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Monday, December 31, 2007

There Is A Real Shortage Of Agricultural Stocks

To quote Don Coxe from his December 28, 2007 Conference Call;

"We have a shortage. There's more of a shortage of agricultural stocks than there is of soy beans. So this is a good time for investors in this group but it's always dangerous when you've had the kind of runups that these have had to say, "Well next year is still going to be a good year." But if you think back to what happened when oil came off $22 and started its way up. When you got to $50 oil there were fewer people on board to say that we could have a run from there.

So remember that adjusted for inflation these grain prices are still at trivial levels. What people have got to adjust to is the idea that a bigger and bigger part of total consumer expenditures in the world are going to have to go on food and that's being resisted all over the place. You had the elections in Venezuela and Russia where they froze food prices during the election campaign and then they're surprised when there's scarcity in the stores and that's one of the things that beat Chavez. He thought he could by just extending the imperial arm continue to deliver cheap food to the voters and the urban mob. He got fooled.

So the food story is one of genuine scarcity of food and of stocks but you're right. The biggest scarcity is in the stocks themselves."

I have been searching for agricultural stocks and its been difficult to find anything that has not all-ready doubled or tripled.

I have found one income stock called Cervus LP. It trades on the Canadian Venture Exchange with the symbol CVL.UN-X. It trades at $16.50 and pays a $0.09 monthly ($1.08/year) distribution (6.6% yield). This company owns some John Deere dealerships in Western Canada as well as some construction equipment dealerships. It to has a big run up and is very illiquid. You can find out more by clicking here.

You can read a transcript of Don Coxe's December 28, 2007 Conference Call by Clicking here.

Sunday, December 30, 2007

2008 Investment Recommendations

BASIC POINTS INVESTMENT RECOMMENDATIONS with my comments in italics at the end of each point.

1. Remain heavily underweight banks, particularly investment banks that have displayed monumental stupidity. Do not assume that a change at the top will automatically convert them into temples of wisdom, (unless it is accompanied by demands for the departing to repay bonuses based on bets that turned out disastrously). Better to assume that, like subprime-based CDOs, there are layers of rot that can make the entire product dangerous to your financial health.

Stay away from Canadian Banks for now. Especially the CIBC.

2. Remain overweight Emerging Markets, emphasizing those that are oil, gas,and/or food exporters.

I do not like investing in emerging markets.

3. Soaring food costs threaten stability for some Third World economies. We have been ardently endorsing India since we returned from our leave of absence a year ago. We are now more cautious, because a weak monsoon could be politically and economically destabilizing at a time of $4 corn and $10 wheat.

Stay away from Indian stocks or ETFs for now.

4. Remain heavily overweight gold—both stocks and the ETF. Gold is almost as good a protection against banking problems as SKF—the UltraShort Financials ETF—a security which may not be a suitable investment in some portfolios.

SKF-N is interesting or you can try HFD-T in Canada.

5. We continue to believe that the Agricultural stocks are the pre-eminent investment class of our time. Farm incomes are rising rapidly, and, in the US, farms and farm land are the real estate assets that are rising in value and are virtually immune to foreclosures. That means the leading Ag companies have great pricing power and minimal credit problems. We now hear suggestions that because food inflation has finally made it to the cover of The Economist, it is time to start moving toward the exits. Not so: We think that fine cover story could be the atonement—At Last!—for
the magazine’s famous 1999 cover: $5 Oil.

Look at CVL.UN-X

6. Remain overweight oil and gas producers, including the Alberta oil sands producing companies. As disappointed as we are with the new royalty schemes in that province, Alberta certainly remains more attractive than Nigeria or Angola—and much more attractive than Russia, Kazakhstan, or Venezuela.

Recommend COS.UN or how about HTE.UN?

7. We think it is time to begin accumulating the refiners that are equipped to handle heavy high-sulfur crude. The collapse of the crack spread has savaged refiners’ earnings, but that will eventually rebound. The Saudis have virtually turned out the Light, and less and less of the oil that the Gulf states will be lifting will be of the most desirable grades.

This makes Harvest Energy HTE.UN very interesting

8. Retain the base metals stocks that have long-life unhedged reserves in secure areas. Even if there is a global recession caused by global collapses of subprime paper and LBO loans, it will not be deep enough to drive base metal prices back to 2004 levels—but would be worrisome enough to push further mine development even farther into the future.

Take a look at MMP.UN-T

9. When borrowing, borrow where possible in dollars. When investing, invest where possible in other currencies.

Good idea.

10. Stagflation is a bad backdrop for bonds—and for non-commodity stocks. The central bankers could have headed it off had Wall Street behaved with a modicum of morality, but the Fed and its brethren are forced into sustained reflation because of the global solvency crisis. Corporate earnings for most sectors will not meet current optimistic Street forecasts, and rising inflation will reduce the market’s P/E.

Stay away from market index funds for now.

Saturday, December 29, 2007

Enervest Diversified Income Exchange Traded Fund (EIT.UN-T) Is Trading At A 20% Discount to Net Asset Value

Enervest Diversified Income Exchange Traded Fund (EIT.UN-T) Is Trading At A 20% Discount to Net Asset Value.

At the close of trading on December 27, 2007 the units of this exchange trade fund closed at $5.23. Meanwhile its Net Asset Value (NAV) is $6.61. This is a discount of $1.38 which translates to a discount of 20.7%. This is extraordinary and unprecedented.

The fund is paying out $0.07 per month distribution which translates to a yield of 16.1%.

I think this fund should trade at a discount of 10% so I expect a 10% pop in the unit price unless the NAV collapses.

In interest of full disclosure I still own 15,000 units and I suggest you conduct your own due diligence. Click here to learn more.

Friday, December 28, 2007

Agricultural Stocks Are The Pre-eminent Investment Class Of Our Time

Don Coxe continues to believe that the Agricultural stocks are the pre-eminent investment class of our time. Farm incomes are rising rapidly, and, in the US, farms and farm land are the real estate assets that are rising in value and are virtually immune to foreclosures.

That means the leading Agricultural companies have great pricing power and minimal credit problems. We now hear suggestions that because food inflation has finally made it to the cover of The Economist, it is time to start moving toward the exits.

Not so fast.

In Don's December 19, 2007 Basic Points newsletter he makes an elegant argument of where we have been and where we are going. Don has been recommending Agricultural stocks for the last year and those that have listened to his advice have all-ready made some nice gains.

I will be emailing a copy of Don's December 19, 2007 Basic Points newsletter (this is only issued to Clients of Nesbitt Burns) on December 29, 2007. So if you haven't signed up for our free service then please do as soon as possible.

Thursday, December 20, 2007

Harvest Energy Trust Recommended at These Levels

Harvest Energy Trust: Kicking Out Healthy Distribution
by Peter Everds

Harvest Energy Trust (HTE) is a Canadian Royalty Trust with upstream and downstream operations.

As many of you may know, HTE cut their distribution recently and their units, which were trading at $28.96 in early November, got a big haircut and are now trading around $20. At current prices, the trust is yielding 17.5%.

Right now the market is not acknowledging the bottom line cash flow increases because of higher crude and NG pricing, not to mention the increase in the crack spread.

Even in Canadian dollar terms, the increases in natural gas [NG] and crude futures [CL] are significant. On November 20th, Don Vialoux estimated that the price of crude in Canadian dollars had gained roughly 28% from the low in August. He also estimated that natural gas in Canadian dollars had gained 46% from the beginning of September.

We have seen a number of Investment Banks, including Merrill Lynch (MER) and Goldman Sachs (GS), start to revise their CL price decks up in the last couple of weeks and this will help HTE's estimates. Moreover, the price decks are being upped by pretty hefty amounts. FBR (FBR) just upped their 2008 CL price $20, from $60 to $80 per barrel.

The kicker for HTE is the refinery. After 2 months of maintenance the refinery is running at full capacity. The 312 crack spread has been trending higher, more than doubling in the last 8 weeks. It has gone from a low of around $7 to the current price of $14.61 At one point this year the refinery was contributing roughly 55% of cash flow. The refinery will start contributing substantially to the bottom line as seasonal pressures lead to an increased crack spread.

We are starting to get seasonal upgrades in refiners: For instance: "Bank of America raises Refiners to Buy from Neutral; Raises 2008 refining margin outlook"; Valero Energy (VLO) raised to Buy from Neutral; Price Target raised to $80 from $68; Western Refining (WNR) raised to Buy from Neutral; Pri ce Target raised to $38 from $35

The 3Q payout ratio [POR] was 86%. Under the reduced distribution, the POR would have been roughly 70%. This is pretty reasonable considering how bad the quarter was. 4th quarter POR, with the refinery limited for 2 months, should still be in the 70s. In the "if everything goes swell category", 2008 2nd quarter POR could be in the 50s, compared to 2007's 2nd quarter POR of 63%.

Technically, HTE is at 3 year lows and the RSI and MACD are indicating HTE is oversold (surprise). There is a nice little gap in the 25.5 area. The chart is very similar to HTE's chart last year including the November gap down. Hopefully, the results will be the same with the strong rally though the first half of the year.

Insiders have bought 36,000 units since the mid-November announcement of the distribution cut. If you want a refiner that is kicking out a healthy distribution, Harvest might be worth taking a look a

Tuesday, December 4, 2007

Income Generating Securities Do Well In An Interest Rate Cutting Environment

Tha Bank of Canada reduced interest rates by 25 basis points today and the US Federal Reserve is expected to do the same next week.

The US Federal Reserve and the Bank of Canada are expected to continue to lower interest rates in an effort to prevent a recession.

When that happens, investors generally turn to dividend-paying stocks to boost their return.

If history is any guide than stocks in the utilities sector, dividend paying stocks and income trusts will trend higher over the coming months.

Friday, November 23, 2007

REIT Review Sent Out to Our Email List Subscribers

Members of our mailing list were sent a 31 page REIT review. If you are not a member of our mailing list then you cannot have access to these reports.

