Johnson & Johnson: Using Common Stock To Turn $25,000 Into $1 Million [View article]
Past performance is no guarantee of future results, unfortunately. You are talking about investing in an American consumer staples company at the height of the American century.
Things are different now. The US pushed free trade heavily and practiced free exchange rates, while allowing other countries to practice Mercantilism.
The US will not enjoy the preponderance of influence that it had during the past 30 years for the next 20 years. The Mercantilist and State Capitalist attitudes of many major emerging economies represent a clear and present threat to the dominance of US MNCs. The US consumer base is beleaguered, and the US population is not so nearly well trained and educated for tomorrow's economy as it should be. We cannot borrow our way to prosperity much longer. We ignored balance of payment issues for longer than was prudent, while living high on the hog.
It's better to look forward than backwards when investing.
I do have a heavy dividend and dividend growth biased portfolio, including a handful of aristocrats, but I am far from convinced that I will end up owning any of them 20 years from now.
"Interest rates can change like the weather. Debt levels ... can't be brought down quickly," write Reinhart and Rogofff, dismissing arguments that low servicing costs mean debt isn't an issue (as Italy is finding out). Despite "prominent intellectuals" arguing otherwise, the empirical evidence shows strong correlation between large government debt and low growth. [View news story]
Does lower debt cause higher growth or does higher growth lead to lower debt levels?
When the economy is going strong, government revenues rise, government expenses (the so called automatic stabilizers) fall, and GDP growth expands faster than the debt load, causing debt as a percentage of GDP to decline.
Following proper fiscal discipline, you actually should raise taxes in response to good economic conditions and cut them during times of weakness. Government is notoriously bad about actually doing this, but in a properly managed economy you would expect to see tax hikes during boom times and cuts as the economy began to soften. Thus, causation should be going in the opposite direction. (But it doesn't because ideology drives policy.)
I am unmoved by the charts that attempt to show the correlation between tax burden and GDP growth over the decades. The result is a mixed bag, probably because it's a relatively minor contributor, easily overwhelmed by the more important macroeconomic forces of the day.
Government uses the tax code for social engineering. They try to influence behavior with it and pick the winners and losers in many industries. It's certainly very influential in both consumer and corporate behavior, but that still doesn't mean it's overwhelms the more immediate economic forces of the day, i.e., oil embargoes, bank crashes, market crashes, currencies crises and contagion, the emergence of globalisation, the emergence of the information economy, wars and conscription, the end of the gold standard, trade liberalization, monetary unions, anti-discrimination and corruption laws, insurance reforms, changes in civil and criminal liabilities, changes in property laws, security laws, the BRICs & EAGLES etc. There is no way to see the affect of tax burdens on GDP growth "ceteris paribus" because everything else is never the same in a world in which global forces, national economies, and individual behavior evolve rapidly. Exactly how far back in history is it appropriate to look for these correlations where we can claim that the results took place in an economy structurally similar to our own?
Really, I think it would be far more appropriate to discuss structural reforms to Medicare and Social Security with the aim of making them sustainable [and even take another look at financial regulatory reform] rather than to fixate on the current debt level. The current debate is partial measures for a very temporary fix. It's time for our leaders to man up and address the structural problems in the economy.
"Interest rates can change like the weather. Debt levels ... can't be brought down quickly," write Reinhart and Rogofff, dismissing arguments that low servicing costs mean debt isn't an issue (as Italy is finding out). Despite "prominent intellectuals" arguing otherwise, the empirical evidence shows strong correlation between large government debt and low growth. [View news story]
Because correlation definitely implies causation. We wouldn't want to norm for other factors or anything.
Up another 2.7% to $95.40/barrel, oil moves higher than it stood before the government attempt to drive prices lower just 4 sessions ago sent crude temporarily plunging. USO +3.2%, BNO +3.4%. [View news story]
From Joe Biden's after school daycare: Bipartisan plan to eliminate the US debt crisis.
Step 1: Refuse to raise the debt ceiling & lever up a short position on treasuries. Step 2: ???? Step 3: Profit.
Desperately Seeking Yield Through Equities: Part 7 - Tobacco Stocks [View article]
I don't know, cross. It seems to me that habitual consumption of fast food is just as deadly and doesn't involve addiction, except to delicious caffeinated soda. Mayhaps you give people too much credit.
