The Dubai World situation, as it stands now

On Wednesday, Dubai government-owned conglomerate Dubai World announced it intends to ask creditors to postpone maturities on Dubai World’s debt until at least May 30, 2010.  The heavily debt-laden company intends to use the time to restructure itself.

In the grand scheme of things, where the world financial crisis has already seen trillions of dollars of value erased from global banks’ balance sheets, Dubai World is not much more than a drop in the bucket.  No one seems to know exactly how much the company owes to others, but the largest estimates remain below $100 billion (though not by much).

Why creditors should be worried

There are several disturbing aspects to Dubai World for its creditors:

1.  The announcement comes after repeated assertions by Dubai that the situation was completely under control.  Recently, for example, the government has consistently responded to enquiries about a $3.5 billion sukuk of Dubai World property subsidiary Nakheel that matures in the middle of next month by saying that it would be paid in full when it came due.

2.  The announcement coincided with the start of Eid al-Ahda (a religious holiday commemorating Abraham’s willingness to sacrifice his son Isaac) and the beginning of the UAE national day celebrations, so that no further information will be available for several days.  Whether Dubai intended this or not, it employed a trick often used by poorly-managed, troubled companies, of announcing information just before a weekend or holiday, in order to avoid having to elaborate–and in hopes of “burying” the press story so that no one notices.

3.  Press reports suggest Dubai made the Wednesday announcement before consulting creditors.  If so, that would be most peculiar.  And no banks have come forward that I’m aware of to say everything’s basically ok.

4.   As other financial problems involving sharia-compliant debt over the past year or so have illustrated, there are no established conventions governing their status in restructuring or liquidation.

5.  Ambiguity also extends to bank lending in the Middle East, much of which appears to have been done on a “reputational” basis–that is, because of the borrower’s perceived status or wealth–rather than after careful study of pertinent financial documents.

6.  In addition, in cases of monarchy like Dubai, the line between public money and private money is sometimes blurred.

7.  It’s also unclear how much financial support the United Arab Emirates, the federation of which Dubai is a member, will provide for Dubai overall, and to Dubai World in particular.

What should be worrying the stock markets

Emerging markets contagion?–not so much, especially with oil prices above $70 a barrel.

Serious problems in developed stock markets?  Maybe if this were happening a year ago, but I think that markets will properly size the Dubai problem (i.e., understand it’s small) in short order.

Worries about banks with exposure to Dubai?  Maybe.  For HSBC and Standard Chartered, Dubai exposure appears to be small.  Could Dubai lead to general sukuk fears–and thus to the assumption that any bank with sukuk exposure is a risk?  Could happen, but if so I think this would present a buying opportunity.

Downward pressure on stocks?  Yes, but not for the reasons you might be thinking of.  Big investors in Dubai-related sukuks may find themselves in worsened financial straits if money is not repaid on time–as it appears now it won’t be.  They may have other obligations they can’t now meet without selling other holdings.

Monday’s trading will be more revealing about how much the market’s psyche has been damaged by the Dubai World announcement.  My guess is that it won’t be a particularly big deal–but then again, I’m a growth investor, that is, an inveterate optimist.

Thursday and Friday aren’t telling, since Wall Street was closed for Thanksgiving on Thursday and worked with reduced staffs for Friday’s abbreviated trading.  Even looking at Friday, though, the US market sold off initially, bounced back during the day and sold off again–as one would have expected–before the close.  Short-term traders understandably haven’t wanted to hold net long positions over the weekend.  However, selling didn’t approach the early-day lows, which is a positive sign, to me anyway.  I’d imagined that the market might breach them just before the close and the day at new lows.  That would imply heavier selling on Monday.

Saving for your golden years sure is a pain in the …  No one wants to put money away that you can’t touch for a long time. Every one wants to use their money now, not later.  There’s all kinds of things that we want to buy.  Maybe it’s a new computer, new furniture for the house, a new car, a new boat etc….  The problem is that if you don’t have a wind fall of money comming your way, then what are you going to have when you get old enough to retire?  Social Security? Don’t count on that!  Did you know that 95% of americans live on Social Security a lone.  That is hardly enough money to pay the bills let a lone live a fun and comfortable life style after you retire.  I suggest putting at least 10% of your net pay in some kind of retirement plan right now.  If you are still young, you will be amazed at how fast your account will start to build up.  It also makes you feel good to have money that you can fall back on during emergencies.  Start investing in yourself right now. No one will do it for you. 

Investing in yourself is the best investment!

www.moneytakingsurveys.com

TIF is a truly remarkable company

It’s the only consumer name I can think of that’s been able to bring its brand to cover progressively more down-market without destroying its image.  The iconic Blue Box holds a leading share worldwide in sales of “statement” jewelry items retailing for over $50,000 each.  The typical BB, however, houses a silver pen, a glass pitcher or whatever else the average purchase price of well under a thousand dollars will buy.

For TIF, no one seems to mind.   For almost everyone else who has tried to achieve the same kind of brand extension, no trace, no sign remains of them on the main shopping streets of major cities.

TIF is strong in the US and in Asia, where the fact that it’s an American company is a positive.  The company is making gradual inroads in Europe as well, but there the going has been slower.  There, traditionalists regard TIF as an upstart. They also seem to believe that luxury goods from outside Europe don’t have the sophistication of domestic products.

