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apoplectic

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  • The Center Of Gravity For Retirees [View article]
    The article implies that the ideal asset allocation for a retiree is 30% stocks, 70% bonds. I would appreciate clarification of what is meant by "bonds".

    Is the data based on the risk and return history of a broad bond index fund such as Vanguard's Total Bond Market?

    I believe a somewhat different story of risk and return would apply to a portfolio of individual bonds held to maturity, such as a ladder of highly rated municipal bonds, maturing in the years when the retiree will attain the age of 72, 73, 74, and 75. With the passage of time the market value of the bonds will approach face value, assuming no default or rating downgrade... the risk in the bond portfolio is a lower number each year.

    The analysis is based on a concept of risk in terms of standard deviation of variability of securities prices. I would suggest that there is another sort of risk that also should be considered for a retiree who is planning to live on the returns from the portfolio: rising prices of goods and services.

    Going back to 1913 there is a consistent decline in the purchasing power of a dollar. I would want the asset allocation in a retirement portfolio to specifically address the risk of inflation as well as the risk of variation in securities prices.
    Mar 30, 2015. 10:03 AM | 2 Likes Like |Link to Comment
  • Portfolio Solutions: 30-Year Market Forecast For 2015 [View article]
    I wonder why the estimated return with 2% inflation is always 2% greater than nominal return in the table of "Government-Backed Fixed Income".

    I believe that for TIPs, changes in the CPI-U would result in periodic adjustments to principal, so 2% inflation would result in returns which would be 2% higher. However with the other fixed income securities listed, an environment of inflation would not increase yields at all.
    Mar 30, 2015. 09:01 AM | Likes Like |Link to Comment
  • Robert Shiller Is Buying Italy And Spain Indexes: Does This Make Sense? [View article]
    Noting that Robert Shiller made some equity investments in Spain and Italy AS PART OF a broadly diversified investment portfolio...

    Further to the questioning of why not Austria/Portugal, why not Russia/Greece, where the CAPE is lower yet? It may be a misuse of the CAPE data to say that the best investment is necessarily in a single-country ETF where the lowest CAPE value applies.

    I believe that Robert Shiller was basically acting as a value-investor, recognizing that CAPEs in Spain and Italy were about half those in the USA. Also, he has spent some time in these countries, and feels a certain affinity and admiration for the great things that they have achieved historically.

    Next thought from Shiller: Sector-specific CAPEs
    Mar 27, 2015. 03:29 PM | Likes Like |Link to Comment
  • SQM -22% as Potash directors resign from board amid Chilean scandal [View news story]

    The Chairman of SQM, Julio Ponce, who vaulted into the control position as son-in-law of the former Chilean dictator Pinochet, could be described as beleaguered. He was previously fined $70 million for illegal trading in the shares of the holding company through which he controls SQM. Now, Pablo Wagner, a former deputy mining minister in the Chilean government, is in custody on corruption charges. A public prosecutor wants access to SQM corporate records to investigate (among other things) a $15,000 payment to Wagner's sister-in-law.

    From what I read in agrimony.com, in February 2015, SQM announced that it had formed a committee to "investigate". At a board meeting in early March, Chairman Julio Ponce wanted the board to stonewall the investigation by the public prosecutor, pending the independent report from the committee.

    On or about March 17 the 3 directors representing Potash Corp of Canada resigned. It would appear that they regard the action of the SQM board to be unconscionable. I would not be surprised if they conferred and felt that they might be risking prosecution (along with the other directors) for obstruction of justice (or the Chilean equivalent of that offense).

    Maybe the POT directors also learned of serious malfeasance on the occasion of the resignation of former CEO Patricio Contesse Gonzalez early in March.

    What is POT doing with this opportunity in Chile? Some have speculated they would sell, as all the minority interests in international potash are undergoing review. Are there attractive terms for selling to the Government of Chile? (The whole kit and caboodle of SQM was government-owned before Pinochet privatized it.)

    Does POT want to stand aside and see if a possibility to take control emerges, assuming Julio Ponce makes a plea bargain to disgorge?

    As a minimum, POT will want to think about how to vote at the eventual shareholder meeting to fill the 3 director positions vacated by POT representatives.

    And what does the Chilean government intend to do? I believe they are likely to crusade against corporatist corruption, and root it out by due process of law. If Chile does not go so far as entirely renationalizing SQM, perhaps they will see Julio Ponce's controlling interest parceled out to various Chilean pension funds.

    With these unknowns blowing in the wind, it would take a courageous contrarian to invest in SQM. I might buy, but would wait for a "generational" low price.
    Mar 18, 2015. 10:10 PM | 1 Like Like |Link to Comment
  • TOTAL S.A. - The Dividend Is Safe In 2015 [View article]
    TOT is said to be "Staying On Course to Deliver Cash".

    For ADR holders, cash would be a dividend paid in Euros and converted to US Dollars at the going exchange rate at the time the dividend is paid.

