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Re: Holding or investing?
Old 01-16-2004, 01:08 PM   #41
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Re: Holding or investing?

TH

Take a look at T Rowe Price New Era fund. Although a Boglehead - this one crossed my radar. With 'things' on the world market priced largely in $ which seems to be in a downtrend, then metals, ores, oil, grain, etc will have a tailwind.
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Re: Holding or investing?
Old 01-16-2004, 10:34 PM   #42
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Re: Holding or investing?

Quote:
As far as doom and gloom goes, if you worry about it, perhaps you're taking too much risk.
I found a guy who attempts to quantify the risk here:
http://www.johncon.com/john/correspo...034.10147.html

Quick summary:

Probability of depression this year: 1 in 526
Probability of depression in your lifetime: 29.3%

Based on these numbers, he goes on to recommend keeping 60% of your assets in investments "relatively immune to fluctuations in the GDP." *Whatever those are *
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Re: Holding or investing?
Old 01-16-2004, 10:53 PM   #43
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Re: Holding or investing?

Quote:
My concerns in the short-term are that the forces that cause the stock market to divert from the efficient model are overwhelming the forces that would cause it to be efficient
(it's rude to quote myself, but I find this entertaining.)

Found another interesting quote on this guys site:
http://www.johncon.com/john/correspo...850.29301.html

It is a paradox. I think the enigma was first brought up by John Casti
in "Searching for Certainty", John L. Casti, William Morrow, New York,
New York, 1990, ISBN 0-688-08980-1, pp. 204, last paragraph:

The perceptive reader will have already noticed that there's
something inherently paradoxical about the EMH. On the one hand,
the EMH says that it's useless to gather information; it will do
you no good at all in the development of a trading strategy that
will outperform the market, [since the EMH assumes the Bachelier
random walk theories, (RWT), as a paradigm of stock price
fluctuations.] On the other hand, the EMH says that all available
information has already been factored into the price of a
stock. But how can this happen if no one gathers information? The
fact is, it can't. Therefore, in order for the EMH to be valid,
there must be a sufficiently large number of traders who don't
believe it! So it can only be true if you don't think it's true-a
stock market version of the famous Liar's Paradox ("All Cretans
are liars. I am a Cretan. I'm lying").
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Re: Holding or investing?
Old 01-17-2004, 03:44 AM   #44
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Re: Holding or investing?

Quote:

1) If oil exploration increases and a shortage are in the cards then buying oil and gas stocks (Vanguard Energy?) seems like a great long term bet...and the current returns and yields dont suck either.

2) This whole TIPS thing keeps making me think. I agree that when inflation is in gear they'll make the world of sense. *But they seem to have lousy returns. *What are the current (- inflation) yields? *Under 2%? * ....*Or do I just completely not understand some fundamental aspect of these?
Maybe I've been participating in this forum too long, because the same things that were discussed previously keep popping up.

1) Back on December 10, 2002, I posted this under the heading "Invest in Futures Contracts?"

"Long term, it's virtually certain that the price of crude oil will continue to rise, as world demand expands and readily available supplies are drawn down and sold at a higher price by the countries that control them. Eventually, I foresee the price rising to the point that gasoline is largely replaced by hydrogen or some other renewable fuel in cars, and the remaining oil is used mostly for aircraft.

A way to hedge against this eventuality is to enter into long-term futures contracts to purchase crude oil. Contracts are available as far in the future as December 2008, with the current price being about $23 per barrel. This represents a substantial discount to the spot price of about $27 per barrel. Since one contract is for 1,000 barrels, owning one contract commits a person to purchase 1000 barrels for $23 per barrel. Realistically, the potential loss might be around $8,000 if the price would temporarily drop to $15 per barrel, but the potential gain is much greater. For example, if the price of oil went to $40 per barrel, the gain would be $17,000 per contract. That would certainly help to defray the increased price of gasoline and heating oil."

Currently, the spot price of oil is above $35 per barrel, and the long term futures contracts are at about $27 per barrel. And anybody who followed my advice is not complaining about the higher price of gasoline and heating oil. The entire discussion is still posted and I would suggest referring to it, because it still applies and has been validated by events that have occurred since then.

2) The quoted yield on TIPs is just the interest yield. The inflation adjustment that occurs every 6 months to the principal value is IN ADDITION TO that. So the total return on TIPs is substantially greater than the quoted yield when inflation actually occurs, which it can be expected to do. In my opinion the yield on long term TIPs is not a "steal," but is nevertheless very attractive considering that it represents a guaranteed real rate of return.



