With gold prices touching $1,260 last week and hitting a new all-time high, the difficult question is whether this is some type of short term top in the gold bull market or whether something has fundamentally changed in the currency markets that is going to send gold much higher from here.
For once with gold the charts do show a financial asset not in danger of a big breakdown. That is what you can see in most other major asset classes right now, including silver.
Longer-term
But thinking in terms of the next few weeks or months is more difficult. If financial markets sell down sharply into this summer and autumn then logically the gold price ought to weaken, and silver very much more so as an industrial commodity.
Of course, conversely a continuation of the modest upturn in stocks could take gold up to $1,300. But stock markets have been rising on weaker and weaker volumes. They need to be climbing on higher and higher volumes to make this a sustainable trend.
That would tend to suggest that gold has been riding this upwave and will follow the rest of the markets down. But gold is being bought both as a diversification play and currency now, and that should act as a powerful support in falling markets, even if it is not enough to keep the precious metal rising in value.
Gold has recently outperformed silver, and the gold:silver price ratio is now 66 compared with its long term average of 15. But the silver market is smaller and less liquid than gold so it has room to catch up with the percentage advance in the gold price if gold continues to go up.
Silver outlook
Investors can be encouraged by silver’s Friday close of $19.24 an ounce, and there is room for an advance to $21-22 unless global financial markets take an immediate turn for the worse.
In a big correction silver will then become the best asset to buy for a recovery, or bounce off the bottom, when financial markets become oversold. Less than two years ago silver sold at under $9 an ounce so the scope for trading this volatility is considerable.
That said it does not make silver the more attractive precious metal to own going into a downturn, and that remains gold. Given the uncertainties of global currency markets – and who knows what the Chinese mean about a ‘more flexible’ yuan – holding gold as a part of a currency basket makes more and more sense.
Disclosure I am long GLD and SLV Shares.
Monday, June 21, 2010
Investing Insights Still Sticking With Dividends, But BP, BAC, C, GE Cost Dividend Investors $38 Billions
The speed of the Financial sector dividend decline, from 30% of the S&P 500 in 2007 to 9% now, appears slow compared to BP. The BP suspension (the largest decrease that I can find) has unnerved dividend investors who now need to more closely examine potential liability issues (call in the lawyers). In addition to environmental issues, medical and consumer products, plant and working conditions, as well as services need to be added to the list.
But dividends are having a great first half of the year, with 10 issues initiating a cash dividend. I am still looking for 5.6% 2010 payment increase over 2009, with another surge (dependant upon the economy) in announcements near year-end.
As for companies not being able to pay or increase dividends, Q1 has set a new record for S&P 500 Industrial cash and equivalent levels at US $837, a 25.9% increase over the US $665 billion of Q1 2009. It is the sixth consecutive quarter of increasing cash, and speaks to not just the improvement in cash-flow, but the unwillingness of companies to commit large amounts of capital for projects. The value is sufficient to fund corporate growth, buybacks, dividends and M&A, if companies choose to spend it.
But dividends are having a great first half of the year, with 10 issues initiating a cash dividend. I am still looking for 5.6% 2010 payment increase over 2009, with another surge (dependant upon the economy) in announcements near year-end.
As for companies not being able to pay or increase dividends, Q1 has set a new record for S&P 500 Industrial cash and equivalent levels at US $837, a 25.9% increase over the US $665 billion of Q1 2009. It is the sixth consecutive quarter of increasing cash, and speaks to not just the improvement in cash-flow, but the unwillingness of companies to commit large amounts of capital for projects. The value is sufficient to fund corporate growth, buybacks, dividends and M&A, if companies choose to spend it.
Dividends Like BP’s Look Safe, Until They’re Not
If you own BP shares and rely on the dividends for your retirement income, you now matter less than shrimp boat owners and tourism workers in the Gulf of Mexico, Ron Lieber writes in The New York Times.
That’s the net result of the announcement on Wednesday that BP will suspend its dividend and set aside money for cleanup costs and the compensation of workers who have lost income because of the oil spill.
Whether the federal government was right to pressure BP to make this move (and whether BP should have buckled) is a question for the ages. But if you’re an investor in BP and rely on dividend income to pay your daily expenses, this should serve as another reminder that relying on one stock or even a handful of stocks is incredibly risky.
We’ve seen this movie before. Wachovia disappeared, hobbling many investors who counted on its dividends. Other big banks reduced their payouts drastically in the depths of the financial crisis. General Electric slashed its dividend as well.
This should have been a warning for anyone making big retirement bets on a single stock or a handful of stocks. Things that seem stable can wobble and collapse before our very eyes. And now it’s happening again.
