have an equally fine record of increasing dividends -- but do so from a much higher base.

(For example, many natural gas pipeline MLPs yield more than 8%, are conservatively managed, and have raised their dividends every year since they are paid on the amount of gas going through their pipeline -- the owner of the gas takes all the risk in the price of the product.)

For me, dividends are an important part of our total return and dividend growth is an essential element in increasing portfolio value. But dividend growth from a higher sustainable baseline is even better!

Bill Gross: Anything But 0.01%

... and just as likely, I suspect inflation will make a comeback once real estate picks up!

Since I can't hold my breath that long, I'm going for the dividends paid by commodities that have autonomous pricing power at any level of inflation -- like natural gas pipelines, coal royalty trusts and apartment REITS...

Ethanol vs. Natural Gas or Coal: Comparison Not Even Close

Dear Mr. Kreg,

Thank you for your e-mail to President Obama asking him to replace the current Sec of Energy with me. If called, however, I would have to respectfully decline for two reasons:

(1) << Divorce is expensive. >> After speaking before various groups, some members of the audience will always come up and tell me I should run for governor or senator or city dog-catcher or whatever and they would vote / campaign for me. In each instance, my wife has informed me that if ever I entered the fantasy world of politics, I would do so alone. She then reminds me that Nevada is a community property state.

(2) Speaking from experience, having a hard-wired propensity to tell it like it is does not engender civility or cooperation from Washington's cozy insiders. I fear my time in that saddle would be too short-lived to do more than gore a few oxen. Hmmm... maybe there's value there after all!

Reaching for Yields with MLPs

Fine analysis, Elliott. I couldn't agree more. We originally recommended both WPZ and WMB to SA readers on Sept 15 when they were, respectively, 21.61 and 18.30. One of those readers e-mailed to ask if they should sell now. I responded that I don't know their personal situation so it would be inappropriate for me to recommend one way or another. But for myself and our clients, I'd say, "No way!"

I am in the camp of those who believe in dividend investing -- but I part company with those who buy companies like WMT, ABT and MCD exclusively. Fine growing companies that yield 2-3% and are growing their dividends 10% a year, year after year are good -- but for those of us older than 20 or 30 need to see some income TODAY! At our purchase price, WPZ yields 11.75% -- and it has shown that same steady progression from 15 cents a quarter in 2005 to 64 cents every quarter now.

Dividend growth is good. Dividend growth from a high baseline is even better...

Wall Street Breakfast: Must-Know News

"...a lobbying group for 18 of the world's largest financial firms...urged House Financial Services Committee Chairman Barney Frank not to pursue big bank break-up legislation."

Gee, there's a surprise. Big banks, having mismanaged, bungled, ruined, botched or made a mess of everything they've touched, invested in or been entrusted with, now want us to believe we shouldn't act to protect ourselves in the future.

Sort of like the usual criminal response when standing over a dead body with gunshot residue on their hands and a smoking gun: "I didn't do nuthin' wrong! It isn't my fault! The law was unclear! I had a terrible childhood!"

Blah...

Blah...

Blah.

The State of Banking: Banking on the State?

One of the essential underpinnings of any social contract – or legal or financial contract, for that matter – is that “actions have consequences.”

Once a state or national government picks and chooses favored industries (often because the appointees have come from and will return to those industries) and says to them, explicitly or implicitly, “actions have consequences, but, don't worry, not for you,” there is no social, legal or financial constraint on their actions.

“Actions have consequences, but not for you” is just another way of saying “All animals are equal but some animals are more equal than others.”

That is why so many Americans are so incensed by this favoritism. It isn’t only about the money. It’s about whether this nation stands for equal opportunity, whether individuals and institutions can succeed or fail on their own, and whether the playing field is level or it isn’t. For Wall Street, it may always be about the money. For the rest of us, it’s about something bigger – what this nation stands for and where we go from here.