My High Dividend Stocks Blog

My High Dividend Stocks
This is my high dividend stocks site where I help site members find high dividend stocks with earning power and strong balance sheets.

This Emperor Has No Clothes And We Can See Him.

Read this short article on a very important emperor with no clothes. http://www.lewrockwell.com/murphy/murphy177.html

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US Inflation Worse than Zimbabwe?

03/17/11 Baltimore, Maryland – If you live in the United States, your cost of living – even by official stats – is rising twice as fast as in Zimbabwe.

$100 Trillion Zimbabwe Note

Yes, Zimbabwe…the country where at its worst $100 trillion is worth about 30 of the US variety…and good for four loaves of bread.

Yesterday, the Zimbabwe National Statistical Agency announced that consumer prices slowed last month to an annualized 3%.

But this morning, here in the good ol’ USA, the Bureau of Labor Statistics (BLS) announced the US consumer price index (CPI) rose 0.5% last month – which works out to a 6% annual clip.

Congratulations.

Of course, most of the increase in CPI was driven by higher energy costs and, to a lesser extent, higher food costs. So for Washington policy wonks and central bank honchos alike, the rise in prices doesn’t count.

Food and energy costs are “volatile” and not reflective of “underlying trends” as detected by such farseeing folk:

  • Gasoline up 4.7% (56% annualized)? Doesn’t matter
  • Public transit up 1.9% (23% annualized)? Statistical noise
  • Food consumed at home up 0.8% (10% annualized)? What part of “volatile” don’t you understand?

Thus the “core” CPI, for people who only eat iPads, rose a scant 0.2%. That’s an annualized 1.2%, on the low end of the Fed’s inflationary sweet spot. Print away.

Addison Wiggin
for The Daily Reckoning

Read more: US Inflation Worse than Zimbabwe? http://dailyreckoning.com/us-inflation-worse-than-zimbabwe/#ixzz1GvAMSdwl

A Suggested Basis of Maximum Appraisal for Investment.

Stay away from purchases of all these high dividend stocks yielding over 6% and a P/E ratio above 20 listed in the table below.  The following excerpt is straight out of Security Analysis 2nd Ed. Pg 537-538.  Please read this 71 year old wisdom and then examine the table of high dividend stocks that you should avoid for investment right now.

* * * * * * *

The investor in common stocks, equally with the speculator, is dependent on future rather than past earnings.  His fundamental basis of appraisal must be an intelligent and conservative estimate of the future earning power.  But his measure of future earnings can be conservative only if it is limited by actual performance oer a period of time.  We have suggested, however, that the profits of the most recent year, taken singly, might be accepted as the gage of future earnings, if (1) general business conditions in that year were not exceptionally good, (2) the company has shown an upward trend of earnings for some years past and (3) the investor’s study of the industry gives him confidence in its continued growth.  In a very exceptional case, the investor may be justified in counting on higher earnings in the future than at any time in the past.  This might follow from developments involving a patent or the discovery of new ore in a mine or some similar specific and significant occurrence.  But in most instances he will derive the investment value of a common stock from the average earnings of a period between five and ten years.  This does not mean that all common stocks with the same average earnings should have the same value.  The common stock investor (i.e., the conservative buyer) will properly accord a more liberal valuation to those issues which have current earnings above the average or which may reasonably be considered to possess better than average prospects or an inherently stable earning power.  But it is the essence of our viewpoint that some moderate upper limit must in every case be placed on the multiplier in order to stay within the bounds of conservative valuation.  We would suggest that about 20 times average earnings is as high a price as can be paid in an investment purchase of common stock.

Although this rule is of necessity arbitrary in its nature, it is not entirely so.  Investment presupposes demonstrable value, and the typical common stock’s value can be demonstrated only by means of an established, i.e., an average, earning power.  But it is difficult to see how average earnings of less than 5% upon the market price could ever be considered as vindicating that price.  Clearly such a price-earnings ratio could not provide that margin of safety which we have associated with the investor’s position.  It might be accepted by a purchaser in the expectation that future earnings will be larger than in the past.  But in the original and most useful sense of the term such a basis of valuation is speculative.  It falls outside the purview of common-stock investment.

* * * * * * *

The list below only considers stocks with a current P/E of 20 and above.  Determining average earnings over a five year period require a lot of work.  But stay away from purchases of all these high dividend stocks yielding over 6% and a P/E ratio above 20:

Company name

Symbol

 Market cap

 P/E ratio

Image001
 Div yield (%)

 52w price change (%)

 

Alon Holdings Blue Square Israel Ltd  

BSI

446.92M

25.49

37.14

-20.40

Teekay Tankers Ltd.  

TNK

504.27M

26.27

12.81

-14.49

ING Global Equity Divid.&Premium Opp-ETF  

IGD

1.02B

24.71

11.19

-14.17

Cheniere Energy Partners, LP  

CQP

2.86B

27.11

9.88

14.21

Fifth Street Finance Corp.  

FSC

710.26M

21.60

9.79

8.65

Frontier Communications Corp  

FTR

7.90B

24.87

9.53

4.93

Vector Group Ltd.  

VGR

1.22B

23.86

9.36

15.32

Apollo Investment Corp.  

