Paul LarmandAdvice from the world of wealth building

Check out this article from the Globe and Mail written by John Reese.  Interesting look at companies profiting through the tough times.

I like his approach with this article and having posted a few similar positive “forecasting” type articles it is clear that my opinion is not all doom and gloom.  I look forward to the days that we look back on this time as a time of immense opportunity!

The U.S. economic recovery has slowed a bit in recent months, sparking new fears of a double-dip recession.

I think the double-dip fears are probably a bit overhyped. While the pace of the recovery hasn’t been as rapid as it was in the second half of 2009 or the first quarter of 2010, several key areas of the economy – including the industrial and manufacturing sectors – are still growing at a solid pace. It’s important to remember that recoveries don’t move in a nice, steady line; look back at past rebounds and you’ll see that every recovery has fits and starts.

Still, many investors believe the double-dip forecasters. Since May 1, investors have pulled more than $49-billion (U.S.) from equity funds, according to the Investment Company Institute. You can bet many did so because of fears of another economic downturn. What if they’re right, and a double dip is coming?

If it is, it’s important to remember that a downturn in the economy doesn’t mean tough times for all companies. And, at the end of the day, stocks are as good or bad as the companies behind them. That’s what history’s greatest investors – strategists like Benjamin Graham, Warren Buffett, and Peter Lynch – have all known.

Even in the recent “Great Recession” – one of the worst downturns the U.S. has ever seen – some companies kept growing.

Take transportation and logistics firm C.H. Robinson Worldwide, based in Eden Prairie, Minn. While most companies were scrambling to minimize earnings declines or losses in 2008 and 2009, Robinson (with a $10.8-billion market cap) was increasing earnings per share in both years.

Robinson’s history of earnings growth in tough times goes back further. It also increased EPS in 2001, the year of the previous U.S. recession. It has increased per-share earnings in every year of the past decade. Robinson isn’t alone; a number of companies have boosted EPS in each year since 2000.

Of course, that doesn’t mean it has been a decade’s worth of smooth sailing for these companies’ stocks. When recessions or bear markets hit, emotions run high, and fearful investors can and will dump the shares of even solid, proven companies. Often, however, the stocks of steady earners will hold up better than others during downturns. Such was the case with C.H. Robinson.

Other times, they’ll get hit as hard (or harder) during downturns than the broader market, but then bounce back swiftly once the downturn dust settles. That was the case with Aéropostale, the New York-based teen clothing and apparel retailer.

Along with other retailers, Aéropostale was hammered in late 2008 as the global crisis sparked fears that consumers would tighten their purse strings for the long term. But when investors realized the fears were overblown, Aéropostale surged upward, and is well ahead of the S&P since the crisis flared up in September, 2008.

Given the concerns about a potential double dip, I thought I’d take a look at some companies that have increased EPS in each year of the past decade, and get approval from one or more of my Guru Strategies (each of which is based on the approach of a different investing great).

I found several steady earners that make the grade, including Aéropostale and C.H. Robinson. Here’s a look at those two, and a couple other top “steady Eddies” you can rely on.

C.H. Robinson Worldwide

Robinson gets high marks from an interesting tandem of strategies, my Warren Buffett-inspired value approach and my James O’Shaughnessy-based growth model. The Buffett-based approach looks for firms with lengthy histories of earnings growth, manageable debt and high returns on equity. Robinson’s excellent earnings track record fits the bill, as do its lack of any long-term debt and 25.9 per cent average 10-year return on equity (ROE).

My O’Shaughnessy-based growth model, meanwhile, likes Robinson’s strong earnings history and its low 1.27 price-to-sales ratio and solid 67 relative strength indicator.

J.M. Smucker Co.

This Ohio-based jelly-and-jam giant makes a variety of products and has a market cap of about $7-billion. My Peter Lynch-based model likes its solid 13.8 per cent long-term growth rate, and a price-to-earnings divided by growth ratio (P/E/G) of 0.85, adjusted for yield. That comes in under my Lynch-based model’s 1.0 upper limit, a sign the stock’s a good buy.

Aéropostale Inc.

With a $2.1-billion market cap, this company gets approval from three of my models. My Lynch-based model likes its 33.6 per cent long-term EPS growth rate (I use an average of the three-, four-, and five-year EPS growth rates) and low 0.27 P/E/G. My Buffett model, meanwhile, likes its strong earnings history, lack of debt and 32.9 per cent average 10-year ROE. And the model I base on hedge fund guru Joel Greenblatt’s writings likes Aéropostale’s 22.9 per cent earnings yield and 71.6 per cent return on total capital.

