Leif Peterson

The 10 Best U.S. Dividend Stocks

My guess is that the dividend yields of these stocks are low, and in the 3-4% range. There are other well run US corporations whose yields are twice as high, whose risk of reducing dividend payouts is low. These other companies have also increased their dividend yield and have shown increased earnings through the recent subprime mortgage crisis of Sept/Oct '08.

Get Into the Market Oscillator (GITMO) For Equity Investing

E Nuff Said - The last figure (above) in the article suggests that GITMO's 1,2,3 are peaked at their max value right now, so based on this, a composite score would be 3/5 or 60% invested in equities. You could have actually gotten into the equity markets in March based on GITMO-1 peaking, with 100% of your equity portfolio and would have done well. Certainly, the percentage should be the percentage of what you are planning on investing in equities, not the percentage of your total portfolio. You should never invest your entire portfolio in equities, since it's too risky. A fine balance with bonds, gold, TIPS, international equities, and US equities (big oil, big pharma, consumer staples) is sought. Of course, when things get really bad you need to convert to cash and US Treasuries, but not for a long time since you will lose from inflation.

Get Into the Market Oscillator (GITMO) For Equity Investing

>Did you use Excel?

TradingSolutions version 4.0 was used to develop GITMO.

Get Into the Market Oscillator (GITMO) For Equity Investing

If you don't have a zero-lag moving indicator, then just use a moving average. Copy the S&P 500 date and closing price from say, 1/1/90, until the last close of business (e.g. 9/11/2009) into columns A and B of an Excel spreadhseet. You can start the 320-moving average in row 321 of column C by inserting in cell C321 the entry "=AVERAGE(B2:B321)". Then in column D you can can put the 500 day moving average in cell D501 using the entry "=AVERAGE(B2:B501)". Next, copy the cells with results all the way to the last daily closing price of S&P 500. Next, in Column E starting at cell E501, enter the function " =min(100, exp(C501 - D501)) " . When done, plot the date and column E starting at row 501 up to the last date for the S&P 500. This will give you a plot of GITMO-5.

Get Into the Market Oscillator (GITMO) For Equity Investing

>Interesting - Could you upload your spreadsheets so we can examine the formula.

Go to URL:

finance.yahoo.com/q/hp?s=^GSPC&a=08&b=...

and at the bottom of the page click on "Save as Spreadsheet". Be sure to work with the closing price.

>Have you back tested these.

Only on the S&P500 for the last 20 years.

>Your Gitmo 5 appears similar to the Coppock guide indicator?

I don't know about that indicator, but looked at its values and they are continuously-scaled (quantitative), whereas GITMO is discretized taking on mostly discrete values of 60,70,80,90,100 or near-zero values. GITMO typically won't produce a signal with hills and valleys or peaks and troughs, but rather look like a plateau.

Is a Crash Impending?

It's good to be risk averse, but not good to be so risk averse that your portfolio is totally in asset preservation mode. For every case study on bad news, there is an equal study somewhere that involves strong fundamentals and good earnings on a continual basis. With 6.8 billion people in the world, there always a bull market somewhere.

Four Reasons We're Headed Even Higher

If you plot the daily S&P500 return price over the last 20 years, you will notice that when unemployment spiked up the S&P500 rapidly dropped. In fact, in large measure the S&P500 is the inverse of unemployment. Because many corporations don't really "save" and most US consumers don't save (e.g. the negative US household savings rate of -2 to -3% before the subprime mortgage crisis), the majority of growth in the US economy is due to debt.

Now that debt is harder to come by, their are fewer jobs (corporate loans) and therefore a greater number of household mortgage forclosures. At present there is an interesting dynamic linking together Gov't debt, personal debt, taxation, credit, leverageing, etc., to the extent that the next bull market will likely be skiddish. The economies of the 50 states are wiped out, unemployment remains a large detriment to the economy, commercial real estate may worsen in 2010/2011.

If more debt and taxation are needed to correct things, then the expectation is that there is less certainty about the future. Right now investors should be long the markets but more vigilant about knowing when to leave the party, especially where to go once the party's over (bubble pops). The dollar is the current bubble that's bursting, so enjoy the ride while it lasts. I think a huge paradigm shift will be in store if things go south more than during Q3-Q4 2008.