Does Lower Risk Actually Mean Higher Returns? [View article]
Without more quotations from the research, it's impossible to know whether it supports the author's thesis:
"Many investors have been making up for low yields by taking on more risk, whether it's by dipping into lower-quality bonds or holding more dividend-paying stocks. ... By seeking higher yields and greater risk, investors are likely setting themselves up for lower risk-adjusted returns and possibly worse absolute returns than if they had stood pat."
That thesis makes assumptions about the relationship of apples (bonds) to oranges (stocks). The charts and paraphrased statements in the article, however, all deal with comparing apples to apples and oranges to oranges.
It's worth noting that the research paper he cites deals only with stocks and draws no conclusions about bonds, much less substituting dividend stocks for bonds.
The charts come from someone and something else entirely. (Indeed, the paper expresses everything in terms of Alpha, not Sharpe ratio.) I suppose it is intended, by the author, to follow that the lower Sharpe ratio for low beta stocks vis-a-vis investment grade corporates supports his thesis. The trouble, of course, is the 3rd chart, which shows the Sharpe ratio of Treasures fall from far above low beta stocks to significantly below them in response to duration/yield curve.
This raises the questions of both what the durations were for the Corporate chart and how the Sharpe ratio for stocks was calculated. Obviously, a chart of USG long bonds would provide a very different implication. Moreover, it certainly seems likely that it would be possible to get very different Sharpe ratios for the stocks depending upon the period of time used. Comparing them without understanding the methodologies is useless.
Without such a basis for comparison, there is no evidence in the article that really supports the broader premise of the author. That's not to say that the argument in favor of leveraging lower beta instruments vs. using riskier equivalents is without merit. It's just to point out that there is no supplied basis for drawing the conclusion about the relationship between broader asset classes that he does, and to warn that he is being less than intellectually fair and forthright about the scope and conclusions of his sources.
Renewables are heavily subsidized. I was working on starting such a company before the subprime meltdown. First, I wasn't going to pay state or federal taxes for 5 years. Second, I was going to get a tax deduction of several cents per megawatt hour. Additionally, the utilities I wholesaled to would also get a deduction. And, since I had played politics and gotten "friendly advice" about grant writing, I was highly likely to get grants from both the state and federal government.
You are very misinformed about the state of the industry. Drop the crusade and roll up your sleeves and go to work. Pretty soon you will figure out what's what. You're only hurting renewables with this talk of a carbon tax.
Tut tut. Business cases aren't made on discussion forums. At any rate, this website isn't about business; but rather, finance. The relationship between finance and business is tenuous, at best, these days, unless you're a banker or broker.
If you believe you've got a real business case to make, write up a business plan, recruit some co-founders, raise money, and get to work. Otherwise, by doing things like complaining about perceived subsidies, you are very much making a political case, and I think you've chosen a very hostile venue for your particular argument. :)
I think the problem is that this discussion is being framed in the context of whether or not there are enough fossil fuel deposits out there or the costs of the carbon emissions. The issue of the viability of fossil fuels is not whether the world has enough to supply us with them; but rather, whether the international monetary system can afford for us to continue importing them. The biggest problem with our energy is our current account deficit and the growing dollar overhang. It was $150 oil that popped the bubble. It was dollar overhang that made it a global crisis. It's our energy realities that prevent a sliding dollar from addressing our trade imbalances as much as it should. It places a choke collar on global growth. Even if there is enough of the stuff, the infrastructure cannot be scaled quickly and efficiently enough to keep pace during robust global growth!
All that said, Dana, there are several very serious problems with your solution. Primarily, the fact that the medicine you prescribe would kill the patient.
Consider that we cannot price in the cost of carbon unilaterally. Kyoto was political theatre. The only way to price in the carbon is to get a global agreement of all the major industrial nations. The emerging economies will hear nothing of it.
Besides even if we wanted to make the switch, we have trillions of dollars worth of assets invested in the current regime. We would need trillions of dollars to make serious inroads into the switch (50/50). So you want to borrow trillions of dollars, during our current economic weakness, to both sharply depreciate the value of trillions of dollars worth of suddenly doubly "toxic" assets and pull the legs out from under one of the primary global drivers of dollar demand and support. Why don't we just feed zeroes into the databases of our stock markets? It would be quicker and less painful.