Third quarter earnings were just about flat, year on year…

after adjusting for unusual items.  At $598.2 million, sales were above the company’s expectations, and down only 3% vs. the year-ago quarter.  Same store sales were down 6%, a much smaller decline than in the first half of the year.  Each month in the quarter was better than the previous one.  This pattern has continued into November.  As a result of the continuing recovery in sales, TIF has raised its full year earnings guidance.

…although they’re not quite as good as they seem.

Pre-tax earnings from operations were down 17% year on year.  The difference between that figure–which is an improvement in operations compared with the first half–and breakeven is the tax rate.  Third-quarter results were taxed at 22% vs. 32% in the year-ago period.

What happened?  The (too) simple, but enough for us, explanation is this:  at the beginning of each year a company estimates what its full-year tax rate will be and applies that to each quarter’s earnings.  During the October quarter TIF got favorable tax rulings that meant the rate would be a few percentage points lower than it had thought.  As it’s supposed to do, TIF made the entire year-t0-date adjustment by lowering the third quarter rate.

A revenue breakout

Americas (mostly US)   $303.5 million    51% of total

Pacific    $225,8 million     38%

Europe    $188.9 million     11%

What the company said

Europe:  overall sales were up 16%, comparable store sales were up 9% (the difference shows how fast TIF has been expanding there).  This was a lot better than expected.  Business is showing sequential improvement.

Pacific:  ex Japan, overall sales were up 18%, comps up 9%.  China, Australia and Singapore are going from strength to strength; Hong Kong, Korea, and Malaysia are improving.

Japan, where the large majority of TIF’s current Asian business is done, continued weak, with no recovery in sight.  Why?  poor economy, national disenchantment with luxury goods, TIF’s brand positioning.

Dragged down by Japan, TIF’s overall Asian sales continue to improve but were up only 2%, and comps down 3%.

Americas: US sales are also improving month by month.  Overall sales were down 9% for the quarter, comps down 10%.  Comps at the flagship store in NYC, helped by tourist spending, were down 8%, about the same experience as all NY-vicinity stores had.  For what it’s worth, CA was relatively soft, FL relatively strong.  Hawaii and Guam, boosted by tourism were up for the quarter.

The greatest revenue declines were at the high end.  This was a decline in number of items purchased, not selling prices.

Catalog and online were up in October.

Improving comps are a function both of improving demand and of the “anniversary-ing” of the financial crisis-induced falloff in sales.  In other words, starting around September, current sales are no longer being matched against strong, pre-crisis results from the prior year.  Last year’s sales are beginning to show crisis-related weakness.

My thoughts:

The regional information confirms what other companies have been saying. That is:

–China is already more or less back to normal.  The rest of the Pacific ex Japan is following suit.

–Japan is weak

–the US is weak, but slowly recovering.

The question I see with the stock–which I owned for years during the Nineties–is that the real bright spots for TIF,  Pacific ex Japan and Europe, together make up less than a quarter of company sales.  Japan, another quarter or so of sales, could be a drag for years to come.  Let’s say these two factors offset one another for the moment (eventually, the positive side will be more important, though).

If so, the investment focus should be on the US.  There’s no doubt in my mind that TIF remains a dominant force in domestic jewelry sales.  The investment issues are:  how fast will demand recover, and, given that the stock is within 20% or so of its high before the financial crisis, how much is already priced into the stock.  My first reaction would be to look for a company outside luxury goods, or one with less exposure to US+ Japan.

Bet that sounds like an online dating tagline. But that’s not what it means. Nerdy, but true, every night I go though my watchlist. Actually, I only go through my growing list of 75 tickers once a week–usually Sunday, highlighting anything interesting. Then each night for the rest of the week, I only keep an eye on the interesting ones (in addition to what I already own). Tonight I had a peek through and I must say, there isn’t anything too hot on my list. However, I did like ACL–it’s just too pricey for me. So I’ll refrain. (For me at least, that’s easier than holding back on a cute dress I can’t afford.) In any case, I also set a trigger to let me know when MFE gets to 40, as it’s rolling between 40 & 44. How ’bout you? Anything on your hotlist?

Happy Thanksgiving!

Trading Girl

Today is US Thanksgiving.  Happy Thanksgiving to all my US friends! 

And a nod to the markets (that were open) as well.  With much of North America closed for the holiday, I still managed a decent gain today as the Canadian dollar was trading somewhere, and it took a beating.  On the news that Dubai might blow up.  Not as in terrorist blow up;  but as in I-can’t-meet-my-payments blow up.  Who would have thought?  A year or two ago Dubai was the great new happening place – the new jewel of the Middle East, and now its the new Argentina of a decade ago.  That spooked the Asian markets overnight, but really spooked the European markets later on in the day.  The big ones all closed down over 3%.   This sent commodities down, (except for natural gas, go figure), currencies down (against the dollar), and appears to have set up a potentially nasty morning for U.S. Thanksgiving revellers – especially with potentially thin (probably thicker now) trading tomorrow.  It will be worth watching Asia tonight.

I’m covered; still have lots of short ETFs.  To me, equities and oil have have had a decidly soggy tone over the past couple of weeks despite trading near the rally high, and I’ve had the sense that any bad news out of left field could pop this balloon.  This Dubai thing might be it.  Real-estate and unemployment are still major boat anchors, and I don’t think it will take too much more weight (a feather perhaps?) to push this market down again.  This rally has felt surreal all along.  It’s been long, powerful, and persistent, but against a backdrop of such bizarre economic dysfunction.

