Hedge fund irresponsibility

Yesterday I ran across an article THE ST LOUIS POST DISPATCH reprinted from THE WALL STREET JOURNAL by Gregory Zuckerman headlined:

"Who's sorry now?

Well, it's not hedge funds"

And it's about how many hedge funds have lost large chunks ("up to one-third") of their customers' money during the recent subprime stock market sell-off and decline.

And they refuse to take any responsibility for it.

According to Zuckerman, they "point fingers at other funds, once-in-a-lifetime events and their own computer programs."

Black Mesa Capital blamed "unprecedented market events."

Those words should put a chill in the hearts of anyone considering handing your money over to a hedge fund.

Yes, the past two months in the stock market are "unprecedented."

Gosh, gee willikers, darn it all to heck, Mr. Wilson!

I've got news for these hedge fund managers who're making millions of dollars -- history is being made every single day!

The future is going to be full of "unprecedented market events"!

Guess what? -- for the millions of dollars those investors are stupid enough to pay you, you're supposed to be prepared.

You're supposed to know how to deal with risk.

It's not like risk is anything new.

It's not like "unprecedented market events" are unprecedented.

The 1929 market crash was unprecedented. The oil embargo of 1973 along with the social dislocation caused by the Vietnam War and the Watergate investigations were all unprecedented to the stock market, which helped it decline dramatically 1973-74. The 520 point 22% crash of October 1987 was unprecedented. The high tech dot com boom of 1995-2000 was unprecedented and so was the Nasdaq tech wreck of March-April 2000.

I'm going out on a limb here, to make a tremendous prediction:

There're going to be a lot more "unprecedented market events" before we all die.

The world's not going to stop changing just because you don't hedge your hedge funds!

hedge fund irresponsibility
hedge fund irresponsibility

Terrorism and Investing

Here's an interesting article on How Does Terrorism Affect Your Trading.

The focus is on trading of stocks and currencies, which is certainly not my focus, but it's still an interesting read.

And although I don't see a mention of income investing itself, it does discuss long term investing strategies in relation to terrorism attacks. I'd say this - if you're investing for income, you're most likely banking on common human needs and desires. Coca-Cola, not software. Snack food, not biotechnology. Electric lights, not GPS satellites.

Terrorist attacks can certainly harm economies -- as September 11 did to the United States -- but as long as we're alive, we're going to keep on consuming basic commodities. Following September 11, business in the U.S. slowed dramatically -- car sales, restaurant sales and so on. Yet people kept using electric current to watch the news on TV and to eat Hershey's chocolate to deal with the stress.


terrorism and investing
terrorism and investing

Financial Rebel

I found an interesting blog called Financial Rebel.

I didn't find anything particular "rebellious" about it, but he gives his comments and commentary on the market and various company stocks and their prospects. Some people have found his article on how to own gold through using exchange traded funds useful.

Myself, I favor joining in with businesses that serve human needs, rather than expecting a chunk of metal to pay me money. That could include something such as the Mergent Broad Dividend Achievers Index.

One thing caught my eye in his comments on the current stock market -- it's quite volatile, and that's an open invitation to trading. I agree, but notice that he doesn't tell you how to trade volatility.

If you think that in the current market you want to be a day trader, all I can say is, good luck. You don't need to be reading this blog, you need to be reading the Help Wanted Ads.

But although I'm know expert, I know that the words "high volatility" are music to the ears of an options trader. That means it's tell to sell volality, because the price is high. You do that by selling puts and calls. There are relatively, safe and conservative ways to do that, and after I write and publish my book on investing for income, I'll tell people how to get rich quick by selling calls and puts.



Financial Rebel
Financial Rebel

Dividend Detective

I found a site that should be interesting for all income investors -- Dividend Detective.

This site is not about any kind of "fixed" or loanership or interest type of investing for income -- just dividends from equity investments. So for those of you who are resisting the double taxation of dividends, this can be a good resource.

But be aware that it's a membership site -- that is, access to much of the information is limited to subscribers. However, you can still obtain good information on, and lists of, dividend paying stocks, Real Estate Investment Trusts (REITs), Master Limited Partnerships (MLPs), CanRoys, closed-end funds, Canadian income trusts, and Business Development Corporations.

