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TIP OF THE WEEK - Avoid Bank Safe Deposit Boxes For Valuables

Avoid Bank Safe Deposit Boxes

Jason Brizic

August 17th, 2012

This story should concern you if you value your privacy and have a safe deposit box.

Your possessions such as precious metals and family heirlooms are not safe in a bank safe deposit box.

Bank officers can get into your safe deposit box for flimsy reasons.  They will also open your box if a government agent has some paperwork to open it.

Here is just one reason why you should avoid bank safe deposit boxes:

http://www.youtube.com/embed/ygG29W0DQno

For more tips, go here:

http://www.myhighdividendstocks.com/category/tip-of-the-week

Stay away from European Equities and Why.

MarketWatch commentator Charles Sizemore wrote an article that says that the German government’s actions are key to the future of the Euro and the Eurozone.  He’s right about that because Germany is the most solvent of the EU nations, but he has way too much faith that the German government will come to the rescue of the PIIGS (Portugal, Italy, Ireland, Greece, and Spain) governments.  My comments are in red.

http://www.marketwatch.com/story/heres-what-keeps-me-awake-at-night-2012-08-14?dist=countdown

Aug. 14, 2012, 12:01 a.m. EDT

Here's what keeps me awake at night

By Charles Sizemore

September 12, 2012. This is the date that may ultimately decide the fate of the euro zone.

It has nothing to do with Greece, Spain, Italy or any of the other problem children of Europe. No, it is Europe's stern school mistress Germany that holds the fate of the currency zone in the balance.

On Sept. 12, the eight justices of Germany's constitutional court will meet to decide the legality of the euro zone's rescue fund or, more accurately, the legality of Germany's participation in the bailout fund under the German constitution. Should Germany back out due a court veto, it's difficult to see the euro surviving the crisis of confidence that would follow.

The German government can’t afford to bail the PIIGS out forever.  The PIIGS have social welfare programs that are still growing.  There is no “real” austerity going on.  The PIIGS simply cut back on the rate of growth and call that “austerity”.  They will be back for more handouts.  The German Constitutional Court knows this.

Source: http://marginalrevolution.com/marginalrevolution/2012/05/how-savage-has-european-austerity-been.html

Americans are no strangers to debates over constitutionality. The 5-4 decision to uphold the Obama administration’s health care overhaul was one of the biggest headlines of 2012. But the German debates are a very different animal.

There are two competing clauses in the German constitution. One declares Germany to be "a democratic and federal state" with power determined "through elections and other votes."

This would seem to preclude Germany from granting control of its budget to an EU watchdog or obligating the German state to bail out euro zone neighbors; the judges have already questioned whether such transfers of sovereignty are permissible.

But then, the German constitution also calls for Germany to strive for a "united Europe," which would be presumed to include some degree of fiscal union. In effect, the fate of Europe depends on which clause of the German constitution the justices decide take precedence.

When clients ask me "what keeps you up at night," this is it. I fear that lack of German commitment could cause the entire European project to unravel.

This obviously doesn’t keep him up at night because he says later in this article that he is long European equities.  He’s so worried at night that he has an overweight allocation to European equities.

If the German court finds the bailouts unconstitutional, then Germany would have to amend or even rewrite its constitution in order to participate — which would require a referendum. And how likely does that sound?

The German voters will not support an amendment to their constitution that signs them up for a permanent bailout of the PIIGS.  Only the German politicians are eager to tax the German people for the money.

Even if a charismatic leader were to convince German voters that constitutional change is the right thing to do, these things take time, and time is a luxury that Europe doesn't have at the moment.

Now that I have sufficiently scared you, I should point out that I do not see the German constitutional court torpedoing the bailouts. They know what is at stake, and they don't want to be responsible for the death of the European project.

The German Constitutional Court knows what is at stake.  They know that the PIIGS will be back for more, and more, and more.  They know the Euro is in serious danger and  will likely die anyways, so why drag Germany down with it.  The court members have not staked their careers and legacy on the idea of the United States of Europe.

I am comfortable being invested in European equities, and Sizemore Capital has an overweight allocation to European equities in its Tactical ETF and Sizemore Investment Letter portfolios.

Charles Sizemore is a Keynesian investor and is going to lose a lot of money for himself and his clients if he believes that the Euro can be saved by Germany and the ECB printing press.  The Euro would have been saved already after 23 summit meetings if it could be.  There is no way to stop the PIIGS from defaulting if they don’t implement drastic government spending cuts.  Look at the voter backlash in Greece.  The voting population doesn’t want austerity.  The Greece voters want the free handouts from the northern European countries like Germany and Finland.  It can’t go on forever.

