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  • Whither (Wither?) Profits [View article]
    As to the declining approvals of commercial loans simultaneous with increased "Commercial Bank Credit"... Reuters April 17, 2014 had an item about US borrowers using higher percentages of their existing credit lines. The report drew on commendable research, reaching out for comment from most of the major commercial lenders.

    Takeaway: US businesses are using 2-3% more of their revolving credit lines than a year ago. Some banks were more forthcoming with information than others. But the consensus seemed to be it is due more to increasing confidence than distress. The article mentioned boosting manufacturing capacity, expansion, and increased inventory levels.

    Perhaps this helps explain how more credit applications could be rejected at the same time commercial bank credit is on the increase.

    I also wonder if the increased popularity of "leveraged loans" as an asset class for various institutions may be contributing to the increase in commercial bank credit. In the Fed statistics on commercial bank credit, are syndicated loans (syndicated to a mutual fund or a pension trust, for instance) included or excluded?
    Apr 23, 2015. 07:39 AM | Likes Like |Link to Comment
  • Summary Of My Post-CPI Tweets [View article]
    Another reason I believe the Fed would be hesitant about raising rates is that in commercial banking a credit crunch is underway.

    Data reported by the National Association of Credit Management shows rejections of applications for credit on the rise. Lender accommodation of companies in Services dropped in February, and the same happened in Manufacturing in March. Commercial lenders have been deciding that applicants "are not in a position to get credit". They are acting in "an abundance of caution".

    The Federal Reserve must be quite aware of this development. In my opinion the Yellen Fed would deem it a huge policy mistake to raise rates during a credit crunch.
    Apr 19, 2015. 09:28 AM | Likes Like |Link to Comment
  • Shadow Banking: A New Danger Zone In The Financial System Following The Financial Crisis [View article]
    Some clarification may be in order as to the size of the leveraged loan market.

    I suspect that Greg Ip's $9.6 trillion figure from the IMF may not be relevant.

    Leveraged loans are marketed as an alternative asset class, backed by collateral unlike equities, with floating interest rates unlike High-Yield bonds.

    The "Fact Sheet" of the Loan Syndication and Trading Association states that as of December 2014 ...
    There are 245 loan mutual funds with $141 billion Assets Under Management
    and 4 ETFs with approximately $7 billion in AUM
    and the entire institutional loan market is $850 billion.

    These numbers add up to $998 billion.
    I suppose the LSTA refer the US market, and there is more in the rest of the world.

    Going by LSTA figures, about 85% of the loans have been syndicated to institutions. About 15% in the mutual funds and ETFs conceivably would be subject to ownership by the "long term buy-and-hold retail investor" which the article implies is prone to panic selling... "a run on the bank".

    I would be interested in a discussion of the institutional ownership of these loans. I assume that in the institutional syndication world, settlement is T+13 or so on average. Institutions vary all over the map in their investment strategy. For example, a university endowment fund or a union pension fund might buy and sell loans differently from a vulture hedge fund. And so, it is fondly hoped there will always be a bid for syndicated loans.

    I am not denying that a "liquidity shock" could occur, nor that one aspect of a looming credit crunch could be exhaustion of interest in syndicated loans. Disclosure: I don't own them, and I don't sell them.
    Apr 19, 2015. 12:45 AM | 3 Likes Like |Link to Comment
  • Make Over 6% Income With Utility CEFs [View article]
    Interesting. I wonder if the leverage in UTG, UTF, MFD, and to a lesser extent ERH contributed to the observed "greater volatility than the market".

    I am curious about the bear-bull cycle pertaining to utility ETFs and utility CEFs. I looked at a 10-year chart comparing XLU (an etf) and UTF (a CEF). The ups and downs were generally in synch.
    November 1, 2007 XLU $42.73 UTF $28.36 (might have been a good time to sell)
    March 1, 2009 XLU $25.55 UTF $9.01 ( an awfully good time to buy)
    January 1, 2015 XLU $48.32 UTF $22.86

    The resolution on my graph may have prevented me from being exact about the dates and prices at highs and lows... but roughly, it seems to me prices of utilities are currently closer to the high of the cycle than the low.

    If that is true, yields can be better after a wait.
    Apr 17, 2015. 03:20 PM | Likes Like |Link to Comment
  • 2 Quick Items: Negative Interest Rates And A Minimum Wage Increase [View article]
    Friday April 17, I note y/y CPI core inflation 1.8% and TIP Spreads 1.89 on 5 year and 1.83 on the 10 year.

    I would say that now the market is pricing TIPS for a slight increase above the rate of inflation over the past 12 months.