But if you want guidance on what to buy and when, you must fork over some cash.

My one gripe is that, from what I can see (and I didn't subscribe, so maybe this is addressed in the premium section for subscribers), the site encourages investing in individual securities. There is market commentary advising that certain ones or types be bought or sold. The whole idea of the site is to advise you on what to buy and sell, and when.

I strongly suggest you stick to exchange traded funds (EFTs) and index mutual funds, if at all possible (and it may not be with some of the most unusual securities, such as Business Development Corporations -- those are not your average every day investment.)


Dividend Detective
Dividend Detective

Bipolar Mr. Market

Obviously, I can't predict the amount dividends every high-paying stock is going to pay next quarter. But while the Dow and many stock markets around the world tumble on worries about the subprime mortgage industry in the US, and you feel poorer because the market price of your portfolio makes you feel like you just dropped off a cliff, think about this --

Is demand for electricity any less now than before this crisis started?

-- I can't speak for the overall economy, but here in St Louis the temporature has been reaching high 90s and triple digits (Fahrenheit) for over a week. Demand for electricity to run air conditioners is very high.

So has the true value of utility companies dropped?

Is demand for soft drinks any less now than before this crisis started?

-- I can't speak for the overall economy, but I'm pretty sure that lots of people are consuming record quantities of soft drinks, thanks to the terrific heat.

So has the true value of Coca-Cola (KO) and Pepsi dropped?

Is demand for gasoline any less now than before this crisis started?

-- Thanks to people driving and flying on summer vacation trips, I doubt there's been any serious drop in demand for oil and its byproducts.

So has the value of Canadian oil trusts dropped?

I hope you get my point -- don't count on market prices which are driven by market sentiment that blows hot and cold. In modern terms, Benjamin Graham's "Mr. Market" has a severe case of bipolar depressive disorder. He's going through a depressive stage right now.

And considering the amount of bad mortgage loans in the economy, I can't blame him . . . I feel bad when I think about the debts I owe!

But if you count on basic human needs for electricity, gas, snack foods and other such items . . . you can continue to receive income while everybody else is hoping Mr. Market will be happy again.

Bipolar Mr. Market
Bipolar Mr. Market

Canadian income trusts resources

I've been focused lately on researching Canadian income trusts. These are terrific investments, especially for income investors. Unfortunately, I have learned about them after the Canadian Finance Minister Jim Flaherty proposed to eliminate their tax-free status effective with 2011.

He proposed this on October 31, 2006, so it's become known as the Halloween Massacre.

Anyway, all income investors should be aware of the profits from Canadian royalty trusts which they can share in -- through receiving monthly dividend trusts. I've previously linked to the beginning of the information pages on my actual site, but I've also written:

Canadian Income Trusts -- Time to Buy or Dump? -- article in Ezine Articles

Review of Canadian Income Funds book in Go Articles

The Safest Way to Profit From Investing In Canadian Income Funds -- on my new Squidoo lens on Canadian income trusts.

If you're not already familiar with Squidoo, it's a fairly new site that allows you to put up pages on subjects you're interested in and knowledgeable about. It encourages the marketing of your own products and as an affiliate.

Despite the government's proposal to end income trust taxation, these are good investments now -- and it's possible that the proposal will never be passed into law. If you're a Canadian citizen, write to your members of Parliament.


Canadian income trust resources
Canadian income trust resources

Dividend Yield Hunter site

This site has its heart in the right place -- investing for income -- and so I wanted to like it more than I did:

Dividend Yield Hunter

One problem is that its domain name is misleading . . . it's focused on non-dividend income investments -- REITs, Canadian trusts, preferred stocks, and so on. It even lists some high-yielding money market accounts.

But it totally ignored common stocks that pay dividends, so it misses the biggest way to grow income faster than inflation in the long term.

It lists some basic information on each type of investment, and then lists some of them. It contains interesting information on shipping and transportation stocks. I'd thought they were high-yielding simply because the shipping business is so strong right now. That's the impression I got from reading various sales letters for financial newsletters sent to me. But apparently these companies get a tax break from the government. So that's interesting to know.