Infosys Technologies

This India-based information technology giant, with a $34-billion market cap, gets strong interest from my Buffett-based approach. In addition to its impressive earnings history, it has no long-term debt and has averaged a 31.9 per cent ROE over the past decade.

·       What’s this?

By clicking "Recommend", you can recommend this story and share it with your Facebook friends

Read More… Don’t show this again

Posted via email from Paul Larmand | Financial Advisor

Here is some interesting information on overall markets and some positive news.  Positive news is always nice! 

Stock markets around the world rallied on Friday on revised GDP data and comments from U.S. Federal Reserve Chair Ben Bernanke. 

On Friday, the U.S. Commerce Department cut its Gross Domestic Product (GDP) estimates for the second quarter. Second quarter GDP was revised down to 1.6% from 2.4% on an annualized basis, but the reduction in growth was not as severe as originally forecast and markets responded positively.

The GDP report also showed that consumer spending was up in the second quarter on higher electricity and natural gas prices, and that purchases increased at 1.9% from January to March of 2010.

In an anticipated speech, U.S. Federal Reserve Chair Ben Bernanke said the Federal Reserve, in light of recent mixed economic reports, would do all it can to support the recovery, including the large-scale purchase of securities if the economy were to deteriorate significantly. In his comments at the annual central bank conference, Bernanke acknowledged the recovery is uneven, but that preconditions for growth in 2011 are in place.

Weekly unemployment claims fell sharply for the first time in a month, and at 473,000 handily beat expectations. Corporate earnings were mixed with CIBC and National Bank beating consensus forecasts, and Bank of Montreal and Royal Bank of Canada missing expectations. Toronto-Dominion Bank and Bank of Nova Scotia report next week

Posted via email from Paul Larmand | Financial Advisor

Here is a great article from Professor Jeremy Siegel and Jeremy Schwartz.  This is a very interesting perspective on bonds.

Ten years ago we experienced the biggest bubble in U.S. stock market history—the Internet and technology mania that saw high-flying tech stocks selling at an excess of 100 times earnings. The aftermath was predictable: Most of these highfliers declined 80% or more, and the Nasdaq today sells at less than half the peak it reached a decade ago.

A similar bubble is expanding today that may have far more serious consequences for investors. It is in bonds, particularly U.S. Treasury bonds. Investors, disenchanted with the stock market, have been pouring money into bond funds, and Treasury bonds have been among their favorites. The Investment Company Institute reports that from January 2008 through June 2010, outflows from equity funds totaled $232 billion while bond funds have seen a massive $559 billion of inflows.

We believe what is happening today is the flip side of what happened in 2000. Just as investors were too enthusiastic then about the growth prospects in the economy, many investors today are far too pessimistic.

The rush into bonds has been so strong that last week the yield on 10-year Treasury Inflation-Protected Securities (TIPS) fell below 1%, where it remains today. This means that this bond, like its tech counterparts a decade ago, is currently selling at more than 100 times its projected payout.

Shorter-term Treasury bonds are yielding even less. The interest rate on standard noninflation-adjusted Treasury bonds due in four years has fallen to 1%, or 100 times its payout. Inflation-adjusted bonds for the next four years have a negative real yield. This means that the purchasing power of this investment will fall, even if all coupons paid on the bond are reinvested. To boot, investors must pay taxes at the highest marginal tax rate every year on the inflationary increase in the principal on inflation-protected bonds—even though that increase is not received as cash and will not be paid until the bond reaches maturity.

Today the purveyors of pessimism speak of the fierce headwinds against any economic recovery, particularly the slow deleveraging of the household sector. But the leveraging data they use is the face value of the debt, particularly the mortgage debt, while the market has already devalued much of that debt to pennies on the dollar.

This suggests that if the household sector owes what the market believes that debt is worth, then effective debt ratios are much lower. On the other hand, if households do repay most of that debt, then the financial sector will be able to write-up hundreds of billions of dollars in loans and mortgages that were marked down, resulting in extraordinary returns. In either scenario, we believe U.S. economic growth is likely to accelerate.

Furthermore, economists generally agree that the most important determinant for long-term economic growth is productivity, not consumer demand. Despite the subpar productivity growth reported for the last quarter, the latest year-over-year productivity growth of 3.9% is almost twice the long-term average. For the first two quarters of this year productivity growth, at over 6%, was the highest since the 1960s.

From our perspective, the safest bet for investors looking for income and inflation protection may not be bonds. Rather, stocks, particularly stocks paying high dividends, may offer investors a more attractive income and inflation protection than bonds over the coming decade.

