Month: June 2012

Article by Investment U

With just a little bit of work, you’ll make more money and pay less in fees than you would with even the best dividend-paying mutual funds.

It’s not breaking news that dividends are hot. With bonds paying next to nothing, income-starved investors are increasingly pouring money into dividend-paying stocks.

Last year, while $178.2 billion was removed from equity products, $26.8 billion were invested into dividend-focused funds.

And mutual funds that specialized in dividends saw net inflows (more money invested in than taken out) every week for 44 weeks, according to EPFR Global.

I’m not a huge fan of mutual funds in general, and especially not those that are dedicated to dividends. You can do much better yourself.

For example, Columbia Dividend Opportunity I (RSOIX) is rated five stars by Morningstar. It has a current yield of 3.79% and an expense ratio of 0.75%. Since March of 2004, $10,000 invested turned into $16,915 versus $13,426 for the S&P 500.

Those are some pretty solid stats. If I were looking for a mutual fund that invested in dividend payers, this one would be near or at the top of my list. It’s beaten the S&P 500 and its peers since its inception, the yield is solid and the expense ratio is reasonable.

Its largest holdings are Lorillard (NYSE: LO), J.P. Morgan Chase (NYSE: JPM) and Pfizer (NYSE: PFE) – not exactly a low-risk group. Most of the rest of the portfolio are large cap names like Microsoft (NYSE: MSFT), AT&T (NYSE: T) and General Electric (NYSE: GE).

That’s because a $3.9-billion fund has to buy a lot of stock in order for any one position to be meaningful. A large fund is able to go into the market and purchase two million shares of AT&T or Microsoft.

But if there are better opportunities in smaller names, a mutual fund is going to have a tough time buying enough shares to make a difference.

For example, if you invested in some of the smaller-cap names that are in The Ultimate Income Letter’s Perpetual Income Portfolio, you could do significantly better at an even lower cost.

For instance, let’s say you invested $2,500 each into Community Bank System (NYSE: CBU), Omega Health Investors (NYSE: OHI), Main Street Capital (NYSE: MAIN) and Genuine Parts (NYSE: GPC). During the same eight-year period as the mutual fund’s 69% increase, your $10,000 would have become $19,862 – a significant difference over the $16,915 this very good mutual fund returned.

Community Bank System is not a stock that a mutual fund manager would likely buy. It’s a great little bank with a 3.9% yield, but it only trades 200,000 shares a day. It would be hard for a fund to accumulate enough shares to make a difference in the fund’s returns. Perhaps more importantly, it would also be tough to sell a lot of shares if the fund manager no longer wanted to hold the stock. Omega Health and Main Street have yields approaching 8% and Genuine Parts’ yield is 3.2%, but the company has raised its dividend every year for 56 years.

All of the stocks mentioned above trade less than one million shares per day, although Genuine Parts has a market cap of over $9 billion.

And don’t forget that 0.75% expense ratio. While that is on the low side for mutual fund fees, your return is still being impacted by that 0.75% every year.

If you bought the four stocks listed above with a discount broker, it would cost you about $10 per trade or $40. That comes out to 0.4% of your initial investment. However, that’s a one-time cost, not an annual expense. The only time you’ll incur another fee is when you go to sell. So if you sold it today, you’d have incurred a total expense of 0.8% ($80/$10,000) over eight years rather than 0.75% every year. When you pay that 0.75% every year for eight years, you end up impacting your return by 6%.

I don’t know about you, but I prefer to keep the 6% for me, rather than pay it to a mutual fund manager who can’t do as good a job as I can.

It’s not that the fund managers aren’t smart. They are. But the size of their funds limits their flexibility. As an individual investor, you can use that flexibility to your advantage by owning smaller cap stocks that have higher yields and better growth potential.

Stay invested in dividend paying stocks. They’re the best way that I know of to grow your wealth and generate increasing amounts of income over the long term. But do it yourself. With just a little bit of work, you’ll make more money and pay less in fees than you would with even the best mutual funds. Because this is one area where the little guy has the advantage.

Good Investing,

Marc Lichtenfeld

P.S. The four quality dividend plays I listed above are just the tip of the iceberg. There are 17 more dividend positions I’m currently recommending in my Perpetual Income Portfolio. As I write this, our 21 open positions are scoring an average gain – including dividends – of 25.40%. And my portfolio is just one of the many resources The Oxford Club provides to help out the little guy.