But, whatever.  We’ll trade what comes.  And speaking of trading …

I sold the HNU because I missed a signal early last week, and this kind of evens everything out.  A bit more cash in the kitty if we go down, but lots of shares left to get profitable fast if we go up.

It’s interesting that my co-Scouter Steve’s best friend Brian, who flew 777’s for Emirates Airlines and was based in Dubai, left and came back to Canada a couple of weeks ago.  His decision may have been fortuitous in retrospect.  (I’m now trying to recruit him into Scouts; from the cockpit to the fire pit, as it were.)

Again, Happy Thanksgiving and a hearty Du-bye bye …

Cheers,
Allocator
a.k.a. George Parkanyi

People have been talking about investing in gold as an inflation hedge for a while now. As Peter Schiff likes to point out, in the Roman Empire an ounce of gold purchased a Roman citizen a toga (suit), a leather belt, and a pair of sandals. Today, one ounce of gold will still buy a man a suit, a leather belt, and a pair of shoes. So gold is definitely a long term inflation hedge. But here’s the run down on the cons of investing in gold and a quick look at other inflation-hedges.

Cons of Gold:

1) Gold has large volatility and long periods of time (like 20 years around the 80s) when the prices won’t go anywhere.

2) From a contrarian standpoint, we hear way too much about gold now in days. Everyone knows about Cash4Gold and similar websites.  Other useful commodities that have not yet increased in price as much as gold might be better. Oil, iron, copper, etc. are all great inflation hedges for the same reason as gold – they can’t be devalued by printing more. They take hard work to find and unearth,  and thus carry intrinsic value. And they are not on late night infomercials… yet.

Option 1 : Better -than- gold Tier I stocks
Asset-backed / Necessary-Goods Stocks: Gold is only an inflation hedge. In the long run you are much better off with a company that is producing something useful, since, over time that company can be worth more, not just the same. So for example any asset backed / commodity stock (oil, energy, food) is a better inflation hedge. The value of any asset backed /commodity company will get automatically adjusted for inflation, which will be reflected in the stock price. A better hedge against inflation is a company that sells something that people will always need, even when they are broke and thus, has a competitive advantage. So they can quickly pass along price-increases and potentially grow your money profitably. Examples of companies like this might be Johnson and Johnson, Walmart and 3M. On top of inflation-adjustment, you will also see the usual returns/ losses of investing in businesses. It might get hard to decouple the two, but you won’t be “wasting” your dollar because of inflation.

Option 2 : Even- better inflation hedge – Tier II Stocks
Necessary-Goods Companies with High Leverage: The dream inflation hedge would be in a company that apart from selling ever-needed products with a steady stream of earnings and having some competitive advantage (what we call the Tier-I stocks) is also heavily leveraged. Then if inflation does happen, they would able to easily pay back their debt in much cheaper dollars. Now you’ve got a hat-trick – a company with real value, that make something people need, has pricing power and is actually taking advantage of inflation to pay off their debts. Warren Buffett’s purchase of Burlington Northern is a brilliant inflation hedge as it satisfies all these criteria to the T. Large moat, steady earnings, asset based, highly leveraged, and good potential for growth.

Aside: Alternatively, you can take on personal leverage as well, you might be able to find a company that satisfies the dream criteria above AND pays a dividend that will cover the cost of margin for example. Also just taking large loans can make a good inflation bet since you would be able pay them back for a fraction of their original “value”. This assumes two things though. 1) You can continue to make the payments. 2) You invest the money in something of value. For example you could buy a house on a highly leveraged basis, subsidized by Uncle Sam.

Option 3: Best bang for your dollar-buck? – Tier III stocks
Highly-Leveraged Necessary-Goods Companies outside the US: The third option is to could invest in tier-II stocks outside the US (the Euro or the Yen for instance) if on top of inflation you are worried about the dollar losing value because of a demotion from its current place as a global currency standard. A global currency standard means that if a French bank and an Indian bank need to conduct a transfer, they would both have to transfer their currency into dollars, transfer the money and then back again. The same is true for buying oil. This means that there is an additional “artificial”, if you will, demand for the dollar effectively raising its intrinsic value. There are now talks about replacing the global standard with the Euro, or Yen, or a “bag of currencies” – if this happens, there will a related devaluation of the dollar, which has nothing to do with inflation. For this you could check out countries that Peter Schiff recommends in his book “Crash Proof”. Australia and New Zealand come to mind.
These are fun times we live in. Smart moves can give über -smart returns.

Acknowledgments: This article was coauthored with Travis Dirks.

This is the story of my journey.

One year ago, I was a married 26-year-old MBA student with a bunch of student loans, a stack of credit card debt, zero savings, and at the start of a divorce. Today, I am a divorced 27-year-old MBA student with a bunch of student loans, 20% of that stack of credit card debt, and a small amount of money a savings account. The point is, this is not a rags to riches story. (I surely am not rich). This is a documentation of my journey from dependence on credit cards to independence from revolving debt and, hopefully soon, to true financial security.

