Americans with part time or multiple jobs is rising….
Comments »Monthly Archives: March 2012
Should You Have Concerns Over Your Dividend Paying Stocks ?
Source
“(MoneyWatch) Many investors are seduced by the allure of dividend-paying stocks, tempted by their high yields relative to what they earn on safe bonds. Trouble is, people often don’t appreciate that because these are stocks, they carry different risks than bonds. So what’s the right way to think about such investments?
First, we need to briefly review an important point. A few weeks ago, we demonstrated that an investment in the S&P High Yield Dividend Aristocrats Index (SDY) was similar to investing in a Russell 1000 Value Index fund. Our analysis showed that the fund had market exposure of 0.66 and value exposure of 0.60, along with a slightly lower expected return relative to the market (0.41 versus 0.58).
An investment in a fast-growing dividend strategy, via the Vanguard Dividend Appreciation ETF (VIG), is similar to investing in the S&P 500 Index. Our analysis found that the ETF had market exposure of 0.78 and the exact same exposures to the size (-0.12) and value (0.05) risk factors as the S&P 500. With the same loadings on size and value, and a lower beta loading, VIG has a lower expected return relative to the market (and relatively less risk).
With this in mind, let’s now explore how switching out of safe fixed-income investments affects an investor’s asset allocation.
Consider an investor who begins with $200,000 in assets and a 50/50 split between stocks and bonds. Having been tempted by the allure of high dividends, he sells his bonds and buys $100,000 of SDY. Given SDY’s beta loading of 0.66, we can calculate that the $100,000 investment is equivalent to owning $66,000 of stocks and $34,000 of bonds. And with the 0.9 loading on the value factor, he also has a high degree of exposure to the risks of value stocks. In terms of risk, we see that his allocation has shifted from $100,000/$100,000 (50/50) to $166,000/$34,000 (83/17), and he has likely exceeded his ability, willingness, and need to take risk. Similar analysis on an investment in VIG would show a shift to an allocation of 89 percent stocks/11 percent bonds.
Because most investors can’t or don’t do this type of analysis, they fail to understand how much more risk they’re actually accepting in return for a relatively small increase in the yield on their investments. Another mistake is to confuse yield and return. The yield of risky investments isn’t guaranteed, and that’s certainly true of dividends.
For instance, it wasn’t destiny that the recent recession we experienced didn’t into a full-blown depression. In fact, there were many “experts” who were making such forecasts. If that had occurred, there is no doubt that many dividend payments would have been slashed and some, if not many, would have been eliminated. Not only would investors have generated lower yields, but the values of their portfolios would have been devastated.
As hedge fund manager and author Nassim Nicholas Taleb has noted: “Lucky fools do not bear the slightest suspicion that they may be lucky fools — by definition, they do not know that they belong to such a category. They will act as if they deserve the money. The lucky fool [is] defined as a person who benefited from a disproportionate share of luck but attributes his success to some other, generally very precise, reason.”
Remember these words of wisdom the next time you’re tempted by the allure of dividend-paying stocks.”
Comments »WOW: BofA to Slash Qualified Mortgages by $100k
GE CEO Warns of Long Period of Unstable Economies
General Electric will keep its focus on boosting its dividend and improving margins as it faces what Chief Executive Jeff Immelt expects to be an extended period of economic instability.
“We live in what most business commentators call a volatile world. I would argue that when the environment is continuously unstable, it is no longer volatile. Rather, we have entered a new economic era,” the head of the largest U.S. conglomerate said in his annual letter to shareholders. “It could remain this way for a long time.”
Over the past year shocks including Europe’s debt crisis and Japan’s nuclear disaster, as well as the uneven U.S. economic recovery, have hit both investor confidence and GE’s operations.
In the face of that uncertainty, the world’s largest maker of jet engines and electric turbines aims to cut its costs — and to reverse a trend of outsourcing manufacturing operations in order to run its factories more efficiently.