Dollar Update: Inflation Forces Are Brewing

A weakening dollar is the result of printing too many as an effort to "inflate away" the debt. Cash for clunkers is a perfect example of this. The Fed sold treasuries to China, and then printed the corresponding dollars for the cash for clunkers program (it was only several billion!). The US consumer then got a $3500-$4500 free ride at the expense of the US taxpayer, and the money went to the dealers and GM, which is essentially owned by the US Gov't.

Assume your are the Fed and you owe someone $100 as debt for goods & services. First, you start by printing free money, which puts more dollars in circulation. People then buy more goods & services, which increases their demand causing their price to rise.
The rise in price results in less purchasing power of the dollar, i.e a weaker dollar. The consumer price index then rises, which is real inflation. As debt increases (right now it's out of control), more treasuries are issued, and the value of the dollar decreases accordingly.

Let's assume the Fed prints so many dollars that the dollar becomes worth 50 cents ($0.5). If you owed someone $100 dollars to be paid back over 3-5 years, then when the dollar is worth 0.5, you will essentially be paying back $50, which is called "inflating away the debt."

I think fundamentally, your analyses and conclusions are correct. However, there is room to expound on the huge debt problem and how galactically mind-boggling the inattention to an unbalanced budget is, plus a decade of debt on the horizon. Portfolios now need to include "support" components such as TIPS, gold or PM, some bonds, 10-15% cash reserves for emergencies, and 50-60% depression-proof equities whose earnings and dividend yields have been steady or increased. Inflation and a weak dollar creates interest from foreign investors to purchase well-managed US companies. Such companies are out there, you just have to find them.

What will be key for investors is knowing when to cut and run if commercial real estate tanks in 2010/2011 as predicted, the jobless rate does not decrease, unemployment benefits become exhausted in almost every state that is broke now, cap & trade is passed, taxes increase....

Five Reasons the Market Could Crash This Fall

Good article on fundamental problems. Below are ten possible reasons why the markets won't crash this fall.

1. Summer will be over - people will be getting back into the markets.

2. Programmed trading doesn't cause a worst-case problem spelling financial Armageddon.

3. Rapid dollar devaluation attracts investors abroad whose currency has been beaten up slightly less.

4. The annual earning reports for Q3 and Q4 '09 are markedly better than the 40% drop one year ago. This is good news that the herd will follow.

5. The dose of morphine (stimulus) to the economy (to kill pain) is substantially increased. Nurses (investors) know the patient (US economy) is brain dead, but the surgeon (Fed) insists that his novel procedure saved the patient's life.

6. Through quantitative easing, the Fed continues to directly manipulate banks and indirectly manipulate the markets in a positive way.

7. People fighting the US economy by purchasing commodities start chasing resources that are not there. Large corrections in commodities occur.

8. IMF continues to squash gold. Equities surge as an alternative.

9. Big money owning large shares of precious metals periodically take profit, causing gold to drop -10% every quarter. Big money knows the only way out is gold, so they take profits whenever they need a new car, vacation, villa etc.

10. Good Karma catches up with the US economy, the planets become aligned preventing the sky from falling, and those retiring in 10-20 years who focus on well-run US companies with proven substantial earnings do well.

Gold and Silver: The Only Attractive Investment Option

>"That is why gold and silver look to be the only attractive investments out there now."

It would not be to the advantage of investors to *totally* jump into the foray of gold and silver. During March 2008, the gold ETF (GLD) mysteriously dropped -9% over the three-day period March 17 to 20 (99 to 90) and then dropped to 87 by April 1st. The cause was attributed to "big money" owners of GLD, who own so much they can essentially write tomorrow's headline. Hence, the volatility of GLD on any given day can be similar to behavior of the inverse financial ETF (SKF) during the Sept-Oct 2008 crash.

Everyone understands the value of gold for asset preservation and hedging against inflation; however, saying that gold and silver are the only attractive investments now is not wholly true.

