The recent largess or Ben Bernanke, announcing his purchase of $50bn a month ongoing of government guaranteed mortgages probably has many worried about inflation coming ahead. It is certainly worth protecting against, but the liquidity simply isn’t turning into increased economic activity. Unemployment is still as bad as ever, with the employment to population ratios at 1980’s levels. The unemployment rate going to 8.1% is simply a massive shrinking of the labor force due to deceptive rules in its calculation. Earnings are also expected to be down this quarter from last year. The Fed is simply less effective at propping up the stock market with each QE announced.
The bigger story is still in Europe. For the last year and a half, the ECB became much more activist, against the will of the effectively sidelined Bundesbank. While the ECB has bought time, the economic situation on the European periphery has been nothing but awful with continuing GDP declines in Greece and Spain and even slowing in Germany. There simply hasn’t been a solution to the fundamental problems of the imbalance between Mediterranean Europe and the high productivity of the German core. Costs are merely rising with time and I firmly believe fixed income investments will be the way to go until the European situation is resolved – which will likely take years.
My favorite investments of the moment are:
1. EXC, a utility which just finished a bunch of mergers and is down due to acquired debt and acquisition costs so that it yields 5.9%. I believe their income from the acquired assets will start to be seen in the future and that the dividend is safe.
2. SDR, a royalty trust with a mix of oil and natural gas fields and a yield close to 10%. These royalty trusts have gotten hammered in past months after a WSJ article warning about declining fields and revenues that have a limited lifespan. With SDR though, it’s a new trust – about 6 months old, so it is still ramping up production and has decades of revenue to come.
Other income investments:
Energy sector: I also hold SDRL, BWP, KMP, ETP and CPNO because I like the yield plus commodity spike protection in the energy sector.
Preferreds: C-PG, HYK, NLY-PC, JPM-PI are some high yields I see as safe
Exchange traded debt: CEG-PA, MLG, PLP, PHR, APA-D
I also hold a significant amount of GLD because I believe gold will take on more characteristics of a currency as central banks remain active – the same GLD I held for 2 years or so really.
I’m going to cut short here – feel free to comment.
After finishing the first level CFA and completing the MBA program, I was disappointed by my lack of success getting interviews in the finance sector and worried about the prospects of competing against laid off workers from the finance industry’s consolidation. I didn’t bother with CFA level 2 and focused back on engineering work, which panned out well as I’ve started a promising career at Sachs Electric on the Automation side as a traveling project engineer (someday a travelling project manager). I’m currently doing a refinery upgrade project in east Chicago (30 min from downtown), and I’ve met up with the local USC Alumni chapter to watch the games.
I’m still reading Mauldin’s free newsletters, the WSJ, the economist, and countless articles from yahoo finance links – as well as books on investing and history (but I’ve gotten MUCH better at hiding that and being more successful socially).
I got tired of having no one to communicate with about the fascinating world of investment and decided to restart the blog … For now. No promises – my work hours are high and due to increase as the job progresses. I’m currently writing this on my iPad while watching the USC game!