donzelion

ETFConnect Is No More

I see the management discussion more like this:

CEO: So even with this mega-rally, we're still $XYZ million in the hole. Alright, come on people, who has ideas here?
Exec: Hey, we just got an offer from [Blackrock / Fidelity / random media company] to sell ETFconnect.com site to them for $25 million.
CEO: Intriguing. What's our bottom line on the site, anyway?
Exec: Click-thru analysis shows that we've sold roughly 5 bucks in CEFs, and helped sell billions in ETFs. Meanwhile, it costs $1-3 million a year to run - that's 24 research assistants in India at $500k and one manager.
CEO: That's all it costs? Wow. So anyone could compete in this, right?
Exec: Well, Yahoo Finance and Google Finance are already competing, but their presentation sucks. Yahoo has almost all the same stuff, but makes you click a dozen times to get it. Google has a tiny bit of the same stuff, but their service is really new. Then there's the finance mags - but they can't afford our Indian research team.
CEO: Hmmm, so our primary virtue is a convenient, single page format, but the primary result of that is that it can't be monetized. Counter at $200 million due to our goodwill, but take anything north of $50 million. Any other ideas?

Emerging Economies: The Good, The Bad & The Ugly

As usual, your basic analysis is spot on, although the "third son syndrome" is bogus in the Muslim world (where primogeniture is banned - and regardless, many facts make the theory implausible).

Still, I'd offer one twist on the thesis of buying quality developed market companies to play the emerging markets: take the Euro/Japanese option whenever you find a true competitor with a U.S. company.

It's a simple tax difference. Euro/Japanese/Korean companies send their best people abroad on long-term foreign assignments because those people often get a 100% tax exclusion. However, America taxes citizens based on global income - which means that the tax effect of a foreign posting is often slightly negative. Hence, the best and brightest in European/Asian companies volunteer for foreign posts, while in America, it's often forced upon personnel.

Result? Europeans/Japanese/Kor... send large delegations of quality personnel abroad; Americans send few. Over time, that leads to steady gains for the Europeans and Japanese, who gradually push aside American companies whenever a true competitor exists.

Hence, I'd take the Japanese/European competitor wherever possible if one is playing the emerging markets (Nokia over Motorola/Qualcomm, Toyota over GM/Ford, ABB over GE), and take the American company when it has no true competitors (Intel, MSFT).

Archer Daniels Midland: Time to Buy

Strongly concur with the basic thesis: ADM is one of few steady dividend payers in the ag-sector - making it the closest thing to a "commodity play" for a dividend investor.

Long-term, ADM's international presence impresses me more than ethanol profits (corn ethanol is primarily a subsidy/wealth transfer scheme for farm states). New plants, silos, or logistics capabilities abroad are a hedge on US currency collapses, extreme weather fluctuations, and demand growth in emerging markets. Their main competitors abroad tend to be bloated quasi-government agri-cooperatives found in each country: ADM should be able to win several of those battles, making them a reasonable bet in ag-space.

Think Taxes Are on the Rise? Consider These ETFs (Part II)

"Every American should pay some income tax. (I did say it was modest, didn’t I?)"

A modest proposed refinement: "every American should pay income tax on any income that comes directly or indirectly from America." Every other country taxes on the source of income; America is unique in taxing US citizens on global income of whatever source. That creates strong advantages for skilled professionals and mid-level management European/Asian countries - everyone else vies for foreign posts to get a possible tax benefit, while Americans, with much less to gain, tend to stay home (yourself very much excepted).

Who's Smarter: Bond Guys or Stock Guys?

Buy low, sell high...right now, I'm skeptical of bonds and stocks. Seems the best investment is in workers themselves, since employers seem to be abandoning them. Sadly, since I'm in no position to hire them, the best proxy I can find: prosper.com and similar peer-to-peer lenders.

The Real Demand Behind the Explosive Growth of International ETFs

"Barron's made a leap-of-faith claim that "many [emerging markets] are less affected by the developed countries' housing, banking and auto crises." How do we really know that yet?"

An imminently reasonable question. The corollary: how do we know which emerging markets haven't been affected by their own housing, banking, and auto crises? (Current evidence suggests that of the BRICs, India and Brazil are significantly less bubble-riddled).

Ultrashort ETFs: Now It's Less Embarrassing to Admit Owning Them

Didn't know it was embarrassing to admit owning them - just embarrassing to admit thinking they would actually track the opposite moves of the market over the long-term (quite a few advisors seem to have messed this up). I bought a fair chunk of SKF at an average of $47. I'm not partial toward the fees and don't expect it to surge like it did in October/March, but I like that it correlates with just about nothing in my portfolio, and if the market turns south quickly, it should offer a modicum of insurance (95% of my portfolio at this point is long, and heavily focused on dividend equities or bonds).