    In my opinion, there is potential unexpected inflation "in our future", as disinflationary factors play out. For instance, disinflationary factors include: the foreign exchange value of USD has been rising, energy prices have been falling, etc. But I think these trends will reverse. Entities with pricing power will anticipate higher costs of inputs and raise prices accordingly.
    Apr 17, 2015. 02:53 PM | Likes Like |Link to Comment
  • Brazil Exposure With A Monthly Dividend Payment, Yield 3% [View article]
    I agree that BBD (or a couple of other private sector banks based in Brazil which have higher Bis III ratios) could be rewarding investments when growth returns to the Brazilian economy.

    Further to the question of timing, to maximize the USD value of a stream of dividends on a Brazilian-based ADR: would it not be optimal timing to wait (if possible) until the Brazilian Real reaches a cyclical low point relative to USD?

    My hunch is that the bottom exchange rate for the Brazilian Real is in the future. I am accepting the opportunity cost of cash for the present.
    Apr 14, 2015. 10:31 AM | Likes Like |Link to Comment
  • Adams Express Company: Big Changes Taking Place At The Adams Family [View article]
    I voted my proxy against the proposal to provide asset management services to others. I would have preferred all of the management's knowledge, skill, and ability to be dedicated to the Adams closed end funds. But I was not surprised by the result of the vote. In and of itself the name change does not amount to big changes.
    Apr 12, 2015. 05:28 PM | Likes Like |Link to Comment
  • GLD's Response To New York Fed's Call For Higher Inflation [View article]
    Let's say inflation is truly 0% in the USA.

    In Dudley's speech (linked to in the article), he says he expects inflation to return to 2% over the medium term. He also remarks that "longer-term household inflation expectations have been well maintained through this period of very low inflation." My sense is that the Federal Reserve is quite pleased that households are expecting no inflation, while the Fed believes they can raise interest rates in the precise measure "to generate the set of financial market conditions that we (the Fed) deem is most consistent with our employment and inflation objectives."

    And ... I gather ... nobody in the households is going to freak out if they get 2% inflation in their PCE when they had been expecting 0%. I may need a little help understanding how inflation of 2% (maybe more than 2%, if the Fed taps the brake pedal a little later than they shoulda) can come to pass without some folks losing confidence in monetary policy.

    Meanwhile, as Dudley said, "the point of raising interest rates is to exert some restraint on financial market conditions". Does he mean pricking bubbles here and there? Securitized sub-prime auto loans? Junk bonds? REITs? Equities?

    There has been quite a lot of restraint (or repression) already on one notable "condition in financial markets": that is, real interest rates that have been negative. So, savers have been set up to take higher risks with their defined contribution pension plans, etc. Not being heavily allocated to money market funds, these savers predictably will lose when interest rates are raised. It seems likely that they, too, will lose confidence when they realize how they have been shorn.

    Dudley's speech probably was intended to inspire confidence about the "lift-off" about to be engineered by the Fed, but it made me nervous.
    Apr 10, 2015. 02:53 PM | Likes Like |Link to Comment
  • A Single Mother's Income - Dividend Growth Investing [View article]
    The author's original post and replies to comments are quite interesting. I hope she continues to raise topics for discussion here.

    Like many others who have commented, I think her portfolio is overly concentrated in GE, and to a lesser extent WBK. Incidentally I have been long GE for many years, and recently took profits on a large proportion of my GE position, retaining a stub in a DRIP account.

    If I were 20 or more years from retirement, I might commit to a 100% equity portfolio, but (!) with a careful self-check on my risk tolerance in regard to a possible 30% to 50% bear market. "Am I going to accept this risk, or hatch a stratagem to manage it?"

    The portfolio embraces both Dividend Growth and High Yield Stock investing goals. As a means of increasing diversification in "one fell swoop", I would consider reducing the positions in GE and WBK, and with the proceeds buying into a low-cost etf that is oriented to dividend appreciation. In my opinion the one to beat would be Vanguard's VIG with a 0.1% annual expense ratio. I do not have a position in VIG. It is on my watch-list at this time..
    Apr 9, 2015. 09:11 AM | 1 Like Like |Link to Comment
  • A Single Mother's Income - Dividend Growth Investing [View article]
    Ditto on making space in the portfolio for a closed end fund with a Buy-Write Option strategy. I would consider not only ETB.

    The buy-write funds which write options covering a larger percentage of the stock portfolio (there are some that go as high as 95%) are regarded as more defensive. Their net asset values would be expected to lag a benchmark stock index in a bull market. On the other hand, in a bear market, there would be more option income to compensate for declining share price.

    Over the years since inception of a closed end fund, it is not unusual to find that distributions of income per share are cut. Unusually high current distribution yields may result in declining NAV to the extent that distribution needs to be cut. (Something to consider from a high yield investor point-of-view.)