AINV

2.18B

40.07

9.29

-3.68

Calumet Specialty Products Partners, LP  

CLMT

714.42M

43.75

9.09

-2.04

Encore Energy Partners LP  

ENP

1.02B

31.91

9.02

8.73

DHT Holdings Inc  

DHT

223.08M

35.04

8.93

7.95

Otelco, Inc. (USA)  

OTT

244.07M

362.03

8.83

18.24

StoneMor Partners LP  

STON

466.96M

22.41

8.73

23.72

H&Q Life Sciences Investors  

HQL

246.16M

23.07

8.73

12.35

America First Tax Exempt Investors, LP  

ATAX

171.40M

67.39

8.68

-1.87

Gladstone Commercial Corporation  

GOOD

172.48M

188.29

8.27

25.55

Hercules Technology Growth Capital Inc  

HTGC

454.86M

97.56

8.18

4.98

BreitBurn Energy Partners LP  

BBEP

1.21B

33.89

8.01

35.73

Martin Midstream Partners LP  

MMLP

792.46M

60.84

7.77

24.03

CommonWealth REIT  

CWH

1.76B

56.21

7.74

-14.81

Baltic Trading Ltd  

BALT

197.35M

23.34

7.58

-36.74

Penn Virginia Resource Partners LP  

PVR

1.33B

30.80

7.51

4.55

Monmouth RE Inv. Corp.  

MNR

276.32M

23.55

7.43

2.15

Enerplus Corp (USA)  

ERF

5.35B

41.16

7.24

30.42

Vanguard Natural Resources, LLC  

VNR

934.10M

25.01

7.24

27.48

Medical Properties Trust, Inc.  

MPW

1.21B

97.43

6.97

3.80

Legacy Reserves LP  

LGCY

1.31B

42.30

6.91

33.96

Agree Realty Corporation  

ADC

224.46M

23.55

US Treasury Bond Interest Rates: Nowhere to Go But Up

I’m feeling under the weather today, so please enjoy this funny commentary from the Mogambo Guru.

I do want to say one quick thing.  SafeBulkers Inc. (SB) is getting pummeled today at a loss of 4.33%.  It opened at $8.70/share and is down to $8.40/share.  This is one of the best dividend stocks.  I would be an excellent buy below $7.50.  I’m not aware of any exposure to the Japanese earthquake/nuclear crisis.  I will keep monitoring.

Disclosure: I don’t own SafeBulkers (SB) right now.

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Mar 14, 2011

from The Daily Reckoning

Charts from contraryinvestor.com show that, as of right now, there is going to be almost $1.8 trillion in US Treasury debt maturing this year, and all of it will need to be “rolled over” by issuing new debt.

Perhaps it is also instructive that they also note that “Just shy of 50% of UST debt ‘rolls’ within three years.”

What this means, in practical terms, of course, is that We’re Freaking Doomed (WFD). “Why?” you ask. “Because,” I helpfully explain, “rising rates of inflation mean higher rates of interest that borrowers, especially deadbeat bankrupted governments, must pay when they try to rollover such massive amounts of debt!”

And what were interest rates three years ago when half of all Treasury debt, now rolling over, was first issued? I don’t know exactly, but the graph of “US Treasury Bond Interest Rate History” at observationsandnotes.blogspot.com shows that interest rates were higher in 2008, and lower now in the range economists call “squat,” meaning that rates have nowhere to go but up.

Well, perhaps you would be interested to know that the interest rate on these bonds is lower than at any time since the ’50s, and is just inches away from the all-time, record-low of 2% set in 1940.

Or perhaps you would be staggered, clutching your heart and screaming, “Nooooooo!” when you learn that the average interest rate over the years was somewhere just under 6% ever since the low of 2% set in 1940, which means that interest rates would have to double – double! – from here just to get back to the average interest rate paid on bonds since 1971!

And why was 1971 the big inflection point where interest rates went nuts? Because that was when volatility in interest rates really started Going Freaking Nuts (GFN) because, not by coincidence, Nixon severed the last threads of connection between the dollar and gold.

And there is a personal reason, too for picking that date. Before 1971, I was a fresh-faced kid, his whole bright future ahead of him, but who decided to make one idiotic, disastrous decision after another until I ended up here, decades later, a bitter little man wearing a bullet-proof vest and a tinfoil hat, hiding in the closet under the stairs and typing out hate-mail to the Federal Reserve (“Dear Federal Reserve morons, I hate you! Signed, Hateful in Florida”) and the Congress (“Dear Congress morons, I hate you! Signed, Hateful in Florida”).

And even before that, back to 1900, interest rates were low, and swings in interest rates were much more muted, too, because the dollar was mostly on the gold standard, which are two of the beauties of the gold standard, as we are seeing by just standing up and going over and looking out at a world on the verge of panic and ruination thanks to the Federal Reserve creating So Freaking Much Money (SFMM) for So Freaking Long (SFL).

And when the people of the world do panic, they will run to gold and silver, and their prices will soar, making this investing stuff so easy that you just gotta say, with every bit of earnestness you can muster, “Whee!”

The Mogambo Guru
for The Daily Reckoning

Time For a PE Ratio History Lesson.

The S&P 500 index has had quite a run since its March 2009 bottom.  It hit bottom at 666 points on March 9th, 2009 and has powered 94.5% higher to 1,249 today.

http://bit.ly/SP5003yrs

I think it’s time to reexamine the S&P 500 PE ratio.  Are we closer to a market top or a market bottom?  The price to earnings ratio for the S&P 500 is currently 18 (http://www.decisionpoint.com/tac/Swenlin.html ).  It has been around or above 20 since 2003.  I don’t think that the market is anywhere near the value level.

