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  • Retirement Frontline: Cash Is Trash Unless You Invest It To Produce More Income  [View article]
    If you believe the market is headed substantially lower, and the market includes your current stocks, then it makes perfect sense to sell everything right now, hold the cash until the market drops by whatever percentage target you set, then buy it all back. Example, if you sell your entire portfolio, wait until the portfolio averages down 20%, then rebuy, you will be perhaps 15% ahead (transaction costs, lost dividends) of where you would be if you hold your positions. If you don't know which way the market is headed, or if you truly do not care about the total return on your positions, or your think the market is going to turn around and head up, then holding makes sense.
    Feb 8, 2016. 01:20 PM | Likes Like |Link to Comment
  • Cameco Shielded From Commodities Bear Market  [View article]
    The article is peppered with "could" or "may". I am unclear what the author believes. Certainly it is possible that uranium prices will increase, certainly it is possible that Cameco stock price will increase, but I cannot tell what actionable recommendation on investment the author is stating.

    I have commented for the last two years that there is a large amount of high grade uranium ore already discovered, there is not now nor do I expect any shortage of uranium ore over the next ten years, the unit consumption of uranium per reactor is going down due to improvements in operations, and the number of reactors being shut down worldwide is going to place a damper on uranium fuel consumption for at least the next five years. Beyond that, the increase in Chinese and Indian reactors should be good for uranium pricing, but this is well out into the future, and does not provide a near term catalyst for uranium fuel pricing or Cameco stock.
    Feb 8, 2016. 10:34 AM | Likes Like |Link to Comment
  • Ford: We Are Liking This Trade  [View article]
    " Broken stocks of good companies are the ones that would provide good returns in the long run."

    I have read various versions of this theory on SA and elsewhere. In fact, it is so commonly repeated on SA that folks who state this theory do not bother to document or support the claim. I question the accuracy or usefulness of this statement. In the long run, you can only buy the stock of a company, you cannot buy the company itself, unless you are Warren Buffet or similar.

    So in order for this theory to be accurate, it is necessary to believe that a valuable underlying company translates into long term upward "force" on the stock. Is there any evidence of this? Isn't it just as likely that stocks go out of favor for a wide variety of reasons, maybe for no reason at all, and remain out of favor for an indeterminate length of time. Such seems to be the case with Ford, it has been trading at a low P/e ratio for years, and despite decent profits and outstanding sales, the price remains depressed. What is the basis for believing that the stock price will recover to higher P/E multiple in any given investment timeframe?
    Feb 7, 2016. 07:18 PM | Likes Like |Link to Comment
  • Freeport-McMoRan: Will The Rally Continue?  [View article]
    The author asserts, with no backup, that China consumption of copper will increase due to buildout of the telecommunications network. The article referenced by the author is published by an institute supporting copper, and the article merely points out that the rise of wifi, fiber optics, and broadband does not mean the death of copper in telecommunications. This is certainly true, however the referenced article makes no claim, not cites any statistics, that the consumption of copper in telecommunications devices is increasing.

    A different perspective on production and consumption of copper may be found here http://on.doi.gov/1nS6OjR. Note that electric and electronic goods accounts for only 19% of total copper consumption. The article does not break down copper consumption by electric motors versus electronic devices, however if the split is roughly even, the only 10% of copper consumption goes into electronic goods, and even a 10% increase in electronic equipment copper consumption would result in a 1% jump in total copper consumption, scarcely enough to move the needle.
    Feb 5, 2016. 01:30 PM | 1 Like Like |Link to Comment
  • Natural Gas Prices Look Unreasonably Low  [View article]
    I am a bit confused by this article. The author points out that natural gas prices have dropped substantially over the last year. The author dismisses the argument that the drop in prices is related to a production glut, noting that rig count is down. The author also dismisses the argument that the price drop is related to lack of consumption, pointing out that consumption is up. So that only leaves a few possibilities. Either the average natural gas investor does not believe in the facts as presented by the author, or does not care about the facts as presented by the author.