I urge you to sign up at www.investingforincome.com

There is no obligation and we do not sell or rent our mailing list to others.

If you signed up in the past but have not recieved any emails then I suggest you resubmit your address because our emailing provider automatically removes all emails that have had soft or hard bounces in past mailings.

SDT.UN Trading at a 14% Discount to Net Asset Value

Sentry Select just published the Net Asset Value (NAV) of SDT.UN as of November 22, 2007 of $4.71. It closed at $4.04 resulting in a $0.67 discount to NAV. This translates to a 14.2% discount to NAV.

It appears that the diversified exchange traded funds move towards a 15% discount NAV when the market is weak and uncertain.

Investors can't go wrong by purchasing these funds at such a deep discounts but you must be willing to hang on until the price recovers and I recommend trading this particular fund when it gets close to NAV or they announce share offerings. This particular fund is not a buy and hold type investment in my opinion.

Thursday, November 22, 2007

Collapse of SDT.UN Market Price

Sentry Select Diversified income exchange traded fund has experienced a severe market price collapse. It appears to me that a lot of the new unit holders from the share exchange offering are jumpimg out of their positions.

The question on everyone's mind is why hasn't Sentry conducted a large buy back to support the unit price.

I can't answer this question but I can tell you the following;

Approximate Number of Units Outstanding as of Oct 1, 2007; 200,000,000

Approximate Nmber of Units Outstanding as of Oct 31, 2007; 265,000,000

Approximate number of units cancelled due to share purchase on the open market as of Oct 31, 2007; 6,500,000

Approximate number of units available for cancellation in the 4th quarter (5% of outstanding units at begining of qtr); 10,000,000

Approximate number of shares available for cancellation in Q4; 3,500,000

Approximate Number of Units held by Manager Sandy McIntyre; 365,000

Net Asset Value as of Nov 15, 2007 (even less now); $4.82

Market Value as of Nov 21, 2007 (even less today); $4.00

Discount to Net Asset Value; 17%

Annualized Distribution per Unit; $0.54

Yield on Market Value; 13.5%

Yield on Net Asset Value; 11.2%

It appears to me that SDT.UN will not repurchase units to support the unit price until later on this quarter. Until then if you want to sell you will need to accept a huge discount to Net Asset Value.

I am holding on to my remaining position until the units trade within 5% of Net Asset Value. At that point I will probably exit my position.

Please perform your own due diligence.

Sunday, November 18, 2007

Inflation or Deflation? - Canada Will Begin to Experience Deflation

Although inflation concerns are proving to be a concern due to rising commodity prices, other sectors of the economy such as retail prices and imported goods rasises the possiblity of a deflation scare are climbing in Canada.

Goods prices are already firmly in deflationary territory. Service sector inflation (outside of housing) failed to overly inflate during the boom, and is likely to lower in eastern Canada with the economy growing at a sub-par pace. Retailers are in price discounting mode. Inflation is not going to be a constraint on the Bank of Canada, and I expect rate cuts ahead, especially with the credit crunch continuing to roll on in the US.

As a matter of fact the bifurcating economy will result in the deflationary pressue of the non-commodity producing sector to overtake the inflationary pressure from the commodity sector resulting in a defaltionary bias.

This should provide a lift to interest sensitive securities over the coming months. I especially feel that Canadian REITS will be one of the first beneficiaries of this trend.

Friday, November 16, 2007

Transcript of French President Nicolas Sarkozy's Address to US Congress on November 7, 2007

This posting is a little different than most of my postings. However, there is a major political and economic re-alignment taking place in the world today which is under the radar of most media. This has long term implications for our investments which I feel are very positive.

In a nutshell, the entire Eurozone (Eastern and Western Europe) is re-aligning themselves with the USA. Most of the media carries stories of world wide hatred of the USA and the latest American credit mess will be the downfall of the USA.

However, the exact opposite is true. I have written that we should never underestimate the Americans and they will get themselves out of this econmic credit mess and the US$ will eventualy recover.

To prove my point I am publishing the transcript of French President Nicolas Sarkozy's address to US Congress on November 7, 2007. France, under Chirac led the Eurozone and worldwide anti-american crusade. This speech is so pro-american that it shows the French have made a 180 degree turn on their foreign policy.

Please take a moment to read this transcript...you will be surpsised.

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November 07, 2007
Renewing the French-American Alliance
By Nicolas Sarkozy

Madam Speaker, Mr. President, Ladies and Gentlemen of the United States Congress, Ladies and Gentlemen,

The state of our friendship and our alliance is strong.

Friendship, first and foremost, means being true to one's friends. Since the United States first appeared on the world scene, the loyalty between the French and American people has never failed. And far from being weakened by the vicissitudes of History, it has never ceased growing stronger.

Friends may have differences; they may have disagreements; they may have disputes.

But in times of difficulty, in times of hardship, friends stand together, side by side; they support each other; and help one another.

In times of difficulty, in times of hardship, America and France have always stood side by side, supported one another, helped one another, fought for each other's freedom.

The United States and France remain true to the memory of their common history, true to the blood spilled by their children in common battles. But they are not true merely to the memory of what they accomplished together in the past. They remain true, first and foremost, to the same ideal, the same principles, the same values that have always united them.

The deliberations of your Congress are conducted under the double gaze of Washington and Lafayette. Lafayette, whose 250th birthday we are celebrating this year and who was the first foreign dignitary, in 1824, to address a joint session of Congress. What was it that brought these two men--so far apart in age and background--together, if not their faith in common values, the heritage of the Enlightenment, the same love for freedom and justice?

Upon first meeting Washington, Lafayette told him: "I have come here to learn, not to teach." It was this new spirit and youth of the Old World seeking out the wisdom of the New World that opened a new era for all of humanity.

From the very beginning, the American dream meant putting into practice the dreams of the Old World.

From the very beginning, the American dream meant proving to all mankind that freedom, justice, human rights and democracy were no utopia but were rather the most realistic policy there is and the most likely to improve the fate of each and every person.

America did not tell the millions of men and women who came from every country in the world and who--with their hands, their intelligence and their heart--built the greatest nation in the world: "Come, and everything will be given to you." She said: "Come, and the only limits to what you'll be able to achieve will be your own courage and your own talent." America embodies this extraordinary ability to grant each and every person a second chance.

Here, both the humblest and most illustrious citizens alike know that nothing is owed to them and that everything has to be earned. That's what constitutes the moral value of America. America did not teach men the idea of freedom; she taught them how to practice it. And she fought for this freedom whenever she felt it to be threatened somewhere in the world. It was by watching America grow that men and women understood that freedom was possible.

What made America great was her ability to transform her own dream into hope for all mankind.

Ladies and Gentlemen,

The men and women of my generation heard their grandparents talk about how in 1917, America saved France at a time when it had reached the final limits of its strength, which it had exhausted in the most absurd and bloodiest of wars.

The men and women of my generation heard their parents talk about how in 1944, America returned to free Europe from the horrifying tyranny that threatened to enslave it.

Fathers took their sons to see the vast cemeteries where, under thousands of white crosses so far from home, thousands of young American soldiers lay who had fallen not to defend their own freedom but the freedom of all others, not to defend their own families, their own homeland, but to defend humanity as a whole.

Fathers took their sons to the beaches where the young men of America had so heroically landed. They read them the admirable letters of farewell that those 20-year-old soldiers had written to their families before the battle to tell them: "We don't consider ourselves heroes. We want this war to be over. But however much dread we may feel, you can count on us." Before they landed, Eisenhower told them: "The eyes of the world are upon you. The hopes and prayers of liberty-loving people everywhere march with you."

And as they listened to their fathers, watched movies, read history books and the letters of soldiers who died on the beaches of Normandy and Provence, as they visited the cemeteries where the star-spangled banner flies, the children of my generation understood that these young Americans, 20 years old, were true heroes to whom they owed the fact that they were free people and not slaves. France will never forget the sacrifice of your children.

To those 20-year-old heroes who gave us everything, to the families of those who never returned, to the children who mourned fathers they barely got a chance to know, I want to express France's eternal gratitude.

On behalf of my generation, which did not experience war but knows how much it owes to their courage and their sacrifice; on behalf of our children, who must never forget; to all the veterans who are here today and, notably the seven I had the honor to decorate yesterday evening, one of whom, Senator Inouye, belongs to your Congress, I want to express the deep, sincere gratitude of the French people. I want to tell you that whenever an American soldier falls somewhere in the world, I think of what the American army did for France. I think of them and I am sad, as one is sad to lose a member of one's family.

Ladies and Gentlemen,

The men and women of my generation remember the Marshall Plan that allowed their fathers to rebuild a devastated Europe. They remember the Cold War, during which America again stood as the bulwark of the Free World against the threat of new tyranny.

I remember the Berlin crisis and Kennedy who unhesitatingly risked engaging the United States in the most destructive of wars so that Europe could preserve the freedom for which the American people had already sacrificed so much. No one has the right to forget. Forgetting, for a person of my generation, would be tantamount to self-denial.

But my generation did not love America only because she had defended freedom. We also loved her because for us, she embodied what was most audacious about the human adventure; for us, she embodied the spirit of conquest. We loved America because for us, America was a new frontier that was continuously pushed back--a constantly renewed challenge to the inventiveness of the human spirit.

My generation shared all the American dreams. Our imaginations were fueled by the winning of the West and Hollywood. By Elvis Presley, Duke Ellington, Hemingway. By John Wayne, Charlton Heston, Marilyn Monroe, Rita Hayworth. And by Armstrong, Aldrin and Collins, fulfilling mankind's oldest dream.

What was so extraordinary for us was that through her literature, her cinema and her music, America always seemed to emerge from adversity even greater and stronger; that instead of causing America to doubt herself, such ordeals only strengthened her belief in her values.