Still, investors have to consider the "what ifs" when they put capital at risk, and it makes sense to keep a little cash on the sidelines — just in case. It wouldn't be the first time that ideology trumped pragmatism in a high-profile court case.

A growing number of Greek citizens are putting their money in German banks so that it is out of the country if Greece exits the Euro.  Some are converting it to Bitcoins to escape a possible devaluation in the event that Greece leaves the Eurozone before Germany or Finland.

If we get a selloff in the days leading up to the court's decision, I would view it as a buying opportunity. But if the German court strikes down the bailout facility or attaches so many conditions as to make it unworkable, I recommend that investors consider selling all European equities and all but your highest-conviction core American positions as well. Because at that point, the probability of a full-blown meltdown on par with that of 2008 becomes uncomfortably high.

Let’s assume that the German court approves of the bailout facility and attached so few conditions to make it completely workable.  This will only slightly delay the day of reckoning for the Euro.  Again, the PIIGS have not changed any social welfare policies that go them into the unsustainable mess.  There is no real austerity (drastic government spending cuts).  So, they will be back for more bailouts, but the next time it will be time for the Germans and other northern Europeans turn to pay up.  What happens to the European stocks at that point in time?  They go down.  Why do they go down?  Because saved capital will be diverted from equities to taxation or the buying of PIIGS and European government bonds.

Stay away from European equities and Mr. Sizemore’s investments.

Disclosure: I own no equities at this time.

This commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities.

Disclosure: Mr. Sizemore is long European equities.

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First Look at Penn West Petroleum (PWE).

I used to own Penn West Energy (PWE) several years ago when it paid a monthly dividend.  Today I take a first look at PWE on this blog.  The dollar values are in Canadian dollars, but the exchange rate is 1 USD = 0.99499 CAD.  They are basically interchangeable at today’s exchange rates.  PWE is a high dividend stock, but it has some earnings and balance sheet problems that will be exacerbated by falling energy prices.  The price of oil and natural gas will drop when the world falls back into recession due to the sovereign debts crisis.  To see how I can to these conclusions read on.

Penn West Petroleum (PWE)

Price: $14.19

Shares: 474.58 million

Market capitalization: $6.74 billion

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What does the company do to earn profits?  Penn West Petroleum Ltd., based in Calgary, Alberta, is an independent Canadian energy company focused on the exploration and production of oil and natural gas resources in nearly 6.5 million acres across Saskatchewan, Alberta, and British Columbia. At the end of 2011, the company reported proven reserves before royalties of 499 million barrels of oil equivalent. Daily production averaged about 163,000 barrels of oil equivalent in 2011, at a ratio of 63% oil/37% gas.

Morningstar’s take: Penn West seeks to develop oil and gas reserves in the relatively mature environment of the Western Canadian sedimentary basin. Management's strategy is two-pronged: Develop additional reserves in existing producing zones through horizontal drilling and enhanced recovery efforts, and perform exploratory drilling to add new reserves. Exploration efforts are concentrated in light and medium oil plays, as Penn West seeks to increase oil in the production mix and take advantage of more the desirable oil pricing environment.

Bonds outstanding: none

Times bond interest earned: not applicable

Preferred stock: none.

DIVIDEND RECORD  Penn West Petroleum (PWE) paid a monthly dividend through 2010.  In 2011, they switched to quarterly dividends.  But, they also cut the dividend in 2009, 2010, and 2011.  Here are the annual dividend payments over the last few years.

Dividend: $0.27 quarterly ($1.08 annual dividend)

Dividend yield: 7.6% ($1.08 annual dividend / $14.19 share price)

Dividend payout ratio: 85.7% using earning power of $1.26 per share

EARNING POWER – $1.26 @ 474.58 million shares

(Earnings adjusted for changes in capitalization)

EPS

Net income

Shares

Adjusted EPS

2007

$0.73

$176 M

242 M

$0.37

2008

$3.22

$1,221 M

383 M

$2.57

2009

($0.35)

($144 M)

413 M

($0.30)

2010

$2.48

$1,110 M

452 M

$2.34

2011

$1.36

$638 M

467 M

$1.34

2012

474.58 M

Six year average adjusted earnings per share is $1.26

Consider contrarian buying below $10.08 (8 times average adjusted EPS)

Penn West Petroleum is currently trading at 11.3 times average adjusted EPS.  This stock is priced for value.

Consider value buying below $15.12 (12 times average adjusted EPS)

Consider speculative selling above $25.20 (20 times average adjusted EPS)

BALANCE SHEET – The company’s lack of current assets and cash compared to current liabilities shows its financial weakness

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Book value per share: $19.10 ($9.067 B equity / 474.58 M shares)

Price to book value ratio: 0.74 (under 1.0 is good)

Tangible book value: $14.78 (equity - $2.02 B in intangibles / 474.58 M shares)

Price to tangible book value ratio: 0.96 (under 1.0 is really good)

Current ratio: 0.50 (over 2.0 is good) ($675 M current assets / $1.333 B current liabilities)

Quick ratio:  no cash so N/A (over 1.0 is good) 0.36 according to Morningstar.com.  They probably used the receivables as a substitute of cash.