Time for a little price to earnings ratio history lesson.  The following excerpt comes from the book Security Analysis (2nd Edition) pg. 536 and it is enlightening 71 years later.

* * * * * * *

In previous chapters various references have been made to Wall Street’s ideas on the relation of earnings to values.  A given common stock is generally considered to be worth a certain number of times its current earnings.  This number of times, or multiplier, depends partly on the prevailing psychology and partly on the nature and record of the enterprise.  Prior to the 1927-1929 bull market ten times earnings was the accepted standard of measurement.  More accurately speaking, it was the common point of departure for valuing common stocks, so that an issue would have to be considered exceptionally desirable to justify a higher ratio, and conversely.

            Beginning about 1927 the ten-times-earnings standard was superseded by a rather confusing set of new yardsticks.  On the one hand, there was a tendency to value common stocks in general more liberally than before.  This was summarized in a famous dictum of a financial leader implying that good stocks were worth fifteen times their earnings.1  There was also the tendency to make more sweeping distinctions in the valuations of different kinds of common stocks.  Companies in especially favored groups, e.g., public utilities and chain stores, in 1928-1929, sold at a very high multiple of current earnings, say, twenty-five to forty times.  This was true also of the “blue chip” issues, which comprised leading units in miscellaneous fields.  As pointed out before, these generous valuations were based upon the assumed continuance of the upward trend shown over a longer or shorter period in the past.  Subsequent to 1932 there developed a tendency for prices to rule higher in relation to earnings because of the sharp drop in long-term interest rates.

* * * * * * *

This chart confirms that there has been a change in investor valuation of common stocks over the years.  The bottoms of S&P 500 has been rising.  Too bad the chart cuts off in 2003.

Image001

  How low did the S&P 500 P/E ratio fall to during the Panic of 2008-2009?

It didn’t fall during the panic.  On the contrary, it skyrocketed because earnings were falling faster than stock prices.    It has settled in the 18-20 PE range since the end of 2009.  Dividend yields tend to be highest at market bottoms.  The last time the S&P 500 yielded over 6% was in 1982.  We are closer to the top of the market than the bottom.  If you are in the market, then you should make plans to get out before the next financial crisis.

Current price to earnings ratios of stock mentioned often on this blog:

American Capital Agency Corp. (AGNC) – 4.00

SafeBulkers Inc. (SB) – 4.98

SeaDrill (SDRL) – 13.70

Terra Nitrogen (TNH) – 13.51

AGNC and SafeBulkers are high dividend stocks in the value zone, but only SafeBulkers has earning power and a strong balance sheet.

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(download)

Is Marc Faber’s Stock Market Correction Finally Coming Due? ((Marc Faber, stock market correction, Federal Reserve Policy))

Is Marc Faber’s Stock Market Correction Finally Coming Due?

Nearly five months have passed since Marc Faber’s prediction of a 10% correction in U.S stocks. It hasn’t happened. Will the month of March be the charm?

Speaking with Margaret Brennan on Bloomberg Television’s Oct. 26 edition of “InBusiness,” Marc Faber, dubbed Dr. Doom, said, “We are in the inflation trade again,” underscoring “a weak dollar, strong precious metal prices, strong equity prices especially in emerging markets and now in frontier markets, plus strong industrial commodities.”

“So, I think a correction is overdue,” he asserted.

Three months later, the pony-tailed, eclectic, Swiss hedge fund manager—who features a medieval-style 17th century plague painting by Kaspar Meglinger, titled Dance of Death, on his Web site’s home page—reiterated his call for a 10% correction in U.S. stocks on Jan. 25.

“A correction is coming,” Faber said in an interview from Zurich on Bloomberg Television’s “Street Smart.”

However, “equities in the U.S. will go down less than emerging markets,” he stressed.  Faber expects a much steeper correction of as much as 30% in an overseas equities, which he has frequently said is a “crowded” trade.

Six weeks since Faber’s Jan. 25 interview, U.S. equities still remain relatively resilient in the wake of spiking oil prices, continuing housing price declines, and lingering questions of the U.S. economy’s ability to create jobs and robust consumer spending again without help from a generous Fed.

The Wall Street adage “climbing a wall of worry” has crept into analysts’ repertoire of responses to media questions concerning the S&P500′s stubbornness to relent to the threat of an oil shock to an anemic (at best) U.S. recovery.

But evidence of a crack in the wall may have developed, supporting Faber thesis of an overdue correction about to become due.

The watch dog blog of everything financial, ZeroHedge.com, posted an observation by Credit Suisse on Mar. 8, which suggests the divergence between the gold price and the price of the economic bellwether base metal, copper, could be signaling a tidal shift toward a risk-off trade is around the corner.

“As Credit Suisse points out, today the Gold/Copper ratio is up by over 4% to 3.32, which happens to be the biggest one day move since June 29, and confirms that not only the copper run may be over, but that derisking and the flight to safety trade is truly back on,” writes the site’s blogger, Tyler Durden (screen name).

An hour later, Durden added another “did you know?” factoid about the normal correlation between crude and stocks moving too far away from the mean, fueling the Faber thesis of a risk-on trading herd maybe ready to finally flee the burning building.  “The last time WTI to Stocks hit a correlation of -0.5 is just after the market peaked in late 2007, early 2008, as the market had started its decline, which culminated with the global sell off of everything not nailed down, bringing the S&P to 666,” Durden reminded readers of what he wrote in a post of a week earlier.