I think of them as the equivalent to a short-term insurance policy on a rental car - you hope it's just an unncessary waste of money, but under the right circumstances...and today's world is full of unpredictable circumstances.

22 Stocks on the Dividend Aristocrats List That May Spell Trouble

Good review of the basic problems with several dividend achievers. I'd also be curious what the pension liabilities look like; seems that for many of these older companies, replenishing serious losses to the pension will squeeze dividends even more.

That said, picking from the best companies that are also stable dividend payers seems to make good sense to me. I still like ADM and WMT; there's relatively few good options among dividend payers in their respective sectors, and to me, diversification is almost as important as healthy dividend payouts.

Forget Oil: Copper, Coal the Best Recovery Commodities

I see many people jumping on the commodities bandwagon out of fear of a dollar collapse. Perhaps those fears are warranted, but fear alone is unlikely to propel these markets too far.

Given the uncertainties with hard commodities, it seems to me that soft commodities (and the companies that make the stuff that makes them) will be the safer play.

Seven Car Companies Pulling Ahead Despite Recession

Tata Nanos aren't intended for U.S. markets - they're intended for the lower-middle class in India/China/Africa. Which incidentally is where most new demand will come from over the next 20 years.

The Nano is built like a "disposable razor" - perfectly appropriate for places where a mechanic can swap out an engine for $20 + cost of the parts, and where millions are upgrading from scooters/mopeds to automobiles.

Big question is whether they've bitten off more than they can chew with Jaguar + Land Rover (same applies to Fiat with Chrysler), and whether the company is truly an automotive player (or merely a variety of family trading companies with some impressive gimmickry). High risk, and potentially high reward (at least, more so than for the established players).

On Jul 09 02:49 PM dw57 wrote:

> doubtful that any one here will buy them (unless that giant sucking
> sound pulls our standard of living down really soon)

Crimes of Banking: Optimal Deterrence

Conservatives viewed the establishment of the SEC as part of FDR's communist conspiracy to destroy capitalism.

Two points though: First, "By creating an objective, supposedly predictable and stable standard of negligence, it made it easier for businesses to manage the risks of their operations." The problem arises when the "reasonable man" standard is being applied to systemic conduct beyond the understanding of any reasonable person. Then an "objective" standard becomes utterly meaningless (and that's the main reason to move from tort or contract and into administrative law).

Second: perhaps torts is taught differently at Yale, but in general, the business judgment rule shelters against liability for breach of fiduciary duties to shareholders, not against tort liability (e.g., shareholders claim that the company wasted their assets by dumb choices, they get no relief if the company was exercising its business judgment). If a company acts negligently, it will still be liable (and the company could conceivably recover bonuses through clawbacks for specific persons who act negligently).

Does Felix Have Criminal Tendencies?

"And it’s probably reasonable to assume that if the crime of bankslaughter had been on the books at the time, then maybe such a manager might have thought twice before rushing in to such markets."

Possibly, but I find it more likely that he would have thought twice before assuring shareholders and others that "everything was safe and contingencies were all in order."

The issue really comes down to one of trust: you would not trust your local used car salesman with your life savings, simply because he could show that he made a long set of good deals over the last five years. However, millions did trust bankers, even when their incentives were quite comparable.

Criminalizing betrayal of trust, under the correct circumstances, is part and parcel of all securities regulation: it is essential to the function of a legitimate market. "Over-deterring" betrayal would hardly constitute a major risk.

Seven Car Companies Pulling Ahead Despite Recession

Leaving out Tata is a mistake. While they may be years away from putting vehicles into circulation in N. America, if you buy the emerging markets thesis, they'll be among the greatest beneficiaries.

In 15 years working in the Middle East, I've watched Japanese, German, and Korean brands push American brands to the sidelines (fuel efficiency has absolutely nothing to do with it in these parts, where gas is still less than a dollar per gallon). For the last 3 years, Tata has been gaining traction, but is still far beneath the radar in the States.

Brazilian Bovespa Sinks: Expect More Weakness in the Near Future

Sounds fair: I'll wait for the downtrend to go further before adding further to my Brazilian positions.

Why I Bought CAT

I'm building up a position gradually, since CAT has been on a down-cycle since early May. As a long-term hold, CAT looks far better in 2009 far better than it did in 2007, when most pundits sang its praises. I'm not sure about it doubling within 12 months, but if commodities do start shooting up, CAT makes the kit that makes the commodities possible, so it should ride the wave to some extent, while providing a dividend that beats inflation over the next 12 months. Better still, should the dollar tank, CAT will just earn more from it's global operations. Controlled risks + opportunity for capital appreciation + hefty dividend = good long-term hold prospect as far as I'm concerned.