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Norman Tweed
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Retiree interested in stocks and financial instruments, especially dividend producing stocks. In the 20th century, I was an electrical engineer with Dominion Resources. I use a dividend growth investment style. Quick rules of thumb for complex questions, like fair value p/e using the Gordon... More
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  • Generational Market Shift

    According to Strauss & Howe, there are four generations to the seculum. The seculum is approximately the lifetime of the individual. The seculum that we are currently finishing is called the Millennium Cycle, which is scheduled to end in 2017. During this last generation of the cycle, the X generation was in mid-life and the Baby Boomers (W generation) were leaving the working population. The Millennials (Y generation) are just entering mid life.

    The significance of this generational shift is the fact that the X generation prefers hard assets (commodities) to paper assets (stocks and bonds). There will now be a growing demand for paper assets for the next 18 years as the Y generation moves through mid life (they may have more members than the X generation (84 million) depending on which years are included ( 80 million - 95 million).

    The 1940s through the 1950s was the comparable time in the Great Power Cycle when the G. I. Generation was entering mid life and it was the largest generation of that cycle (67 million). Stocks and bonds became available to the masses during their mid-life period and my own father bought stock in Boeing during World War II and sold it to buy our move up home in 1950. During their mid life, the Interstate Highway system was built and the economy boomed. The cold war was initiated and tremendous amounts of capital were deployed for advanced weapons systems. Could the next 20 years be similar to that time?

    The recent drop in the price of oil may be a harbinger of the generational shift in the economy. There are those that say that the price of oil will go back up, but in the 1950s when I was a young man, the gas stations gave away glasses with a fill up and there was always a gasoline price war.

    When the economy booms, the Federal Reserve must keep inflation under control. They use all the tools at their command, but raising the short term interest rate is a favorite way to keep a lid on inflation. I see jaw boning by the Fed members as the beginning of rising interest rates, although subdued for the next 5 years. When full employment is reached, I think more substantial rates (>3%) will be employed for Fed funds.

    What stocks should one purchase to cash in on this Generational shift? Being in the second 15 years of my retirement, I continue to look to high yield stocks for cash flow ((NASDAQ:AGNC), (NASDAQ:MTGE), (NASDAQ:PSEC) and LNCO). However, for a younger person, many growth opportunities exist. My grandchildren are buying (NASDAQ:CMCSA), (NYSE:RTN), (NYSE:HYH), (NYSEARCA:VHT), (NASDAQ:ROST), (NYSE:KMB) (NYSE:PM) and (NYSE:SJM). These stocks have done well and with dividends reinvested, will provide their college and a start in the working world.

    Remember, one must do thorough due diligence before buying any security. The above list is what I and my grandchildren are buying, not a recommendation for your personal situation.

    Tags: LNCO, Finance, Oil Gas
    Nov 01 11:23 AM | Link | 8 Comments
  • Intercontinental Railroad

    Back in the late 1800s, Jay Gould attempted to build a coast to coast railroad by buying up small railroads along the way and piecing them together. He had gotten his start in railroads with the Erie in New York and had moved on to the Union Pacific, always trying to build up a railroad that was in bankruptcy and extend it. Finally, in the last part of his life as he was dieing of tuberculosis, he bought the Missouri Pacific railroad and extended it south with the Kansas-Texas (Katy) and west attempting to tie up with the Southern Pacific.

    After Gould, E. H. Harriman attempted to finish what Gould had started as he picked up the Union Pacific and extended it south. He had been on the board on the Illinois Central and had been instrumental in its extension to the Gulf of Mexico. In the early 1900s, he had battled Hill for the Northern Pacific culminating in J. Pierpont Morgan's Northern Securities holding company which was declared restraint of trade and dissolved. In the years leading up to the first World War, the Van Sweringen brothers bought the Nickel Plate railroad, formed the Alleghany Corporation holding company (owning many railroads including the Chesapeake and Ohio and again following in Jay Gould's footsteps almost completed a coast to coast railroad, stopped only the Great Depression in 1935.

    After the great railroad consolidation on the 1960s-2012, including Warren Buffett's purchase on the Burlington Northern Santa Fe, the division of Conrail between Norfolk Southern and CSX a new attempt at an intercontinental railroad has been announced by CP Rail with their bid for CSX. This merger was rejected by CSX, but there are considerable efficiencies that could be developed by forming one continuous intercontinental railroad at least east to west (CSX-CP).

    If CP is unable to merge with CSX, KSU has been mentioned as a merger partner. With the delays in grain shipments, lack of rolling stock on all the class I railroads and huge increase in crude by rail caused by the US Fracking oil fields which have made the US a larger producer than Saudi Arabia, infrastructure improvements are necessary in the railroad industry. Possible coast to coast mergers could be BNSF-NSC, UP-NSC, CNI-KSU, or CNI-NSC. This industry is in play and I'm waiting until the smoke clears and regulators such as the Surface Transportation Board make it more clear what they will allow in the way of consolidation.

    Tags: CP, CSX, UNP, BRK.B, NSC, KSU
    Oct 17 9:21 AM | Link | Comment!
  • American Capital Agency (AGNC) Goes Monthly

    Mortgage REITs pay some of the highest dividends in the market. American Capital Agency (NASDAQ:AGNC) has paid over 20% yield in the past and currently pays 12.12%. Recently, they changed this distribution from quarterly to monthly. This new monthly payout makes it easier for retirees to budget their expenses against their income. If one were to reinvest this monthly dividend, the compounding effect becomes greater versus a quarterly payout. The outlook for AGNC has also improved.

    With the wind down of the government purchases of mortgage backed securities, there will be more room for private capital to take a larger share of the mortgage market. Mortgage servicing rights will also ramp up as the portfolios become larger. As the housing market picks up, spreads between MBS and short term borrowings will increase. When highly levered (8x) yields can rise rapidly. A considerable amount (80%) of MBS has been purchased by the FED. With that drag on the market removed, prices of MBS will be supported by the significantly reduced supply of mortgage funds. Investors have been underweight MBS due to the interest rate uncertainty which started in the summer of 2013. As the interest rate on the 10 year treasury bond has become more stable in 2014, private investors have bid up mREITs like AGNC (+11.25% ytd).

    (click to enlarge)

    Mortgage servicing rights have been kept by originators until recently-due to wide origination margins. New capital requirements for banks and a tougher regulatory environment for originators and servicers and lower origination margins should force most originators to sell the majority of their MSR. Given the permanent capital nature of mREITs, they are well positioned to take advantage of the MSR opportunity.

    AGNC might consider non-agency MBS in the future as well as increased involvement in origination and sourcing of MSR and MBS. This makes them more like American Capital Mortgage (NASDAQ:MTGE) and other mREITs such as (NYSE:NLY). In the long term, higher leverage may be applied as there is structural change in the industry.

    I see strong growth in both book value and dividend yield over the next several years. mREITs are cyclical based on the 10 year treasury bond interest rate and spread of short term rates with long term (2 year-10 year spread for example).

    Oct 04 5:08 AM | Link | 4 Comments
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  • Dividends posted from T & VZ. Bought $CMCSA @ $58.41. It may go down from here and I'll buy more.
    May 5, 2015
  • I had a limit order in for $CMCSA at $52. It is on a tear and I raised it to $59.47. Dollar cost averaging into the position.
    Feb 15, 2015
  • Agnc dividend received. Placed limit order for $PSEC @ $8.33 for 12% yield. Dollar cost averaging into position.
    Feb 7, 2015
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