For more information on how to access our Club’s full repertoire of portfolios along with the rest of our expert connections and financial intelligence, click here.

Article by Investment U

By Central Bank News
    Here’s today’s Central Bank News link list, click through if you missed the previous central bank news link list.  Remember, if you want to submit links for inclusion in the daily link list, just email them through to us or post them in the comments section below. 

By The Sizemore Letter

Question: When looking at cheaply-priced stocks, how do you know which ones are solid value stocks and which ones are dreaded value traps?

Answer: The value stocks eventually recover, whereas the value traps do not.

I realize that my answer is no more useful than Will Rogers’ advice to “Buy stocks that go up; if they don’t go up, don’t buy them,” and that is precisely my point. There is no systematic way to recognize a value trap.

Some sectors are more prone to value traps than others, and this is something I’ll elaborate on later in the article. But first I’ll give an example of a value trap that ensnared yours truly—BlackBerry maker Research in Motion ($RIMM).

When I first started considering RIMM last July, it was one of the cheapest companies in the world. At one point in time it traded for just 3 times earnings and barely half its book value.

My thinking when I bought RIMM was straightforward enough. While the company was losing the smart phone war to Apple ($AAPL) and Google ($GOOG), it had a strong and growing services business with sticky revenues, a strong and growing presence in emerging markets, and a rock-solid balance sheet. Yes, the company was losing market share, but its sales were still growing and a decent clip. At the price at which it traded, RIMM didn’t have to win the smart phone war in order to be a good investment; it merely had to survive.

In most industries, this would have been sound thinking and the makings of a great contrarian investment. But in technology, where platforms are everything, it doesn’t hold. Much like the Game of Thrones, with technology platforms you win or you die

Shrinking market share for your platform begets further shrinking market share. Retailers don’t want to take up shelf space better used for more popular products. Carriers don’t want to offer incentives. Programmers don’t want to write applications for a shrinking platform. Rather than a gentle decline, you get a sudden collapse.

Case in point RIMM. With the BlackBerry, RIMM invented the smartphone as we think of it today and quickly rose to dominance. After conquering the corporate and government markets, the success of the BlackBerry spilled over into the consumer market. BlackBerries became known as “CrackBerries” for their addictiveness. As recently as 2010, RIMM held nearly half of the smartphone market, only to see that market share shrink to single digits today.

Believe it or not, I do believe that RIMM has a future. But its future lies as a software and services company, providing enterprise e-mail, messaging and security, and not as a hardware maker. A slimmed down services-only RIMM would be worth owning at the right price. But before that happens, management will likely destroy quite a bit more value attempting to salvage their hardware and operating system.

Not all cheap tech companies are value traps, of course. Microsoft ($MSFT) and Intel ($INTC) have both been cheap for years, though both have strong underlying businesses nearly impervious to competition and both have been rewarding shareholders with a high and growing dividend.

As much as we would like for it to be, this is not an exact science, and you’re not going to get it right every time. In the end, the best defense against a value trap is emotional discipline. Look at your investments critically and don’t make excuses when they fail to perform. Use stop losses when appropriate. And be honest with yourself when you ask the question, “If I didn’t already own this stock, is this something I would want to buy today, knowing what I know?”

Oh, and follow Will Rogers advice about avoiding stocks that don’t go up.

Disclosures: Sizemore Capital is long INTC and MSFT. Alas, we were formerly long RIMM.

Bad U.S. jobs number, bad news from Europe… So why did stocks rally?
June 11, 2012

By Elliott Wave International

Think back to Friday, June 1. The DJIA closed down almost 300 points that day, and pundits blamed it on a bad U.S. employment report and even worse news from Europe.

The expectations for the next week were so bearish that CNBC held their Opening Bell segment on Sunday night (June 3) instead of Monday morning. (Robert Prechter was invited to speak; hope you got to see that interview.)

But the crash never showed up. “Fundamentally,” nothing had changed — but stocks not only “refused” to fall further, they rose. Odd, right?

Not really — if you look at it from an Elliott wave perspective. This is an excellent example of how the news doesn’t shape price trends — the market’s collective psychology does. What’s more, market mood will shift before the news, as in this case. Yet those shifts are not random — they unfold in Elliott wave patterns.