It’s not supposed to work this way, at least in the minds of the many investors of the old school. To them, a stock that pays a dividend is a stock that is safe. “It told them that a company was still around and operating, it was in good health,” said Milo M. Benningfield, a San Francisco financial planner.
Just because a company pays a dividend now is no guarantee that it will forever, or that the company will even continue to exist. Nor is it any guarantee that the underlying stock is stable. Steven Podnos, a financial planner in Merritt Island, Fla., notes that the iShares Dow Jones Select Dividend Index exchange-traded fund, which contains stocks that offer high annual yields through dividends, underperformed the Standard & Poor’s 500-stock index over the last five years.
Still, plenty of people strap on the blinders and maintain their faith in the stocks they think they know well. A frightening article in the trade newspaper Pensions & Investments on Monday estimated that BP employees and others in the company’s 401(k) plan had lost more than $1 billion from the stock’s decline in the wake of the spill.
How can the loss be so high? Well, 29 percent of the plan’s assets were invested in BP stock as of last September. This, sadly, is yet another violation of the too-many-eggs-in-one-basket rule that company plan sponsors should have had inscribed in stone for employees — even before the Enron collapse and the resulting devastation in employee retirement accounts there.
Employees or retired employees are not alone. Devotees of white-hot companies (Apple comes to mind) simply refuse to believe that anything bad could befall the stock. Retirees reliant on dividend income may be averse to change if a stock has paid out regularly for decades. Others may have inherited a big slug of stock and may simply not know any better. Then there are those who are so tax-averse that they won’t diversify their holdings because they don’t want to give up some of their winnings to capital gains taxes.
If you know people who might fall into these categories, please do them a favor and send them to a financial planner post-haste if you can’t talk some sense into them yourself.
Or you could simply try to scare them. Very few people saw a spill of this magnitude coming, just as only a small number could have predicted a few years back that financial stocks would go from contributing 29 percent of the dividend payments of S.& P. 500 payments in 2007 to just 9 percent in 2009.
Today, consumer staples stocks contribute more than any other sector, according to Howard Silverblatt of S.& P. How might that sector or parts of it deteriorate? A prolonged terrorist campaign against large American retailers could begin, or a blight could emerge that wipes out a large percentage of the nation’s crops.
These things are unlikely but entirely possible, and they wouldn’t be a total surprise. Tempted by utilities? Mr. Benningfield suggested contemplating the remote possibility of solar flares frying the power grid.
As of Wednesday, there is now political risk to consider, too. Now that there is a recent precedent, legislators could again try to bully a company into suspending its dividends.
And if that weren’t worry enough for dividend fans, we must also rely on those same legislators to sort out our tax policy. Currently, no one pays more than a 15 percent federal tax on dividend income. If Congress does not act before the end of the year, however, investors will start paying much higher ordinary income tax rates on dividends come 2011. “Where it will wind up, no one knows,” said Kenneth L. Powell, a tax partner at the accounting firm Berdon L.L.P. in New York. Wealthier investors, meanwhile, may pay even more once a 3.8 percent Medicare tax on unearned income begins in 2013.
Everyone needs income in retirement, and dividends aren’t a bad way to get it as long as they don’t come from a single company. Again and again, we’ve seen out-of-nowhere scandals and crises and accidents bring big companies to their knees. Why, given the overwhelming evidence that these things do happen once in a while, would you not extract your dividend income from a low-cost, broadly diversified mutual fund that specializes in dividends?
The moral of the story, as always, is to diversify within each asset class you own, whether it’s dividend-paying stocks or municipal bonds or the emerging-market countries where you’re rolling the dice for big gains. Then, diversify your retirement income, too. The more sources the better, whether it’s dividend income, interest income, annuity income, rental income or periodic (and tax-savvy) outright sales of stocks or other assets.
Even this sort of diversification might not have protected you from the pain in 2008. But it can shield you from the ruin of betting too heavily on a single security like BP.
Disclosure I am long BP shares.
That’s the net result of the announcement on Wednesday that BP will suspend its dividend and set aside money for cleanup costs and the compensation of workers who have lost income because of the oil spill.
Whether the federal government was right to pressure BP to make this move (and whether BP should have buckled) is a question for the ages. But if you’re an investor in BP and rely on dividend income to pay your daily expenses, this should serve as another reminder that relying on one stock or even a handful of stocks is incredibly risky.
We’ve seen this movie before. Wachovia disappeared, hobbling many investors who counted on its dividends. Other big banks reduced their payouts drastically in the depths of the financial crisis. General Electric slashed its dividend as well.