“If Brent confirms the WTI correlation, it may be time to run,” he stressed.

Maybe the gold/copper ratio and oil/S&P500 correlation are indeed hinting where hot money flows of the day are headed—or maybe, unprecedented money creation from a well-coordinated but desperate Fed will just create more and more fat-tail curves for traders to trip over.

Richard Russell thinks the latter is true.

“Richard Russell made a remarkable confession earlier this week,” MarketWatch contributor Mark Hulbert wrote on Feb. 11.  “He [Russell] said that he finds the financial markets to be so inscrutable that trying to time them is close to futile.”

Faber, himself, in an Apr. 27, 2009 Bloomberg interview said, “Don’t underestimate the power of printing money,” arguing that if the Fed wants higher asset prices, it will create another bubble if enough money is printed.

“The more things will go bad, the worse things become, the more the money printer at the Fed Mr. Bernanke will print,” added Faber.  “He will print endlessly. Even if things go bad economically you could have no revenues at companies and no earnings and stocks will go up because of money printing.”

So if oil runs to $150—predicted NYU economist Nouriel Roubini from his Twitter account in February—and stocks continue to at least rest on the wall of worry before climbing higher, maybe Faber will be correct about the Fed’s ultimate response to a threat of another 2009 swan dive, but will be wrong about the direction of stocks—for now.

With the NY Fed’s Permanent Open Market Operations (POMO) on 24-hour duty injecting a minimum of $3 billion per day into accounts of 18 primary dealers, what’s to stop the NY Fed from raising the stakes indefinitely as Faber suggests?  Why not $10 billion per day injected into targeted markets?  How about 20 billion?  There’s nothing standing between a Bernanke Fed and its primary dealer network.

Read more: http://www.beaconequity.com/jwis-marc-fabers-stock-market-correction-finally-coming-due-2011-03-08/#ixzz1GYAahh4W 
 
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You Call It Inflation, I Call It Theft.

 This is an excellent article from Forbes by Bill Flax.  Tell your children the truth about inflation when they are ready to hear it.  Encourage them to save.  Saving is capital formation.  Teach them to be entreprenuers that serve customer's market needs and they will set for life.
 
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You Call It Inflation, I Call It Theft

Mar. 3 2011 - 5:05 pm | 5,977 views | 0 recommendations | 5 comments
IRS building on Constitution Avenue in Washing...

Image via Wikipedia

On my daughter’s birthday, she received a crisp new $5 bill, which she promptly deposited in her piggy-bank. Never foregoing an opportunity to expound on free market principles, I warned about her susceptibility to a subtle means of theft even more devious than a burglar breaking in at night against whom you might get a clear shot.

Usually, when she asks why it’s, “Because I told you so!” But for inflation, because Washington wills it, that explanation hardly suffices. And as often as economic prognosticators prescribe currency debasement as some miraculous panacea, her question is a good one. Why do we suffer inflation?

I searched online for “benefits of inflation.”

Inflation Spurs Growth – The theory goes something like this: Since savers realize the value of their money will erode, they spend more quickly thus stimulating the economy. If we believe tomorrow brings higher prices, we buy today. Basically, we spend before the monetary authorities steal our money’s value. Hmm.

The proponents of consumption-based stimuli overlook the essentiality of saving. While burying your money in the ground wastes its talents, most save via bank accounts or through the purchase of capital assets. Thus saving makes investment capital available for new businesses hiring new workers and creating new products that sustain and beautify life. The accumulation of capital drives growth.

Inflation discourages saving. Inflation buries capital into the ground as people flee toward real estate as a protective hedge. Inflation stymies growth.

Inflation Decreases Debt Burdens – If we borrow say, $14 trillion and then cheapen our debt through dollar devaluation, the repaid lenders can’t buy as much thanks to diluted dollars being returned to them.  Inflation essentially harms savers for the benefit of borrowers. Every dollar borrowed requires a dollar saved. The economy gains nothing by such mischief.

Generally, borrowers aren’t responsible for this debauchery so it’s not fair to label it theft. In government’s case, dilapidated debts at least rise to the level of fraud. Why does Washington willfully reward the profligate by cheating the prudent? Ah yes, because they exude profligacy.

Inflation Increases Asset Values – As the dollar falls, the price of our assets raises commensurately. Stocks, real estate, etc. surge. That sounds wonderful, but their value increases against what? Since the prices for everything else rise too all we’ve secured is a nominal gain for tax collectors to confiscate. We derive no real benefit.

A stock that cost $20 thirty years ago would need to fetch over $50 today just to match the CPI, understated as it remains.  If it now costs $40, you pay the IRS on the $20 nominal gain even as your stock actually lost value.  Washington thus rewards itself for its own reckless monetary policy. The more they inflate, the more they take.

A similar phenomenon nails your wages. As your salary increases, you pay more taxes even as you can afford less. A two percent raise increases your tax bill two percent, but if prices also rise only the IRS derives any benefit.

Inflation Offsets Unemployment – The Philips Curve, the illusion that increasing inflation decreases unemployment, remains a staple of macroeconomics even as few still publicly acknowledge its role. Bernanke, Geithner et al remain smitten by the Philips Curve.

To succeed, this essentially entails deceiving workers. Since the price of labor, your wage, is less elastic than many other costs, businesses can raise prices quicker than can employees increase their salary demands. As businesses raise prices to cope with inflation, the cost of labor proportionally lowers. Thus, in Keynesian theory, more workers can be hired as inflation dilutes your pay.