Like many 20-somethings in the early 2000s, my ex-wife and I practiced consumption smoothing, which is a nice way of saying that we took on the mentality of “fake it until you make it.” While in college, we accumulated obscene amounts of credit card debt and student loans with the expectation that we would pay it off as our income grew. However, as our incomes grew, so did our taste in automobiles, apartments, restaurants, alcoholic beverages, vacations. Meanwhile, our credit cards were at their limits and we were making no progress toward paying them off.

As any onlooker would expect, this caused a great deal of stress in our relationship. As a couple only 1 and 2 years out of our undergraduate degrees, we had a rent payment of $1,200 (which is on the high side for the metro-Milwaukee area), almost $1,000 in car payments, and minimum payments of over $650 on our credit cards. I began to realize that our lifestyle was not sustainable, and there was constant arguing about finances. Although money was not the only cause of the divorce, I believe that most of our problems stemmed from the fact that we wanted different lifestyles that were not compatible.

When we decided to end our marriage, she moved back to her parents’ home. I was a 26-year-old man living alone in a 2-bedroom, 2-bathroom apartment with a 2-car garage at a price tag of $1,200 per month and a vehicle lease payment of nearly $500 per month. Now more than ever, I realized I needed to make significant changes in my life.

I cut my expenses significantly over the next year. I cut my rent expense for several months by moving in with friends who had an extra bedroom in their apartment. I traded in my leased Jeep Wrangler to purchase used late-model Honda Accord to cut my monthly transportation expenses. Although I know I could have done more, I made great strides in paying down my credit card debt. After a year, I have paid down 80% my half of the debt that I was assigned in the divorce. I plan to have the other 20% paid off by April, 2010.

Anyone who as successfully lost weight and kept it off will tell you that diets do not work; true results come from changes to your lifestyle and habits. The same applies to personal finance. Just as there is no special pill, grain, fruit, or vegetable that will cause you to lose weight and become healthier, there is no special loan, investment, bank account, or savings tip that will make you financially fit. Long-term weight loss results from eating less and being smarter about what you eat. Long-term financial health results spending less and being smarter about how you  spend your money.

As I finish paying off my credit credit card debt, begin building an emergency fund and investing savings, and begin taking a serious look at saving for retirement (beyond the 401k offered by my employer), I look forward to sharing with you what I learn hearing your thoughts and ideas.

The rate of inflation is a pretty important number.  In addition to being an indicator of whether things are getting more expensive or not, it is also used to judge the effectiveness of monetary policy, and to adjust the rate of payments for programs such as Social Security, military retirees and survivors, food stamp recipients, and a host of other programs.  The Consumer Price Index (CPI), which is the primary measure of inflation, affects payments in some way to almost 80 million people.  In other words, it’s a pretty important number.

To calculate the CPI, a complex formula is used to determine the price of certain products in several geographic areas.  This is where the games can be played, and where Cash For Clunkers comes in.  If a friend (or fellow taxpayer) gave you $100 to help buy a new TV, and you bought the TV for $500, what would you say was the price of the new TV?  Well, the number on the price tag was $500.  The guy who came into the store at the same time as you and bought an identical TV paid $500, the same as you did.  The fact that your friend gave you $100 did not lower the price of the TV.  However, in the latest release of the Consumer Price Index according to Bob Arnott (chairman of Research Affliates, LLC), if you were given $4500 from other taxpayers to help buy a new car as part of the Cash For Clunkers program, the $4500 was considered a price reduction of the car, making the car look cheaper and reducing the inflation number.

With the hundreds of billions of dollars being spent on stimulus, this type of game can be played for quite a while, but not forever.  A low inflation number helps GDP growth look better because GDP growth is measured relative to inflation.  However, at some point, the shifting of money has to slow down and the actual rate of inflation (and GDP growth) will show up.  Hopefully, actual growth will have kicked in by then, but this certainly seems like a potential problem in the not-too-distant future.

I’ve finally started my Christmas shopping!!!

I just bought a CPB for my nephew as a Christmas present.
He may not even be two yet but school is hella expensive now – just IMAGINE how much more its gonna be in 16 years *faints*.

Anyway I’d never heard of them before until recently and thought I’d share.

So whats a Canada Savings Bond (CSB)/Canada Premium Bond (CPB)?
The Canada Savings Bond/ Premium Bond is  a secure loan made to the GoC that they pay you interest on as well as repaying the principal on the maturity date. 

 CSB’s can be redeemed at any time during the year so if you buy one in November 2009 but need to cash it out April 2010, you can. They have a ten-year term of maturity with interest rates announced for shorter periods of time (a year) and remain in effect for the duration of that period.

CPB’s can only be redeemed each year on the anniversary of the issue date and 30 days after. So if you bought your bond November 1, 2009 you can only redeem it once a year from November 1 – 30. Because of this they have a higher interest rate (relative word considering today’s economy) that are announced for three years when issued and stay in effect for the entire three years. The interest rates can go up if the economy improves, but it won’t go lower than the fixed amount.

Both are available in regular and compound interest and can be bought for as little as $100 (i.e makes a good gift).

PS – They only go on sale once a year from about early October until April, so if you’re looking to buy any start researching now.

For more information visit the CSB site

FYI – This isn’t a paid post or anything of the sort. It’s just a new discovery I made that I wanted to pass along to the rest of my Canadian friends.

Have a great weekend everyone!