What makes America strong is the strength of this ideal that is shared by all Americans and by all those who love her because they love freedom.

America's strength is not only a material strength, it is first and foremost a spiritual and moral strength. No one expressed this better than a black pastor who asked just one thing of America: that she be true to the ideal in whose name he--the grandson of a slave--felt so deeply American. His name was Martin Luther King. He made America a universal role model.

The world still remembers his words--words of love, dignity and justice. America heard those words and America changed. And the men and women who had doubted America because they no longer recognized her began loving her again.

Fundamentally, what are those who love America asking of her, if not to remain forever true to her founding values?

Ladies and Gentlemen,

Today as in the past, as we stand at the beginning of the 21st century, it is together that we must fight to defend and promote the values and ideals of freedom and democracy that men such as Washington and Lafayette invented together.

Together we must fight against terrorism. On September 11, 2001, all of France--petrified with horror--rallied to the side of the American people. The front-page headline of one of our major dailies read: "We are all American." And on that day, when you were mourning for so many dead, never had America appeared to us as so great, so dignified, so strong. The terrorists had thought they would weaken you. They made you greater. The entire world felt admiration for the courage of the American people. And from day one, France decided to participate shoulder to shoulder with you in the war in Afghanistan. Let me tell you solemnly today: France will remain engaged in Afghanistan as long as it takes, because what's at stake in that country is the future of our values and that of the Atlantic Alliance. For me, failure is not an option. Terrorism will not win because democracies are not weak, because we are not afraid of this barbarism. America can count on France.

Together we must fight against proliferation. Success in Libya and progress under way in North Korea shows that nuclear proliferation is not inevitable. Let me say it here before all of you: The prospect of an Iran armed with nuclear weapons is unacceptable. The Iranian people is a great people. It deserves better than the increased sanctions and growing isolation to which its leaders condemn it. Iran must be convinced to choose cooperation, dialogue and openness. No one must doubt our determination.

Together we must help the people of the Middle East find the path of peace and security. To the Israeli and Palestinian leaders I say this: Don't hesitate! Risk peace! And do it now! The status quo hides even greater dangers: that of delivering Palestinian society as a whole to the extremists that contest Israel's existence; that of playing into the hands of radical regimes that are exploiting the deadlock in the conflict to destabilize the region; that of fueling the propaganda of terrorists who want to set Islam against the West. France wants security for Israel and a State for the Palestinians.

Together we must help the Lebanese people affirm their independence, their sovereignty, their freedom, their democracy. What Lebanon needs today is a broad-based president elected according to the established schedule and in strict respect of the Constitution. France stands engaged alongside all the Lebanese. It will not accept attempts to subjugate the Lebanese people.

Ladies and Gentlemen,

America feels it has the vocation to inspire the world. Because she is the most powerful country in the world. Because, for more than two centuries, she has striven to uphold the ideals of democracy and freedom. But this stated responsibility comes with duties, the first of which is setting an example.

Those who love this nation which, more than any other, has demonstrated the virtues of free enterprise expect America to be the first to denounce the abuses and excesses of a financial capitalism that sets too great a store on speculation. They expect her to commit fully to the establishment of the necessary rules and safeguards. The America I love is the one that encourages entrepreneurs, not speculators.

Those who admire the nation that has built the world's greatest economy and has never ceased trying to persuade the world of the advantages of free trade expect her to be the first to promote fair exchange rates. The yuan is already everyone's problem. The dollar cannot remain solely the problem of others. If we're not careful, monetary disarray could morph into economic war. We would all be its victims.

Those who love the country of wide open spaces, national parks and nature reserves expect America to stand alongside Europe in leading the fight against global warming that threatens the destruction of our planet. I know that each day, in their cities and states, the American people are more aware of the stakes and determined to act. This essential fight for the future of humanity must be all of America's fight.

Those who have not forgotten that it was the United States that, at the end of the Second World War, raised hopes for a new world order are asking America to take the lead in the necessary reforms of the UN, the IMF, the World Bank and the G8. Our globalized world must be organized for the 21st century, not for the last century. The emerging countries we need for global equilibrium must be given their rightful place.

Ladies and Gentlemen,

Allow me to express one last conviction: Trust Europe.

In this unstable, dangerous world, the United States of America needs a strong, determined Europe. With the simplified treaty I proposed to our partners, the European Union is about to emerge from 10 years of discussions on its institutions and 10 years of paralysis. Soon it will have a stable president and a more powerful High Representative for foreign and security policy, and it must now reactivate the construction of its military capacities.

The ambition I am proposing to our partners is based on a simple observation: There are more crises than there are capacities to face them. NATO cannot be everywhere. The EU must be able to act, as it did in the Balkans and in the Congo, and as it will tomorrow on the border of Sudan and Chad. For that the Europeans must step up their efforts.

My approach is purely pragmatic. Having learned from history, I want the Europeans, in the years to come, to have the means to shoulder a growing share of their defense. Who could blame the United States for ensuring its own security? No one. Who could blame me for wanting Europe to ensure more of its own security? No one. All of our Allies, beginning with the United States, with whom we most often share the same interests and the same adversaries, have a strategic interest in a Europe that can assert itself as a strong, credible security partner.

At the same time, I want to affirm my attachment to NATO. I say it here before this Congress: The more successful we are in the establishment of a European Defense, the more France will be resolved to resume its full role in NATO.

I would like France, a founding member of our Alliance and already one of its largest contributors, to assume its full role in the effort to renew NATO's instruments and means of action and, in this context, to allow its relations with the Alliance to evolve.

This is no time for theological quarrels but for pragmatic responses to make our security tools more effective and operational in the face of crises. The EU and NATO must march hand in hand.

Ladies and Gentlemen,

I want to be your friend, your ally and your partner. But a friend who stands on his own two feet. An independent ally. A free partner.

France must be stronger. I am determined to carry through with the reforms that my country has put off for all too long. I will not turn back, because France has turned back for all too long. My country has enormous assets. While respecting its unique identity, I want to put it into a position to win all the battles of globalization. I passionately love France. I am lucid about the work that remains to be accomplished.

It is this ambitious France that I have come to present to you today. A France that comes out to meet America to renew the pact of friendship and the alliance that Washington and Lafayette sealed in Yorktown.

Together let us be worthy of their example, let us be equal to their ambition, let us be true to their memories!

Long live the United States of America!

Vive la France!
Long live French-American friendship!

Nicolas Sarkozy is the President of France.

Thursday, November 15, 2007

Is It Time to Get Out of the Market? Not Yet!

Once in awhile I like to republish an article that I have read that seems very relevant. This past year has been troubling as my income from investments has been eaten up by capital losses. I have been seriously rethinking my strategy because of all the uncertainty in the market.

I subscribe to Max Whitmores newsletters. I just received this news letter and its not yet published on his web site. I am watching his key line chart. If the markets violate his chart I think we may have to move into cash.

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Whitmore: It’s A Confidence Thing

I have been through a lot of ups and downs in my 40 years as a broker-money-manager-analyst-columnist and they are always the same in one crucial respect. There comes a moment when one side or the other — the bulls or the bears — blink.

Call it what you will, this business is a business of backbone and beliefs. The beliefs that one carries down deep in his heart of hearts about anything is the true summing up of an individual’s outlook on life and selection of values and ethics to live by. But the even greater part of that heart is the backbone. Call it courage, guts, or what have you, to brace against the storms that seek to shake one’s deeply held convictions.

Now, hang with me on this. This is not a philosophical discussion I am embarking on today. It is a look at what I believe is one of those pivotal moments of our current market cycle where somebody’s about to blink. Yes, I have written on this subject before, alerting you to this coming event, but at that time we weren’t upon the threshold of the event.

In my estimation, the next three to four weeks will determine the direction this market takes for the next six to 12 months. And it will all come down to the same “one moment” I have seen so often before, where one side or the other blinks.
What is it that causes the blink? It is the oldest of old human qualities — CONFIDENCE. In this case, it will be the confidence in one’s studied evaluation of the economic facts against the huge supply of rumors that have filled many pages and talk shows during the last six months or so.

Will this deluge be bad enough that the bulls will blink or will the stubborn refusal of the market to tank finally sap the bears determination to drive the market lower? Clearly, it will be a confidence thing for either side.

Again, hang with me as I would like to digress for just a moment. Early in my career in this business, I was fortunate enough to have met a guy that, as I look back on it now, was one of the most savvy market analysts that I have ever met. His name was Roy Klopper.

He was a contrary son-of-a-gun, he was. Short on talk, unless it was to say something that counted and yet, one of the nicest guys I have ever met. For reasons I still don’t understand, he took me under his wing in those days because I was really struggling to try and understand this business and frankly not doing too well at it.

Roy took me to lunch one day after a particularly tough morning and after a sandwich and coffee (I had to pay — he never gave anything away, he said) he proceeded to spend three hours telling me what it was all about.

The bottom line was, he said, I needed to forget all about studying that huge number of reports I got every week on all of those companies. He told me even the best fundamentalist can’t remember all those facts and figures. He said, “Go to the one place where nobody can fool you. Go to the charts.”

I listened to him and embarked on what turned out to be a four-year study course from Professor Roy. What did I learn? I learned the basics of how to build what I now call my Super Chart. In it is included all the world’s real-time evaluation of what the future holds for investors. He said that it was far more important to listen to what people do versus what they say they might do.

OK, back to business. Just below is my current Weekly Super Chart for the S&P 500, as of the close on Nov. 14.

Can I ask you for one final hang in there? I have been asked quite often why I use the S&P 500 instead of the Dow Jones Industrial Average to call the market moves. The answer is really quite simple.

The 500 stocks are much more difficult to distort with concentrated trading by big traders than the Dow. Often in tough markets, the big money will concentrate on the Dow (comfort food for big money) and avoid the S&P stocks.