That’s how our U.S. Intraday Stocks Specialty Service (FreeWeek starts June 14) knew of the week’s rally ahead of time. Take a look at this S&P 500 chart the Service posted pre-open, at 9:11 AM, on June 5 — a day before the huge rally on June 6.

US Stocks Overview (Intraday)
Posted On: Jun 5 2012 9:11AM ET / Jun 5 2012 1:11PM GMT

Market Overview: Good morning. … the initial pressure should be on the downside for the indices. The Elliott wave interpretation remains that price action is in a 4th wave [rally] of a larger 5th [wave]. The immediate bullish alternate is that [the June 4] low completed the final 5 within a 5-wave decline.

As you can see, before the open on Tuesday, June 5, there were 2 two viable short-term Elliott wave counts for the S&P. The preferred forecast called for a rally in wave 4. The alternate (or less likely) forecast suggested that the 5-wave decline had already ended, and rally was due. Both agreed on one thing: a rally was next.

Want to try Elliott wave analysis in your trading? You can — here’s how:

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4 major types of Forex brokers are distinguished: market operators, market makers, small brokers and kitchens. Let’s examine them. The criteria of their difference are the total turnover they make, the amount of transaction and the sum of bills.

• Market operators

This is the most trustworthy group which consists of big commercial banks controlled by bank laws and rules. But in order to trade with such banks it is necessary to have bills for trading currencies for large sums of money. For example, the minimal lot is supposed to be about $1 000 000.

• Market makers

Market makers are financial enterprises working with smaller broker companies and providing hypothetical prospects of Forex trading to dealers whose trading capitals is more than $50,000. Their advantage is that they offer lower cost of Forex market trading and as a rule have more trustworthy financial support. However, the minimal size of the bill for $50,000 keeps them off from the main Forex market traders.

• Small brokers

These are little broker’s enterprises working with individuals’ small capital which can vary from hundreds up to several thousand dollars. If the client’s market inquiry or the deal is successful, the client gains gross profit from Forex market trading with the deduction of spreads and commission fee. The broker company also gets its own profit on Forex deal with their market-maker which is the same as net profit that they will pay to the client in addition to their own commission and, maybe, little spread. The one who lost in this deal is the market-maker which has made money, but has lost profit gross from the deal on the whole (the gross profit is received by the broker company).

It’s important to remember that some broker companies present bigger spreads to their clients than they receive from a market-maker themselves, and that’s one more way of getting benefit in addition to their commission. Definitely, they’ll never confess it. The spread can be twice as big. Of course, if the client’s case fails, the broker company suffers big loss from the client’s bill and will have to pay a market-maker the pure loss after drawing on its broker expenses and commission fee. Anyway, the broker company still receives the commission and a little spread.

• Kitchens

The scheme of “kitchen” is a fraudulent plan existing in forex market. The scheme usually works the following way. There appears a company offering people to teach them the intricacies of Forex market trading (note, for free!).

“Trainers” convince that this is the quick path to riches and that making unbelievable profit is very easy. These “trainers” are actually either non-professional Forex market traders or even the people who have never traded in Forex market by themselves. After just a couple of hours the “training” is over. Sometimes the clients are trained by means of computer “simulators” where any trader is “getting profit” approximately 1000 % a week. The major part of these “students” bear losses from the very beginning, and each time they’re confident that was a good lesson which will improve and hone their trading techniques. Most of these clients’ deposits end quickly and they go away from the market, while more obstinate ones “put in” more money to their bills to get one more chance and finally to make profit. They behave like gamblers and reckless players in this case. At last they suffer great losses (lose all they have, in fact). It’s the moment of triumph for these companies since this is exactly what these companies are devised for. They earn on people’s losses of such transactions, and many firms besides profit from spreads or commission fees which they require for them.

The scheme of “kitchen” works if some market trader doesn’t start to win all the time. Their founders know that many clients simply lose their money. And the income of “kitchen” is these clients’ losses. Then “kitchen” is closed with the remainder of clients’ money and appear under another name in a couple of months. Thus, a novice trader wishing to enter the forex market needs to be very careful and even cautious in order not to be hooked by the “kitchen”.