This should have been a warning for anyone making big retirement bets on a single stock or a handful of stocks. Things that seem stable can wobble and collapse before our very eyes. And now it’s happening again.
It’s not supposed to work this way, at least in the minds of the many investors of the old school. To them, a stock that pays a dividend is a stock that is safe. “It told them that a company was still around and operating, it was in good health,” said Milo M. Benningfield, a San Francisco financial planner.
Just because a company pays a dividend now is no guarantee that it will forever, or that the company will even continue to exist. Nor is it any guarantee that the underlying stock is stable. Steven Podnos, a financial planner in Merritt Island, Fla., notes that the iShares Dow Jones Select Dividend Index exchange-traded fund, which contains stocks that offer high annual yields through dividends, underperformed the Standard & Poor’s 500-stock index over the last five years.
Still, plenty of people strap on the blinders and maintain their faith in the stocks they think they know well. A frightening article in the trade newspaper Pensions & Investments on Monday estimated that BP employees and others in the company’s 401(k) plan had lost more than $1 billion from the stock’s decline in the wake of the spill.
How can the loss be so high? Well, 29 percent of the plan’s assets were invested in BP stock as of last September. This, sadly, is yet another violation of the too-many-eggs-in-one-basket rule that company plan sponsors should have had inscribed in stone for employees — even before the Enron collapse and the resulting devastation in employee retirement accounts there.
Employees or retired employees are not alone. Devotees of white-hot companies (Apple comes to mind) simply refuse to believe that anything bad could befall the stock. Retirees reliant on dividend income may be averse to change if a stock has paid out regularly for decades. Others may have inherited a big slug of stock and may simply not know any better. Then there are those who are so tax-averse that they won’t diversify their holdings because they don’t want to give up some of their winnings to capital gains taxes.
If you know people who might fall into these categories, please do them a favor and send them to a financial planner post-haste if you can’t talk some sense into them yourself.
Or you could simply try to scare them. Very few people saw a spill of this magnitude coming, just as only a small number could have predicted a few years back that financial stocks would go from contributing 29 percent of the dividend payments of S.& P. 500 payments in 2007 to just 9 percent in 2009.
Today, consumer staples stocks contribute more than any other sector, according to Howard Silverblatt of S.& P. How might that sector or parts of it deteriorate? A prolonged terrorist campaign against large American retailers could begin, or a blight could emerge that wipes out a large percentage of the nation’s crops.
These things are unlikely but entirely possible, and they wouldn’t be a total surprise. Tempted by utilities? Mr. Benningfield suggested contemplating the remote possibility of solar flares frying the power grid.
As of Wednesday, there is now political risk to consider, too. Now that there is a recent precedent, legislators could again try to bully a company into suspending its dividends.
And if that weren’t worry enough for dividend fans, we must also rely on those same legislators to sort out our tax policy. Currently, no one pays more than a 15 percent federal tax on dividend income. If Congress does not act before the end of the year, however, investors will start paying much higher ordinary income tax rates on dividends come 2011. “Where it will wind up, no one knows,” said Kenneth L. Powell, a tax partner at the accounting firm Berdon L.L.P. in New York. Wealthier investors, meanwhile, may pay even more once a 3.8 percent Medicare tax on unearned income begins in 2013.
Everyone needs income in retirement, and dividends aren’t a bad way to get it as long as they don’t come from a single company. Again and again, we’ve seen out-of-nowhere scandals and crises and accidents bring big companies to their knees. Why, given the overwhelming evidence that these things do happen once in a while, would you not extract your dividend income from a low-cost, broadly diversified mutual fund that specializes in dividends?
The moral of the story, as always, is to diversify within each asset class you own, whether it’s dividend-paying stocks or municipal bonds or the emerging-market countries where you’re rolling the dice for big gains. Then, diversify your retirement income, too. The more sources the better, whether it’s dividend income, interest income, annuity income, rental income or periodic (and tax-savvy) outright sales of stocks or other assets.
Even this sort of diversification might not have protected you from the pain in 2008. But it can shield you from the ruin of betting too heavily on a single security like BP.
Disclosure I am long BP shares.
Sunday, June 20, 2010
Fee disclosure is coming to your 401(k)
Investors lost a battle this week, but the war isn't over. Lawmakers in the Senate decided to drop a measure that would have forced the 401(k) industry to disclose fees to participants. But that's OK, because the numbers still favor retirement savers.
There are 50 million 401(k) participants who deserve to know how much they are paying for their retirement account. By contrast, there are just a few dozen lawmakers and few dozen lobbying groups that don't want 401(k) investors to know just how much things cost.Wowzers Were did da time go.............