Debt to equity ratio: 0.38 (lower is better)

Percent of total assets:

            Real assets (property, plant, and equipment) – 79.27%

            Current assets – 4.3%

            Intangibles – 12.86%

            Other long term assets – 3.57%

CONCLUSION – Penn West Petroleum is currently a high dividend stock, but its dividend is not entirely safe.  The company reported disappointing 2nd quarter 2012 earnings. 

http://www.nasdaq.com/article/penn-west-quarterly-profit-declines-on-lower-prices-cuts-outlook---update-20120810-00378

Oil and natural gas prices have been down and will go down further when the worldwide recession worsens.  It is a value stock by common measures trading at only 11.3 times average adjusted earnings, but I think you’ll be able to buy it below $10.00 per share when the recession hits in 2013-2014.  I don’t like the weak current ratio and quick ratio.  That makes the balance sheet weak in my opinion.  Put this one on your watch list for under $10.00.

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DISCLOSURE – I don’t own Penn West Petroleum (PWE).

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Watch Milton Friedman Put a Young Marxist Michael Moore in his place

Milton Friedman was not a libertarian, but he believed in the free market a hell a lot more than today’s so-called conservatives.  Friedman advocated income tax withholding.  Government spending grows out of control when taxes are withheld from individual’s paychecks.

Watch Friedman totally destroy a young Michael Moore’s illogic in this short video.

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Dilbert Visits His Chase Branch Office

Dilbert deposits some money at a JP Morgan Chase branch office.

Image001

He should be pulling out $300 cash per week out of ATMs or the banks vault.

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Why the US Government Is Going Bankrupt

http://www.youtube.com/embed/mSYy3ZYOfgQ

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Reader's Choice on the Next Stocks to Analyze

I’m looking for some stocks that the readers of this website want to hear about the most.

What high dividend stocks would you like me to write about?  Scroll down to the Contact Us link on the bottom left side and send me your requests.

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Austerity is not Discretionary

This is the most important article from a high level Washington insider in years.  David Stockman is the former Reagan Budget Director and Congressman.  He resigned because the congress refused to cut spending and Reagan went along with them.  Here is the wikipedia entry on him http://en.wikipedia.org/wiki/David_Stockman.  He discusses the future of the US economy in terms of the coming US sovereign debt crisis.  The Keynesians have created the mess and they will not get us out of it using the same failed methods.  Ignore the implications of this interview at your own peril.

http://www.caseyresearch.com/cdd/david-stockman-austerity-not-discretionary

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TIP OF THE WEEK: An Open Letter to Warren Buffett

Warren Buffett is a genius investor but an economic ignoramus.  He has been paraded around by statists in government for his willingness to be taxed more.

This is a excellent article on why Warren Buffett should stop acting like a guilt ridden billionaire who wants the government to raise taxes on everyone.  It explains in very clear terms why Marx’s exploitation theory is complete wrong and why capitalism has improved all individuals standards of living.

http://mises.org/daily/6134/An-Open-Letter-to-Warren-Buffett

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The Soveriegn Debt Crisis in Europe and What It Means to Your Investments.

European Union bureaucrats are fessing up that the Greek government still can’t pay its bills.

http://www.marketwatch.com/story/us-stocks-fall-on-greece-debt-restructure-news-2012-07-24

This news tanked markets in the US.  Anyone who is surprised by this news has not been paying attention to the sovereign debt crisis in Europe.  This crisis is going to get worse when Greece gets bailed out for a second or third time.  Portugal, Italy, and Spain will be back for more bailouts of their own.  Where will the money come from.  The European Central Bank will print Euros.  The money will go to the Northern European banks who will be scared to lend it, so they will buy more bad debt of the PIIGS.

I would stay out of the stock market until this sovereign debt crisis has run its course.  You will know it is over when stock prices drop 40% - 60% from their May 2012 highs of about 13,000 on the Dow Jones Industrial Average.  Well run companies with fat dividend yields and decent balance sheets like Safe Bulkers (SB) can have their stock price cut from $6.00 per share down to $2.50 per share like in 2008-2009.  Safe Bulkers fell precipitously from its 2008 IPO price of $19.00 per share down to about $2.50 at the height of the financial crisis.

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I’m spending my time during the sovereign debt crisis analyzing stocks to find the best ones to buy in the aftermath and at what price.  This crisis will take a long time to unravel.

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