Remember this when you hear some self-proclaimed friend of the working man imploring that we accept inflation as a means to expand employment. They peddle pay cuts for workers in real terms versus free marketers who promote wealth generating growth. Growth affords higher living standards for all. Inflation silently erodes living standards.

Inflation Promotes Exports – While few non-economists still accept the Philips Curve, the crowd espousing inflation as a facilitator of exports proves more enduring. Exporters love dollar debasement.

In theory, if the dollar falls then anything priced in dollars becomes cheaper for someone holding say, euros. But the dollar and the euro are merely measuring sticks. The underlying transaction involves trading our goods. Currency is a tool; a ticket of exchange. Currency simplifies trading relative to bartering. You may not want my output, but you definitely want my dollar so that you can acquire what you do want.

For illustrative purposes only, ignoring taxes, regulatory burdens, and transportation costs or differing local tastes, if the dollar equals the euro and it takes a dollar to buy a dozen eggs then it too will take a euro to buy those eggs.  Purchasing price parity.

But as the dollar plummets, a euro is now worth more. Thus it takes more dollars to buy eggs, but it still takes but one euro. Domestic eggs didn’t become cheaper in euros. This isn’t some mysterious or complicated economic theory or even subject to debate. It’s elementary school mathematics: the transitive property. If A equals B and B equals C then A too must equal C. Making A not equal B doesn’t change the value of C.

Markets are not perfect and as well as the arbitragers perform, timing differences remain. Gutting the dollar never makes eggs cheaper in euros other than timing discrepancies, which can make or break producers. Firms whose inputs are denominated in one currency and their outputs in another frequently get jilted.

As the dust settles, things must balance, but if you bought a dozen eggs yesterday in dollars to sell them tomorrow in Euros, the dollar’s lack of certainty promotes intrigue. Inflation wobbles the scale hindering international commerce.

When parties trade of their own volition, by mutual consent and to mutual advantage, both expect to gain and both should, assuming an honest scale. When Washington deliberately engineers a false balance, the likelihood that someone gets harmed rises dramatically. Cheating your trading partners can win the day, but isn’t a successful long term strategy.

Like the Philips Curve, promoting exports by debasing the currency effectively pokes the pendulum. The inflation driven exhilaration proves fleeting as the pendulum swings back like a wrecking ball. Some latch onto the pendulum as it soars higher, but others get whacked as it returns.

Inflation is deceitful and ineffective. It swindles savers, fleeces lenders, pumps taxes higher and triggers malinvestment. It doesn’t reduce unemployment; it whittles away your wage. Nor does inflation promote exports, but it does make international trade more frightening.

If inflation succeeded, it would be merely dishonest. But as history proves, it never works. Neither Bush, nor Obama’s weak dollar policies did anything to alleviate the overblown “trade deficit” and much to undermine growth. There is no evidence that inflation fosters exports or employment.

As Washington plunders the value of our property and expropriates the product of our labor, inflation reduces us to servitude. Debasement is a despicable ploy the government uses to rob you blind. Period.

So what do I tell my children?

Link to original article: http://blogs.forbes.com/billflax/2011/03/03/you-call-it-inflation-i-call-it-theft/ 

TIP OF THE WEEK - A Quick Way to Measuring Price Inflation between any Two Years

A Quick Way to Measuring Price Inflation between any Two Years

Jason Brizic

Mar. 11, 2011

The Federal Reserve, the US central bank, inflates the money supply by purchasing assets with money it creates out-of-thin-air.  An increase in the money supply (inflation) leads to higher prices of goods.  Think “more money chasing the same amount of goods” when you hear the word inflation.

Housing, stock, bond, and commodity prices are affected by central bank inflation of the money supply.  Long term investors must understand the horrible effects of inflation on their savings/investments.  Inflation erodes the purchasing power of your money.  Your savings/investments that are denominated in dollars are exposed to dollar inflation such as QE1 (late 2008), QE2 (late 2010)…QE3 (2012?).

The government’s Bureau of Labor Statistics intentionally understates real price increases by changing the method of CPI calculation.  They do this because it makes their ponzi schemes (e.g. Social Security, Medicare, and government pensions) solvent a few years longer.  There schemes would go into the red many years earlier if the BLS kept its methods of calculating the CPI constant since the Carter administration.  Here is the link the BLS inflation calculator:

http://www.bls.gov/data/inflation_calculator.htm

I double the result that I get from the BLS inflation calculator as a rule of thumb because of their deliberate understating real price increases.

Here are a few examples:

According to the US Census Bureau the median US home price in January 1973 was $29,200.  What is the equivalent price in today’s 2011 dollars due to 38 years of central bank inflation?  Answer: $144,831.34 per CPI.  $288,000 according to my rule of thumb.

Gold cost $850/oz. near its peak in 1980.  How much is that in today’s inflated dollars?  Answer $2,271.  $4,400 per my rule of thumb.

One last example, an investor puts $10,000 into a money market account after the dot.com crash in 2000.  How much does he need in today’s debased dollars to have the same purchasing power as in 2000?  Answer: $12,788 according to the BLS.  I say 24,000 per my rule of thumb.  My rule makes less sense the shorter the time interval due to less time to compound the price increases.

