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  • Chinese Stocks Are Cheap, Hong Kong Stocks Are Even Cheaper [View article]

    I agree with your points on the history, but I would not say the adversarial relationship was made in USA. Regardless of who may be blamed for it, the adversarial relationship may result in unexpected problems for US investors in Chinese securities.
    May 26, 2015. 09:04 AM | Likes Like |Link to Comment
  • Chinese Stocks Are Cheap, Hong Kong Stocks Are Even Cheaper [View article]
    Additionally there is a long-term adversarial relationship between China and the USA, currently simmering in regard to the South China Sea.

    It may be possible for US investors to back ethnic Chinese business acumen without the baggage of the communist party in China, per se. I am considering SGF the Aberdeen Singapore Fund (closed end). I believe Singapore GDP is forecast to grow 3.5% or so annually to 2024. About half the portfolio of SGF is financials, as I recall. The fund's annual expenses seem high to me.

    Singapore investor sentiment seems quite pessimistic at the present time. But I think it could get worse before it improves. I personally would be interested in SGF at bit lower price: I'd wait for at least 13% discount to NAV.
    May 22, 2015. 09:49 AM | 1 Like Like |Link to Comment
  • Why Cash Is King [View article]
    Interesting article and discussion!

    Several commenters have mentioned the issue of how to time the deployment of cash after equity markets correct... for instance, what if you are too early and end up with paper losses? Or too late and miss the best opportunity to buy stocks?

    An investor in individual stocks can avoid this problem by maintaining a watch list of stocks with a target buy price for each stock. The target buy price might be based on historical lows, or a target dividend yield, or a defined percentage discount from a specific price that was a recent high or perhaps a secondary offering price. Or, it may based on a history of heavy insider buying below a certain price. There are many alternative approaches, and if the universe of targeted stocks is rather extensive, then a "conservative" method for an individual stock would be to compare target prices using several alternative approaches, and set target at the lowest price result.

    By this method, cash is deployed as individual stocks drop to specific prices. Limit buy orders good for 60 days "automate" the acquisitions. It is not an attempt to time a market bottom in say SP500, but rather to acquire at prices where the prospective future returns are relatively high...
    May 18, 2015. 02:57 PM | 1 Like Like |Link to Comment
  • 10-Year TIPS Reopens At Auction May 21. Is This A Good Buy? [View article]
    Inflation expectations ...

    I believe the Fed's objective (going back to Greenspan, at least) has been for inflation expectations to be "well anchored", which I understand to mean the Fed would like decision-makers in this economy to be unconcerned about inflation, so there would be less of a push for higher wages. Asset inflation is fine with the Fed, and 2% CPI-U change is desirable, but I think the Fed would like the public (who do not need to bid on Picassos) to be complacent about it.

    The value of a TIPs security held to maturity cannot be known in advance. But it can be thought of in contingency terms. If inflation greatly exceeds expectations, then TIPs will be more appreciated in a fixed income portfolio than straight Treasury bonds. But: if not, then not.

    Disclosure: Long an individual TIP bond to 2023 and a short-term inflation protected bond mutual fund with a 2.4 year duration.
    May 14, 2015. 07:30 PM | Likes Like |Link to Comment
  • Potash Corp: Limited Downside, Despite Challenges [View article]
    I would appreciate clarification of the statement: "optionality surrounding equity investments and/or capital allocation also provides downside protection".

    I look at this statement, but I do not understand where POT investors would have limited downside in there.

    Likewise, the appeal of high yield is protection only when yields in the market are stable or declining. The prices of high-yielding stocks seem destined to drop in concert if interest rates and yields trend higher.

    As the article correctly notes, POT is defending share in a down market. I see this as a price war among a few producers. Will this price war result in a calm restoration of supply-management and a return to higher potash prices? (That might be nice, but ambitious men would have accept a smaller space in the sun.) Or, will the price war continue until higher cost producers are forced to shut down due to losses which exhaust their capital?
    May 10, 2015. 09:32 AM | Likes Like |Link to Comment
  • The Dividend Growth Wide Moat 7 From Canada [View article]
    I am curious as to why CM (Canadian Imperial Bank of Commerce), traded on NYSE and TSE, was omitted from the recommended group of Canadian banks.

    In my opinion the international operations of the Canadian chartered banks are a mixed bag. There is a risk of paying too high a price (in price to book value, for example) to buy a going concern financial institution, or a wealth manager with many big shiny accounts. Also, Canadian bankers may lack the savior-faire for risk management in jurisdictions that do not have the prudential regulation and voluntary compliance that characterizes Canadian banking.