    This article does not state an expectation about how TOT will fund the dividend that the new CEO is believed to be committed to. The expectation is that TOT will not have adequate cash flow from operations this year ... so it must be achieved by some combination of borrowing and asset sales.

    I do not believe investors will be excited about buying the ADRs until there has been a major improvement in TOT margins, and the debasement of the EUR looks like it is coming to an end, and the current yield on TOT forward dividend is greater than 6%.
    Mar 13, 2015. 09:13 AM | 1 Like Like |Link to Comment
  • John Hussman: Plan To Exit Stocks Within The Next 8 Years? Exit Now [View article]
    I have regularly read John Hussman's weekly commentaries. Sometimes I have agreed with his conclusions, and sometimes not.
    For instance, in the months after February 2009, Hussman wrote often about the policy mistake of bailing out bondholders of financial institutions with government money "taxpayer expense". I agreed. In the years since TARP (etc.), banks were given a reprieve ... they were considered too big to fail. Through it all, Hussman argued that malinvestment would be the outcome.
    He warned in his weekly commentaries that the stock market rebound in 2009 could be followed by another leg down. While I agreed that this was possible, I felt that 2009 was a fairly good time to take some risks in equities. So on that point I did not agree with Hussman.
    Hussman often commented in 2009 and 2010 that Bernanke's "printing press" would result in inflation, not right away, but in the second half of the decade. (Are we there yet? Yep, we're getting there.) With an expectation of stagflation, Hussman allocated fixed income investments to TIPs. Now the past two years have not been kind to TIPs investors, and I don't recall Hussman saying anything about investing in TIPs lately. However, I basically agreed him on this point. Right now the "insurance" provided by TIPs held to maturity (increasing principal in line with CPI) is comparatively cheap. Last time I looked, the TIPs spread for 5- and 10-years was 1.79% and 1.83% respectively. So, if the Fed achieves the goal of 2%, or if inflation reverts to its long-term mean, TIPs could look comparatively good in a fixed income portfolio.
    Recently Hussman has described the market as (really, really) overvalued. And if it was overvalued when he started saying so, the market has only become moreso since. He says current levels of equity valuations have always been followed by inferior total returns. "... severe downside risk possible over the course of the course of the next 18-24 months." -- Weekly Comment 3/1/2015. I agree with his assessment.
    My reading of sentiment is that with Nasdaq over 5000 we about as far from panic as we can get. Maybe a few folks are increasing their aversion to risk, but with the ratio of advisory bulls to bears at 60:14, I think more folks will be encouraged to buy-the-dips.
    Mar 3, 2015. 06:24 PM | Likes Like |Link to Comment
  • Forget Beaten Up Utilities, Buy This 7.1% Clean Energy REIT [View article]
    Utilities, represented by XLU, hit an all-time intraday high of $49.78 on January 28, 2015. Around the same time, Treasury yields notched yields of 1.637% on the 10-year and 2.221% on the 30-year bond.

    Since the end of January, yields on the Treasuries have been increasing, and it seems that the punditry has been nattering about "when" the Fed will raise rates.

    So my outlook is for utility yields to increase. The last month of 2014 was IMHO a good time to be a seller (profit-taker) on utility common stocks. I believe higher yields can be expected for utilities for an extended period of time.

    In general, I believe that looming increases in yields will weaken prices for REITs as well. I appreciate Brad Thomas' articles, because he talks about REITs that I can investigate, and in some cases (after due diligence) add to a shopping list for a future time when valuations are not so rich.
    Mar 1, 2015. 03:32 PM | Likes Like |Link to Comment
  • Long Ladders [View article]
    Say the life expectancy of an individual (or second-to-die) is 84 years... and there is no intention to leave money in a will.

    I would consider buying TIP bonds that mature at age 73 to 75. Hold to maturity if possible. When the bonds mature, use the proceeds to buy a life annuity. The annuity would life-only for a single individual, or joint for a couple.

    Inflation protection could be set at 3 or 4% on a fixed annuity ... a blunt instrument for offsetting inflation for an elder.

    The elder may nevertheless "fail" to outlive life expectancy, but effectively will have handed off management responsibility and various risks to a fairly meticulous insurance company. The risks include the risk of being scammed financially during one's declining/dementia years.
    Feb 7, 2015. 10:38 AM | 3 Likes Like |Link to Comment
  • Oil: The Biggest Hairiest Guess Out There? [View article]
    I opened a position in COSWF late in 2014 (a falling knife to add to my collection of cutlery...). I believe the CEO, Ryan Kubik, has been quoted in the press that Syncrude needs $65-70 CDN to break even on operating costs, royalties and maintenance. I would assume the COSWF dividend would be cut again unless the price of crude oil rebounds. ... thus the company would be acting like a price taker.