The result is a false picture of the market. Let me illustrate. Below is my Dow Jones Industrial Average Super Chart for the same period as the above S&P 500. Note especially the period from 2000 to mid-2003.

The S&P gave a solid sell signal during the week of Nov. 17, 2000, but not the Dow. The S&P never gave another signal until the week of June 20, 2003, while the Dow gave no less than five and, depending on the interpretation, as many as seven false signals. Hope that helps you better understand why I use the S&P.


But now, back to the guts of this column. After a huge 3000-point Dow point from July 2006 to July 2007, the market has seemingly chosen to work a 1,000 point range between Dow 13,000 and 14,000. Such trading ranges are not unusual, but occur more often at the bottom of a decline, not the top of a move.

A trading range at the top of a move is, 75 percent of the time, a “cooling off” move, “a correction in time” Roy use to called it.

The length of this correction period is usually best timed by counting the number of times the correction touches the bottom and top of the trading range without breaking through it to the upside or downside.

This current correction has touched top and bottom four times (including the new high as touch No. 1. And count the last touch No. 4 as last Friday, even though it did not close right on the trading range low at S&P 1432.

I have seen trading ranges go as many times as seven touches before they break — usually BIG! So, yes, we could still see as many as three touches before one side or the other blinks.

But I think that this trading range, being at the top of the move, leans more to the fewer touches (say four to five) before the breakaway. That puts us very, very near a possible break-away move.

So, what does my deep-down confidence say will happen? Well, both of the bottom touches in this trading range occurred above my Super Chart Keyline, 35 points for the first touch and 55 points on the fourth touch last Friday, but both were clearly above.

Experience tells me when this happens the move has a probability of better than 70 percent to 75 percent to break to the upside when all is said and done.

But, we are close enough to the Keyline to have to keep a close eye on it the next several weeks. We had a very similar situation in July 2006 and in that one the bears blinked first. Then, what a beautiful rally!

Bottom line is that despite all the fears, rumors, ups and downs of the market, scandals, and potential (notice I said potential) disasters looming in the background, the majority of traders still see a good future in the market — at least up until the close on Tuesday. For now, that is the real news of the day.

As I get ready to close this week’s column, it is interesting that some sage words of my mentor come to mind. As I neared the finish of his four years of training, Roy said to me, “Max, above all I have taught you, remember this first rule.

Never, never get married to a price target or the direction in which you think the market should go. Let it tell you what is happening. Put your confidence in the chart, and then put your money where its mouth is.”

I have never forgotten that sublime, quietly spoken sentence. It has saves me many times when I was just so sure that the chart must be wrong!

My advice to you is the same. Until we see different, use sell-offs to be a buyer. Look for bargains in stocks you like and know something about. And buy long-term call LEAPS on the S&P or Dow and cash in even more. As long as the Super Chart says buy, let it tell us what to do. And above all, don’t blink!!

Sunday, November 11, 2007

NAL Oil and Gas Trust -NAE.UN-T- Has Interesting Exploration Upside

RBC reports that Q3 Results are good with 45% production from natural gas and 55% from oil.

At the close of the third quarter 2007, NAL had 650 boe/d of production ready to be tied in, which will occur in Q4 2007. Furthermore, NAL is primed to increase its production as a result of a number of development projects now underway.

The next milestone are the three high impact Seneca Wells which are getting closer . The results of three high impact wells from the Seneca acquisition are nearing release. Depending on the outcome of the three Seneca wells, NAL should have further development potential opportunities with its partners.

RBC's target price and Rating Unchanged. RBC are maintaining their 12-month price target of $12.25 /unit, and an Outperform but RBC have not included the possible results of the three new wells.

We believe NAL has an interesting mix of exploration and development prospects converging in 2008, which could prove financially rewarding to patient investors.

I had a large position in NAE in 2006 but I sold it all because of the Halloween 2006 Tax Fairness Plan massacre.

Presently, NAE has has a $0.16 per month ($1.92 per year) distribution resulting in a yield of 15.6%. The payout ratio 69% and the payout ratio including capital expenditures is 114%. This Trust has some exploration upside potential. With a +15% yield you get paid to wait. Hopefully we not only get our distibutions but some capital gains potential too.

Now that is investing for income!

Saturday, November 10, 2007

SDT.UN and EIT.UN Trying to Support Unit Price With Buy Backs on the Open Market

The managers of SDT.UN and EIT.UN were actively in the market last week trying to support their unit prices.

Its hard to believe how far the unit prices have fallen and the discount to Net Asset Values are widening. Its no question that they are experiencing panic selling.

I have not sold the positions I still have at this point because sooner or later the unit prices will get closer to their net asset value. Furthermore, these stock buy backs will automatically increase the Net Asset Values of the remaining units.

Its like shooting fish in a barrell for the managers right now. They can raise their Net Asset values just by purchasing units. They will look like geniuses.

As the unit prices approach 95% of Net asset value I will begin to unload my remaining units.

Friday, November 2, 2007

Verenex Energy Q3 Results- $19 Haywod Securities Target

Verenex Energy (VNX : TSX : $10.65)

Verenex issued their third quarter results. They spudded their seventh well in Libya. However, they don't expect cash flow from their Libyan discoveries until late 2009.

Haywood Securities maintains "sector outperform", 12-month target price is $19.00.

This is one of two "none income" producing holdings at this time. A safer way to play Verenex is by holding Vermillion Energy Trust (VET.UN:TSX) which is Verenex's largest sharholder. Vermillion pays out $0.17 per month and is trading around the $40 mark.

Verenex will be very volatile until they actually start production and can publish accurate reserve calculations. Please conduct your own due dilligence.

SDT.UN Lost 3.3% of Net Asset Value for Existing Unit Holders

SDT.UN reported their Net Asset Value (NAV) as of November 1, 2007 as $5.06 per unit. The NAV on October 25, 2007 was $5.23 per Unit. This represents a dilution of $0.17 or 3.3% to the existing unit holders as result of the share exchange offer they recently completed.

This is unfair and shows that management cares more about itself then unit holders.

As I said in my last post, all the benefits of professional management are accruing to the manager and not the investor.

SDT.UN is now trading at a 10% discount to Net Asset Value which is the normal range since the October 31, 2006 Income Trust melt down caused by the new Government of Canada 31.5% tax on Trusts. This explains their recent weakness.

I plan on slowly unloading my units in SDT.UN and develop my own diversified holdings. I may not do as well as Sandy McIntyre but I will probably beat him on a total return basis due to Sentry Select's disregard for its unit holders.

SDT.UN is no longer one of my top picks. Keep watching the BLOG as I will update my Top Picks selection shortly.

Saturday, October 27, 2007

I am Deeply Disappointed in the Managers of EIT.UN and SDT.UN

This year my largest holdings were in units of SDT.UN and EIT.UN. These two exchanged traded funds invest primarily in Canadian Income Trusts and provide excellent monthly distributions which is a core value of investing for income.

Both firms recently closed a share exchange where investors in Trusts and Canadian Banks could exchange their holdings into units of the funds. The problem is that they exchanged the holdings with Units that are trading well below Net Asset Value.

This is a bad deal for existing unit holders. EIT's Net Asset Value decrease at least $0.12 per unit. The only ones that win are the managers because their fund gets larger and they consequently get more fees. Its obvious to me that the fund mangers put their interest ahead of unit holders.

If the managers were acting in the interest of existing unit holders they could have undertaken the following;

1) a rights offering to existing unit holders at a discount to market value. Unit holders would then be able to excercise their rights (and suffer no dilution) or sold their rights in the open market.

or

2) they could have waited until the market price of the units was within 5% of the Net asset Value before undertaking a share exchange

or

3) They could have done nothing and waited for the market price to catch up to the Net Asset Value.

SDT.UN's new Net Asset Value after accounting for the share exchangehas not yet been published but I suspect that the Net asset Value decrease will be in the range of 2%-3%.
SDT.Un's sister ETF fund SEF.UN undertook a similar share exchange offering last spring and unit holders lost almost 10% of their Net asset Value.

What to do now?

I am slowly starting to unload my units in SDT.UN and EIT.UN. These funds are no longer a buy and hold investment. It is my opinion that whatever value the professional management brings to these funds its all eaten up in fees and dilutions.

I am developing my own diversified portfolio of income securities.

Thursday, October 18, 2007

Target Prices for Canadian Royalty Trusts

Please click here to download a spread sheet summary of Canadian Royalty Trust (affectionately known as Canroys) target prices by various Candadian Investment Houses as of September 28, 2007. Investors should use this information to determine good entry points into Canroy positions.

This spread sheet is courtesy of THOR on the Yahoo Canroy board.

Please note that this link will only be available until November 30, 2007.

Tuesday, October 16, 2007

Investing for Income and the Power of Compounding

Compounding

The following is an excerpt from Richard Russell?s web site called the Dow theory letters. This is so well written that I could not explain the power of compounding in simpler terms then the way Mr. Russell has.

Richard writes;

"One of the most important lessons for living in the modern world is that to survive you've got to have money. But to live (survive) happily, you must have love, health (mental and physical), freedom, intellectual stimulation -- and money."

He goes on to say;

"Compounding is the royal road to riches. Compounding is the safe road, the sure road, and fortunately, anybody can do it. To compound successfully you need the following: perseverance in order to keep you firmly on the savings path. You need intelligence in order to understand what you are doing and why. And you need knowledge of the mathematics tables in order to comprehend the amazing rewards that will come to you if you faithfully follow the compounding road. And, of course, you need time, time to allow the power of compounding to work for you. Remember, compounding only works through time."

And finally

"But there are two catches in the compounding process. The first is obvious -- compounding may involve sacrifice (you can't spend it and still save it). Second, compounding is boring -- b-o-r-i-n-g. Or I should say it's boring until (after seven or eight years) the money starts to pour in. Then, believe me, compounding becomes very interesting. In fact, it becomes downright fascinating."