    More information on buy-write funds can be found at cef connect ... and by searching the symbols of specific closed end funds here on SA.
    Apr 9, 2015. 08:45 AM | 1 Like Like |Link to Comment
  • A Single Mother's Income - Dividend Growth Investing [View article]
    I am long BBL and have the same intentions for South32. BBL is saying "good riddance" to certain properties that have more political and operational risks, and so I will too.
    Apr 9, 2015. 08:19 AM | 1 Like Like |Link to Comment
  • The Misunderstanding Of El-Erian's Cash Position [View article]
    Yes, after the interview was published in the Orange County Register, in which he said his investments were "concentrated in cash", Dr. El-Erian was a guest on Squawk Box and talked about his barbell strategy. The picture I get is: in this market environment ( QE in US and Japan, with ECB next up) Dr. El-Erian regards the valuation of securities as "artificially lifted" by central banks ... "public markets" to be avoided. So, his barbell consists of startups and hedge funds at one end and cash at the other.

    I do not recall any detail about his preferences about cash, but I doubt that it's all a wad of Federal Reserve Notes, a bank account, or a Money-Market Fund. Because he told the OC Register he had some concern about inflation, I would not be surprised if a portion of his cash was in PIMCO's short-term TIPs fund. Maybe he will say more about the cash/near-cash choices he has made at some point. Evidently curious minds would like to know more.
    Apr 8, 2015. 01:25 AM | Likes Like |Link to Comment
  • Will BHP Billiton Become A 'What Was I Thinking' Stock? [View article]

    One effect of the demerger of South32 will be to relieve BBL of the political and operating risks of mining coal, manganese and copper in South Africa. There is no question in my mind that the CEO designate of South32, Graham Kerr, is sincere in his avowal that "South32 believes in the spirit and intent of South Africa's transformation empowerment agenda."

    I understand that South Africa's mining charter is law with a current target of 26% "black ownership". Also, the National Union of Mineworkers (NUM) remains committed to its role in the class struggle in South Africa, which can be read about at

    I agree that post-demerger "BBL should do quite well" long-term. The reserves of minerals in the ground, together with facilities for refining and marketing, seem destined to be worth more currency as the decades go by, in my opinion.
    Apr 7, 2015. 07:12 PM | 2 Likes Like |Link to Comment
  • Should You Be Mostly Cash Like Mohamed El-Erian? [View article]
    Small quibble with "cash portfolio earning 0%". With a little effort, one can find an institution with deposit insurance that pays 0.9% APY compounded monthly on savings accounts (minimum $100).

    Assuming a wee bit more risk, a short term TIPS fund (example VTAPX) protects cash from changes in the CPI-U. Duration 2.4 years. Year-to-date yield 0.45%

    Assuming wa-a-ay more risk, there is gold and silver. Speaking of uncorrelated assets, there have not been many years (calendar years, rather than rolling 5 year periods) in the past when both stocks and bonds total returns were negative. I understand that gold (and presumably silver and platinum) increased in price during those years.

    So, I think some combination of savings, short-term TIPS funds, and precious metals can exceed the implied zero return on cash. I do not know what Mr. El-Erian has done with his own cash, but his remarks seem to be accepting of some loss of purchasing power due to inflation.
    Apr 6, 2015. 03:03 PM | Likes Like |Link to Comment
  • This Semi-Annual Payer Has Grown Its Dividend For 26 Years [View article]
    "... founded in 1984". Yes, the Terre Haute First National Bank engineered a multibank holding company in 1984 which trades as THFF, but I believe the management considers "First" to be the 5th oldest bank in the US, with one of its predecessor banks founded in 1834.

    I agree that the bank is in sound condition, with a 17% Tier I Capital Ratio, and rated 5-star by Bauer. However I would not give as much significance to the reduction in "Total Debt" on the balance sheet. This item, consisting of FHLB, senior, and subordinated debt, has "been trimmed significantly" since 2011, but as a deposit-taking institution, the total liabilities primarily consist of deposits. The ability to pay dividends is regulated. As I understand the constraints on bank dividends, I do not believe that THFF's "Total Debt" on the balance sheet was ever an impediment.

    Based on the 2014 Annual Report, 58.7% of total loans are Commercial. (I did not see what percentage of total loans are agricultural, but THFF states that they are among the top 100 ag lenders in the USA.) 26.4% of the total loans are residential, and 14.9% are consumer.

    In 2012 Comprehensive Income peaked. Maybe income will go on to new highs in the not-too-distant future. But when interpreting earnings per share, it might be useful to realize the number of outstanding shares has been falling as the company has been purchasing treasury shares (on a negotiated basis with individual shareholders).

    My hunch is that the demand for commercial loans in the region, as well as the provisions for losses in the THFF loan portfolio, will be highly dependent on prices of corn, soybeans and other agricultural products.

    Apr 3, 2015. 03:28 PM | Likes Like |Link to Comment