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Re: Holding or investing?
Old 01-17-2004, 05:46 AM   #45
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Re: Holding or investing?

Ted,

I agree with most of what you've written (and what a topic drift . ) What is the solution? All I can think of is a realization that we will have to "reduce" our standard of living. A Honda instead of an SUV, one TV instead of one in each room (or bought cheaply as JohnGalt has done), etc. And of course less commuting due to taxing the true usage of roads. I also like the idea of a national sales tax, aka a consumption tax, instead of an income tax.

This of course benefits me and probably all FIRE types but it would also reduce petro consumption, reduce our dependence on the mideast, thus reducing our defense needs, and, inevitably, make life more enjoyable for everyone.
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Re: Holding or investing?
Old 01-17-2004, 06:08 AM   #46
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Re: Holding or investing?

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Ted,

I agree with most of what you've written (and what a topic drift . ) What is the solution?
The "magic bullet" is to phase-in a substantial tax on crude oil. The revenues can be used to control the deficit, fund increased spending needs such as the medicare drug benefit, and eliminate other taxes.

This will induce consumers to reduce their consumption of oil products through a multitude of voluntary changes in purchasing habits and lifestyle. At the same time, it will encourage industry to develop alternate sources of energy without the need for subsidies -- which are political "pork" and may very well encourage the production of products such as corn for ethanol that consume more energy than they produce!

This concept is anything but novel, in that practically every other industrialized nation taxes oil much more heavily than the U.S., and uses a lot less per capita. And the quality of life in many of these countries (e.g., Switzerland, Denmark, Sweden, western Germany) is as good as life in the U.S. in most respects.
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Re: Holding or investing?
Old 01-17-2004, 07:16 AM   #47
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Re: Holding or investing?

It seems to me that the idea of depleting the world's oil reserves is well publicized, and that public policy is already rolling out in the form of subsidizing alternative fuel development, tax credits for buying hybrid/alternative autos, and increasing tax friction at the pump. So the chance to profit from this idea seems limited.

As you probably know, the nation's aquifers are also a limited resource, and increasing taxes won't make help regulate the supply of clean water. Enron apparently tried to corner the water market before they flamed out. Anybody know of a good water play?
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Re: Holding or investing?
Old 01-17-2004, 07:21 AM   #48
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Re: Holding or investing?

My last water stock is PSC(Philadelphia Surburban) - the others I had were bought by European co.'s.
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Re: Holding or investing?
Old 01-17-2004, 07:28 AM   #49
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Re: Holding or investing?

BTY - AWR,CWT, and SWWC are on my watch list. I first bought water stocks in the early 90's as a dividend play - AND they are interest rate sensitive.
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Re: Holding or investing?
Old 01-17-2004, 07:47 AM   #50
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Re: Holding or investing?

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*Anybody know of a good water play?
Here's a good link.
http://www.minou.com/aboutsex/waterplay.htm
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Re: Holding or investing?
Old 01-17-2004, 11:58 AM   #51
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Re: Holding or investing?

Ok then, we all know what Ted does with his spare time when he's not writing about finances

re: stuff written before...I thought I'd read the majority of stuff on here, but I probably didnt go back past the beginning of last year (2003) for freshness. Buying commodity futures would scare the pants off me. The "New Era" fund looks interesting but they appear to suffer some style drift...2.64% in WalMart? Plus i'm really stuck on sticking with vangard funds. Perhaps one of my "minor asset reallocations" this year will be to put 5-10% into the energy fund.

I'm still a little stuck on Tips. If the benefit is the inflation protection associated with higher interest rates, and the higher interest rate/inflation bogeyman is imminent and scary enough to make Tips attractive to buy at this time in significant amounts, why wouldnt one wait until the inflation/interest hits, then buy into Tips at a likely more favorable yield? What would be the benefit of an inflation adjusted bond like Tips vs the short term corp fund, which at 3% yields more than tips now...and if interest rates rise would take a short term NAV hit, followed by NAV recovery and a higher yield curve as interest rates rise...? That 2% yield just isnt turning my head, and even with an inflation adjustment to the principal (thats a taxable event in that year to boot), I cant see it as anything except better than buying treasuries. Or is that the point? If you're buying lots of treasuries, this is better because it'll preserve the below-inflation yields?!?
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Re: Holding or investing?
Old 01-17-2004, 03:39 PM   #52
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Re: Holding or investing?

Take a look at the real yields of bonds during periods of high inflation, and you'll see they can go negative. So, two likely outcomes if you wait for inflation to hit before you buy TIPS: your existing bonds will crater (and new issues may not compensate fully for inflation), and TIPS will command a premium which could lower their real yield (although not below zero).
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Re: Holding or investing?
Old 01-17-2004, 03:40 PM   #53
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Re: Holding or investing?