My colleague Alexis Jeffries and I had fun reporting a recent story called “Five Ways To Pump Up Your Income,” which ran in the December 2009 issue of MONEY.  Who couldn’t use some ideas right now on how to make more dough?

As Alexis recently blogged, many of the ideas we came up with didn’t make it into the final piece. But there’s an idea that did make it into the article — lending money to friends, families and strangers through so-called peer-to-peer networks — that had a surprising aspect that we didn’t cover in the piece. What we learned was this: People who lend money directly to others in need feel a sense of satisfaction that goes well beyond the interest they earn — or don’t earn — on the money they lend.

The idea behind sites like Prosper.com, Lending Club and Virgin Money is that peer-to-peer lending can be both financially and socially rewarding. The credit crunch has made it tougher for people to borrow money, and if you’ve got cash, you can lend it out for a higher rate than you’re getting in a bank account earning 0.5% or less today. Loans typically are capped at $25,000 and borrowers must meet certain minimum credit scores.

Now, there are some people who argue that the average returns you get on the money lent out are overstated.  And the SEC cracked down on the lending clubs last year, deeming their offerings investments that must be regulated by the SEC.  Since these sites have only been around a few years, it remains to be seen how the business model will hold up during these economically difficult times. But when I spoke to people who were actually lending money, I was surprised to hear how much satisfaction they got just from making the loans, even if the borrower defaulted on the loan.

One man I interviewed, a Chicago-area tech sales executive named Jack Reidy, lent $10,000 to 100 borrowers with varying credit scores starting in May 2008 (the loans have three-year terms).  Reidy was first attracted to the idea after reading an article in BusinessWeek about Prosper.  Fed up with his savings earning less than 1% at the bank, he decided to give it a whirl. “I like the idea of helping others in need,” he told me. Out of Reidy’s 100 loans, 75 are being repaid on schedule, 16 are paid off and nine are in default. “A lot of the people in the higher risk categories I gave money to are students,” he said. “I thought I’d be upset if someone didn’t pay, but I consider it a gift now.”  And how is he doing on his investment? He had hoped to earn 17% but he’s averaging 8%. “I went into this aiming for a higher return, but I’m averaging 8% on the money I invested,” he said. “That’s a lot better than what I was earning in my bank account, and I’m helping people. So I’m pretty happy.”

Not everyone is going to feel good about losing money, and this should only be done with money that you can afford to lose. But we’ve all lent money to family and friends without expecting to get the money back — and certainly without any interest. Which made me wonder: Just how many people out there who are lending money this way are feeling good about it and earning a good return?

Add More Money to your favorite RSS reader.  Subscribe at http://rss.cnn.com/moneyfeatures.rss.

Here’s the link.

On two counts – oil and gas moved my way, and I had 13 Scouts jammed into my living room for “German Night”.

Natural gas had a big day, moving up 40 cents.  The double-long ETF HNU was up 14.5% just todayand I sold a small amount – I have lots left if this is the start of another rally.  I held my nose and went more long crude oil by covering some of the double-long short ETF HOD and buying more of the long ETF HOU.  That worked out as well today, but I’ve got to tell you, I’m really bearish on oil (although that doesn’t necessarily mean I’m right).  I’ll be happier if we can get another profit or two out of the long side and then get more short.

I took a signal to buy DAG, the double-long agricultural commodities ETF, bulking up that position a little as well.

A couple of days ago my natural gas position was down 28%, today it’s down only 6.9%.  And I nicked my last and largest buy a dime off the bottom at $8.60.  I fortuitously piled in right at the bottom the last time around as well in September, and that had a lot to do with the robust recovery of the account.  Another rally like the September one and this gas trade, and the portfolio, will quickly become very profitable.   Now if I could only nick the tops.

As it stands the commodity ETF portfolio has held up very well through NG’s decline from $17 to $8.50.  I am extremely pleased with the adjustments I made to the program a while back, as it’s defensiveness has improved significantly.  If not for the algorithm mistake in the first month (started back in late June), that built up early losses, I’d be ahead by now.  I’ve been doing a lot of testing in the past couple of weeks, and my goal of successfully emulating a market-maker operation is within sight.  I have two main approaches, and variations of each are all very profitable in testing.  However one is a little less profitable but plays much better defence, and is therefore safer.  This is the current C-ETF program with a modified trade-sizing algorithm.  It can survive most of the huge declines like we saw in 2008 and early 2009, but not quite total implosions like the oil collapse of 2008 or the catastrophic losses on the more aggressive leveraged short ETFs.  Therefore diversification (and not starting the long side when oil is at $150 or gold at $1200) is still important.

The new system I’m just simply going to call PRES – Progressive REversal Scaling.  It systematically provides entry and exit set-ups and signals, and trade sizing.  It works best with more volatile stocks and ETFs, and the more sideways/range-bound the action the better.    But it still works with trending markets as long as there is some jiggle to them along the way.