    The Big Five Canadian banks behave like an oligopoly. Competition seems to converge prices (rates) so that customers choose their bankers not on the basis of price differences, but rather: convenience, personal relationships (including cross-selling), etc. Price competition in the sector originates with credit unions and caisses populaires rather than the big banks. There is a remarkable difference in scale between the largest credit union (say Vancity with $18.6 billion in assets) and the smallest of the Big Five (CM with $414.9 billion).

    Historically Schedule II banks (subsidiaries of non-Canadian banks) have had a regulated presence in Canada. I believe Schedule II banks compete with the Big Five primarily in the provision of commercial banking services.

    In sum, I agree that the Big Five in Canada have a wide moat. The moat may be slowly narrowing due to limited competition. Fundamentally the common stock of a Big Five bank is an equity investment in the long-term prosperity of Canada. From a diworsification perspective, I feel that one is enough in a diversified portfolio.

    Disclosure: I recently bought CM, because I liked the yield, and because the USD was then quite strong relative to the CAD.
    May 7, 2015. 09:42 AM | 1 Like Like |Link to Comment
  • A Tax Exempt CEF Portfolio Generating Over 5% Income [View article]
    As I understand CEF leverage, they are not borrowing. Rather they are selling auction-rate (variable rate) preferred shares. I believe US law allows closed-end mutual funds 200% asset coverage for preferred shares, but 300% asset coverage for debt securities.

    Frequent Dutch auctions are conducted to determine what the dividend yield on the preferred share shall be. Everything is peachy as long as investors decide to participate in the auction. Then the closed end fund can "lend long" -- buying/holding municipal bonds -- with more than the equity contributed by investors at inception. As long as the cost of preferred stock capital is lower than the returns being realized on the municipal bond portfolio, leverage should increase the returns for the common shareholders.

    The closed end fund company has a duty to preferred shareholders, as defined in the registration statement. I think it would be a good idea to look into the rights of preferred shareholders, rather than treat leverage as free money with no strings attached.

    It should be noted that auctions of this sort can and do occasionally fail. In February of 2008, hundreds of auctions failed, primarily because broker-dealers did not want to participate.

    Other than the risk of liquidity drying up suddenly and indiscriminately, I might mention other things that could go wrong with a leveraged bond CEF. The SEC could take action against one or more broker-dealers. Investors could lose confidence. A rumored or real crisis with a major market participant could be contagious.

    Like comeinvestwithme, I respectfully would urge a thorough consideration of the risks/rewards that would play out in various scenarios.
    May 5, 2015. 06:28 PM | Likes Like |Link to Comment
  • TIPS ETFs Worth Buying As Inflation Rises? [View article]
    The Zacks article does not mention short-duration TIPs etfs. As noted, there is interest rate risk in the TIPS etfs, most markedly with the longer durations.

    An example of a short-duration etf is the Vanguard VTIP, which has a duration of 2.4 years. Should real interest rates rise, the damage to NAV would be least in the Shortest duration etfs.

    Vanguard's website says that since inception 10/16/2012, the market price performance has been -0.45%. There have been distributions in December.

    I believe that the rationale for allocating a portion of a fixed income portfolio to TIPs etfs would be "insurance" in the portfolio, which would compensate for an unexpectedly rapid increase in CPI-U. How great a portion to allocate is sort of like deciding how much life or liability insurance to have... it depends!

    If (difficult to imagine .. but supposing...) the USA hits a patch of hyperinflation combined with a bear market in stocks, then investors who allocated 100% to TIPs would breathe a sigh of satisfaction.

    I understand that TIPs etfs are relatively out of favor now.
    May 2, 2015. 05:52 PM | Likes Like |Link to Comment
  • A Case For Attractive Stock Valuations [View article]
    I looked at the link to the article based BAML analysis. Perhaps it is true that there has been a decoupling, in the sense that assets of equity ETFs and mutual funds in the USA have been dropping since January of 2015, while the SP500 Index has been going up.

    I wonder if somebody else, who is not an ETF nor a mutual fund, has been bidding up SP500 stock prices? Some ideas: companies buying their own stock, mergers and acquisitions, institutional investors, etc. I don't know if hedge funds are included in the data on mutual funds. If they are not, then the buying of SP500 companies' stocks by hedge funds may also be a factor in the decoupling.

    From a global perspective, I believe that during the first quarter American mutual fund investors made net withdrawals from funds of US and China equities. But in the same period, they increased their investments in equity mutual funds elsewhere, particularly Europe and Japan. So, as of March 27, in global terms, US investors in mutual funds did not "cut their exposure to stocks" year-to-date.

    That said, I am in the camp that believes a correction is probable. (But I don't think the absence of "fresh inflows" is a useful concept to explain the risk of a correction.)

    Apr 26, 2015. 09:00 AM | Likes Like |Link to Comment
  • 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 | 1 Like 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