This excerpt is the key to riches and wealth using Canadian income trusts. These trusts pay dividends every month, month after month. If you reinvest these dividends then voila.....compounding!

Its so simple that you will wonder why you never though of this before! Income trusts pay you every month. If you re-invest the dividends of a trust then the magical effect of compounding will kick in. After a few years you will notice that your passive income level is begining to reach significant levels.

Conventional stocks say buy me now and maybe in the future I will give you back more money then you started. Well income trusts give you the cash every month so even if your stock price is the same 10 years from now you still have a decent total return.

Friday, October 12, 2007

Paramount Energy Trust - PMT.UN-T - New Top Pick

I picked up 5,000 units of Paramount Energy Trust (PMT.UN-T) for Under $8 this week. This is a risky pick because its 99% natural gas production.

Natural gas prices in Canada are very low and not very profitable.

However, Paramount has reduced their pay out to $0.10 per month ($1.20 per year) which results in a greater than 15% yield.

According to BMO research Paramounts "all-in" payout ratio is under 100% (all-in means cash distributions plus capital expenditures to maintain production) which means this trust is sustainable and high yielding.

If natural gas prices do recover then investors will see a nice capital gain. BMO's target price is $10 per unit. If paramount gets to $10 within a year then investors are rewarded with a total return of 40% (15% yield + 25% capital gain).

Now thats investing for income!

Please do your own due dilligence.

Wednesday, October 10, 2007

The Spending and Investment Wave Propelled by Demographic Trends-Corporate Cash Machines

Harry S Dent has an article on their web site titled "The Spending Wave" (Click here to read the whole article) where he expects that US stock Markets will begin to decline starting in 2010.

He goes on to say;

"We are forecasting that the U.S. economy (and the global economy) will continue to boom into around 2010 before experiencing an extended slowdown into 2023. Stock prices are likely to peak by late 2009 or 2010 and then bottom around late 2022 or so. The Dow could reach 25,000 and the Nasdaq could surpass its old high above 5,000 before the end of the decade when this boom ends. Investors should be moving back into equities, and businesses should be investing in marketing, technology and productive capacity ahead of the final stage of this boom. But conversely, investors should be moving back into defensive fixed income investments as we approach 2010, and businesses should attempt to maximize market share by 2010 and not over-invest in capacity in the late stages of this next boom. "

and went on to say;

"In fact, businesses should decide whether to cash out and sell around the end of this decade, or use their dominant market share positions gained in the boom to further increase their dominance and/or buy-out their competitors in the bust – thereby preparing for the next boom to come from the echo boom generation from 2023 into around 2050. Europe and most of the developed world will follow us into this next demographic downturn. But Asia will still be booming for years and decades to come after the initial crash that is likely to set in between late 2010 and early 2013. Sectors that benefit from older consumers, like health care, will also boom after the initial crash in stock prices. "

I agree with Mr. Dents premise on demographic trends however, I think the markets will change to suit the new trends. I think the following will happen;

1) Stocks will begin increasing dividends as investors demand income over growth. This explains why income trusts became so popular so quickly. Company's will turn into "Cash Machines"

2) Investors will demand tax changes that make dividends tax deductible to a corporation but fully taxable in the hands of the investor (retiree) just like interest payments. This will drive stock valuations up.

3) Workers will continue working past 65 years old thus slowing the propensity to sell stocks.

4) Corporations will find creative ways to satisfy investor requirements of investing for income.

5) Home prices will be under more selling pressure than stocks as retirees cash out to pay for living expenses and purchase income producing assets such as stocks.

My strategy is to keep on acquiring income producing assets so that I can enjoy a rich life with passive income.

Tuesday, October 9, 2007

Hedging Our Bets on Investing for Income Between Credit and Inflation Risk

Condensed Version of
HEDGING OUR BETS
by Roger Conrad
Editor, Utility & Income
October 9, 2007

Income investments come in all shapes and sizes. But all have one thing in common as far as we’re concerned: We’ve got to buy and hold ‘em to get the most out of them.

Part of that is axiomatic. You can’t collect the distributions unless you stick around for them to be paid. Individual bonds are the exception because they accrue interest as long as you hold them. But as far as stocks, Canadian trusts, limited partnerships, income-paying funds, preferred stocks or anything else goes, you’ve got be in there on the ex-dividend dates or you won’t get paid.

Ironically, the most important reason income investors need to buy and hold is capital appreciation. A healthy, growing company will increase its dividend over time, and its share price will follow. If you’re trading, you won’t get that gain unless you’re very, very lucky.

Buying and holding, of course, isn’t without risks. For income investors, there are basically two: credit risk and inflation risk.

The former has been on investors’ minds this year. And virtually anything perceived as having too much debt—or too unorthodox a capital structure—has taken hits.

There are two ways to protect your portfolio against credit risk. One is by sticking only to high-quality, growing companies and shedding anything where the business fundamentals are weakening. The other is to diversify broadly, both in terms of individual stocks you hold and across market sectors.

When the markets are universally panicked about recession or a credit crunch, big institutional money will pretty much sell off anything that doesn’t have the word “Treasury” in it. And that’s exactly what happened on the worst days over the summer.

The key in a market like that is to avoid the real blowups, i.e., the companies that are really in trouble. This time around, that was basically financial companies that had gotten in really deep in the mortgage market and/or collateralized debt obligations. As JP MORGAN CHASE’S $5.5 billion writeoff announced today illustrates, there are still some landmines in this area, though that stock is actually up today.

In contrast, damage to most other income investments in recent months was largely because of guilt by association. Limited partnerships (LPs), for example, were walloped by concerns about their debt structures and whether or not they’d be able to access capital markets. Both fears have proven largely groundless, at least for the best quality LPs. As a result, money is starting to flow back in and shares are recovering.

The lesson: If you avoid the blowups in an environment of elevated credit risk, your losses will be short-lived. In fact, such times are golden opportunities to buy high-quality income stocks cheaply.

THE GREATER RISK NOW IS INFLATION - ESPECIALLY IN THE USA

The bottom line is, if you pick your stocks carefully, diversify well, shed holdings that weaken business-wise and are willing to be patient in downturns, you can make your income portfolio pretty much foolproof against credit risk.

Guarding against inflation risk, however, is a whole other matter. Income-oriented investments are especially vulnerable to inflation because they’re valued to a large extent on the basis of yield. Rising inflation pushes market interest rates higher, which makes those yields worth relatively less. As a result, income-oriented investments sell off to a point where yields are again attractive.

During the 1970s, Treasury bonds were among the absolute worst investments to own. Credit risk was zero.

But every incremental increase in inflation made investors demand a higher yield to compensate for the erosion of principal. And by the time inflation peaked in the late ’70s and early ’80s, bonds issued at the lower rates of the ’60s had lost most of their real value.

We haven’t had a real inflation problem in the US since those bad old days. We have, however, had occasional flare-ups that have wreaked havoc on everything from REITs to utilities.

In each of the past five years, we’ve had a spring or summer spike in interest rates, as investors have anticipated faster growth and higher inflation. The benchmark 10-year Treasury note yield spiked, and income investments across the board sold off. Each time—including this year—rising rates sowed the seeds of their own reversal, sparking worries about the economy and ultimately sending them lower.


As we move into the fourth quarter, rates are down and credit worries are receding. As a result, income investments are starting to recover their summer losses. That rally should continue throughout the fourth quarter. Utility stocks, for example, have had a positive fourth quarter in 35 of the last 40 years.

After that, however, the future gets considerably cloudier. With the Federal Reserve apparently willing to do whatever it takes to avoid recession, credit risk is no longer the primary concern. Rather, it’s inflation. And the more money the Fed and other world central banks pour into the system now to bail out the likes of JP Morgan, the greater the risk.

One way income investors can protect themselves against inflation is healthy growth. Not even companies that can grow dividends reliably and robustly have historically been able to hold their share value in the face of rapid inflation. But they do a credible job with moderate inflation, if for no other reason than investors need to get their income from somewhere.

How bad can inflation get this time is the $1 million question. And as is always the case with market economics, that’s impossible to forecast.

What we do know, however, is there are investments that pay moderate income and actually do very well in inflationary environments. By adding them to already diversified portfolios, we can cut the inflation risk to our overall portfolios.

What I’m talking about are metals and other vital resources. Over the past five years or so, many of the raw commodities—from copper to zinc—have doubled and tripled in value. The primary reason is global growth.

Not since the ’70s has the world seen such robust, synchronized economic growth. And unlike then, the US isn’t the only driver of growth this time around.

We’re still the most important economy. But China, Japan, Europe, India and the Middle East are also driving things. That makes this growth wave a lot more durable than the last one. In other words, a US recession would no doubt slow things down, but it wouldn’t derail global growth as it did in the early ’80s.

Metals and other raw commodities are the essential fuel for global growth. And the faster and more universal growth is, the greater the strain on supplies. Already, we’ve seen Russia plant its flag on the North Pole, while China and Europe are snuggling up to African dictators and the regime in Iran. And that’s only the beginning, as competition for scarce resources grows.

Eventually, every commodity cycle ends. Ever-rising prices induce consumers to change their habits and develop alternatives, even as they incentivize new discoveries. The process, however, can take years and even decades before the supply/demand balance shifts back in favor of consumers, and it’s never entirely painless.

One of the hallmarks of a top in a commodity cycle is breathless speculation that supplies are truly running out. I’m not hearing any of that now in the financial media.

In fact, the buzz is largely about how the commodity bull has reached unsustainable levels and that its days are numbered. This is in stark contrast to what’s happening in the market place, and the disconnect likely points to a lot more ahead.

Commodities and vital resources are good inflation hedges for one major reason: They represent hard value. Gold, for example, has been a global store of value for millennia. When US inflation undermines the value of paper money, gold holds its own—mainly by surging in US dollar terms.