“German Night” was fun.  It was at my house but hosted by Scout Alexander C, who lived in Berlin for a year before his family returned to Canada and he re-joined our troop again last year.  I cooked up some bratwursts on the barbecue that we then planted in mini-buns, to do it the German way, and Alexander’s mother Mary brought absolutely delicious home-made pretzels and potato salad.  Scouter Steve brought root beer (we can’t do the real thing with 11-13 year-olds) and collectively we scrounged enough beer steins to at least make it all look Bavarian.  I also put on some alpine/polka music for a while, and then a travel video on the region where the Mosul and Rhine rivers meet.  Alexander did a very concise and interesting presentation on the history of Germany, and brought all sorts of interesting artifacts and souvenirs, including million-mark notes of the great inflation of the 1920’s, Nazi Reichmarks, and pieces of the Berlin wall.   He even wore lederhosen, but these were apparently problematic in bathroom situations, and Alexander was pretty-much dancing back and forth as he was waiting for his mother to pick him up at the end of the night.

And until the next time …

Prosit!
Allocator
a.k.a. George Parkanyi

    The banter about Wall Street is about the market consolidation and why it is holding.  Even “The Economist” magazine has an article about the two possible outcomes; either inflation or a corporate earnings disappointing and a resulting market pullback.  Check out www.economist.com Buttonwood – Something’s gotta give.  Banks are no longer taking on debt.  They are buying short term and intermediate term government bonds which is maintaining demand and keeping rates very low.   Gold is almost at $1,200/ounce and looks to continue to increase in value.  Copper and Silver are also increasing as a diversification asset class out of dollars.  It’s just a matter of time.  More data will be coming in that will reinforce that the economic recovery is not what has been hoped for.  It will probably be after the end of the year when we see the market dip.  But, who knows…  Happy Thanksgiving.

Statistics

 

“I’m sorry. My Broker-in-Charge does not permit us to do lease options.  She said the percent of people that actually purchase is 8%.”  (Charlotte Realtor)

“Statistics are like a drunk with a lamppost: used more for support than illumination.”  (Winston Churchill)

Wow- 8%!  I still can’t get over that figure.  The things that come to the top of my head when I hear 8% are a:

• Lousy tip
• High sales tax rate
• Decent annual investment return

I began to wonder about where this 8% statistic could possibly be derived from and how accurate it could be.  The last time I checked, the National Association of Realtors doesn’t keep this statistic and I’m not sure how they could.  Non-licensed investors seem to do more of these which would take it out of NAR’s jurisdiction.  Home sales are public record and I’ve never seen them broken down into “Regular Sales” and “Lease Option Sales.”  The only person you need to tell that you want to exercise your option to purchase is the seller; then a normal closing occurs.  So I’m at a loss.  Did they take a representative sample?  Of whom and how did they find these people?  Most people don’t register the options at the courthouse.  Hmmm…  8%…

So I’m going to assume that this BIC was using this clumsily manufactured 8% statistic to support her firm’s wanting to sell homes and get the full sales commission right away.  She was not trying to illuminate the public about her doctoral thesis, “The Myth of Lease Options in the 21^st Century Post-Modern Era” where she painstakingly interviewed all home owners in the largest 20 cities in the United States.

I’m also going off the assumption that her point was that lease option deals don’t close often enough.  That I am most certainly going to agree with!  So the question is why.  It boils down to the lease option tenant either not wanting to pull the trigger and purchase or being unable to get financing.  It’s usually the latter.

To combat his, the top 5 things you can do to increase the odds of your lease option tenant buying the home they are renting are:

1. Make sure they have the ability to buy the home during their lease period!  Taking an option fee when the tenant has no reasonable way of purchasing during their rental is basically stealing!  This also makes a sale impossible.
2. Make sure the tenant has skin in the game by collecting a moderately sizeable option fee.  You can use your own discretion, but 1-5% usually works with a $3K floor. 
3. Entice the tenant to purchase by offering monthly rent credits (10-20% is sufficient).  This makes it so they are walking away from a good amount of cash if they choose not to buy.
4. Use some of the option money to pay for half of the credit repair.  Ask the tenant to pay the other half.  People only value things that they pay for.
5. Align yourself with a good mortgage or credit repair professional that is going to provide on-going credit and budget counseling to the tenant.

If you practice these 5 things, you may help push the national lease option closing average to 9%!

Brett Furniss is the President & Owner of BDF Realty, “Charlotte’s Most Innovative Property Management & Investment Company”specializing in rent-to-own (lease options) and rent-to-sell homes.  You can follow his Twitter thoughts on the Charlotte real estate market by clicking on http://Twitter.com/BDFRealty.  He is the author of the FREE E-Manual entitled “How to Rent-To-Sell Your Own Home” (http://www.RentToSell.com/RTS-Book.html) which details how to get the most potential buyers to your home in this challenging real estate market.

As I mentioned in a recent post, I just started investing in stocks again. I made two picks, based on my financial knowledge and personal interactions with the companies involved.

My first pick is BTC – Community Bankers Trust. This is a local bank that I’ve been a customer of since 2005. So I know them very well. Originally based only in my state, the bank took advantage of last year’s financial crisis to snag banks in Georgia and Maryland, becoming an interstate banking enterprise. The stock is cheap at $2.73. This factors in recent losses and loss allowances, but I still feel that BTC is a solid company. Recovery has started to show on its income statement, though commercial credit is a potential nasty spot in the near future. My understanding, however, is that BTC is more consumer-exposed than national banks or some other regionals in Georgia – which means the worst is passed. Add a 5% dividend yield to all of this, and BTC looked like a solid buy to me.