For more tips, go here:

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

How To End the Federal Reserve System

Image002

How To End the Federal Reserve System

by Gary North

Things are not always as complicated as they seem. With respect to the Federal Reserve System, it is a deliberate mystery. It was deliberately designed in 1910 to deceive the public, who were opposed the idea of a central bank. The conspirators who met on Jekyll Island in November 1910 knew this. They did good work from their point of view. They concealed the beast.

The general public today knows little about the FED. Prior to Ron Paul's Presidential run in 2007-8, far fewer people understood it.

I have been asked: "How could we get rid of the Federal Reserve? What will replace it?" The answer: either the free market or Congress.

People who think of themselves as free market people often are not. The tax-funded public schools and the state-regulated and accredited university faculties have taught that the modern system of intrusive civil government is necessary for an orderly society. People cannot imagine a market-based society.

There is an old saying, "You can't beat something with nothing." But the free market social order is not nothing. It is expanding around the world, which is why the world is getting richer.

At the Federal level, a free market social order in banking existed prior to 1914. That was back when the dollar was worth over 20 times what it is worth today. On this point, see the inflation calculator of the Bureau of Labor Statistics.

We can go back to that system. We will go back to it. The question is: When? The other question is: At what price?

ENDING THE FED BY LAW

Ron Paul could introduce a bill to end the Federal Reserve System. He could call it: "The Monetary Liberty Act." It would get known as the "End the Fed Act." Here is what the text might say.

The Federal Reserve Act of 1913 is hereby repealed. So are all subsequent acts based on the Federal Reserve Act of 1913.

All authority of the Federal Reserve System to act in the name of the United States government is hereby revoked.

The assets of the Board of Governors of the Federal Reserve System, which are already the property of the United States Government, are hereby transferred to the Department of the Treasury. This includes all of the assets listed on the balance sheet of the Federal Reserve System.

The twelve (12) privately owned Federal Reserve Banks will return all assets held in trust for the United States government within thirty (30) calendar days of the signing of this bill into law.

The gold reserves of the United States government that are held in storage by the Federal Reserve Bank of New York will be transferred to the Government's depository at Ft. Knox, Kentucky, within one calendar year after this bill becomes law. The Government Accountability Office will conduct an inventory of the gold held in storage by the Federal Reserve Bank of New York before and after this transfer.

The Board of Governors will vacate the premises of the Federal Reserve building within thirty (30) calendar days of the signing of this bill into law.

Any pension fund assets of the employees of the various Federal Reserve Banks will remain under the control of those banks. All pension obligations under the authority of the Board of Governors of the Federal Reserve System are hereby transferred to the Department of the Treasury, to be administered under the retirement program of the Department of the Treasury.

This is simple. The Board of Governors of the Federal Reserve System is a government agency. Its authority would be transferred to the U.S. Treasury.

The dozen Federal Reserve Banks are privately owned. All authority of these 12 banks that derives from their connection to the Board of Governors will cease. If they can make a profit, fine. If not, equally fine. The free market will determine which will survive and which will not.

Is this radical? Not at all. There are two historical precedents: the refusal of Congress to renew the charter of the Bank of the United States in 1811, and the refusal of Congress to renew the charter of the Second Bank of the United States in 1836. Both of them went bust.

The standard response is that there must be independence between the Federal Reserve System and the U.S. government. Let us apply this to other agencies:

The Department of Defense
The Department of the Treasury
The Department of State
The Department of Education

I could go on, one by one, to list all of the thousands of agencies that are funded by Federal taxes and which operate by means of the authority of the U.S. government. Only one government agency is defended by publicists, both on and off the payroll of the Federal Reserve System, as deserving to be independent of the government that has transferred authority to it: the Board of Governors of the Federal Reserve System.

The phrase, "the independence of the Federal Reserve System," is a code phrase for "the independence of the four largest U.S. banks from the threat of losses." A growing number of voters has figured this out since the fall of 2008. This is why the Federal Reserve System is facing public criticism for the first time since 1914. This criticism will grow.

All of this may seem Utopian. Ron Paul could not get Congress to audit the FED, which by law possesses this authority. The Congress has been in the hip pocket of the FED for almost a century. The Congress lets the FED run the nation's economy.

But as criticism spreads, there will be more voters who figure out what the FED is and has always been: a government-created cartel of the banks. It operates for the benefit of the largest banks.

Will Ron Paul get such a law passed by Congress and signed into law? No. Does this mean that the FED is forever untouchable? No.

We need the following:

1. A wave of price inflation caused by the FED
2. A subsequent recession caused by the FED
3. A depression caused by the FED
4. A wave of outage in response to the FED
5. An endless series of criticisms of the FED

This will result, ultimately, in the abolition of the FED. Whatever replaces it will decide the economic fate of Americans: Congress (hyperinflation) or the free market (economic stability).

But could the free market replace the FED without a catastrophe following? Yes. We are already seeing this in another sector of the economy.

"YOU'VE GOT ALMOST NO MAIL!"

From the days of America's most famous postmaster, Benjamin Franklin, two decades before the American Revolution, residents of North America have thought that the country could not do without a government-funded postal system. In the past 15 years, this faith has quietly died. The United States Postal Service now delivers mostly subsidized opportunity mail. (I hate the work "junk mail," for I built my business on opportunity mail. But I have not used it for 15 years.) With email, UPS, FedEx, and text messaging, the first class letter is an anachronism. Historians will not be able to trace much after 1998 based on copies of letters.