On a technical level, this site is poorly laid out. I had to scroll right and left, and move the screen around a lot. It badly needs a web design makeover to make it user-friendly.

It does contain some news and opinion, also. It has a model portfolio, but now real plan (although to its credit it does say that it doesn't support trading.)

Comparing it to my site, I have to rank mine higher in terms of appearance and usability. I think I do a better job of giving in depth information about the investments, but I don't even try to keep up with news, so I don't give yields, which will change constantly. However, this site currently covers more types of investments than I do (yet - many more pages will come in the not too distant future). I also do not give an overall plan on my site -- but I am writing a book that will give a plan.

It's a good place to see a wide range of income investments and to get a list of some of them, so it's not a bad place to begin your research.

Dividend Yield Hunter
Dividend Yield Hunter

Global warming municipal bonds on the way?

Here's an idea for a new type of bond -- global warming bonds

Only I have to admit, the story is quite vague on details about how such bonds would work. Selling an issue of bonds would raise money -- but what would they spend the money on to reduce carbon emissions?

Also -- and very important to anybody who'd be crazy enough to invest in such bonds -- how would the bond debt be serviced? By the issuing government? Out of what revenue? General tax revenues?

One way or the other, I'm sure the taxpayers of this country are going to pay out the nose to solve this problem, if problem it is indeed.

However, unless they're a clear and rational use of the bond issuance money to generate income from whatever activity is done to reduce carbon emissions, then I'd strongly advise you to NOT add global warming bonds to your fixed income portfolio.

Global warming bonds
Global warming bonds

Canadian income trusts -- doomed or not?

I've just completed the beginning of a new section of my site on income investing -- on Canadian income trust funds.

So I just checked out the latest news, and it doesn't look good for those who've been hoping to stop the government of Canada from beginning to tax trusts in 2011:

You can read about that here:

Canadian trust fund taxation

The Conservative Party of Canada seems determined to shoot itself in the foot. It barely won the January 2006, where it promised no new taxes. So many Canadian voters feel betrayed by this broken campaign promise.

Plus, as the land of oil and natural gas in a politically stable country, Canada is well poised to benefit from the rising prices of energy, not to mention that most of these energy assets are in unstable and unfriendly places such as the Middle East, Russia and Venezuela. Of course the government knows this -- and wants to grab a big chunk of tax money.

I am sort of sympathetic to the "Why should trusts get away with not paying taxes when corporations have to" argument. My answer is that, simply, neither trusts nor corporations should have to pay taxes. It doesn't really make sense. Business structures are not people. Eliminate all double taxation. Just impose taxes on dividends received by individuals. This would make eliminate a lot of inefficiency.

Yet this is politically impossible. Liberals in Canada as well as the U.S. act like corporations themselves are evil rich people and it'd be a crime against the poor not to tax them.

Canadian income trusts
Canadian income trusts

Here's a site I found recently that could help you -- their focus is in the right places for income investors -- REITs, energy master limited partnerships, unit trusts, preferred bonds and convertible preferred bonds, fixed income bonds, royalty trusts . . . this site keeps up with yield, prices, news and so on.

ePreferreds Online


Only trouble, it's not free.

They also publish the Yield and Income Newsletter, which covers these same topics on a monthly basis.

I have two reservations.

1. Their newsletter recommendations are from major banks and brokerages. Yes, I know they're the professionals, but they must take a short term approach. They're also the institutions that encourage people to overtrade their stocks.

2. If you follow the news about which REITs are up, which master limited partnerships are down, which preferred bond issues look good, which royalty trusts don't etc -- you'll be tempted to start buying and selling your portfolio. If you get all this information and advice, you might make the mistake of actually trying to use it.

I much prefer a long term approach of diversifying your portfolio with high quality yet high yielding securities of all these types -- and holding them forever.

So I suggest you subscribe while you're still building a portfolio, to take advantage of current trends -- then forget about whether or not bond yields are too high or too low. Cash or reinvest your checks, but spend the rest of your time enjoying life or working a job or business that makes you even more money to invest.

Income Investing Site
Income Investing Site