    I understand that Suncor and Imperial Oil are major owners in Syncrude (along with COSWF), and also they are the owners of two refineries in the Edmonton area that buy Syncrude's upgraded product. I can imagine impairment charges among the integrated energy companies, a declining rig count, losses in the oil service industry, some defaults by highly leveraged shale producers, and a coming period of abysmal pessimism/capitulation among investors in energy stocks. But I can't imagine Syncrude ceasing to mine their leases for decades to come.

    I agree that the attraction of COSWF is hydrocarbons in the ground (not to mention an established mining operation, upgrader <yielding light sweet synthetic crude>, and pipelines to two existing refineries in Alberta). The book value of reserves may need to be restated with the 12-month moving average of prices.

    COSWF might be of interest to a contrarian these days.
    Jan 27, 2015. 01:56 AM | 1 Like Like |Link to Comment
  • Swiss Jeez [View article]
    The casualties among FX brokers came to light right away. I would expect there are number of other ways to lose a significant amount of capital as a result of the revaluation of Swissie.

    I am curious about the impact on defaults on loans, not only to Swiss banks but to banks in other countries (especially Austria, Hungary and Poland) that make commercial and mortgage loans in Swiss Francs to some of their customers. I may be missing something, but for a borrower in CHF, isn't the end of the euro peg the equivalent of a 40% ballooning of the principal owed? Now, not every Tom, Dick, and Heinrich would default under these circumstances, but over the coming few quarters I would expect the defaults to go up.

    To the extent that the banks are protected from losses by credit default swaps, I would expect their counterparties to be in the glue. "Button, button? Who's got the button?"
    Jan 22, 2015. 08:01 PM | Likes Like |Link to Comment
  • Following Meltdown, Cameco Is Positioned For Long-Term Growth [View article]
    Further to the above, the latest news I have seen was in the Globe and Mail, June 4, 2014. At that time, the company management seemed to expect to prevail in Tax Court and get their tax assessment money back... a trial expected to begin in 2015.

    I am no tax lawyer, but I don't take a lot of comfort from CCJ's public comments that the tax dispute will not have a material effect.

    In 1999 they set up Cameco Europe in Switzerland with a 17-year agreement to use the Swiss-domiciled company as a middleman. The middleman would buy at 1999 prices and sell at prices negotiated by Cameco with electric utilities. Comeco's Average Realized Price has been north of $40 (without the extreme swings in the spot price 2003-2014). So, needless to say, the Swiss subsidiary has been highly profitable!

    Canada Revenue Agency's beef is that there is no business reason for that Swiss subsidiary of CCJ to exist other than to minimize taxation by booking profits in Switzerland rather than Canada.

    From time to time CCJ has publicly stated what management of the company expects the damage to be, if the company loses in court. Last I saw was April 29, 2014, reported in the Waterloo Regional Record... $650 million, if memory serves.
    Jan 20, 2015. 10:10 PM | 1 Like Like |Link to Comment
  • Following Meltdown, Cameco Is Positioned For Long-Term Growth [View article]
    As to the dispute with Canada Revenue, I believe that there would have been news reports of any resolution. So I am assuming that there is still an issue.
    Jan 20, 2015. 08:58 PM | 1 Like Like |Link to Comment
  • Buy Energy CEFs With Large Distributions And Steep Discounts To Play An Oil Rebound [View article]
    I expect prices on energy CEFs (other than IRR and BGR with their call-writing options strategies) to trend higher during January. I suspect that late in 2014 there was tax-loss selling by retail investors, which is no longer a factor in the new year. I am long PEO since late last year, for income over a holding period to 2025 or so. The major distributions from PEO at the end of December will coincide with predictable seasonal expenses.
    Jan 4, 2015. 09:07 AM | Likes Like |Link to Comment
  • BHP: The Greatest Love Of Ore [View article]
    MC,

    You and I have reached similar conclusions, mate. I initiated a position in BHP early in December at $46.58

    Perhaps I am a little skeptical about the brilliance of the management. If they pay too much for reserves through ill-timed mergers and acquisitions, big mining companies can (and sometimes do!) become insolvent. Also, there can be some question about the alignment of the economic self-interests of mining executives and shareholders. (Just saying the potential exists for mining executives to do quite well in terms of their personal incomes, without necessarily enriching the shareholders in a comparable manner... NOT implying a specific conflict of interest at BHP.)

    In my view, I would be interested in increasing my position in BHP gradually, as events play out. I would wait at least until I know what will be the split of assets between BHP and New Corp.
    Jan 4, 2015. 08:09 AM | 2 Likes Like |Link to Comment
  • $60B in Canadian projects in peril as oil investment plunge echoes 1999 [View news story]
    Royal Dutch Shell is cutting back on a Canadian oil sands project, as noted in the original article. Does anybody have a handle on the prospects for Shell's $12 billion vessel Prelude, currently under construction in Korea, to process LNG from the sea bed wells off Australia? I have never seen analysis of the breakeven on that piece of work.
    Jan 4, 2015. 07:42 AM | Likes Like |Link to Comment
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