The best way to play a boom in commodities and vital resources is to buy stocks of the companies that produce them. For one thing, gains are leveraged. For example, a company producing copper at a total cost of $1 a pound will see its earnings double if the metal moves from $2 a pound to $3 a pound—a 50 percent gain in the metal itself. And good companies are always growing, providing a rising base of earnings.

I’ve already been talking about high-yielding energy bets like Canadian trusts, Super Oils and combination utility/producers for some time. We’ve seen some staggering profits in these over the past five years or so. And until we see the factors that ended the ’70s energy bull market in abundance—greater conservation, switching to alternatives (not biofuels), new conventional reserve discoveries (not from oil sands or extreme deepwater drilling) and a global recession—we’re going to see a lot more gains.

The takeover offer for Canadian trust PRIMEWEST ENERGY TRUST by the ABU DHABI NATIONAL ENERGY CO—which was at nearly a 40 percent premium to the pre-deal price—is a pretty clear value alert for that sector. And whether it means takeover for the likes of other strong trusts like Enerplus Resources or Penn West Energy Trust or not, it does add up to big gains ahead for the best trusts, in addition to their high distributions.

Energy is only one resource that offers income investors an inflation hedge.

Picked up 1,000 Shares of Verenex Energy Today

I picked up 1,000 shares of Verenex Energy today at $13.08 per share.

It only trades on the TSX under the symbol VNX-T.

How I Lost it All in the stock Market

This is a reprint of a letter sent to us in 2003. Its as relevant today as it was then.

-----------------------------------------------------------------------

February 2, 2003

To: investingforincome.com

From: DRG

Finally someone agrees with me or better me with them!

I have been playing around in the marked for more than 25 years. I made some I lost some . I lost my whole house on a stock (Abacus) of a company who was building the Edmonton shopping mall. At the recommendation of my broker who was very friendly to me (he bought me coffee quiet often) I borrowed as much money as I could to buy the said stock.

Now, he worked for a reputable brokerage house, so I felt fairly good about my investment. I had 2000 shares @5.00 a piece. Thats what my house was worth in the early 70's. My broker told me he knows the people who were running the company, don't worry. Well the stock kept sinking and sinking. I questioned him (over another cup of coffee) what is the meaning of all of this. O, all stocks fluctuate up and down, he said. I figured, he should know, he is the "professional", and I don't know anything. When they dropped to 40 cents I asked him: "Don't you think I should buy some more, after all that is a excellent stock , is it not"? He hesitated and said, "well, I think, you got enough, lets not become greedy". I got him to buy me another 3,000 @ 45 cents, anyway. What a good average I had achieved, I was so proud of myself.

A little while after that, I turned on the TV and I heard the word Abacus.-- Close to bankrupt.-- I was sick, and yes I lost the whole works. I paid my house off a second time and left the market alone until 15 years later. In time the broker had been ?invited to court?, but left the country instead.

O'how I missed my coffee. I had to think of retirement and managed to get a couple houses to rent out. A friend told me about income producing stocks (units). I have never looked back since. I borrowed again from the bank, a house worth. As of today my holdings are $ 250,690 and I got paid at for January 2003 a total of $3,470. That is twice as good as getting rent, even after paying almost a $1,000 to the bank, and the interest to the bank is deductible. No houses to fix up, no painting, no complaints.

Sure I still have some property, diversification is good, but as far as income is concerned, you can't beat the income funds. When I got your e-mail (from a friend) about the different recommendations I was glad to see that those were exactly my choices for the last three years. It feels good to see that I finally got paid back from the school of hard knocks. I hope it lasts for a while.

DRG

Monday, October 8, 2007

Freehold Royalty Trust is Another Buy and Hold Security that Yields 11.70%

Freehold Royalty Trust - Symbol: FRU.un on the TSX

My 12 month target is CDN $16.00 /unit

Freehold Royalty Trust is roughly 65% weighted to oil, which will protect it from variation in natural gas prices.

It has a Low level of foreign ownership and a strong balance sheet.

Its presently trading at $15.39 per unit. It pays a $0.15 distribution per month ($1.80 per year) which results in a yield of 11.70%.

You won't get rich with this one but you won't go broke either.

The Yield fits nicely into our investing for income strategy. I feel this is a buy and hold type of security.

I don't own any units at this time.

Arc Energy Trust is a Great Buy and Hold Income Producing Security

ARC Energy Trust - Symbol: AET.un on the TSX

My Target is CDN $22.50/unit over the next 12 months

ARC's assets are diversified throughout the Western Canadian Sedimentary Basin and production is balanced between oil and natural gas.

One of the more attractive investments in the Canadian royalty trust sector due to asset quality and longevity, an experienced management team and reasonable valuation relative to the peer group. Arc is a favourite of the institutional investors.

Arc has small production growth potential with Carbon Dioxide flooding in the old fields. I suspect that some of the "socially responsible" and "green" funds may use this as a rationalization to acquire units.

Arc Energy trust is trading at $21.70 and pays $0.20 per month ($2.40 per year) yielding 11.6%.

I don't have any units at this time.

Sunday, October 7, 2007

Why Baytex Energy Trust is One of My Top Picks

While Baytex’s Q2 financial results were impacted by higher costs and lower realized heavily oil prices, we were encouraged by the solid production numbers. In particular, development of its Seal heavy oil asset is progressing well.

Unlike some other operators in the area that are having inconsistent results from new wells, all of Baytex’s Seal wells continue to meet expectations. The lack of infrastructure is constraining major development at the property due to high transportation costs, but infrastructure investment by other operators appears to be ramping up.

I believe that as development of Seal progresses, further value will be attributed to the asset and reflected in the trust’s unit price. Furthermore, the Seal heavy oil reserves could he worth over $40 a share to a major Oil company like Shell.

In the meantime Baytex is paying out $0.18 per month ($2.16 per year) for a yield of just under 12% while you wait for the big buyout offer.

Now that's investing for income at its best!

Friday, October 5, 2007

Can I generate $15,000 per Month Income?

Can I generate $15,000 per Month Income?

On November 1, 2006 I had major losses from the Canadian Government's about face decision to tax income trusts. I stayed up night after night worrying. Have any of you stayed up all night worrying? Have any of you had insomnia positions that threatened your sleep that destroyed your relationships and eroded your self-esteem? I have and I can tell you right now that holding and hoping is a recipe for disaster, both financially and personally.

I finally sold out on November 15, 2006 and reinvested my remaining funds in SDT.Un and EIT.UN. These are still my largest holdings.

Just because my income investments got clobbered does not mean that the underlying investment philosophy of investing for income is wrong.

I plan on rebuilding my income portfolio and I plan to share my experience with you in the coming months and years.

My Goal is to generate $15,000 per month income net of intererst costs and taxes.

Stay tuned.

Top Pick Verenex Energy VNX-T Presently Trading at $12.30 with a 2008 target of $18

Verenex Energy (VNX-T) is 45% owned by Vermilion Energy Trust(VET.UN-T). They are drilling in Libya. Drilled 2 wells so far. The first one flowed 10,000 BOE a day and the second flowed 20,000 BOE.

Verenex hit an all time high in August of $17.63 but has pulled back considerably since the ORCA well drilled by Bordeux Energy (BDO-X) off the coast of France (they had a 30% interest) came up dry.

I normally only accumulate dividend paying stocks and stay away from risky stocks such as Verenex because its purely an oil exploration play in Libya. However, they have struck oil and I expect that in in 2008 Verenex will also become a production company too. Once this happens it will attract different investors and valuations.

I feel that it will reach $18 by the end of 2008.

I picked up 2,000 shares.

Please do your own due dilligence before acquiring any securities.

Thursday, October 4, 2007

Natural Gas and Oil Prices Showing Unexpected Strength

Crude Oil

After 4 days of losses, crude roared back to move into positive territory. Backs were even stronger up $1.70+ in most terms. Products were also up sharply. There was not a lot of bullish news to prompt the move though the USD was marginally weaker. Rather, this appears more technical in nature: the market tested but held support just under $79.00 which has encouraged funds to jump back in for a move higher again.

Natural Gas

Today's 57 BCF injection was bullish vs. expectations that were largely around 65 BCF. Beyond that, the trend of injections has been supportive: since 2000 the average injection for the past six weeks has been 73 BCF, this year we have average 56 BCF. We remain near all time records but have been losing ground. Meanwhile, with the weekend looming and a (weak) storm in the Gulf some more strength may be in order. Liquefied Natural Gas imports have slowed to under 1 BCF per day. if this keeps up natural gas prices should continue to strengthen.

Wednesday, October 3, 2007

Goldman Sachs on the Marginal Price of Oil Being Over $70 Per Barrell

Last night I picked up comments on the Investors Village CWEI board comments on the latest Goldman Sachs report on oil. I felt I should share this report with you. If Goldman Sachs is right then our income investing philosophy will be rewarded because some of the largest dividend paying investments are related to the oil and gas industry.

However, I caution readers on Canadian Oil and Gas Trusts because they are more sensitive to Natural gas prices (except Canadian Oil Sands Trust) and unless the oil:gas ratio improves along with the rising price of oil then the Canroys will continue to struggle.

The Goldman Sachs report talks about a lot of the issues we've discussed. Most interestingly, they believe that the long-term price of oil is determined by the marginal cost of oil production. Marginal cost is defined as the average of the highest cost (or bottom quartile) producers. Their study concludes that marginal costs are now close to $70/bbl. Furthermore, there are no more than 4 million b/d of current production that have a cost greater than $70/bbl, meaning 4 million b/d of extra capacity costing under $70/bbl to bring the long-date price down.

The report is the best I've read. It is the most technical, most numbers based. I've included a couple quotes below. I think oil is going down over the next few days as the dollar has a little bit of a rally here. If it goes down enough, I might add to my already significant positions in preparation for what could end up being a long, hard winter.