Yes, we can hear the catcalls now. Stock returns calculated off the broad-based indexes have been horrendous over the last decade. In 2009, the percentage decline in aggregate dividends was the largest since the Great Depression. But remember the last decade began at the peak of the technology bubble.

Those who bought "value" stocks during the tech bubble—stocks with good dividend yields and low price-to-earnings ratios—have done much better. From December 1999 through July 2010, the Russell 3000 Value Index returned 35% cumulatively while the Russell 3000 Index of all stocks still showed a loss.

Today, the 10 largest dividend payers in the U.S. are AT&T, Exxon Mobil, Chevron, Procter & Gamble, Johnson & Johnson, Verizon Communications, Phillip Morris International, Pfizer, General Electric and Merck. They sport an average dividend yield of 4%, approximately three percentage points above the current yield on 10-year TIPS and over one percentage point ahead of the yield on standard 10-year Treasury bonds. Their average price-earnings ratio, based on 2010 estimated earnings, is 11.7, versus 13 for the S&P 500 Index. Furthermore, their earnings this year (a year that hardly could be considered booming economically) are projected to cover their dividend by more than 2 to 1.

Due to economic growth the dividends from stocks, in contrast with coupons from bonds, historically have increased more than the rate of inflation. The average dividend income from a portfolio of S&P 500 Index stocks grew at a rate of 5% per year since the index’s inception in 1957, fully one percentage point ahead of inflation over the period. That growth rate includes the disastrous dividend reductions that occurred in 2009, the worst year for dividend cuts by far since the Great Depression.

Those who are now crowding into bonds and bond funds are courting disaster. The last time interest rates on Treasury bonds were as low as they are today was in 1955. The subsequent 10-year annual return to bonds was 1.9%, or just slightly above inflation, and the 30-year annual return was 4.6% per year, less than the rate of inflation.

Furthermore, the possibility of substantial capital losses on bonds looms large. If over the next year, 10-year interest rates, which are now 2.8%, rise to 3.15%, bondholders will suffer a capital loss equal to the current yield. If rates rise to 4% as they did last spring, the capital loss will be more than three times the current yield. Is there any doubt that interest rates will rise over the next two decades as the baby boomers retire and the enormous government entitlement programs kick into gear?

With future government finances so precarious, private asset accumulation and dividend income must become the major sources of retirement funding. At current interest rates, government bonds will not be the answer. One hundred times earnings was the tipping point for the tech market a decade ago. We believe that the same is now true for government bonds.

Posted via email from Paul Larmand | Financial Advisor

Check out this article on Solar Parking Lots.  I believe the number quoted is 131,000 KiloWatts per year.  That is an unbelievable amount of power being generated by a parking lot.

How can the cost benefit not make sense to be putting these up?

http://news.discovery.com/tech/tech-turns-parking-lot-hell-into-a-haven.html

Posted via email from Paul Larmand | Financial Advisor

A friend sent me this.  It is definitely an interesting way to look at our tax system.

 
Suppose that every day, ten men go out for beer and the bill for all
ten comes to $100…
If they paid their bill the way we pay our taxes, it would go
something like this…

The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7..
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.

So, that’s what they decided to do.

The ten men drank in the bar every day and seemed quite happy with
the arrangement, until one day, the owner threw them a curve ball.

"Since you are all such good customers," he said, "I’m going to
reduce the cost of your daily beer by $20". Drinks for the ten men
would now cost just $80.

The group still wanted to pay their bill the way we pay our taxes.

So the first four men were unaffected.

They would still drink for free. But what about the other six men?
The paying customers?

How could they divide the $20 windfall so that everyone would get his
fair share?

They realised that $20 divided by six is $3.33. But if they
subtracted that from everybody’s share, then the fifth man and the
sixth man would each end up being paid to drink his beer.

So, the bar owner suggested that it would be fair to reduce each
Man’s bill by a higher percentage the poorer he was, to follow the
Principle of the tax system they had been using, and he proceeded to
Work out the amounts he suggested that each should now pay.

 
And so the fifth man, like the first four, now paid nothing 
(100% Saving).

The sixth now paid $2 instead of $3 (33% saving).

The seventh now paid $5 instead of $7 (28% saving).

The eighth now paid $9 instead of $12 (25% saving).

The ninth now paid $14 instead of $18 (22% saving).

The tenth now paid $49 instead of $59 (16% saving).

 
Each of the six was better off than before. And the first four
continued to drink for free. But, once outside the bar, the men began
to compare their savings.

"I only got a dollar out of the $20 saving," declared the sixth man.

