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20 Year professional investment management vet. Dad. Beatles fan.
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  • Even Better Than The Real Thing
    If you entered or finished puberty before1983, you were probably a U2 fan for at least an album or two. Fans of a band will always argue incessantly about which record was the best. The somewhat pretentious The Joshua Tree snagged the album of the year Grammy in 1988 and How To Dismantle An Atomic Bomb took home a Radio Flyer wagon full of hardware including album of the year in 2006. The consensus here at Yieldpig is that 1993’s Achtung Baby is probably their finest mature album (we can talk about Boy, October, and War another time). The record garnered the band a best rock group Grammy, threw off a slew of hits, went platinum eight times over and is considered one of the best rock albums ever. Still, no best album Grammy. Funny that. Even with a song as cool as “Even Better Than The Real Thing”. The album was rough around the edges, dark, moody, risky, and experimental. Which got us thinking about the other “real thing”: Coca Cola (NYSE:KO).
    According to our editor-in-chief, KO has been touted as THE must have equity in a portfolio for the better part of 15 years. Everyone loves it. Warren Buffet owns a buttload. The story is the same as it was 15 years ago: number one brand globally, international, especially emerging markets will drive growth and so forth. KO is a regular member of the Standard and Poor’s Dividend Aristocrats list having increased its dividend every year over the last 47 years. S&P currently rates the stock a five star strong buy. What’s not to like? If you purchased $10,000 worth of KO in January of 1995, it has pretty much tripled having turned in an average annual return of 7.39% which includes reinvesting dividends. Not bad. Call us iconoclasts or unrealistic, but where’s the fizz? After the run up from ’95 to ’99 (26ish to 59ish), the stock is basically where it was 10 years ago on a price basis. And this is during the explosion of the emerging markets during which the economies of Brazil, India, and China became real global market players. Is it truly the real thing? What if you’d had made an Achtung Baby investment and purchased $10,000 worth of money manager Alliance Capital’s (now Alliance Bernstein, symbol AB) MLP units?
    Your $10,000 investment grew to $81,059, although at the market top of 2007 it was worth $191,090 …ouch…and returned 14.96% annually with dividends and distributions reinvested. Alliance is a top flight manager. They may not be in every refrigerator but they probably affect your everyday life more than you think through 401(k)’s, pensions, and other institutions that require their expertise. 20% of KO’s total return came from dividends versus 84% for AB. That’s eight times platinum. We’re not hating on Coke. If you bought it, you did great. But we think you can do better. There’s no rule saying you have to follow everyone. Dig. Don’t fear edgy, adventurous, or experimental. More often than not it pays off.

    Disclosure: No Positions
    Feb 17 11:36 PM | Link | Comment!
  • Go Long Bottled Water: Twenty-Teens Predictions

    If you've never indulged in the guilty pleasure of leafing through the Weekly World News or any other supermarket tabloid that proclaims to have an exclusive on presidential summits with aliens and the return of Batboy, do yourself a favor next time while in an unusually long checkout line and skim one. The endorphins generated by the laughter will do you a world of good despite the dire predictions of Hopi Indian doomsday prophecy fulfillment.

    As we look back on the past decade, affectionately referred to by the Yieldpig staff as "the Double Zeros," you'd think that the wackiest of the tabloids might actually be on to something. The 9/11 attacks followed by a far flung, costly, grinding war on terror, energy and commodity price bedlam, investment return malaise, and topping off the decade, financial meltdown and near disastrous collapse, might make some panicky types go long bottled water and ammunition. What do the "Twenty-Teens" have in store for us? Who knows? However, while we're not in the business of economic forecasting or prognostication, we thought it would be fun to put on the Great Karnak turban and take a stab at a couple of thoughts for the coming decade.

    The European Union will become less unified or dissolve altogether.
    That would mean the euro's role as a global currency player would diminish or disappear. Think about it, 27 different sovereign members which mean 27 different economies. The German economy is booming while the Bulgarian economy stinks on ice. This condition, syndrome, whatever you want to call it, is currently present. Keep in mind, the EU was formed during a period of unprecedented peace and prosperity

    China is the new Japan.
    If you came of age in the late 1970s and early 1908s, you'll remember the fear of Japan "taking over the world economically" and owning so much U.S. Government debt that it would cause chaos in financial markets when the Empire of The Sun decided to dump all of their Treasury securities.

    We all know how that story ended. Overpaying for global assets, an elderly population outstripping the viable population and other challenges are facing China or are coming around the bend. According to DataStream International, Japan's percentage of capital spending investment as a percentage of gross domestic product peaked at 36% in 1973. China's has reached 41% recently. Like Mark Twain said, "History doesn't always repeat, but it can rhyme."

    The U.S. Dollar will return to dominance as the premier global currency of choice.
    If the euro weakens due to European instability, where else are you going to go? It sounds simplistic, but maybe that's because it is.