FOCUS ON DIVIDEND
Comments »Apple to Build a $304 Million Campus
Ohio State Regulators Say Over a Dozen Earthquakes Came From Fracking
Harrisburg PA Expected to Default On Upcoming Muni Payments
“Harrisburg (9661MF), Pennsylvania’s insolvent capital, says it will miss general-obligation bond payments for the first time next week as its receiver seeks approval for a plan to sell assets.
The city, whose debt load of more than $300 million is five times its general-fund budget, will miss $5.27 million in payments due March 15 on two series of bonds, according to a notice its receiver posted on the Electronic Municipal Market Access system, a database for filings by debt issuers….”
Comments »FLASH: Fitch Cuts Greece to “Restricted Default” Status
SCARY…..
Comments »Today’s Heat Map and A/D Lines
Most Active Options Trades
-CALLS- OPTION EXP.DATE STRIKE PRC. VOLUME LAST S/PRC. NET CHANGE WDC 3/17/12 40.0000 380 0.7500 up 0.0000 AAPL 3/9/12 545.0000 333 1.5100 up 0.1000 AAPL 3/9/12 550.0000 298 0.4000 dn 0.0200 AAPL 3/17/12 550.0000 230 5.4000 up 1.0900 T 6/16/12 30.0000 224 1.3800 up 0.0100 T 6/16/12 31.0000 224 0.7900 up 0.0000 OXY 3/17/12 105.0000 224 0.2000 dn 0.0400 AAPL 3/17/12 570.0000 193 1.2100 up 0.3100 C 3/9/12 34.0000 128 0.4100 up 0.1200 XOM 3/17/12 87.5000 116 0.1000 dn 0.0200 -PUTS- OPTION EXP.DATE STRIKE PRC. VOLUME LAST S/PRC. NET CHANGE AAPL 3/9/12 545.0000 315 1.6500 dn 2.7000 RIMM 3/17/12 13.0000 266 0.3000 dn 0.0200 BAC 3/17/12 8.0000 225 0.1000 dn 0.0400 DHI 4/21/12 14.0000 225 0.4200 dn 0.0900 AAPL 3/17/12 545.0000 165 7.0800 dn 2.4200 BP 3/17/12 46.0000 121 0.4400 up 0.0700 AAPL 3/9/12 540.0000 116 0.3600 dn 1.3900 GMCR 3/9/12 50.0000 108 0.1500 up 0.0100 DHI 5/19/12 14.0000 107 0.6200 dn 0.1400 AAPL 3/9/12 535.0000 98 0.1400 dn 0.5300 -VOLUME- CALLS PUTS TOTAL 18408 24920 43328
-CALLS- OPTION EXP.DATE STRIKE PRC. VOLUME LAST S/PRC. NET CHANGE AAPL 3/9/12 545.0000 3969 1.5000 up 0.1200 AAPL 3/9/12 550.0000 3373 0.4000 dn 0.0800 SLW 1/19/13 35.0000 3110 5.9000 dn 0.2500 SNV 5/19/12 2.0000 2750 0.2000 up 0.0500 AAPL 3/9/12 540.0000 1994 5.4000 up 1.7500 AAPL 3/17/12 550.0000 1893 5.3600 up 1.0300 GGC 3/17/12 30.0000 1860 2.2000 up 0.9000 C 9/22/12 37.0000 1743 2.2600 up 0.2000 C 5/19/12 34.0000 1739 2.2400 up 0.2300 AAPL 3/17/12 545.0000 1723 7.4500 up 1.2500 -PUTS- OPTION EXP.DATE STRIKE PRC. VOLUME LAST S/PRC. NET CHANGE MHS 3/17/12 60.0000 4363 0.7500 dn 0.4500 DHI 4/21/12 14.0000 2626 0.4000 dn 0.1000 DNDN 4/21/12 8.0000 2500 0.3200 dn 0.0300 AAPL 3/9/12 540.0000 2353 0.3900 dn 1.4400 AAPL 3/9/12 545.0000 2320 1.5800 dn 2.7700 TLT 3/17/12 109.0000 1551 0.0100 dn 0.0500 MHS 3/17/12 62.5000 1513 1.0500 dn 0.2500 AAPL 3/9/12 535.0000 1443 0.1900 dn 0.5100 AMZN 3/9/12 185.0000 1078 1.5700 up 1.1400 BAC 3/17/12 8.0000 1061 0.1100 dn 0.0300 -VOLUME- CALLS PUTS TOTAL 328652 291942 620594Comments »
Go to the Butcher and Watch What He Does (video)
A For Real Recovery: Average Real Income of the top 1% Grew by 11.6%, While the Bottom 99% Incomes Expanded Only by 0.2%
Your Tax Dollars @ Work: Vous Foutu
Americans sunk tens of billions of dollars into General Motors in 2008 and 2009, money which they won’t see any time soon, if at all. The Obama administration strongarmed senior creditors in an unprecedented politically-engineered bankruptcy to get taxpayers to eat the costs of old pension obligations and boost the UAW. All of this was done in the name of making GM a stronger company so that they could eventually pay back the bailout and make better decisions in the future.