Vanguard's target retirement series fund for those already retired holds a whopping 25% Inflation protected securities. I don't think they called Ted but they're in screaming agreement.

The Walmart holding of New ERA is an 'inflation play'- they buy 2% of everything China exports to us - at a pegged currency to the dollar - at least that's the explaination I read. ? - I don't understand it either.
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Re: Holding or investing?
Old 01-17-2004, 05:38 PM   #54
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Re: Holding or investing?

Quote:
My last water stock is PSC(Philadelphia Surburban) - the others I had were bought by European co.'s.
That's interesting. It looks like the french (Suez and Vivendi) went shopping for US water companies. They have us by the short hairs now -- it's only a matter of time before they take revenge for "freedom fries"
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Re: Holding or investing?
Old 01-17-2004, 07:09 PM   #55
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Re: Holding or investing?

RE: TIPS - See http://www.clariden.ch/publications/...foipf0703e.pdf for a recent pro-TIPS article.

Also, since "The historical real yield on Treasury bills, which do track inflation and do therefore provide roughly 100% inflation pass-through, has averaged roughly 0.8% since we went off the gold standard in 1931.", 2% is a good historical real return. Yes, I know that recent years have provided a 3% real return (see above URL), but there is no guarentee that will return. Here is a chart I found (from http://www.pimcofunds.com/commentary...ss08012003.jsp):



which shows historical real returns since 1953. The rate on a TIP is the real return for the next 10 years. A 2% real return for 10 years will look good anywhere on the chart except for the 80's decade.

I'm still mostly in equities and some corperate bonds from when I set up my 72t plan. TIPS will be a component after the bonds mature and my fixed income % drops. Hopefully the bonds will still be selling for a good real return.

Wayne
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Re: Holding or investing?
Old 01-18-2004, 01:39 AM   #56
 
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Re: Holding or investing?

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Advocating developing the Alaska oil fields as a solution is basically a cop-out because the oil there is only a fraction of a year's usage by the U.S.
Hello, I was lurking on this board and just wanted to correct this statement. I was watching the History Channel last week and they had a show on the Alaskan pipeline. They said that the ANWR oil reserve is "estimated" to be larger than the fields that have been supplying the pipeline for over 26 years. I just did a quick google search and estimated the Alaska pipeline has supplied about two years worth of domestic oil usage at TODAY'S usage level. http://www.ncseonline.org/NLE/CRSrep...l/nrgen-25.cfm
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Re: Holding or investing?
Old 01-18-2004, 03:46 AM   #57
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Re: Holding or investing?

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*I just did a quick google search and estimated the Alaska pipeline has supplied about two years worth of domestic oil usage at TODAY'S usage level. *
Even if this is correct, it doesn't change the basic conclusion that developing the remaining oil reserves in Alaska would provide only a "band aid" solution to a really serious economic problem. Having lived for 59 years now, and being interested in history and anthropology, I regard two years in the history of a country as nothing but a fleeting moment.

I think that there is adequate technology and adequate political will to develop the ANWR fields with an acceptable level of risk to the environment there. But I think that it is foolish to do so in order that suburbanites can do their commuting and shopping in SUVs, take vacations on yachts and in motor homes, commute 30 miles per day to work, etc.

Whether ANWR is developed or not, the cost of acquiring new oil will continue to rise. If this "cost" were simply a matter of dollars, I would be somewhat sympathetic to the argument that the free market would work to balance consumption with supply. But the greater problem is that the "cost" involves exercising some control over the political affairs of godforsaken parts of the world, which is what led to 9/11 and the subsequent cost in American soldiers' lives in Afghanistan and Iraq and who knows where else in the future. I think about those costs every time I fill my (modest sized) car's tank with gasoline.
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Re: Holding or investing?
Old 01-18-2004, 03:52 AM   #58
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Re: Holding or investing?

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*It looks like the french (Suez and Vivendi) went shopping for US water companies. * They have us by the short hairs now -- it's only a matter of time before they take revenge for "freedom fries" *
This sounds like the concerns that were expressed during the 1980's that the Japanese were "buying out America." Actually, as Japanese investors discovered, when somebody invests in a foreign country, it is the foreign country that has them by the short hairs. Through a combination of regulation and devaluation of the money supply (not to mention outright appropriation of assets in the extreme case) it is rather easy for a country to limit the profitability of investments by foreigners.

This is particularly true of water companies, since they are utilities whose rates (and thus their profits) are regulated by every state.
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