    The U.S. Treasury will actually make money on the TARP trade.
    Our government may be a bit too chummy with Goldman Sachs (GS) (which it probably is). But people typically ask for and get advice from their good friends. The Troubled Asset Relief Program concept is a trade, pure and simple. The government can borrow short term for free, basically (Treasury bills yielding 0%). It can invest that money and get a 5% to 9% yield depending on the investment with an option to convert to equity which will increase in value if the market goes up.

    If the trade goes well, the government sells its stake, pays off the note, and pockets the difference which will, hopefully, be used to pay down the deficit or something frivolous like that. Plus, the government can prop up the banking system, so the game is rigged, but luckily it's rigged in the government's favor. The wild card, naturally, are interest rates. If the Federal Reserve can keep rates low and inflation isn't a problem, the TARP trade could work big time.

    America finally will get and practice energy religion.
    Thanks to conservation and alternatives, the United States will have some degree of energy independence. The result will be lower or steady oil prices. Less oil dependence and lower prices means declining revenue for oil producing states, many of whom, whether we like to say it or not, fund terrorism. Our strategy for winning the war on terror could be similar to the strategy used to win the Cold War: Bankrupt the enemy.

    There you go. We've thrown our darts at the dart board. Call us naive. Call us Pollyannaish. Just don't call us late for supper.

    This article was originally published December 29, 2009 on

    Disclosure: "no positions"
    Jan 25 9:18 PM | Link | Comment!
  • "Mad Men's" Don Draper: His Lucky Strike Portfolio
    This article was originally published January 5, 2010 on

    Call it "retro cool" or "Falcon Crest" meets "The Man in the Grey Flannel Suit," AMC's smash hit, "Mad Men," is the best thing to happen to television shows about the ad business since Darrin Stevens got promoted at McMahon and Tate. Set in the early 1960s during the golden age of American consumerism, "Mad Men" is an ingenious mix of tawdry soap opera and history lesson. In between smokes, martinis, and extramarital affairs, Don Draper, the show's protagonist/anti-hero and creative director of fictitious ad agency Sterling Cooper, guides his squad of copywriters and art directors as they conjure up campaigns for iconic American brands such as Lucky Strike, Clearasil, Kodak, and Gillette.

    Being a man at the top of his game and on top of the world (young staffers are overheard gossiping about his salary: "I hear he makes 45 a year!") in a Madison Avenue corner office, how would Draper invest? Besides the $5,000 or so in cash he keeps locked in the desk drawer at home (Note to self: Do not leave keys to desk in bathrobe pocket), it would be safe to say he would own the shares of his firm's top flight clients. Smoke Luckies? Then they probably should be in your portfolio.

    One of the Yieldpig staffers found an old monthly stock guide (prior to the Internet, investment houses would offer them as value added to their clients) from Steiner Rouse, one of many American brokerage firms that was eaten and digested by another firm long ago. The guide was dated January 1960. The data reflected pricing information at the end of December 1959. The third season of "Mad Men" is set in 1963. The first season is set in 1960 with episode No. 1 taking place in March of that year. With that in mind, we gingerly flipped through the yellowed pages of the guide in order to reconstruct Draper's account brand by brand. The equity weighting would probably be right at 50%.

    Gillette, now a unit of Procter & Gamble (NYSE:PG) -- Sterling Cooper came up with an incredibly butch campaign for Right Guard because back then, men were men except for art director Sal Romano as we found out in season No. 3.

    Maytag (MYG) -- Pitching appliances so America's housewives could live up to the Donna Reed standard.

    Admiral - Draper's colleague, Roger Sterling, had the foresight to authorize Harry Crane, the agency's media buyer, to start a television department. Good thing since the firm helps Admiral hawk television sets.

    American Tobacco -- Lucky Strike: the official cancer stick of Sterling Cooper. Smoke 'em if you got 'em.

    Vick's -- Account man Pete Campbell, the office's resident weasel, reeled in Clearasil courtesy of his father-in-law. Just in time for Baby Boomers hitting puberty.

    Eastman Kodak (EK) -- People could take brilliant color pictures and turn them into slides. Draper tugged at their heartstrings with a ride on their Carousel projector.

    As far as the fixed income half of Draper's account is concerned, it would probably be Treasuries. He was a Korean War vet.

    Since he's as sharp as the crease in his trousers, we'll assume Draper bought low (or had his broker do so, as the Internet wasn't even a science fiction movie dream yet) in equally weighted positions. The Dow Jones Industrial Average returned 15.6% that year.

    Bonds, however, took it on the chin. A 10-year Treasury purchased at par and yielding 4.02% in January 1959 had given up 14.3% in principal value by December. Even with half of the portfolio giving up that much, including dividends (4.11% average yield) and interest, Draper's account turned in +35.75%! Maytag and Vicks were double baggers and a half while the poorest performer was Admiral, but still eking out a gain of 4%.

    Congratulations, Mr. Draper. It was an outstanding year. Help yourself to a well deserved whisky on the rocks...and a secretary.

    Disclosure: No Positions

    Disclosure: No Positions
    Jan 21 11:45 PM | Link | Comment!
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