So how did that work out? About as well as you’d imagine. As soon as GM had some cash, it decided to invest it — in another car company whose bonds had achieved le junk status:
Attention U.S. taxpayers: You now own a piece of a French car company that is drowning in red ink.
That’s right. In a move little noticed outside of the business pages, General Motors last week bought more than $400 million in shares of PSA Peugeot Citroen – a 7 percent stake in the company. …
Peugeot can undoubtedly use the cash. Last year, Peugeot’s auto making division lost $123 million. And on March 1 – just a day after the deal with GM was announced – Moody’s downgraded Peugeot’s credit rating to junk status with a negative outlook, citing “severe deterioration” of its finances.
In other words, General Motors essentially just dumped more than $400 million of taxpayer assets on junk bonds.
Oh, goody! Just what we US taxpayers need — another car company “drowning in red ink.” But there is some sort of secret synergy that the taxpayers who currently float GM must be missing … right? Right?
An analysis by auto industry consultants IHS said it is “somewhat baffling that GM is willing to get involved in an alliance that it frankly does not need for size or complexity, while still avoiding any public plan to rationalise its European production, cut costs, or deal with labour rates.”
So let’s get this straight. As soon as GM got freed up a little from its own irrational production costs and could deal a little more effectively with its own labor rates, it took cash that it still owes taxpayers and sunk it into a car company whose problems in the exact same areas are as bad or worse as GM’s was before the bailout. What a great investment! Why, that sounds amazingly like the kind of investment expertise that cost taxpayers $535 million in Solyndra.
ABC’s Jonathan Karl notes that while GM bought a big stake in Peugeot, the Peugeot family had an opportunity to buy a stake in GM. They passed on that “opportunity,” which just proves that the Peugeot family is smarter than GM.
This is what government bailouts buy. Instead of clearing the decks at GM and freeing their assets through normal bankruptcy so that more competent hands could put them to better use, the government intervention maintained the same status quo and funded it with taxpayer assets. It’s no great surprise, therefore, that the leadership at GM would toss away money owed to taxpayers to buy a stake in another failing enterprise.”
Comments »FUCK THE USDA
Old Man Buffet’s Favorite Indicator Turns in Mixed Results
Weekly rail traffic results were mixed this week with carloads posting a -6.2% decline and intermodal posting a +6% gain. The 10 week moving average for intermodal dipped to +2.8% in a clear sign that the economy continues to grow, but is still relatively stagnant. The AAR has details on the report:
“Today, AAR also reported mixed weekly rail traffic for the week ending March 3, 2012, with U.S. railroads originating 283,312 carloads, down 6.2 percent compared with the same week last year. Intermodal volume for the week totaled 227,256 trailers and containers, up 6 percent compared with the same week last year.
Seven of the 20 carload commodity groups posted increases compared with the same week in 2011, with petroleum products, up 22.6 percent; metals and products, up 19.3 percent, and lumber and wood products, up 16.4 percent. The groups showing a significant decrease in weekly traffic included farm products excluding grain, down 20.5 percent, and coal, down 16.6 percent.
