January 28, 2013
- Whither expatriation? Curious numbers behind the Tina Turner headline
- The Fed’s $3 trillion balance sheet… and a host of QE beneficiaries stretching from emerging markets to the local RV lot
- Chris Mayer on one yardstick you must apply to every potential stock pick… and new evidence of how well it works
- Profit opportunities in Chinese smog… updating our “where are they now” file… squatting in style… and more!
Moments after we hit the “send” button on Friday came word of a new celebrity expatriate.
“I’m very happy in Switzerland and I feel at home here,” Tina Turner tells the Swiss media. “I cannot imagine a better place to live.” Indeed, she’s lived there since 1995, following her longtime beau.
She’s already passed a civics test and interview. “Tina Turner will therefore also give back her U.S. citizenship,” says spokeswoman Karin Rhomberg. As is now customary in these circumstances, no one’s saying a word about whether taxes figure into the motive.
Only days from now, we should learn how many U.S. citizens expatriated during 2012. Through Sept. 30, the total for the year was 884. Looks as if 2012 will fall short of last year’s 1,781 — ending a steady four-year rise in the number.
For the record, the Federal Reserve’s balance sheet has hit $3 trillion.
No surprise with the launch of QE3 in September, and QE4 in December… but according to the Fed’s latest weekly report, the threshold was breached as of last Wednesday.
Fed liabilities stand at $2.994 trillion. Throw in gold holdings, plus dollar bills and coins in circulation, and that brings the total to $3.055 trillion.
Of that total, more than half — $1.697 trillion — sits in U.S. Treasuries. The Fed has scooped up $1.22 trillion in Treasuries over the last four years — 23% of total Treasury issuance during that span.
The Fed’s balance sheet is now leveraged 55:1. By way of comparison, 30:1 was all it took to collapse Lehman Bros…. Heh.
That said, QE has accomplished one thing with certainty: “It has helped keep longer-term maturity yields from heading significantly higher,” says our income specialist Neil George, “despite the heavy supplies being generated by the Treasury as well as the discussions up on Capitol Hill over the debt ceiling.
“As a result, there is a nervousness out there, which so far over the trailing three months has seen some backup in Treasury yields…”
And what if it continues? “If we do see the further backup and selling of Treasuries, for us it would signal that the market is beginning to edge out of the parking lot of U.S. Treasuries for more risk and more yield offered in other segments of the bond and other markets.”
What would benefit? Corporate bonds, mortgage securities, emerging-market bonds… and dividend paying stocks.
Look hard enough and you find all sorts of odd beneficiaries of QE. Like recreational vehicles.
“Ben Bernanke and company have fought hard to encourage Americans to ‘spend their way into prosperity,’” says Greg Guenthner. “In doing so, they’ve lowered the price tag of RV ownership a whole lot for consumers. With plenty of capital sitting around on the sidelines and banks clamoring for ways to deploy it, RV loans are becoming as easy to obtain as they were before the recession.
“Of course, for cheap money to matter, someone needs to want to borrow it. And consumers’ spending habits are the second factor blowing a tail wind on RV sales right now. Despite what may feel like a tepid recovery, consumers are comfortable enough to start throwing cash at recreation again, and it shows in the numbers. Personal consumption of recreational goods and vehicles has been climbing steadily for the past several years.”
Greg’s pick in the sector is up 15% in only three months. There are worse ways to make hay from Fed madness.
Stocks are flat this morning after last week’s nearly non-stop ramp up. The S&P 500 is a hair below 1500.
The “further backup and selling of Treasuries” Neil spoke of moments ago is proceeding apace. The yield on the 10-year popped above 2% briefly this morning – the first time that’s happened since last April.
After a sell-off Friday, precious metals are losing more ground. Gold sits at $1,656; silver has given up $31.
“The giant city of Beijing is lost in a thick ‘pea soup’ of smog that reduces visibility to just a few feet in many instances. Traffic accidents are increasing, because drivers can’t see where they’re going. Beijing’s nearly new, world-class airport is delaying flights due to low visibility from pollution.