We do need to do something about the current account, and tackling oil IS one of the best ways to accomplish that over the intermediate to long term, but we need to keep some perspective. Leadership by emotion and ideology is what got us into the mess; it's probably not going to get us out! We need a comprehensive and incremental strategy that addresses ALL of the structural problems facing the US economy, not just the energy dynamic. On that point, 7footMoose is absolutely correct.
The US has 15% of the world's arable land and 5% of its population. We have decreased our productive land by like 20% from its heights in the '70s and '80s. We have thrown up punitive (and illegal under the WTO) tariffs to keep out much cheaper agriculture from countries with much, much worse population per hectare ratios and much less science, technology, and infrastructure to support their productivity. All so that we can subsidize the economic costs of the average farm job to between a quarter million and a million depending upon the crop.
The scarcity is completely artificial, far more so than in energy.
EDIT: For the record, I am by no means saying that ethanol is a panacea. I'm mostly just highlighting how difficult it will be to reform the industries that run the government. Even without changing sources, we could do a great deal to improve efficiency by modernizing our grid, but that's gone no where.
That's why they killed ethanol on the verge of commercial viability. All they had to do was manipulate the food prices and claim it was ethanol's fault because of supply and demand. It's what we've all been taught about how markets work--except that the agricultural markets in the US (Freedom to Farm) and EU (Common Agricultural Policy) are to free market as the Smoot-Hawley Tariff Act was to free trade!
Find Stable Fixed Income With Preferred Stocks [View article]
Buying more of a specific issue in response to rising rates might make sense, depending upon your assessment of the company. What you want to look at is the spread vis-a-vis treasuries and the broader preferred class. That will tell you what the market thinks about a particular series. (You also need to look for all of the gotchas in the prospectus.) If you're better informed than the market, that's where you can find alpha.
Interest rate risk doesn't refer to the threat interest rates pose to the issuers so much as to the market value of the issues. If all you care about is a specific amount of income and you don't need liquidity, then you might not be much worried about interest rate risk. Some of us would prefer not to be caught between the rock and hard place of underperforming yield on a risk adjusted basis or significant capital losses. Inflation expectations are also a key consideration.
Adding to your positions as yield improves isn't bad, as long as you do your due diligence. Better is to not enter those positions until rates begin to approach their apex. Best is to enter in to get good yield now; sell right before the markets begin to price in hikes; and, reenter right as yields approach their apex. And if you can time the market with such precision, good on you--you'll get rich no matter what asset class you invest in.
With 10,000 baby boomers turning 65 every day and 26M Americans afflicted with diabetes, Ford (F) sees medical monitoring as the next key to a burst of car sales. Ford has developed a car seat to check the driver’s blood sugar and heart rate, and new features could track breathing patterns for asthmatics or pollen counts for allergy sufferers. [View news story]
Sounds like a real pain in the arse [when the seat checks your blood sugar]
Johnson & Johnson: Using Common Stock To Turn $25,000 Into $1 Million [View article]
Things are different now. The US pushed free trade heavily and practiced free exchange rates, while allowing other countries to practice Mercantilism.
The US will not enjoy the preponderance of influence that it had during the past 30 years for the next 20 years. The Mercantilist and State Capitalist attitudes of many major emerging economies represent a clear and present threat to the dominance of US MNCs. The US consumer base is beleaguered, and the US population is not so nearly well trained and educated for tomorrow's economy as it should be. We cannot borrow our way to prosperity much longer. We ignored balance of payment issues for longer than was prudent, while living high on the hog.
It's better to look forward than backwards when investing.
I do have a heavy dividend and dividend growth biased portfolio, including a handful of aristocrats, but I am far from convinced that I will end up owning any of them 20 years from now.
"Interest rates can change like the weather. Debt levels ... can't be brought down quickly," write Reinhart and Rogofff, dismissing arguments that low servicing costs mean debt isn't an issue (as Italy is finding out). Despite "prominent intellectuals" arguing otherwise, the empirical evidence shows strong correlation between large government debt and low growth. [View news story]
When the economy is going strong, government revenues rise, government expenses (the so called automatic stabilizers) fall, and GDP growth expands faster than the debt load, causing debt as a percentage of GDP to decline.
Following proper fiscal discipline, you actually should raise taxes in response to good economic conditions and cut them during times of weakness. Government is notoriously bad about actually doing this, but in a properly managed economy you would expect to see tax hikes during boom times and cuts as the economy began to soften. Thus, causation should be going in the opposite direction. (But it doesn't because ideology drives policy.)