    In either case, the price of natural gas is disconnected from both the real supply and real consumption data. In that case, what is the point discussing consumption and supply data, since neither appears to influence the price? Does the author think that at some time in the future, the price of natural gas will correlate with actual supply and consumption data? If so, why does the author believe this, and when does the author think the price will begin to correlate with hard data?
    Feb 3, 2016. 02:52 PM | 1 Like Like |Link to Comment
  • Chevron - Dividend Cut Speculation Unfounded  [View article]
    Maybe I missed the part of the article that indicates why the author feels the dividend is safe. The author carefully points out that Chevron expenditures exceed it's cash flow, and the expenditures are being funded by selling off pieces of the company, and by borrowing. And the author notes that in the long term this business model is not sustainable. Yet the author cheerfully notes that Chevron has committed to at least one more year of dividends. As I recall, so did Kinder Morgan, and I think Seadrill did as well. Why does the author believe that Chevron would not consider dividend reduction or elimination in an effort to bolster cash flow, maintain credit rating, and avoid stock price loss? If oil prices remain low, sooner or later Chevron will need to cut the dividend, why not get ahead of the problem?
    Feb 1, 2016. 01:23 PM | 7 Likes Like |Link to Comment
  • The Limits Of 'Brand Value' For Ferrari  [View article]
    I believe the author has hit on an interesting point. The value of a company may reasonably be estimated as the net present value of its future profits. It may be difficult to estimate future profits, but if you are thinking of buying the company, you certainly need to try to understand how much money the company is going to earn over the life of your investment.

    Buying the stock of a company is a completely different matter. The value of a share of stock may be totally unrelated to the intrinsic value of the company, as the shares are essentially sold at auction every minute of the day, while presumably the intrinsic value of the company changes relatively slowly. The share price reflects the marginal price a willing buyer is prepared to pay, and is certainly more psychologically based than it is based on the intrinsic value of the company. We have no way of knowing what the next buyer is thinking, no way to determine how much they are willing to pay (until they actually buy), and no way of knowing what factors they think are important.

    So certainly if you are thinking of buying Ferrari (say you are Bill Gates on a day off), you are likely going to want to perform a discounted cash flow analysis, and you might offer something close to the net present value you get. Buying the stock is a whole different ballgame, in that case you need to estimate how you think the stock will move over your investment timeframe. You may well believe that the stock is likely to move up if the stock is trading below it's intrinsic value, but it could take years for the market to recognize this, and of course by then the intrinsic value is going to be very different.
    Jan 27, 2016. 05:49 PM | 3 Likes Like |Link to Comment
  • Time For The Contrary Investor  [View article]
    "where the price is hugely down yet the intrinsic value should hold."

    I would argue that commodities like oil have little or no intrinsic value, unlike a company that produces something. One can argue with some conviction that the intrinsic value of a company is the net present value of the future profits that company will produce. While it may be difficult or impossible to predict with certainty how much profit will be produced in a given year, it is still possible to make a good case that the intrinsic value, i.e. what I should pay for that company if I wanted to buy it today, can be computed based on a cash flow model.

    The same cannot be said for a barrel of oil, as it generates no cash flow until it is sold. The price at sale time cannot be predicted with any certainty, so the only value that barrel has is it's present value, which is it's current price. So I question the author's argument that somehow purchasing oil at a current relatively low price means that the price is below "intrinsic" value, whatever the author means by intrinsic. If the author believes that the price of oil will rise in the future, that is a different claim, and one that I would agree with. When the price will rise, and how much, is clearly a matter of considerable debate. But arguing that the price will rise because oil is below it's "intrinsic" value seems to shed little light on the question of the future direction of prices, and the timing.
    Jan 27, 2016. 01:00 PM | 1 Like Like |Link to Comment
  • The Coming Natural Gas Supply Crisis  [View article]
    What crisis is the author referring to? If prices remain low, production will eventually decrease, creating a shortage, at which point prices will rise. Where is the crisis? The author is not claiming that there is a long term shortage of gas in the ground, so at worst there will be the usual rapid price fluctuations associated with capitalism at its finest.
    Jan 26, 2016. 08:51 AM | 1 Like Like |Link to Comment
  • Will The Cold Weather Heat Up The Natural Gas Market?  [View article]
    "The colder weather could boost demand for natural gas, which is still down for the year."

    I am confused by this article. The author points out several times that the actual temperature is warmer than normal. In other parts of the article, the author mentions the blizzard, and wonders why the blizzard has not increased consumption of natural gas. Then he mentions that the cold weather could boost demand. What cold weather is the author talking about? The blizzard was not accompanied by unusually cold weather. The Northeast, where I live, is well above normal temperature for this time of year, as is the west coast. My conclusion is that there is no evidence in this article, or in the weather reports, that the temperature is below normal now, and there is no evidence in this article or in the long term weather reports that the weather is likely to be colder than normal in the next month or so. And by then spring will almost be here.
    Jan 25, 2016. 07:09 PM | 2 Likes Like |Link to Comment
  • Scrap The 4% Retirement Rule, Buy Dividend Stocks With 4% Yields Instead  [View article]
    MintyFresh is dead on with his/her comments. Statistics for retiring people are depressing, if you plan to live off dividends alone. According to this website http://bit.ly/1SuPRbu the average American in their 60's has about $170,000 set aside, so let's give a couple $340,000. At 4%, that amounts to less than $14,000 per year, plus perhaps $30,000 per year in Social Security, for a total of $44,000 per year.