With no fanfare, the postal system has become optional. The public does not go to the local Post Office often. If it were not for Netflix, a lot of people would not check their mailboxes daily.

All of this has happened without any new legislation. The once unbreakable monopoly of the Post Office is a rusted-out shell, staffed by union-protected workers who probably know their jobs are peripheral. Its volume declined by over 12% in 2010. This is expected to continue. That would cut volume by 50% by 2017. About 40,000 employees were fired in 2010. Saturday delivery will be dropped soon. There is another rate hike scheduled. Yet the outfit will lose $10 billion this year.

All this has happened without any enabling legislation. It has happened quietly. Market competition has reduced the USPS to an anachronism. It is a leftover shell of a bygone era.

In an essay about his youth, sociologist Robert Nisbet remarked that in the year he was born, 1913, the only contact that most Americans had with the Federal government was the Post Office. Later that year, the Federal Reserve Act was passed in a late session, just before Christmas break. Also in that year, the income tax came into effect. The expansion of the Federal government has been relentless ever since.

Nevertheless, the Post Office is slowly dying. No one planned this. The free market has replaced it, despite its official monopoly.

This offers hope. It means that free market solutions can come into existence before a government entity is shut down by law. The Post Office officially is a monopoly, yet its monopoly status has been eroded over the last four decades. It has been almost entirely replaced over the last two decades.

I think of a TV commercial that did not directly attack the Post Office. It was targeted at UPS. But UPS responded much faster than the Post Office could.

While critics of the postal monopoly had for decades tried to get Congress to revoke the Post Office's monopoly, all attempts failed. They were associated with the fringe. Yet, year by year, the Post Office fell behind. It is irrelevant in American life today.

This was not planned by any political group. It was the result of new technologies. People made decisions, day by day, to bypass the Post Office.

AN END RUN AROUND THE FED

I do not expect Congress to revoke the Federal Reserve Act of 1913 in this decade. The powers that be who run this country do so by means of the Federal Reserve System more than by any other semi-private institution. It is at the center of control, because the monetary system is at the center of the economy.

But the central bank faces a problem. To maintain the boom, the FED must inflate. To cease inflating would allow the credit bubble to implode on a scale far more devastating than what happened in 2008. The FED has placed us all on the back of the tiger.

Yet if it does not reverse its policy, it must produce hyperinflation at some point. That will destroy the FED's ability to guide the economy. Hyperinflation will lead to alternative currencies. Digital technology is now international. If buying and selling digital U.S. dollars is no longer profitable, because long-term contracts are not possible under hyperinflation, then the citizens of the United States will do what citizens of Zimbabwe did. They will use other currencies.

If the FED produces a Third World economy through hyperinflation, then people will do what Third World citizens do: find reliable currencies elsewhere. This can be done on-line nearly for free. The Internet has reduced the transaction costs of using rival currencies.

The FED economists know this. They know that transaction costs for using other currencies are low. If the FED's policies undermine long-term contracts, the citizens are not helpless. They can switch.

It will not take legislation to end the FED. All it will take is the FED. If the FED continues to inflate, it will destroy its base: the monetary system based on the FED. But if it ceases to inflate, by ceasing to buy Treasury debt, it will create Great Depression 2.

QE2

Bernanke can get away with QE2 today only because commercial banks are not lending. If they start lending, M1 will rise, the M1 money multiplier will rise, and price inflation will return.

He has bought time with QE2, but he has not bought a way out of the credit bubble that Greenspan created and he created.

He can play hide and go seek with Ron Paul, refusing to show up at the hearings of the Monetary Policy Subcommittee. Congress cooperates. But he cannot play hide and go seek with the business cycle. Greenspan did, but he got out in 2006. He passed on the Old Maid to Bernanke.

The Federal Reserve System bases its power on its ability to control the monetary base. It swapped T-bills for toxic assets to save the big banks, but to replenish its supply of swappable liquid assets, it has to inflate, as it is now doing. QE2 is replenishing the supply of Treasury debt to swap with large banks.

The FED did not bail out any small banks in 2008. It never has. Its unofficial mandate is to bail out the largest commercial banks. This it has done.

I think Bernanke sees another banking crisis coming. This is why he has pushed QE2. Only Hoenig has voted against it. Bernanke has his way with the other members of the Board of Governors and the Federal Open Market Committee. He has not said why this massive increase in the monetary base is mandatory for the economy. To talk about this would create doubts. He does not want to rock the boat. So, he gets away with another $600 billion in monetary base creation.

This is working for now. But the results are unavoidable: either price inflation or continued high unemployment and stagnation, because commercial banks thwart the stimulation. He is on the tiger's back. So are we.

CONCLUSION

The Post Office looked unbeatable for over 250 years. Technology has made it peripheral. The same will happen to the Federal Reserve System. It looks unbeatable. But the Internet can beat it. There are ways out of the FED's trap.

A lot of people will pay a heavy price for Bernanke's policies. That will be the price of persuading those people with the bulk of their assets in digital dollars to sell those assets and replace them with other digits.

This is why I do not think the FED will resort to hyperinflation. The economists know that the FED's victims can escape. The FED will risk mass inflation, but at some point it must say: "We will buy no more Treasury debt." That will be the moment of truth. That will be the day it climbs off the back of the tiger.

So will we all.

March 9, 2011

Gary North [send him mail] is the author of Mises on Money. Visit http://www.garynorth.com. He is also the author of a free 20-volume series, An Economic Commentary on the Bible.