My second pick is PVX – Provident Energy Trust. Natural gas is North America’s most viable primary future energy source, and PVX is well-positioned to meet natural gas needs. With pipelines and storage facilities throughout key locations in Canada and the U.S., PVX looks like a well-managed company. Nat gas prices are down this year, but as demand picks up with an economic recovery, prices will also head up. One thing that caught my eye on PVX is the fact that it’s so well-diversified, operating in oil and gas extraction and production, midstream services, marketing, transportation, storage, and more. This stock’s got a long way to run. The current price is $6.43 and I think we can see $10 by fall 2010. Add to this a nice dividend yield of 10%, and I think PVX is another fantastic buy.

I should note that in both stocks, I participate in a DRIP (Dividend ReInvestment Plan), so that dividends paid to me (quarterly by BTC and monthly by PVX) are reinvested in additional shares of each stock. This is one way I’ll be able to grow my money with ever-increasing momentum, like I read in The Automatic Millionaire. Think compound interest – that’s what DRIP is akin to. And this is at a much higher rate (5% and 10% annually) than most bank savings or money market accounts (usually no more than 2-4%, in good times).

Another thing I might add is I’m in no way offering investment advice. While both of these stocks are, I believe, great investments for me — they may not be great investments for you. When choosing your investments, it’s important to consult with professionals (or at least research on your own) based on your tax needs, income needs, portfolio growth needs, risk tolerance, etc. In fact, nat gas has always been a risky bet due to previously wild price swings, so if your risk tolerance is very low that would rule out PVX right away. In a word, don’t hold me liable for any losses that might occur if you purchase either of these stocks!

Is Dubai’s debts serious? After going through the financial crisis of 2008, Dubai’s debts are “chicken feet”. Worst come to worst, banks just have to write off the loans.

The more probable case is that Abu Dhabi will help pay for Dubai’s “playboy” debts by extracting a pound of flesh. But will Dubai’s ruler make the necessary sacrifice?

The bull market case is still intact, investors or rather i call them speculators are just looking for an excuse to start a correction which is long due.

by Neil Shah and Chip Cummins (WSJ)

Dubai’s debt debacle is stoking a new fear for investors across the globe: potential government default by heavily indebted nations.

The Dubai government roiled markets this week with its move to delay debt payments owed by its flagship holding company, Dubai World. The company is stressed by tens of billions in debt that funded spending on glitzy real-estate projects from the Middle East to Las Vegas.

On Friday, investors feared Dubai’s move would plunge global financial markets into the kind of chaos seen earlier this year. But while Asia suffered heavy losses, markets regained their poise as the European and U.S. trading day progressed. By late Friday, European stocks finished 1.2% higher, while in the U.S., the Dow Jones Industrial Average closed down 154.48 points, or 1.5%, at 10309.92.

Deeper stress lines were felt in the sovereign-bond market, where the cost of insuring against defaults in places like Hungary, Turkey, Bulgaria, Brazil, Mexico and Russia rose, fueled by concerns that emerging-market nations may have trouble honoring their debts even as the economy heals. The worry is that sovereign debt may now represent another aftershock of the global financial crisis.

Dubai’s debt debacle is stoking a new fear for investors across the globe: potential government default by heavily indebted nations.

The Dubai government roiled markets this week with its move to delay debt payments owed by its flagship holding company, Dubai World. The company is stressed by tens of billions in debt that funded spending on glitzy real-estate projects from the Middle East to Las Vegas.

On Friday, investors feared Dubai’s move would plunge global financial markets into the kind of chaos seen earlier this year. But while Asia suffered heavy losses, markets regained their poise as the European and U.S. trading day progressed. By late Friday, European stocks finished 1.2% higher, while in the U.S., the Dow Jones Industrial Average closed down 154.48 points, or 1.5%, at 10309.92.

Deeper stress lines were felt in the sovereign-bond market, where the cost of insuring against defaults in places like Hungary, Turkey, Bulgaria, Brazil, Mexico and Russia rose, fueled by concerns that emerging-market nations may have trouble honoring their debts even as the economy heals. The worry is that sovereign debt may now represent another aftershock of the global financial crisis.

“First, people were worried about mortgage debtors. Then, highly leveraged banks. Now the ball has rolled all the way to Dubai,” says Mattias Westman, chief executive of Prosperity Capital Management, which has about $3.5 billion under management, almost all of it in Russia. “It’s just a lack of confidence in debtors.”

The price of a $3.5 billion sukuk, or Islamic bond, issued by a subsidiary of Dubai World, plunged to 57 cents on the dollar Friday from 110 cents on Wednesday, according to two investors.

Dubai’s troubles resonate far beyond the desert fantasyland that its borrowing created, fueling concerns that financially stretched nations like Greece and Hungary may struggle to pay off debts.

Investors and analysts say they’re worried about the health of Greece’s heavily indebted economy and banks, which could suffer as the European Central Bank moves to pull away some of its financial-support measures. These measures have included ultra-cheap bank funding.

The gap between the yield on a Greek government bond and relatively-safe German debt — a key gauge of market fear — jumped to a peak of 2.2% Friday, before falling slightly. When the pan-European Stoxx 600 index fell 3.3% on Thursday, Greece’s market fell twice that amount, over 6%.

Another window into the growing concern about government creditworthiness is the credit-derivatives market. Investors are now paying much higher prices to insure themselves against bond defaults in countries like Turkey and Bulgaria.