He pointed to the tenth man,"but he got $10!"

"Yeah, that’s right," exclaimed the fifth man. "I only saved adollar
too. It’s unfair that he got ten times more benefit than me!"

"That’s true!" shouted the seventh man. "Why should he get $10back,
when I got only $2? The wealthy get all the breaks!"

"Wait a minute," yelled the first four men in unison, "we didn’tget
anything at all. This new tax system exploits the poor!"

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn’t show up for drinks, so the nine
sat down and had their beers without him. But when it came time to
pay the bill, they discovered something important. They didn’t have
enough money between all of them for even half of the bill!

And that, boys and girls, journalists and government ministers, is
how our tax system works.

The people who already pay the highest taxes will naturally get the
most benefit from a tax reduction.

Tax them too much, attack them for being wealthy, and they just may
not show up anymore.

In fact, they might start drinking overseas, where the atmosphere is
somewhat friendlier.

David R. Kamerschen, Ph.D.
Professor of Economics.

Posted via email from Paul Larmand | Financial Advisor

Here is an interesting article from http://www.horsesmouth.com

These numbers are not surprising but are still pretty staggering to see such a correlation between the two.

Check it out:

By Bill Hardekopf
Jun. 22, 2010
 

 

 

 

Financial tips for newlyweds

According to the study "http://www.virginia.edu/marriageproject/pdfs/Unions_dew.pdf“>Bank on It: Thrifty Couples Are the Happiest," conflict over money predicts divorce better than any other type of disagreement. Couples who disagree about finances once a week were over 30% more likely to divorce over time than couples who only disagree about finances a couple of times per month.

The study also says that perception about how well one’s spouse handles money is also a factor in shaping family life. If an individual feels the spouse spends money foolishly, they report lower levels of marital happiness. It increased the likelihood of divorce 45% for men and women. Only alcohol and drug abuse, and extramarital affairs were stronger predictors of divorce.

Before you get married, know how your future spouse will treat money. Don’t assume he or she shares your beliefs about money. Even if your future spouse is kind and respectful to you, he or she may treat money differently. Spending and saving habits may surprise you. A free spender before marriage will probably be a free spender after marriage.

To avoid surprises, have an honest discussion about money before the wedding day. This talk may be difficult to do, but it is necessary before joining life and finances together. If one partner has large debt or difficulties managing money, address these issues before the marriage. Debt can not only affect your financial future together, it can also severely damage your credit score.

Here are some financial tips for newlyweds:

1.      Reveal all bank statements. Before the wedding, show all of your cards. Be honest about your income, debts, and money problems. Bring out your bank statements from the past 12 months to show what you did with your money. Explain how your parents raised you to handle money and your strengths and weaknesses with money. Acknowledge whether you are a spender or a saver.

2.      Check credit reports. Each of you should get a copy of your credit reports from the three credit bureaus. This will give you a clear picture of credit accounts, debts, and how creditors will judge you. Aim to get your scores over 750 to receive the lowest interest rates for your first mortgage and other loans.

3.      Budget wedding accordingly. Have a wedding you can afford. Do not start a life together by using a credit card to pay for a wedding that is out of your budget.

4.      Avoid credit card debt. The best rule of thumb is: "If you can’t pay for something with cash, you can’t afford it."

5.      Limit number of credit cards. Get one or two credit cards and stick with them. Use them for several purchase each month and pay them off immediately. Building a long-term payment history with one or two credit cards is an important factor in your credit score.

6.      Build individual credit. Each spouse should hold a credit card in his or her own name to build an individual credit score.

7.      Pay off debt. Pay as much on credit card balances as you can over the minimum each month. If you receive gift money, a bonus, a second job or a tax refund, use this to pay off debt. The faster you pay it off, the quicker you can focus on saving and getting ahead. You can even make micropayments multiple times during the month to pay off your balance faster. Eat a meal at home and immediately apply the money you saved to your credit card balance.

8.      Establish a bill-paying system. Make a plan for paying bills before they arrive, and decide who will pay them. If you have separate accounts, know which account pays each bill.

9.      Reduce your debt-to-credit limit ratio. This will help improve your credit score. Your monthly debt, including your mortgage, should not exceed 35% of your gross income.

10.     Differentiate between wants and needs. Then simplify your wants. It is easy to get caught in the trap of wanting more than what you have, trying to keep up with the Joneses, and looking to material things for happiness. But this will put you on the fast track to increasing your debt. Savings and assets help build financial security and increase the odds of a strong, happy marriage that lasts.

       

Posted via email from Paul Larmand | Financial Advisor