Excerpts from the report;

"In July, we argued that a significant increase in Saudi Arabian, Kuwaiti and UAE production by the end of the summer was critical to avoid prices spiking above $90/bbl this autumn. Last week, OPEC announced that it would increase production by only 500 thousand b/d by November 1. We believe that this will be too little, too late, baring an outright collapse in demand, and now expect inventories to draw to critical levels this winter."

"Despite only modest demand growth this past year, anaemic oil supply growth, due to disappointing non-OPEC supply increases and OPEC production cuts, has pushed the market into a significant deficit, which pushed the oil forward curves back into backwardation, creating the first cyclical bull market since 2003 that will likely carry into 2008."

"The current structural bull market, or investment phase, has entered its sixth year; however, the industry has added very little new, low-cost, production capacity as it has run into technological and political bottlenecks that will likely take years to resolve, supporting our view that the investment phase will likely last another five to 10 years. Further, costs have continued to rise, pushing marginal costs closer to $70/bbl, leading us to raise our 5-year forward WTI forecast to $70.00/bbl from $67.50/bbl... "

"Crude oil production during these summer months was nearly 1.0 million b/d below the level a year ago, while demand was averaging more than 1.0 million b/d higher than the level a year ago. This sharp imbalance prevented the normal seasonal build in inventories and has even set the stage for a third quarter draw on stocks, which is a rare event typically associated with significant winter spikes... "

"Net, we now expect inventories to decline by 1.5 million b/d during the fourth quarter versus a seasonal norm of 0.5 million b/d, which will likely cause prices to spike above $90/bbl this winter as inventories are drawn down near critical levels. It is important to emphasize that the current market deficit is being driven more by supply shortages than by excess demand, which is why upside price risks are so high despite significant economic growth concerns. We estimate that during the fourth quarter, demand growth would need to be 1.0 million b/d below our forecast, nearly 1.25%, to create a balanced market with a normal fourth quarter draw of 0.5 million b/d... "

"Given the inability of non-OPEC producers to significantly expand conventional production, we have argued for some time that oil at the margin is no longer pricing conventional oil but rather non-conventional oil such as synthetic crude oil, renewable fuels, and synthetic fuels... "

"1. The energy, water, and labour bottlenecks in the Canadian tar sands are severe and will likely prevent significant scaling up of the supplies at an oil price of $70/bbl, while a substantial change in Canadian policies in order to incentivise the use of nuclear power in tar sands production, and facilitate immigration of much needed foreign engineers appears unlikely in the near term;

"2. The nationalization of the Orinoco belt assets by Venezuela has led to a sharp decline in non-conventional output and no further foreign input of capital;

"3. Biofuel production has substantially driven up agriculture prices, pushing the subsidized cost of many of these fuels anywhere from $65/bbl to $150/bbl with a further scale-up likely to push agriculture prices even higher and hence raise biofuel production costs;

"4. ExxonMobil abandoned its gas-to-liquids (GTL) project due to high costs, the Sasol GTL plant in Qatar has run into technical problems in the ramp-up phase, and the Shell GTL project is significantly over budget, all of which suggest that GTL is off the table at an oil price of $70/bbl...

"If OPEC wishes to push the long-dated oil price down, it would need to offset almost all of the high cost production. However, as the group only has 2.0 to 3.0 b/d of spare capacity at most, it cannot displace the high cost production that supports the long-dated oil price. Instead, it can only control inventory levels, which ultimately controls curve shape..."

"Over the past five years, volumetric exports from the (Gulf Cooperation Council) region have been flat as demand growth has absorbed all of the supply growth..."

"If Saudi Arabia, UAW, and Kuwait ramp production up by 1.0 million b/d, the world would be left with very little spare capacity, which is politically dangerous for the GCC countries as they would have less of a negotiating position that the spare capacity provides, and would be economically dangerous for the consumer countries."

Tuesday, October 2, 2007

Canada Under Seige: Thanks Harper and Flaherty

The Trust tax hoisted onto Canadians is facilitating the transfer of our wealth from Canadians and hard working Americans who invested in our income trusts.

We at investingforincome are not just a bunch of malcontents about getting screwed by our government. But everyone is getting screwed. What is really sad is that part of the reasoning behind the "Tax Fairness" was that our American friends were benefting from the trusts and they called that "tax leakage". Our reflex anti-Americanism has resulted in our wealth being transfered to an Arab government.

Below is a copy of Diane Francis's BLOG on this issue. If you click the title of this post you will be taken to her BLOG.

---------------------------------------------------------------
By Diane Francis

Canadian policies are facilitating the buyout of Canada. Canadian energy trusts are bought with 100% financing borrowed from foreign lenders or entities. Interest payments are made from Canadian cash flow which used to be distributed to trust unitholders and taxable.

The interest payments to foreigners are also exempt from the 15% withholding tax. This means that taxable cash flow has become tax-free mortgage payments to buy energy assets.


Abu Dhabi pounced first and in months will be the biggest oil company in the land, financed in this way by taxpayers. To boot, not one share of its oil entity in Canada, TAQA North, can be owned by a Canadian under Abu Dhabi law.

Sunday, September 30, 2007

Harvest Energy Trust Recommended by Change Wave

Change Wave investments has put out a buy recomendation on Harvest Energy Trust. Click the title of this post and it will take you to the video interview.

What is interesting here is that they believe some of the Canadian Energy Trusts will start converting to the US Master Limited Partnership (MLP) structure.

I have written about this in previous posts and I quoted from a research paper written by UBS.

I plan on sending out this report to my email subscribers some time next week. If you want a copy please sign up on our list at www.investingfforincome.com.

I will be following this issue closely over the coming months.

Saturday, September 29, 2007

Don't Underestimate the USA

Max Whitmore: Inflation? Who Said Inflation?!

The Fed did their thing last week and there was a torrent of words from every corner of the globe about how they had: (1) done exactly the wrong thing; (2) done exactly the right thing; (3) went weak-kneed and gave in to Wall Street; (4) Wall Street failed to get the Fed to do its bidding; (5) Bernanke is a rooky and is making rookie mistakes; (6) Bernanke did a brilliant job; . . . and on and on!!

The only sure thing most agreed on was that the Fed took action to get the confidence of the investing and banking business and to overtly assure the investing public that it was ready to do whatever was required to make sure that the country did not experience undue hardships and possibly a recession. (Bernanke believes that recession is the outcome of bad management, not an inevitable economic outcome no one can control.)

Today, seeking to apply every available tool of good management, the Fed uses just about every type of high-tech computer program available (and many programmed by their own staff) to “run scenarios” that help predict recession or other undesirable economic outcomes if no preventative action is taken today.

Then, a study of these undesirable outcomes is made to see just what different types of present actions “plugged in” to the program might help prevent or mitigate these undesirable outcomes down the road. This computer “looking forward” study helps the Fed to zero in on just what the best action might be today.

It is from these “looking forward scenarios” that the action on the Sept. 18 was framed. The FOMC statement alludes to just this technique. For example, here are some of the key phrases of the FOMC statement of Sept. 18: “Today’s action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time.”

I believe it was the use of the above mentioned computer programs that led the FOMC to lower rates as much as they did. I do not recall any time in the previous 18 years of the Greenspan Fed that the steps taken were to “forestall” disruptions, as was clearly noted in the FOMC statement.”

Note that the phrase “to promote moderate growth over time” was spelled out, too. In my opinion, this was to salve the frayed nerves of investors worldwide. I think it also was to address the inevitable inflation questions.

The FOMC statement then directly addressed inflation in the next paragraph, again in my opinion, to pre-empt criticism some would level at it as a result of the drop in rates. They said: “Readings on core inflation have improved modestly this year. However, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully. ….The Committee will continue to assess the effects of these and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.”

They obviously felt it was necessary to cite the moderation of core inflation to clearly tie the reduction of rates to the goal of promotion of long-term growth. But, they also added that they would be “carefully” monitoring the situation regarding inflation “to foster price stability“. To me this paragraph really was the basic purpose of the entire FOMC statement. It is inflation that now has everyone on pins and needles!

I find it most interesting that inflation is the one outcome that everyone seems to expect. I think I would be fairly accurate if I said that ALL the articles I have read addressing the FOMC action are unanimous in predicting or fearing that inflation was the next outcome. There can be no other outcome they believe. Well, I don’t believe those predictions for a minute. The last thing that usually happens is what everyone expects — the last thing!!

In my view, this is akin to the world believing that interest rates rule the world’s economic health. I have said over and over that it isn’t interest rates, it is money supply. Read my last 3-4 articles again and you will see why.

Basically, because Bernanke’s research papers and essays about the Great Depression — research covering periods as far back as the 1890s — over and over clearly spells this out.

Additionally, he also points out on page 250-51 of his book “Essays on The Great Depression” his take on inflation. In his words, “Theory suggests instead that inflation will be determined by current and expected money supply and demand.” This statement is made as part of an argument about unemployment in the Depression, but clearly again makes the case that control of the money supply is a better control device that any other for inflation.

My own view on this matter goes to a simpler way of stating the situation. Inflation due to a lower value of currency — a condition typically precipitated not by actual conditions but by fear — requires (1) that import levels remain the same, but at higher prices and that (2) internal production capacity of the country is either at or very close to full capacity or that the ability to produce goods to replace the higher cost imports (but at a more competitive price than the imports) is lacking for any variety of reasons.

My own expectations are that imports will substantially moderate in the next 12 months. U.S. buyers of imported goods will find it more competitive to buy USA goods instead of imports. This condition will exist, in my opinion, because this country is a sleeping giant, as Admiral Yamamato of Japan, once observed. If you wake it, it will beat you at every turn.

I see this country going on a production binge not seen in many years. I look for exports to soar, production for our own consumption to flourish, and for the huge foreign investments made by many U.S. companies to become the proverbial albatross about their necks.

I have no way of knowing if Bernanke senses this same scenario, but I would be surprised if he didn’t. The loss of hundreds of billions, several trillions, of our sovereign wealth over the last 30 years occurred because we let it occur.