Before starting actually to trade on Forex, it is very important to learn how to do this. Since Forex offers a lot of opportunities to profit, sometimes there is a temptation to get down to it as soon as possible. However, it’s better to slow down and to invest some time and efforts (sometimes it may take quite a substantial period of time) in becoming proficient in the concepts and terms of Forex, getting the hang of Forex trading techniques and accumulating information about this market. One should remember that trading on Forex can be a rather risky business, since your own money is at stake. Sometimes it can be a reasonable decision to hire a professional forex broker who will guide the fresh trader through the details and subtleties of the forex trading process.

London Gold Market Report
from Ben Traynor
BullionVault
Friday 15 June 2012, 08:30 EDT

SPOT MARKET prices for gold bullion traded above $1620 an ounce during Friday morning’s London session – a gain of nearly 4% for the month so far.

Stock markets and major government bonds rallied, with analysts speculating on the prospects for further monetary stimulus, including a possible third round of quantitative easing (QE3) from the Federal Reserve, whose policymakers meet next week.

Silver bullion meantime hovered around $28.70 per ounce – 3.6% up in June so far, but only 1.1% for this week – while broad commodities gained, with oil edging higher despite Opec’s decision Thursday not to lower its production ceiling.

Heading into the weekend, gold bullion looked set for a weekly gain of 2.2% by Friday lunchtime in London.

Some gold traders in Asia however have reported “sluggish” demand for physical bullion this week.

“Our recent call suggesting that gold prices had room to rally,” says a note from French investment bank Natixis, “was predicated more upon the prospect of further US easing…it is likely [though] that some of the current weakness in US economic data is linked in part to the ongoing deterioration in the European outlook.”

“Not many [traders] will dare take on fresh long [positions] ahead of the weekend,” reckons Andrey Kryuchenkov, analyst at VTB Capital in London, citing gold’s “peculiar behavior recently”.

“We should stall near this week’s highs below $1630, with all attention on Greece, and then the G20 summit next week.”

“The next big event in the gold world is likely to be the Greek election,” agrees a note from HSBC.
“Gold may be caught between the election and US monetary expectations.”

Greek voters go to the ballot box this Sunday, with Syriza, which has said it rejects the conditions attached to Greece’s bailout, neck-and-neck with New Democracy according to the most recent opinion polls.

“Whatever the outcome in Europe, it will likely be supportive for gold,” says Neil Gregson, who manages JPMorgan Asset Management’s Natural Resources Fund.

“We’ve still got the possibility of QE3 in the US, which would be good for gold.”

Here in London, Britain’s chancellor George Osborne and Bank of England governor Mervyn King last night announced £100 billion of stimulus measures, including a “funding for lending” program aimed at cutting banks’ borrowing costs in return for promises to lend to the non-financial sector.

“It is very hard to argue that monetary policy, in all its forms, has run out of road,” Osborne told an audience of financial services professionals at the City of London’s Mansion House.

“The government, with the help of the Bank of England, will not stand on the sidelines and do nothing as the storm gathers.”

“Businesses and households are battening down the hatches to prepare for the storms ahead,” added King, speaking later at the same event.

“The result is that lower spending leads to lower incomes and a self-reinforcing weaker picture for growth.”

“It is clear from Governor King’s speech,” says Barclays economist Simon Hayes, “that he has become more gravely concerned about the economic outlook, even over just the past few weeks…[implying] a much increased likelihood that the [Monetary Policy Committee] will sanction more quantitative easing.”

While the “funding for lending” scheme should help lower borrowing costs, “the core problem remains” says Graeme Leach, chief economist of the Institute of Directors.

“Companies alarmed by the Euro crisis will not be eager to borrow, regardless of the cost.”

King also stated in his speech that “the big picture was, and remains the need to generate recovery while balancing our economy, supported by a loose monetary policy and a large depreciation of Sterling…and a gradual but steady reduction in the [government’s] structural budget deficit.”

Since the onset of the crisis in August 2007, the Pound has fallen nearly 25% against the Dollar. Sterling gold prices meantime have risen more than 200%.

Over in Frankfurt, European Central Bank president Mario Draghi said Friday the ECB “will continue to supply liquidity to solvent banks where needed”.

Hours earlier, King said that the Bank of England “will provide banks with whatever liquidity they require given the prospect of turbulence ahead”.

Japan’s prime minister meantime said Friday that recent gains in the Yen do not reflect Japan’s fundamentals, adding that he will relay his worries about currencies and the Eurozone crisis at next week’s G20 meeting.