No Exit for Bernanke

Great article Peter. It would be human nature to think that during a large economic downturn there's dissemination of false information. Ever try to model and understand inflation based on CPI and Gov't dept-to-GDP ratios? Although it is helpful to view the recent debt-to-GDP charts from time to time. [ref: US public debt at en.wikipedia.org/wiki/... ]

What's difficult to fathom is that if US debt was similar to your own family budget, then you'd stop taking on so much debt. However, because we never hear statements like "The US is going to stop doing xxx and yyy simply because the budget can't handle it." The US Gov't got us into the subprime mortgage crisis (definite HUD laws which *required* ~40% of new mortgages in the 90's be given to families whose income is below the area in their area -- and these mortgages had easy initial terms, and were adjustable rate), is now trying to get us out of it through quantitative easing (printing money-->fiscal and monetary policy), but can't ever stop spending and going into more debt.

This is what the military calls "smoke and mirrors," that is, when everything is a haze with no focus and no goals/plan. Personally, I like "dog and pony show." Certainly, it is laudatory to prevent market crashes through Gov't intervention -- so that most of us can safely retire, but the effect of such mismanagement and fiscal irresponsibility on younger generations will be disastrous. There are also strong programs in Gov't called Fraud, Waste, and Abuse. So why doesn't someone start looking at the abuse part of the equation.

Market Timing vs. Dividend Income Strategies

Good article. As you know, however, there are other stocks with 2 to 3 times the yield, whose earnings are continually growing. Here's a gift to the new dividend investor: Kinder Morgan (KMP) a natural gas pipeline MLP, which has a continual yield of 8% and has done very well over the last year. Altria(MO) and Phillip-Morris (PM) (if you have no problem owning tobacco stock) have always done well, but can be at huge risk for law suits. The other basics to a depression-proof dividend portfolio are Pfizer(PFE), Procter & Gamble(PG), McDonalds(MCD), Duke Energy(DUK), Con Edison(ED), AXA (huge French insurance conglomerate), YUM Brand Foods (YUM, Taco Bell, Pizza Hut, KFC especially in China), and Diagio (symbol DEO, produces Smirnoff vodka, Johnnie Walker Scotch whiskies, Captain Morgan rum, Baileys Original Irish Cream liqueur, JeB scotch whisky, Tanqueray gin, Guinness stout, Jose Cuervo) are not bad. Coca Cola (KOF) in Latin America always does well. Dont' forget General Mills (GIS) which did very well through Sept-Oct last year. Last, big oil, like Exxon Mobil (XOM) and Chevron (CXZ) are portfolio musts.

A lot of the above listed stocks have 2-3% yields which is low. If you do some homework or join some dividend services, you can find depression-proof stock with 8-12% yields.

The basic requirements for a depression dividend stock portfolio right now are:

1. Continually increased earnings through the Sept-Oct crash last year and over Q1, Q2 this year.

2. Low risk for reducing dividend.

3. Greater than 500 million USD (or >1b) in market capitalization.

4. Either a pharmaceutical, big oil, or big consumer staple.

The [Good] Economic Conditions That Precedes a Liquidity Trap.

This is probably true to some extent, but I think it will take 5-7 before coming true. The next bubble is the dollar. Can you recommend any indexes to watch for to determine when the liquidity trap may be around the corner?

Bernanke's Conundrum

No matter what type of monetary easing hits the streets, it will be tantamount to a "last breath" in which short-term euphoria sets in, and then the lights grow dim. The next bubble is the dollar, so during its decline the there will be a sharp bull-run of the equity markets. Groups with a lot of Yen, Euros, Australian dollars will likely jump on equity purchases of strong depression-proof US corporations (whose earnings have increased through Q4'08, and Q1,Q2'09).

This may be the ride of a lifetime, so the trick will be knowing when to get off at the train station (out of the equity markets). AT that point, you may need to transition much more heavily into e.g. gold or PMs, or another currency.

Portfolio Diversification Is Key: Consider These ETFs

>Right now investors should be loading up on US equities

The above refers to companies whose earnings have steadily increased over the last several years, increased during Sept-Oct '08, Q1, Q2 of this year, and have projected earnings growth. Why would anyone invest in companies with decreased earnings. Finding such companies involves work, and when done, the list won't include equities with large PE ratios.