I am unmoved by the charts that attempt to show the correlation between tax burden and GDP growth over the decades. The result is a mixed bag, probably because it's a relatively minor contributor, easily overwhelmed by the more important macroeconomic forces of the day.
Government uses the tax code for social engineering. They try to influence behavior with it and pick the winners and losers in many industries. It's certainly very influential in both consumer and corporate behavior, but that still doesn't mean it's overwhelms the more immediate economic forces of the day, i.e., oil embargoes, bank crashes, market crashes, currencies crises and contagion, the emergence of globalisation, the emergence of the information economy, wars and conscription, the end of the gold standard, trade liberalization, monetary unions, anti-discrimination and corruption laws, insurance reforms, changes in civil and criminal liabilities, changes in property laws, security laws, the BRICs & EAGLES etc. There is no way to see the affect of tax burdens on GDP growth "ceteris paribus" because everything else is never the same in a world in which global forces, national economies, and individual behavior evolve rapidly. Exactly how far back in history is it appropriate to look for these correlations where we can claim that the results took place in an economy structurally similar to our own?
Really, I think it would be far more appropriate to discuss structural reforms to Medicare and Social Security with the aim of making them sustainable [and even take another look at financial regulatory reform] rather than to fixate on the current debt level. The current debate is partial measures for a very temporary fix. It's time for our leaders to man up and address the structural problems in the economy.
"Interest rates can change like the weather. Debt levels ... can't be brought down quickly," write Reinhart and Rogofff, dismissing arguments that low servicing costs mean debt isn't an issue (as Italy is finding out). Despite "prominent intellectuals" arguing otherwise, the empirical evidence shows strong correlation between large government debt and low growth. [View news story]
Up another 2.7% to $95.40/barrel, oil moves higher than it stood before the government attempt to drive prices lower just 4 sessions ago sent crude temporarily plunging. USO +3.2%, BNO +3.4%. [View news story]
Bipartisan plan to eliminate the US debt crisis.
Step 1: Refuse to raise the debt ceiling & lever up a short position on treasuries.
Step 2: ????
Step 3: Profit.
Desperately Seeking Yield Through Equities: Part 7 - Tobacco Stocks [View article]
Does Lower Risk Actually Mean Higher Returns? [View article]
"Many investors have been making up for low yields by taking on more risk, whether it's by dipping into lower-quality bonds or holding more dividend-paying stocks. ... By seeking higher yields and greater risk, investors are likely setting themselves up for lower risk-adjusted returns and possibly worse absolute returns than if they had stood pat."
That thesis makes assumptions about the relationship of apples (bonds) to oranges (stocks). The charts and paraphrased statements in the article, however, all deal with comparing apples to apples and oranges to oranges.
It's worth noting that the research paper he cites deals only with stocks and draws no conclusions about bonds, much less substituting dividend stocks for bonds.
The charts come from someone and something else entirely. (Indeed, the paper expresses everything in terms of Alpha, not Sharpe ratio.) I suppose it is intended, by the author, to follow that the lower Sharpe ratio for low beta stocks vis-a-vis investment grade corporates supports his thesis. The trouble, of course, is the 3rd chart, which shows the Sharpe ratio of Treasures fall from far above low beta stocks to significantly below them in response to duration/yield curve.
This raises the questions of both what the durations were for the Corporate chart and how the Sharpe ratio for stocks was calculated. Obviously, a chart of USG long bonds would provide a very different implication. Moreover, it certainly seems likely that it would be possible to get very different Sharpe ratios for the stocks depending upon the period of time used. Comparing them without understanding the methodologies is useless.
Without such a basis for comparison, there is no evidence in the article that really supports the broader premise of the author. That's not to say that the argument in favor of leveraging lower beta instruments vs. using riskier equivalents is without merit. It's just to point out that there is no supplied basis for drawing the conclusion about the relationship between broader asset classes that he does, and to warn that he is being less than intellectually fair and forthright about the scope and conclusions of his sources.
The economy is at a "tipping point," with a "substantial" probability the U.S. could lurch again into recession, Robert Shiller says. The economy, now "immune to Keynesian crack," has deteriorated to the point where "when the demand isn't there, you can lower interest rates all the way to zero and people are still not willing to spend." [View news story]
You are very misinformed about the state of the industry. Drop the crusade and roll up your sleeves and go to work. Pretty soon you will figure out what's what. You're only hurting renewables with this talk of a carbon tax.