What was that song? “On a clear day…”
“Most of the really bad material in China’s air comes from uncontrolled diesel exhaust. This exhaust spews from the tailpipes of literally millions of trucks and other diesel vehicles that ply China’s roads, as well as innumerable electrical generators that back up China’s unreliable power grid.”
Few of those engines and generators have the pollution-control devices Westerners now take for granted. Little wonder, at a cost of $3,200 to outfit one big truck. In a still-developing country, that’s a lot.
“What’s the key part of that $3,200 ‘extra’ price for emission control?” says Byron. “It’s the catalytic converter. In particular, it’s the cost of platinum and/or palladium metal that catalyzes the chemical reactions that dramatically reduce exhaust emissions.
“China has reached its pollution tipping point. The Chinese are going to have to do something before they choke to death.” That “something,” Byron reckons, will be good for platinum and palladium.
“When you begin to research a company, I suggest you start with the proxy statement,” says Chris Mayer.
“If management and the board of directors have no meaningful stake in the company, move on to the next idea.” You might recognize this as the “O” in Chris’ CODE screen for stocks: Are there owner-operators with the proverbial skin in the game? “The more time that passes and the more gray hairs that seem to sprout from my head,” says Chris, “the more I think this is a really important idea for long-term investors.”
Recent reinforcement of this idea came with the tax increases at year-end 2012. “A firm called Markit studied 3,000 public companies. Of those, 225 companies paid special dividends in the fourth quarter of 2012.
“Here’s the fascinating part,” says Chris: “The average insider ownership of those 225 companies was 25%. Aha! This makes sense. I mean, if you are a bigwig CEO, but not much of a shareholder, what do you care about taxes for your shareholders? But if you are a big shareholder, you say, ‘Wait a minute. Why wait? I should pay now and avoid this big tax increase coming.’”
Bottom line: “Owners are more likely to be tax-efficient.”
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“We’ll keep you updated,” we promised five years ago today about a bold venture to build the world’s longest highway tunnel… with only private money. OK, better late than never…
The idea was to dig beneath Long Island Sound to connect Syosset to Rye, N.Y. — a 16-mile stretch. The current land route runs nearly 40.
As of April 2011, developer Vince Polimeni was still raring to go. “We’re for real,” he told Newsday.
His firm’s website has a red banner: “The Cross Sound Link: Click here to learn more about this exciting new project.” Clicking on it, we find, crosssoundlink.com is “currently under construction.” Which is more than we can say about the tunnel.
We’re still pulling for Polimeni: He’s put $3 million of his own money into studies. A fully privately funded tunnel would be a welcome respite from crony-capitalist “privatization” deals like the 75-year lease of Chicago’s parking meters. (Rates just went up for the fifth straight year.)
“Andre Barbosa is squatting in style,” reports South Florida’s Sun-Sentinel.
Barbosa, a young Brazilian national who refers to himself as “Loki Boy,” the paper presumes after the Norse god of mischief, moved into his new home using an ambiguous Florida law to stake claim on a multimillion-dollar foreclosed property.
According to the 23-year-old, he is now a “living beneficiary to the Divine Estate being superior of commerce and usury” to a $2.5 million mansion in an upper-crust Boca Raton neighborhood.
At least that’s what his note says on the front window.
And according to Florida real estate lawyer Gary Singer, he is. Apparently, “Barbosa is invoking a state law called ‘adverse possession,’ which allows someone to move into a property — if they can stay there seven years,” writes the Sun-Sentinel.
This is true only as long as the occupier lives on the property in an “open and notorious manner,” Singer says. “They can’t be boarding up the windows and hiding in there.”
Barbosa’s new neighbors aren’t amused: “We’re all going crazy, trying to figure out what to do,” next door neighbor Lyn Houston tells the paper. “It’s unbelievable that it can be done. Plus, if they’ve got the balls to break in the house, what’s to prevent them from coming over here?