    If you can live on that, more power to you. Where I live, that amount is unlikely to cut it, between utilities, property tax, medical insurance premiums, homeowners insurance, car repairs, food, house repairs, the occasional trip, the list goes on. So the average retired couple is likely to need to withdraw some of their savings each year to live. Now I know there are folks on here who will argue that the average couple should move somewhere cheaper to live, and there is certainly come merit to that. And for those willing to do so, go for it. But if you want to retire in an expensive region like the Northeast, $44K per year isn't much.

    So there are options, including working perhaps part time, eliminating all frills like vacations, and moving to a smaller, less expensive house. But this article makes it seem that the average person just needs to purchase 4% dividend yield stocks and chill for the next 30 years. The real issue is that if you need to withdraw a portion of your investment every year to supplement the dividends, you need to take a much harder look at the potential for loss of principal than if you can simply live off the dividends. And since the average American is nowhere close to the magic retirement investment figure, they will likely be forced to withdraw principal to live.
    Jan 19, 2016. 03:52 PM | 2 Likes Like |Link to Comment
  • Freeport-McMoRan: Capitulation?  [View article]
    Owning FCX at this point requires an iron stomach. For those considering a speculative purchase, I suggest considering purchasing protective long term puts on the stock, and selling short term near the money calls. The trouble with owning the stock naked is that prediction of the future price of gold, oil, copper, and molybdenum is impossible at this point, and prediction of the mind of other FCX holders is even more difficult. So think of protective puts like wearing a condom. You might not like it, but at least it offers some protection against unlimited risk.
    Jan 12, 2016. 06:35 PM | 4 Likes Like |Link to Comment
  • Freeport-McMoRan: More Reasons To Expect A Comeback  [View article]
    "The good thing is that there is a probability that oil and gas production could decline going forward due to a steep drop in infrastructure spending in the industry."

    This sentence appears to be critical to this article, yet I really don't understand it. The author says there is a "probability" that oil and gas production "could" decline. Well I suppose there is, since probability ranges all the way from 0 to 1, so this sentence is mathematically correct no matter what happens. But this is an investment forum, so I for one would appreciate a clear, unambiguous statement by the author as to his prediction. Does he think that oil and gas production will decline? By how much? When? And what effect does he predict the decline in production will have on FCX revenue? And exactly why does the author think any of his predictions will occur?

    Full disclosure: I hold FCX stock, but I also hold puts on the stock, while I am selling calls against the shares. I think FCX could go bankrupt in the next year, and perhaps the author should consider this possibility.
    Jan 11, 2016. 06:19 PM | 3 Likes Like |Link to Comment
  • Retirement Strategy: Oh My God, The World Is Ending!  [View article]
    I have been reading your articles for some time, and I think I understand your philosophy by now. But I have a few questions.

    1. It seems that most of the time you are fully invested, so where do you have the spare cash to purchase stocks when they dip? You don't normally sell stocks to raise cash to purchase other stocks, so presumably you have limited cash available to purchase when a dip occurs.

    2. The statistics on retired people suggests that few of them have enough total portfolio to live off dividends alone. Your portfolio generates perhaps 3 percent, maybe 4 percent a year, which even if you had $1 million would only be $30 - $40K per year, likely not enough to live on if there are two retired people in a moderately expensive area. And a million dollars is well beyond where most retired couples are. So that suggests that the average retired couple is going to need to draw down their investment portfolio over time, perhaps at the rate of 4% per year. But in most of your articles, you discuss the retirement portfolio from a perspective of living off the dividends alone, with no drawdown. So I am not really sure who your articles are for, is it just the retired folks who can afford to live off dividends alone? I wonder because those who are drawing down their investments to support their life must be pretty unhappy about losing something like 5 - 10 percent of their principal in a week, which will make it really difficult to decide which stocks to sell for income in the coming year.
    Jan 9, 2016. 01:29 PM | 5 Likes Like |Link to Comment
  • Oil Is Extremely Cheap  [View article]
    I have never understood why there should be any correlation between oil prices and gold. Oil is a consumed commodity used in an astonishing variety of industrial and transportation applications. Gold is a non-consumption commodity with limited industrial applications. Gold has been in use for thousands of years, crude oil has a history of perhaps 150 years. Just because you graph both commodities on the same set of axes shows nothing. No doubt there is some sort of correlation between consumption of cigarettes and the price of oil, why not add that to the graph as well?
    Jan 8, 2016. 10:05 AM | 7 Likes Like |Link to Comment