First, a quick look at the markets. The Dow rose 66 points yesterday. Gold stayed flat.
Will we be proved right? Has the US stock market turned? Have Treasurys finally entered a bear market? And gold – has it resumed its upward march?
Maybe! Stay tuned.
Meanwhile, here’s the latest from Bloomberg:
As many as 50,000 stray dogs roam the streets and vacant homes of bankrupt Detroit, replacing residents, menacing humans who remain and overwhelming the city’s ability to find them homes or peaceful deaths.
They are among the victims of a historic financial and political collapse. Detroit, a former auto manufacturing powerhouse, declared the largest US municipal bankruptcy on July 18 after years of decline. The city has more than $18 billion in long-term debt and had piled up an operating deficit of close to $400 million. Falling revenue forced cutbacks in police, fire-fighting – and dog control.
Hey. Dogs don’t vote. They don’t make campaign contributions. They don’t have any lobbyists in Washington. To hell with them.
Wars of Choice
You don’t find Department of Defense staffers wandering the empty slums of a bankrupt city.
Witness one of the wonders of modern imperial democracy. In its effort to enrich the defense industry, not only is the US free to engage in all the “wars of choice” it chooses, it also is free to choose which side it supports. Minding its own business seems to be out of the question.
So, in Egypt the US is free to choose. Will it go for those who claim to represent the forces of democracy, light, justice and progress? Or will it throw its immense weight behind the side that promises law, order, and a reliable treaty with Israel?
Frankly, we don’t give a damn. But we will let dear readers get exercised on the issue, if they choose.
Here is the Wall Street Journal, naturally, telling its readers that it is “Time to Choose Sides in Egypt.” And here is John Bolton, arguing, naturally, for a policy of unrestraint:
Discrete crises in collapsing Middle Eastern and African countries are giving way to broader regional chaos, which is now a geostrategic factor… Blah. Blah. Blah.
Is there a bigger jackass than John Bolton? He makes no mention of his own role in causing the regional chaos in the Middle East. He was a major warmonger – arguing for the invasion of Iraq, which is now on track to cost the US more than $5 trillion. And who gained? Only Islamic terrorists… and the defense industry.
Believers in Democracy
Now Bolton says we should go into Egypt on the side of the military.
He doesn’t like the Muslim Brotherhood. How many brothers has he met? We don’t know, but he gives the impression that he thinks they are bad people.
Facing off against him in the Journal is Elliott Abrams. We couldn’t make much sense of Mr. Abrams’ argument other than that he thinks the military rulers are bad people. We were going to quote a passage of it for you but we couldn’t find anything worth retyping.
Several editorials urge the US to back the Muslim Brotherhood in Egypt, as one put it, if we are really “believers in democracy.”
Well, that leaves us out!
What’s really interesting is how the defense industry, the meddlers, and the warmongers have put themselves in a winning situation.
Nobody knows which side God is on. Nobody knows what will happen if one side wins or the other loses. All we know with reasonable certainty is that the more meddling we do in the affairs of others, the more enemies we make… and the more of the national treasure is transferred to the zombies in the defense industry.
But that’s how it goes. Gradually, in imperceptible baby steps, what was once preposterous and odious becomes normal and acceptable. And then, you wake up and realize that things have gone too far… and there’s no turning back.
Here’s something to chew over from They Thought They Were Free, by Milton Mayer, in which Germans recall how life changed, little by little, from 1933 to 1945:
To live in this process is absolutely not to be able to notice it – please try to believe me – unless one has a much greater degree of political awareness, acuity, than most of us had ever had occasion to develop.
Each step was so small, so inconsequential, so well explained or, on occasion, “regretted,” that, unless one were detached from the whole process from the beginning, unless one understood what the whole thing was in principle, what all these “little measures” that no “patriotic German’” could resent must some day lead to, one no more saw it developing from day to day than a farmer in his field sees the corn growing. One day it is over his head.
Zombies. Debt. Meddling in the economy by the feds. Meddling in other peoples’ business by the Pentagon. Americans are already in it way over their heads.
Income or Value? You Decide
From the desk of Chris Hunter
If you’ve been tuning in over the last couple of days, you’ve been following an in-depth debate on dividend investing.
Bill’s son Will is running the new Bonner family publishing business, Bonner & Partners. Will’s goal is to show as many people as possible how to not only make money, but also how to protect it over the long run. Right now, he’s on the hunt for the best strategies for doing that.
Will is looking for strategies that have stood the test of time and have plenty of proof to back them up. And he reckons he’s found one – compounding wealth through a special kind of stock-market income. Even better, he’s working with dividend investing expert Jim Nelson. Jim has a rock-solid track record of delivering consistent, growing income gains. Jim’s strategy allows you to get paid while you build wealth.