“Is the whole neighborhood up for grabs?”
Although the past decade saw very few people invoking the rule, 32 cases of adverse possession have been filed in roughly the last two years.
Usually, Singer explained, the real owner will file a lawsuit and have the squatter evicted.
“But hey, if you’re going to do this, you might as well go big.”
“There is no public outcry” over the lack of Wall Street prosecutions, a reader writes on an ongoing thread, “for the same reason that there is no public outcry over the debt growing another 70% under Obama. No one will care until they realize that it affects them personally.
“People don’t even seem to realize that prices have been climbing, and packaging has been getting smaller for five or six years now. And they certainly don’t feel that the frauds on Wall Street affect them in any way. By the time they get interested, the damage will have been done and they’ll clamor for the government to enact more legislation — keeping Congress happy for years. Based on the student loan craze, and the thousands of colleges (most of whom you’ve never heard of before) advertising on TV, at least we’re becoming the most-educated dummies on the planet.”
“While I agree that part of the problem is apathy,” writes another, “I believe a major obstacle is that for those who are concerned, there is no clear way to aggregate the concerns and express them en masse.
“Moreover, to whom would they be expressed? To the very officials who are perpetuating and covering up the problems? Who could even be trusted to have sufficient integrity to lead such an effort? Remember, power corrupts. I have posed this question a few times to those who are writing about these issues, but I have yet to see any approach suggested.”
“I have pondered this question for quite some time,” writes a third. “I have come to a couple of different conclusions.
“The more generous possibility is that the majority of the American public fall into the categories of lower-middle class, middle class and higher, and we all have pretty good lives. Daily, we go to work, spend time with friends and family, eat well, drink good wine and commune with our pets. There’s nothing so bad going on in our daily lives to drive us out into the streets to protest. I have to go to work — I can’t be occupying Wall Street! And there’s a perception that there’s more to be lost (I get arrested, go to jail, lose my job, etc., etc.) than to be gained (to the point of your article, not much).
“The less generous possibility is the ‘bread and circuses’ theory. The American public spends their time watching reality TV and drinking Coors Lite and do not know or care what’s going on with their government. They can’t be bothered.
“Or maybe these two possibilities are one and the same. Either way, it’s disheartening to see our government sliding down the slippery slope of corruption and graft right in front of our eyes. And no one seems to notice!
“I love The 5 and look forward to it every day. You’ve opened my eyes to so many things. Otherwise, I would be one of those people I’m making fun of above!”
“I am glad Mr. Cox clarified his stance on immortality…” writes one of our regulars.
“…simply because, as a Chicago Cubs fan, that is about how long I am going to have to wait for them to win the World Series. Or, for that matter, to pay off Obama’s debt.
“Hopefully, the ‘God switch’ will get me at least a quarter of the way there to the next Cubs’ pennant.”
“I learned about telomerase and the potential for nonaging cells when I was an undergrad in molecular biology 15 years ago,” writes another reader. “I’ve been waiting for science to unlock this potential ever since. How exciting to learn that it is getting closer.
“I look forward to the days of beating my great-great-great-great-great-great grandson at a game of 1-on-1 basketball. Think of the knowledge, wisdom and experience one could accumulate in a life that long.
“My only concern is that men’s ears never stop growing throughout their lives. Hopefully, I’ll be mature enough at age 300 to not be self-conscious about the sails on the side of my head.”
The 5: If genetic science can activate the God Switch, surely it can figure out a way to arrest auricular growth, no?
The 5 Min. Forecast
P.S. One of the most attractive things about the company perfecting the God Switch is that it has seven subsidiaries working on everything from cancer diagnostics to orthopedic therapy to a comprehensive online directory of genetic data.
“If its many subsidiaries were not part of one company, every one of them would be in the portfolio,” says Patrick Cox. Think of it as a concentrated and carefully well-chosen biotech mutual fund. Details of its many potentially profitable breakthroughs at this link.