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Recovery = oil demand up. Saudi Arabia revolt = oil supply down. Both = oil price up. ((SeaDrill, SDRL, high dividend stocks, Saudi Arabian oil production, deep water drilling demand))

I don’t believe in Keynesian voodoo economics, so I don’t buy into the recovery story touted on nearly all media sources.  I believe in Austrian economics.  Therefore, I think that worldwide oil demand will go down with oil over $100 per barrel.  However, I do think that if unrest in Saudi Arabia starts up, then their 10% of world output might be reduced and that will drop the oil supply faster than the reduced demand.  The king and the serfs will battle for control of the oil fields.  It’s hard to produce oil when bullets are flying in the fields.  Worldwide oil prices will rise in that scenario.

Oil prices above $150 barrel will cause all the economies in the world to plummet back into government defined recessions (the double-dip).  Unemployment will increase, foreclosures will increase, the Federal and State budget deficits will get worse, and social unrest will increase.  Central bankers will print more money out of thin air to fund deficits and to save the banking cartel.  Governments start wars to divert the masses attention away from failed economic policies.  The old saying is true, “War is the health of the State.”  There will be a WWIII in the coming decades.  I don’t know exactly when, but it’s coming due to failed economic policies of all Nation-States.

Think of SeaDrill’s (SDRL) unique selling proposition while you read this article.  A company’s USP sets it apart from its competition.  Companies should market their USP as their competitive advantage over their rivals.  SeaDrill has the most modern, safest, and deepest drilling fleet on the planet.  There are no angry serfs or oppressive tyrants feuding in the deepwater where SeaDrill operates.

I’ve written several articles on SeaDrill (http://www.myhighdividendstocks.com/category/high-dividend-stocks/seadrill ).  Their dividend is high, consistent, and well funded.  I believe their earnings power is rising and the extra earnings can be used to reduce their total debt.  The company took on a lot of debt to finance the purchase of that state-of-the-art drill rig fleet.  They have been slightly paying down their debts which is barely improving their balance sheet (a smaller debt/assets ratio).  But I won’t be impressed unless their debt/assets ratio drops below 50% and continues on that trend.

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Disclosure: I don’t own SeaDrill yet.

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Oil will go up 'ballistically' if unrest shifts to Saudi Arabia, says Marc Faber

Source: BI-ME , Author: Posted by BI-ME staff

Posted: Tue March 8, 2011 10:09 pm

INTERNATIONAL. Marc Faber the Swiss fund manager and Gloom Boom & Doom editor sees oil prices extending their bull run despite the 15% run-up this year alone.

In an optimistic scenario demand for oil will rise as the global recovery takes hold, and in a pessimistic scenario prices still go up if the Middle East unrest spreads and crude production is curtailed. In both cases, he says, you should be long energy and energy related shares.

Speaking to CNBC today, Faber said: " I think long term you should be exposed to energy in either scenario....if you are extra bearish and believe that War World III is going to start soon, as I believe, or in an optimistic scenario".

Addressing the fundamentals of the oil market, Faber said: "What we had over the last couple of years is essentially a reduction in demand from the developed world, the US, Western Europe and Japan, and continued growth in emerging economies.

"So, if you take a very optimistic view of the world, namely a global economic recovery, demand in the Western World will pick up and demand in the Emerging World will continue to rise strongly, so from a very optimistic point of view you should be long oil," he recommended.

On the flip side, "in a very pessimistic scenario you have to assume that unrest will shift to Saudi Arabia and other countries in the gulf and at that stage the production is curtailed and in that case obviously oil will go up ballistically."

Brent crude futures could hit US$200 a barrel if political unrest spreads into Saudi Arabia, Societe Generale said on Monday.

Under what the bank called Geopolitical Scenario 3, "unrest spreads to Saudi Arabia and threatens Saudi crude exports and any remaining spare capacity. Brent price range of US$150-US$200 a barrel," it said in a research note.

"In this most extreme, worst-case scenario for the oil markets, serious unrest spreads to Saudi Arabia. In this case, it does not really matter if Libya or any other producers are shut down or not. Saudi Arabia is OPEC's biggest producer and the world's biggest current holder of spare capacity," the bank added.

Saudi Arabia is the world's top exporter of crude oil, meeting about 10% of the global oil demand.

Oil prices dropped today, with North Sea Brent crude dipping briefly below US$113 per barrel, after Kuwait's oil minister said OPEC was considering boosting production for the first time in more than two years.

"You can increase production but to increase the reserves is very difficult and very costly and the fact is simply that the world is burning more oil than it is adding reserves every year," Faber told CNBC.

"So, the level of proven reserves or the existing oil fields, that production will go down, so you have to find new oil fields and develop new ones all the time and that is very costly," he said, adding I would estimate the marginal cost of new oil around US$80 per barrel.

Asked if prices can go up if US demand stays low, Faber said the importance of demand in the developed world is diminishing and the importance of very low per capita consumption countries such as China and India is increasing.

"For the first time in the history of Capitalism you now have essentially demand in emerging economies exceeding demand in the developed world," he said.

What is the best oil investment vehicle?

Faber said he doesn't favor investing in commodity ETFs given the high rollover costs. Investors in ETFs were bound to lose money in the long run given these costs, he suggested.

"In the commodities space, either you go long commodities yourself through the futures market or you buy companies that produce commodities," Faber advises.

Link to original article: http://www.bi-me.com/main.php?id=51517&t=1&cg=4