You may have heard of Jim. He ran the popular Lifetime Income Report newsletter. And he built up a big fan base there… probably because he had a reputation for delivering gains to his readers. During the four years Jim was at the helm, from 2009 through 2012, his recommended portfolio had an average gain (including returns from dividends) of 34.3%. (You can find his full track record here.)
But Bill is skeptical. As he put it, “Most of these innovations tend to be dead ends. But not all.”
Bill reckons the best way to make money in the stock market is through capital gains, not income. He also worries about the tax implications of a dividend strategy. (You can read these exchanges between Bill and Jim here and here.)
Yesterday, I told you that Bill had one last objection to an income-focused investing strategy. Here’s what he wrote in an email to Jim:
Why reinvent the wheel? What you really want to do in the stock market is focus on buying low and selling high. You want to be a value investor, in other words.
Income may have its advantages… But if you want to keep things simple, you want to be a value investor.
This is where things get really interesting… You might think that Jim, a guy who’s passionate about income, would try to argue that income investing is superior to value investing. And maybe even try to debunk a value-based strategy. But instead, Jim described an entirely different way to look at the question of value versus income. Here’s what he emailed back to Bill:
I was raised on the value-investing school – Benjamin Graham, Warren Buffett, and so on.
I don’t see it as either value or income. A sound value strategy and a sound income are really two sides of the same coin.
But there are two important differences…
First, I just trust an investment that can pay me consistent and growing income over the long term a lot more than one that can’t.
Second, an income strategy is more conservative. When the stock market falls… or goes into a bear market… an income investor is going to do better than a (pure) value investor. That’s because dividend payments are more steady in a bear market than stock prices.
In other words, in a bear market an income investor will still be collecting his dividend checks. Capital gains can turn into capital losses. But income gains are always positive. And they’re recurring.
That’s a huge advantage. Because it means an income investor can use his regular dividend payments to buy stocks at what Richard Russell calls the “bargain counter.” Pure value investors – investors who haven’t locked in plenty of recurring income streams – don’t have that luxury.
Take a look at this chart, from RidgeWorth Investments. It shows the growth of $1,000 invested in S&P 500 stocks by dividend policy from January 1, 1972, to June 31, 2013.
As you can see, you’d have done better with stocks that pay dividends (dark blue line) compared to those that either don’t pay at all (light red) or have cut theirs over time (light blue).
The dividend payers were up 4,707% over the period. Stocks that didn’t pay a dividend were up 127%. And dividend cutters or eliminators were down -7%.
There’s a good reason for this outperformance. Income is the flip-side of value. A simple way to think of dividend yield is as a price ratio. A P/E is price divided by earnings. A dividend yield is dividend divided by price… or D/P.
To a value guy, a low P/E signals a low valuation… and a buying opportunity. To us income guys, a high dividend yield (or low price to dividend) can signal the same thing.
I find this kind of exchange fascinating. And I know it’s sparked a lot of debate among Diary readers. It’s fair to say that not everyone is a fan of the case for income.
For instance, one reader claimed Jim was “perpetuating the myth that shareholders ‘own’ the company.”
Another reader pointed out that “price fluctuations in most years destroy the dividend.”
But my favorite response is from reader Bernard E.:
I’m 90 years old so I don’t buy green bananas… if you get my drift.
I live on the dividends, interest and distributions from my investments. I spent much time winnowing my holdings to the point that I currently get over 8% returns annually.
My primary holdings are in the energy sector of the economy – oil leases, refineries, tankers, pipelines, service corporations, etc – in the form of corporations, MLPs, REITs, and trusts.
Einstein said that the greatest invention is compound interest. It works for me and it will work for all the baby boomers that are retiring by the thousands each day.
This controversy will no doubt continue. Some readers already use income strategies with great success. Others aren’t convinced or are downright opposed to them.
At the Diary, we think this is an important debate. And we want to get to the bottom of it. So, we’ve asked Jim to run a very unusual “experiment.”
If you want to see if investing for income works for you, Jim has agreed to give you two months access to his newest recommendations and reports. He reckons that’s all the time he needs to convince you of the power of recurring income to steadily build wealth.
To join Jim’s “experiment” go here. Please keep in mind that places will be on a first come, first served basis and are likely to fill up fast. If you are too late to secure a place we apologize in advance.
P.S. We received a flood of emails from readers who want to know more about Jim’s strategy. One question that came up a lot was how income is taxed compared to capital gains. I’ve asked Jim to tackle this issue and lay to rest any confusion that’s out there. Tune in for that on Monday.