When Dubai announced its debt standstill on Wednesday, the cost of insuring against a Dubai debt default more than doubled. The cost of debt-default insurance also rose for a range of countries, including Hungary, Brazil, Mexico and Russia.

While the cost of debt insurance for stressed countries hasn’t hit levels seen at the height of the financial crisis, “the recent rises are altogether more sinister in our view, as they reflect genuine concerns about default within the euro-zone,” said Steven Barrow, a currency analyst at Standard Bank in London, in a note Friday.

Dubai itself demonstrates how quickly countries can veer off the road to recovery and into trouble.

Dubai’s surprise move to delay the debt payments of its corporate crown jewel, Dubai World, came just as many economic indicators, and anecdotal evidence, were pointing in a positive direction. Among the optimistic signs for the region: Oil prices have rebounded strongly this year after falling sharply during the global financial crisis. On Friday, oil sank 2.5% to $76.05 a barrel on the New York Mercantile Exchange as investors fretted over the impact of the Dubai debacle on the economic recovery, but that’s still up significantly from its lows earlier this year.

At the same time, though, years of lavish, debt-fueled empire building is now coming home to roost. For years, the city-state was the epicenter of a dizzying boom in the Persian Gulf. Its ambitions also extended abroad: to golf courses in Scotland and South Africa; the Barneys department store chain in New York; and real estate in Las Vegas, where in 2007 it joined up with casino company MGM Mirage to develop an $8.5 billion condo, hotel and retail colossus called CityCenter — just as the Vegas real-estate market reached its peak.

The oil-fired investment and spending binge culminated in 2008 when crude hit more than $140 a barrel. But by the time of Dubai’s biggest bash later that year — a $20-million hotel opening on a man-made palm-shaped island developed by Dubai World’s property subsidiary — the global financial crisis was already washing ashore.

Since then, it has been a steady slide toward Wednesday’s debt standstill. Squeezed by frozen credit, international property speculators bowed out of Dubai’s market. Prices started a year-long, steep descent. Government-controlled and private developers postponed or cancelled projects, shed workers and stopped paying bills.

According to the Association for Consultancy and Engineering, a trade group of British builders, Dubai entities owe as much as £200 million to British contractors alone.

Analysts expect Dubai’s core property market to take years to claw back to 2008 levels.

Even after hundreds of projects were cancelled or postponed this year, new construction is expected to double Dubai’s supply of office space by 2011, according to property consultancy Colliers International. In a sample study, the consultancy found office-occupancy rates in recently finished buildings at just 41%. At the end of the third quarter, prices of office space were down by 58% from a year ago.

Still, international bankers and executives had started pointing to anecdotal evidence of recovery before the standstill announcement. “You see ‘for rent’ signs on every building,” says Ziad Makhzoumi, chief financial officer of Arabtec Holding PJSC, one of the Mideast’s biggest construction companies. “But you don’t see them on every floor.”

  Thanksgiving is sadly long gone, but the turkey, stuffing, roast potatoes, veggies and cake and ice cream was definitely worth the massive cleanup after! I have a feeling that I am going to be taking bags of leftovers back to Boston, which will be good for my tummy and my wallet.

 It was my sisters surprise birthday party today. I took her with Granddad out to a shop to buy a board game and when she got home a bunch of her friends popped out of their hiding spots and scared the living daylights out of her. Of course this was followed by presents, pizza and cake!

 And tomorrow its one of my sisters friends bar mitzvah where more food and cake will be available… I cant wait!

 I think I might get into stocks and investing. I opend an account with a online brocarage (Ing Direct Share Builder), and I guess im just tesing the waters. I have no idea what to expect, how to go about investing but I want to get involved. After all it will help the economy right?

 Right??

When Warren Buffett announced that he was buying the railroad company Burlington Northern Sante Fe, he branded this move as “a bet on America’s future“.  Whether you believe this as the real reason behind the purchase or not, I definitely think he’s on to something.

My view is that when it comes to investing, I want to invest in a country where capital is free to move where markets demand it and where education, laws, and culture encourage original thinking and entrepreneurialism.  And a lot of this is simply cultural and takes generations to change.  Think about the Mediterranean culture in Greece and Spain.  If you were to pay a worker in one of those countries twice as much as they earn today, instead of continuing to work hard and earn more money, they’re more likely to work half as many hours.  It really is a great philosophy on life but it doesn’t help produce new technology, keep business lean, and create wealth.

America on the other hand, relatively speaking, is a country of eager and enterprising immigrants.  All the way from those who descended from the days of Christopher Columbus to the Korean’s and Indians that are coming over today. The people who immigrate to america today are looking for opportunity and have a burning urge to grow and create.  Even our education system encourages creative thinking from a young age rather than teaching wrote memorization like most other countries do.  Even though our education system could be improved and not all immigrants will turn into the next Bill Gates or Vinod Khosla, a few will and that’s enough to continue driving our culture of innovation, free markets, and improving standards of living.

This is the ideal land for investors.  In america (and Canada), you don’t have to fear the government creating laws that will prevent the return of your capital (the First Principle of investing).  Also, good businesses are ones that grow and create new and better products and stay lean with fat profit margins.  It is too easy for such a business to rest on it’s laurels when overly protect from competition or worse when run by the government.  When surrounded by competition, such an organization will be incented to continue improving.  This is where I want to be and this is definitely where I want to be putting my hard earned money.