As a nation, we did not, primarily for political reasons, combat the unfair positioning of many nations against us on the economic playing field. These countries set their currencies — especially China — well below our dollar and used low paid sweat labor to produce goods to sell to our nation at prices we just could not match under such circumstances.

Now, the lower dollar is biting our competitors back in a big way. To continue selling to us, they must sell production at a loss, as the peg of their currencies to our dollar now is having negative consequences for their economy. How long will they do that?

That depends on how serious they think we are in fighting back. We have just seen the biggest increase in U. S. exports in decades during the past 19 months. For the first seven months of 2007 (August numbers not included yet) the U.S. is running at an annual rate of $1.6 trillion (annualized) in exports, versus an annual rate of $1.44 trillion in 2006 (Jan-July 2006 $822 billion vs. Jan-July 2007 $915 billion). That is a handsome +11 percent increase over last year and with the dollar favoring us even more in world markets recently, I expect we might even challenge the +14-15 percent gain year-over-year. (Source of data is U.S. Census Bureau, Foreign Trade Div.).

All this export increase means more and bigger paychecks landing in U.S. households. Now add to this higher income from what I think will be a huge increase in U. S. production for U.S. consumption — at prices better than those offered by imports — and I just don’t see inflation. Instead, I see healthy economic expansion, likely well above our long-term rate of expansion of 3.5 — 4 percent per year.

To have inflation, we would need (1) a Fed not keyed on “carefully” watching inflation and using money supply to moderate it — but our Fed is “carefully” watching — and you need (2) an American business community that passes up the golden opportunity of competing with imports on its own home turf (and winning this time) — but, that too, will never happen!!

Will I be right? I think so. But, I expect that the argument will rage on for the next 6-10 months as investors start an “inflation watch” and slowly come to the realization that the stock market has it right so far.

Stock index prices are climbing and not because of anything except an overall investor consensus that the Fed is right on target. To me my Super Chart Keyline now becomes the front line of this terrific battle. I will be watching it with baited breath. It should be a fascinating few months!

Tuesday, September 25, 2007

God Bless America

"LET'S BE PERSONAL" Broadcast June 5, 1973 CFRB, Toronto, Ontario

Topic: "The Americans"

The United States dollar took another pounding on German, French and British exchanges this morning, hitting the lowest point ever known in West Germany. It has declined there by 41% since 1971 and this Canadian thinks it is time to speak up for the Americans as the most generous and possibly the least-appreciated people in all the earth.

As long as sixty years ago, when I first started to read newspapers, I read of floods on the Yellow River and the Yangtze. Who rushed in with men and money to help? The Americans did.

They have helped control floods on the Nile, the Amazon, the Ganges and the Niger. Today, the rich bottom land of the Misssissippi is under water and no foreign land has sent a dollar to help. Germany, Japan and, to a lesser extent, Britain and Italy, were lifted out of the debris of war by the Americans who poured in billions of dollars and forgave other billions in debts. None of those countries is today paying even the interest on its remaining debts to the United States.

When the franc was in danger of collapsing in 1956, it was the Americans who propped it up and their reward was to be insulted and swindled on the streets of Paris. I was there. I saw it.

When distant cities are hit by earthquakes, it is the United States that hurries into help... Managua Nicaragua is one of the most recent examples. So far this spring, 59 American communities have been flattened by tornadoes. Nobody has helped.

The Marshall Plan .. the Truman Policy .. all pumped billions upon billions of dollars into discouraged countries. Now, newspapers in those countries are writing about the decadent war-mongering Americans.

I'd like to see one of those countries that is gloating over the erosion of the United States dollar build its own airplanes.

Come on... let's hear it! Does any other country in the world have a plane to equal the Boeing Jumbo Jet, the Lockheed Tristar or the Douglas 107? If so, why don't they fly them? Why do all international lines except Russia fly American planes? Why does no other land on earth even consider putting a man or women on the moon?

You talk about Japanese technocracy and you get radios. You talk about German technocracy and you get automobiles. You talk about American technocracy and you find men on the moon, not once, but several times ... and safely home again. You talk about scandals and the Americans put theirs right in the store window for everyone to look at. Even the draft dodgers are not pursued and hounded. They are here on our streets, most of them ... unless they are breaking Canadian laws .. are getting American dollars from Ma and Pa at home to spend here.

When the Americans get out of this bind ... as they will... who could blame them if they said 'the hell with the rest of the world'. Let someone else buy the Israel bonds, Let someone else build or repair foreign dams or design foreign buildings that won't shake apart in earthquakes.

When the railways of France, Germany and India were breaking down through age, it was the Americans who rebuilt them. When the Pennsylvania Railroad and the New York Central went broke, nobody loaned them an old caboose. Both are still broke. I can name to you 5,000 times when the Americans raced to the help of other people in trouble.

Can you name me even one time when someone else raced to the Americans in trouble? I don't think there was outside help even during the San Francisco earthquake.

Our neighbours have faced it alone and I am one Canadian who is damned tired of hearing them kicked around. They will come out of this thing with their flag high. And when they do, they are entitled to thumb their nose at the lands that are gloating over their present troubles.

I hope Canada is not one of these. But there are many smug, self-righteous Canadians. And finally, the American Red Cross was told at its 48th Annual meeting in New Orleans this morning that it was broke.

This year's disasters .. with the year less than half-over… has taken it all and nobody...but nobody... has helped.

ORIGINAL SCRIPT AND AUDIO
COURTESY STANDARD BROADCASTING CORPORATION LTD.

(c) 1973 BY GORDON SINCLAIR
PUBLISHED BY STAR QUALITY MUSIC (SOCAN)
A DIVISION OF UNIDISC MUSIC INC.
578 HYMUS BOULEVARD
POINTE-CLAIRE, QUEBEC,
CANADA, H9R 4T2

Monday, September 24, 2007

The Dirty Little secret About the Prime West Energy Energy Trust Buyout by the Arabs

Today an Arab country bought out Prime West Energy Trust for a 30% premium. The dirty little secret is that Prime West will now become a "private" flow through entity and will not be subject to a the "Trust Tax".

This is absolutely insane and I am amazed how our media and the public are so naieve that they cannot see what hyprocisy this tax is.

Remember, the "Tax Fairness" policy was designed only to Tax publicly traded Trusts.

This is patently unfair.

Ironicly, the Canadian Minster of Finance sometimes advertises the tax fairness plan on this blog. What a Croc!

Saturday, September 22, 2007

Unloved Natural Gas

Contrarians should consider investments in the natural gas sector.

After a mini-mania in 2005 as hurricanes temporarily crushed supplies, natural gas prices have settled into a broad trading range and have disappeared from many investors’ radar screens. Sentiment has been extremely negative in the past 18 months, similar to the environment early in the decade, even though prices are well above the levels seen in 2001. Industry investment plans have been steadily pruned, which should ensure inadequate supplies down the road given the relentless uptrend in demand. Thus, the contrary call is to be bullish from a long-term perspective. Temporary weather and hurricane effects aside, we expect prices to grind higher in the coming years.

Article taken from BCA Research

Friday, September 21, 2007

Dividend Investing

Why dividends are important.

Dividends set a floor price – Dividend stocks tend to trade within their yield range, and rarely do they yield much higher than Treasury bill.

Dividends account for over half of the long-term real return – If you own 100 shares of BMO and receive 4% of dividends, you can DRIP your dividends to buy another 4 more shares. If you keep up the DRIP for 20 years, you’ll have a handsome 219 BMO shares in your portfolio. Even better, some Canadian corporations offer 5% discounts through DRIP.

Companies with long-term track records of stable and raising dividends show quality of the managements – Managements show commitment to shareholders by improving fundamentals and sharing profits.

Dividends cannot be manipulated like earnings – Dividends are real hard cash in your lap. Earnings can be faked by creative accounting.

A stable stream of dividends reward investors even during market down turn – Management pays you to wait even during market setbacks.

Dividends are more tax efficient than regular incomes and capital gains – In British Columbia, if you can make $66,000 in dividends, you pay $0 tax. In regular incomes, you pay $16,880 in taxes. In capital gains, you pay $5,097.

You can safely spend your dividends without harming your portfolio – If you think in terms of income streams instead of portfolio size, you can consume 100% of your dividends without hurting your portfolio. If instead you go for capital gains, consuming your capital during a depressed market will harm your portfolio immensely.

Receiving dividends are passive – Dividends and increases are given to you each quarter automatically without any action on your part. On the other hand, to receive capital gains, you must monitor the share prices continuously.

High dividend paying stocks have historically out-performed low-yield stocks – In David Dreman’s Forbes column (April 2004), he cited that between 1970 and 2003, the top fifth highest yield stocks returned 14.5%, while the lowest fifth returned only 8.8%.

Dividends are more predictable than capital gains – Suppose BMO averages 10% over the long term with 4% in dividends and 6% in capital gains. In a given year, you can count on seeing the 4% in your brokerage account, but the 6% capital gain is less dependable.

Your investment return depends on the company’s fundamentals, not the market’s temperament- You may think a business is wonderful and its stock is outrageously undervalued, but if market doesn’t share your excitement, your effort won’t bring you fruition, and you’re needlessly squandering away precious time. On the other hand, if dividends and dividend increases are your investment objectives, you don’t need the market’s blessing to celebrate. This is one fundamental advantage of dividend investing. When you buy dividend-paying stocks, there’s a strong linkage between your analysis and your reward, and this linkage isn’t compromised by market psychology.

Dividend investing forces you to think in a healthy frame of mind in terms of buying low - I bought Harvest Energy Trust last year. I bought it again this year. I will buy it next year, and possibly for the next 20 years. Why would I want my initial purchase to rise at the expense of penalizing my next 20 purchases? The next time you see dividend-paying stocks tumbling down, please come and give me a high-five.
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