I stumbled across my password the other day finally can do some updated. The wife had a heart attack I had to sell all that had at folio investing and recover the family. I now have a roth ira through sharebuilder.com Get ya own Account here. I am still using the same investing style as before. I put in 50.00 every payday and invest $5.00 for each day that I work (Kinda like a reward for having to go to work and deal with all the drama everyday that goes with work). With that being said my first deposit was on 4-16-2010. My account today stands at $346.21. I am a subscriber to the plan so I pay a flat $12.00 per month for 12 trades per month. I am long 52 different holdings in what I think is a pretty diversified portfolio. My current Holdings ranked by the amount held in the account 1 being my biggest holding and 52 being my smallest.
My current holdings include the following, AOD, IGD, MRK, WMT, TNH, FRO, DO, GE, XOM, INTC, PHK, EOS, PTY, DPD, IID, PHT, GDX, NLY, BMY, CTL, VNQ, CFP, CAH, KMB, O, PEP, SYY, CAT, PG, TPZ, ESD, LQD, EOI, ABT, PGX, JNK, PFF, VWO, GGN, MMM, IGI, BDX, XLF, BAX, FSC, SPY, PFE, ED, KMP, BPT, IBM, AND BP.Those are all my holdings that i plan to stick with for now and the ones I talk about on my blog. In my challenge to beat the company sponsored 401k.
I try to invest with a huge focus on dividends and reinvesting of the dividends you can not beat having your money working for you. Most of the time if a holding cuts its dividend I will sell it the next chance I get (however different in the case of bp). As this stock i am not sure what to do with so I will just hold it for the time being.
Dividends Paid this month include, INTC, PFE, WMT, DO on 6-1-2010, LQD, PFF on 6-7-2010, JNK on 6-9-2010, IBM on 6-9-2010, XOM, MMM on 6-14-2010, ED, IGD, IID, and O on 6-15-2010 and CTL on 6-21-2010. All dividends are automatically reinvested back into the same stock they come from.
I purchased DO, IGI, FRO, GDX and PHT on the 6-01-2010 value $5.00 each. On 6-8-210 I purchased AOD 2.05 shares for $13.00 and 1.1321 shares of IGD for $12.00. On 6-15-210 I purchased 0.3422 shares of MRK for $12.00 and 0.2525 shares of WMT for $13.00. And next week I plan to purchase on Tuesday $12.00 worth of IBM and $13.00 worth of ED.
It seems like it is taken for ever to get this going all over again, but I know Rome wasn't built in a day. So I be using this blog to share my thoughts and current investments. Feel free to follow along with me as I try to once again build a nest egg of money working for me.
My current holdings include the following, AOD, IGD, MRK, WMT, TNH, FRO, DO, GE, XOM, INTC, PHK, EOS, PTY, DPD, IID, PHT, GDX, NLY, BMY, CTL, VNQ, CFP, CAH, KMB, O, PEP, SYY, CAT, PG, TPZ, ESD, LQD, EOI, ABT, PGX, JNK, PFF, VWO, GGN, MMM, IGI, BDX, XLF, BAX, FSC, SPY, PFE, ED, KMP, BPT, IBM, AND BP.Those are all my holdings that i plan to stick with for now and the ones I talk about on my blog. In my challenge to beat the company sponsored 401k.
I try to invest with a huge focus on dividends and reinvesting of the dividends you can not beat having your money working for you. Most of the time if a holding cuts its dividend I will sell it the next chance I get (however different in the case of bp). As this stock i am not sure what to do with so I will just hold it for the time being.
Dividends Paid this month include, INTC, PFE, WMT, DO on 6-1-2010, LQD, PFF on 6-7-2010, JNK on 6-9-2010, IBM on 6-9-2010, XOM, MMM on 6-14-2010, ED, IGD, IID, and O on 6-15-2010 and CTL on 6-21-2010. All dividends are automatically reinvested back into the same stock they come from.
I purchased DO, IGI, FRO, GDX and PHT on the 6-01-2010 value $5.00 each. On 6-8-210 I purchased AOD 2.05 shares for $13.00 and 1.1321 shares of IGD for $12.00. On 6-15-210 I purchased 0.3422 shares of MRK for $12.00 and 0.2525 shares of WMT for $13.00. And next week I plan to purchase on Tuesday $12.00 worth of IBM and $13.00 worth of ED.
It seems like it is taken for ever to get this going all over again, but I know Rome wasn't built in a day. So I be using this blog to share my thoughts and current investments. Feel free to follow along with me as I try to once again build a nest egg of money working for me.
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