“[European] growth is slumping,” says Friday’s note from Standard Bank currency analyst Steve Barrow in London.

“Inflation is falling and there’s a possible need to react to the disintegrating European Monetary Union…the Fed, the ECB, the Bank of England, the Bank of Japan and China’s [central bank] should all ease policy – and pretty soon.”

Elsewhere in London, Hong Kong Exchanges and Clearing Ltd has said it will buy the London Metals Exchange for $2.15 billion.

“The deal will make Hong Kong Exchanges one of the major metal exchanges in the world,” says Charles Li, chief executive at Hong Kong Exchanges.

The volume of gold bullion held to back shares in the SPDR Gold Trust (GLD), the world’s largest gold ETF, rose by just over three tonnes Thursday, hitting its highest level this month at 1277.4 tonnes, though it remains around 3% off the all-time record set two years ago.

The tonnage of silver bullion in the iShares Silver Trust (SLV), the world’s biggest Silver ETF, remained static Thursday at just over 9696 tonnes.

British pawnbroker Albermarle & Bond meantime have citing falling gold prices as contributing to a profits warning issued today, with fewer people opting to pawn or sell scrap gold bullion such a jewelry.

Ben Traynor
BullionVault

Gold value calculator   |   Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

By Central Bank News
    United States, Europe and Japan are on track to have all standardized over-the-counter (OTC) derivative contracts traded on exchanges and cleared through central counter parties by end-2012, meeting a deadline set by Group of 20 leaders, the Financial Stability Board said.
    The global financial crises revealed that OTC derivatives had contributed to a build-up of systemic risk, triggering fears of contagion due to the close ties between market participants and a lack of transparency of their relationships.


    G20 leaders have repeatedly committed themselves to improve the transparency and regulatory oversight of OTC derivatives and asked the FSB – which coordinates international financial regulation – to keep track of the reform efforts to make sure there are no loopholes and overlapping regulations.
    In its third progress report, the FSB said encouraging progress had been made in setting international standards and implementing the reforms,, with the largest OTC derivative markets expected to have frameworks in place by end-2012 and that practical implementation was well underway.
    Other jurisdictions, however, are less advanced in their reform efforts, partially because they are waiting for  elements of the regulatory frameworks in the EU, Japan and the US to be finalised before putting their own legislation in place, so their rules are consistent with the top markets, the FSB said.


    “Full and consistent implementation by all FSB members is important to reduce systemic risk and the risk of regulatory arbitrage that could arise if there are significant gaps in implementation,” FSB said, calling on all jurisdictions, including Hong Kong, Korea, South Africa, Australia, Mexico, Singapore and Switzerland to put in place needed legislation and regulation.
    “The OTC derivatives markets are already global markets, in which market participants can easily redirect their activities to other jurisdictions to take advantage of regulatory arbitrage if jurisdictions have not fully and consistently implemented the measures,” it added.
    Click to read the full report.


www.CentralBankNews.info

By Central Bank News
    The Bank of Japan said there is a high degree of uncertainty surrounding the global economy, both in Europe, the United States and in emerging markets, but it would do its utmost to ensure stability in Japan’s financial system.
     Speaking after the BoJ held interest rates unchanged at around 0 to 0.1 percent, the monetary board said in a statement:
    “There remains a high degree of uncertainty about the global economy, including the prospects for the European debt problem, the momentum toward recovery for the U.S. economy, and the likelihood of emerging and commodity-exporting economies simultaneously achieving price stability and economic growth.”
      “The Bank will also do its utmost to ensure the stability of Japan’s financial system, while giving particular attention to developments in global financial markets,” the BoJ said.


www.CentralBankNews.info

By Central Bank News
    The European Central Bank will continue to provide funds to healthy banks during the current turmoil in the euro area, ECB President Mario Draghi said.
    “As you are all aware, the ECB has the crucial role of providing liquidity to sound bank counterparties in return for adequate collateral. This is what we have done throughout the crisis, faithful to our mandate of maintaining price stability over the medium term – and this is what we will continue to do. The Eurosystem will continue to supply liquidity to solvent banks where needed,” Draghi said in a speech in Frankfurt.
    Draghi’s remarks come ahead of this weekend’s election in Greece that could decide whether the country remains in the 17-nation euro area, a decision that has financial markets on tenterhooks.
    Click here for Draghi’s speech.


www.CentralBankNews.info

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