Weekly carload volume on Eastern railroads was down 6.9 percent compared with the same week last year. In the West, weekly carload volume was down 5.7 percent compared with the same week in 2011.”
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Volatility Charts and Futures are Pricing a Huge Move Come Mid 2012
By Walter Kurtz, Sober Look
This is the VIX (S&P500 implied volatility) futures curve a year ago showing the implied volatility term structure as it was on 3/8/11.
This is the VIX futures curve now:
See the difference? While the front contract for implied volatility futures is roughly where it was a year ago, the curve is far steeper now. The contracts 6-8 months out have VIX at close to 30%. The markets are pricing in a material spike in volatility by the mid of 2012. The market is basically saying “the world is OK for now, but just wait until late summer”. That makes some sense given all the uncertainty, but it is not at all consistent with movements in credit spreads.
The scatter plot below compares the levels of VIX futures six months out (the far end of the curve) with the 5-yearInvestment Grade (IG) CDX (index of investment grade corporate CDS) spread. The current pricing is a clear outlier. If the credit markets are right, the implied volatility curve is way too steep (by 2-3 “vol points”). If the medium term equity options markets (that determine the implied volatility curve) are right, the IG CDX spread should be closer to 120 basis points vs. 96 bp where it is today.
Buying IG CDX protection and shorting longer-term equity index options would be a trade that takes advantage of this apparent disconnect between the two markets.
For related content see here:
The Five Most Undervalued Global Dividend Payers
Goldman’s Cohen: Investors Flock to Buy Undervalued Shares
“Stocks are undervalued, and investors are coming back in to buy, despite the recent plunge in the Dow, says Goldman Sachs strategist Abby Joseph Cohen.
The Dow Industrials Index touched 13,000 for the first time since May 2008 then promptly plunged several hundred points before recovering ground.
Nevertheless, Cohen figures the S&P 500 at its current level has priced in a 7 percent decline in corporate profits in the coming five years, she told CNBC
“That’s possible but it’s not likely,” Cohen said, “but it gives you a sense of how nervous investors have been, and the sort of opportunities in equities if, in fact, the recession is over and profit growth continues.”
Jobs numbers seem to suggest that the sluggish, but steady, recovery will continue. Official numbers are due tomorrow, but the private ADP report says that employers added 216,000 jobs in February, in line with expectations.
A separate Associated Press poll of economists predicts that the government figure will show 210,000 jobs added, but that the unemployment rate will stay at 8.3 percent. They added that the rate would likely fall to 8 percent by Election Day and to 7.4 percent by the end of 2013.
Meanwhile, employers are laying off fewer workers, down 3.3 percent in February from the month before according to consultant Challenger, Gray & Christmas, and reports are surfacing that manufacturers are struggling to find talent, even paying signing bonuses, a huge shift in the market.
A more downbeat assessment comes from Trim Tabs Investment Research. Its figures are based on daily income tax deposits by salaried employees in the United States.
Their call: The U.S. economy added 149,000 jobs in February, down from a January estimate of 181,000.
“To bring down the unemployment rate, the economy needs to generate at least 250,000 new jobs every month,” says Madeline Schnapp, director of macroeconomic research at TrimTabs. “Job growth of 149,000 new jobs is not terrible, but it is also not a result worth celebrating either.”
Comments »Steve Forbes: Fed Reasoning on Housing is ‘Backwards’
Harvard’s Rogoff: Unemployment Rate Will Still Take Years to Recover
“The labor market is improving but will need years before it returns to pre-crisis levels, says Harvard professor and former IMF chief economist Ken Rogoff.
“I think it’s a long road ahead,” he told CNBC. “It can take many years for it to hit bottom and it has. And it takes many years for it to come back up,” Rogoff tells CNBC.
“We’re not going to get a boom suddenly to getting 400,000, 500,000 jobs for several months which for a little while people were hoping.”
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