The economy is at a "tipping point," with a "substantial" probability the U.S. could lurch again into recession, Robert Shiller says. The economy, now "immune to Keynesian crack," has deteriorated to the point where "when the demand isn't there, you can lower interest rates all the way to zero and people are still not willing to spend." [View news story]
The economy is at a "tipping point," with a "substantial" probability the U.S. could lurch again into recession, Robert Shiller says. The economy, now "immune to Keynesian crack," has deteriorated to the point where "when the demand isn't there, you can lower interest rates all the way to zero and people are still not willing to spend." [View news story]
If you believe you've got a real business case to make, write up a business plan, recruit some co-founders, raise money, and get to work. Otherwise, by doing things like complaining about perceived subsidies, you are very much making a political case, and I think you've chosen a very hostile venue for your particular argument. :)
The economy is at a "tipping point," with a "substantial" probability the U.S. could lurch again into recession, Robert Shiller says. The economy, now "immune to Keynesian crack," has deteriorated to the point where "when the demand isn't there, you can lower interest rates all the way to zero and people are still not willing to spend." [View news story]
All that said, Dana, there are several very serious problems with your solution. Primarily, the fact that the medicine you prescribe would kill the patient.
Consider that we cannot price in the cost of carbon unilaterally. Kyoto was political theatre. The only way to price in the carbon is to get a global agreement of all the major industrial nations. The emerging economies will hear nothing of it.
Besides even if we wanted to make the switch, we have trillions of dollars worth of assets invested in the current regime. We would need trillions of dollars to make serious inroads into the switch (50/50). So you want to borrow trillions of dollars, during our current economic weakness, to both sharply depreciate the value of trillions of dollars worth of suddenly doubly "toxic" assets and pull the legs out from under one of the primary global drivers of dollar demand and support. Why don't we just feed zeroes into the databases of our stock markets? It would be quicker and less painful.
We do need to do something about the current account, and tackling oil IS one of the best ways to accomplish that over the intermediate to long term, but we need to keep some perspective. Leadership by emotion and ideology is what got us into the mess; it's probably not going to get us out! We need a comprehensive and incremental strategy that addresses ALL of the structural problems facing the US economy, not just the energy dynamic. On that point, 7footMoose is absolutely correct.
The economy is at a "tipping point," with a "substantial" probability the U.S. could lurch again into recession, Robert Shiller says. The economy, now "immune to Keynesian crack," has deteriorated to the point where "when the demand isn't there, you can lower interest rates all the way to zero and people are still not willing to spend." [View news story]
The scarcity is completely artificial, far more so than in energy.
EDIT: For the record, I am by no means saying that ethanol is a panacea. I'm mostly just highlighting how difficult it will be to reform the industries that run the government. Even without changing sources, we could do a great deal to improve efficiency by modernizing our grid, but that's gone no where.
The economy is at a "tipping point," with a "substantial" probability the U.S. could lurch again into recession, Robert Shiller says. The economy, now "immune to Keynesian crack," has deteriorated to the point where "when the demand isn't there, you can lower interest rates all the way to zero and people are still not willing to spend." [View news story]
Find Stable Fixed Income With Preferred Stocks [View article]
Interest rate risk doesn't refer to the threat interest rates pose to the issuers so much as to the market value of the issues. If all you care about is a specific amount of income and you don't need liquidity, then you might not be much worried about interest rate risk. Some of us would prefer not to be caught between the rock and hard place of underperforming yield on a risk adjusted basis or significant capital losses. Inflation expectations are also a key consideration.
Adding to your positions as yield improves isn't bad, as long as you do your due diligence. Better is to not enter those positions until rates begin to approach their apex. Best is to enter in to get good yield now; sell right before the markets begin to price in hikes; and, reenter right as yields approach their apex. And if you can time the market with such precision, good on you--you'll get rich no matter what asset class you invest in.
Find Stable Fixed Income With Preferred Stocks [View article]
With 10,000 baby boomers turning 65 every day and 26M Americans afflicted with diabetes, Ford (F) sees medical monitoring as the next key to a burst of car sales. Ford has developed a car seat to check the driver’s blood sugar and heart rate, and new features could track breathing patterns for asthmatics or pollen counts for allergy sufferers. [View news story]