Yet another great report by Peter Schiff why FED is just smoking about tapering!
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Yet another great report by Peter Schiff why FED is just smoking about tapering!
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It almost makes no sense writing about this stock. It is one of my favorite REIT stocks and it will stay my favorite stock as long as it continues paying monthly dividends and raising them regularly.
Realty income makes money by buying properties and renting them. Their income is from rentals unlike mREITs which are involved in MBS and thus dependent on the interest rate spread. Realty Income is not. It doesn’t care what the interest rate spread is. The only way how this company can be affected by higher interest rates is their access to a new financing capital if they decide to take mortgages over secondary public offering (SPO), which I think is quite unlikely.
(MORE: Reaching Financial Independence Before Marriage)
Thus Realty Income is dragged down with the entire sector and especially by mREITs (and ignorance of investors) which it doesn’t deserve.
This company managed paying and increasing monthly dividend for 15 years, its current yield is 5.40%.
Today I added a few shares to my ROTH IRA portfolio.
11/22/2013 11:55:26 Bought 23 O @ 38.7
(MORE: Realty Income (O) REIT Analysis)
Total shares held as of today: | 49 |
Estimated annual dividend: | $106.82 |
Consecutive Dividend Increase: | 15 years |
Dividend yield today: | 5.40% |
Dividend 5yr Growth: | 2.51% |
Dividend paid since: | 1994 |
(MORE: Stock Bought: O )
This trade increases my overall dividend income in ROTH IRA account to $679.57 annually.
(MORE: The Difference Between a Correction and a Crash)
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I am a fan of Peter Schiff. I watched almost all his videos and commentaries and his language and style is very close to me. His arguments are very logic and make sense. Peter Schiff predicted the housing bubble and credit crisis since 2006 and everything what he said about what would come to us happened word for word. I remember other “experts” laughing at him when he in his characteristic tone was telling them what would happen when the housing bubble bursts.
Should we listen to Peter’s warnings though? As a dividend investor his predictions are very scary and he is saying that the US economy has two outcomes – we are heading either to another crisis worse than the one in 2008 or a total collapse. Which way will the FED choose? And what should you do as a dividend investor to protect your portfolio?
Here is a transcript of Peter Schiff’s interview in the Canadian broadcasting The Street – business news network from October 2013:
Paul Bagnell: Welcome back, our next guest as we may be stocking a trap of infinite QE, quantitative easing that could end with a currency crisis. Joining us is Peter Shiff, he is a CEO and chief global strategist at Euro Pacific Capital; he is in Toronto on a visit, thanks for being here.
Peter Schiff: Thanks for having me.
Paul: Tell us what your view is on a quantitative easing, as is not a view that’s shared by many people.
Peter: No, and first my view has been consistent since the beginning. I said when the FED first launched QE1 that it was a mistake that they checked in to the equivalent of a monetary Roche Motel that they had no exit strategy that QE would continue indefinitely that we would have increasing doses of this you know monetary heroin and eventually it’s going to come to an end but not because the FED tapers. The Fed’s actually going to do the opposite of tapering. They are going to up the dosage. It’s going to end when there is a currency crisis, when the dollar collapses and that that morphs into a sovereign debt crisis. That’s going to force the FED’s hand. But until then, it’s just going to pretend that there is an exit, it’s going to pretend that there is a tapering. But it can do it because it can’t remove the QE without removing the recovery and putting the economy back into the worst recession then before the FED began this experiment.
Paul: You don’t see even a beginning to a reduction of a bond purchases?
Peter: No, because, you know when they even talked about it last time, when the FED talked about a possibility of maybe reducing QE, interest rates went way up and that threaten to unravel the housing recovery, the bull market in stocks, and so the FED had to back off. The FED is saying that it’s only going to take away the punch bowl if the party keeps going but the party is going to stop if it takes away the punch bowl. That is the predicament that I am seeing you know the economy that lives by a QE dies by QE.
Reporter: Peter, there has been a lot of concern about a currency crisis and that the FED keeps printing money. There is two issues, first we haven’t see the money leaking out of the system and creating inflation yet, so when do you think we start seeing inflationary problems and when the banks start seeing the loan growth, so how’s the FED going to be able to maintain this credibility that it has when the banks will say, “well we actually have a real loan growth opportunities here” …
Peter: First of all, we are seeing inflation, shoppers are seeing it. It’s just that the government doesn’t acknowledge it in the statistics but it’s going to get a lot worse, see, right now in order for the FED to keep the interest rates artificially low which the US economy desperately needs they have to keep printing money. So the FED prints money and buys treasuries. It can only do that as long as foreign central banks buy up those dollars because otherwise the dollar would collapse and then the US prices would skyrocket including interest rates. So the question is: when is the world going to stop buying the dollars that the FED is printing that it’s using to buy up the bonds to keep the interest rates artificially low and that is, you know, the 64 trillion dollar question. But I think the day is soon, if you look what’s happening in China right now, I mean, China is now starting to see a reduction in the amount of US Treasury bonds that they hold and I think more nations around the world are going to stop buying these bonds especially when we told the world that we are going to default on them eventually anyway. If you recall the debt ceiling debate we told our creditors “If we can’t borrow more money, we are going to default”.
Reporter: I don’t think that anybody took it that seriously though, and really are the Chinese going to allow the American dollar to depreciate against their currency and how they going to sell us their products … are we really going to see a competitive currency devaluation situation right now?
Peter: Well, first of all, people didn’t take the default threat seriously because they knew that we would raise the debt limit, but the principle is the same – if we can’t borrow more money, then we will default. And so our creditors know this so why would they want to hold on to these treasuries but when you are talking about “selling us products”, see, that’s a myth because selling means payment, the world really doesn’t sell America products, the world gives America products because we don’t pay for them with exports all we do is give our creditors IOUs. But they can never do anything with those IOUs, they can’t spend the money, all they can do is keep rolling over Treasuries in perpetuity because the minute the world wants to stop rolling over the Treasuries and they want to actually spend some of the money they earned – we default! Either that, we have a massive inflation, but either way the creditors aren’t going to get paid, and eventually they are going to figure it out and I think they’ve already began figuring it out.
Paul: Do you see asset bubbles? What about the big run up in the equity markets that we’ve seen during the period of QE?
Peter: Sure that’s a bubble! I mean, that’s where a lot of the inflation is showing up. It’s showing up in asset prices. The same way it showed up when the housing bubble was inflating between 2002 and 2007. A lot of the inflation that the FED created to artificially stimulate the economy went into the housing market, also into the stock market, so it’s going there again, but rising stock prices, or rising real estate prices do not reflect healthy economic growth. It’s inflation, it’s speculation that’s all it is. It’s our money losing value. But ultimately those bubbles are going to burst if the FED eventually does the right thing and let’s interest rates rise, we will have a worse financial crisis than 2008, if it does the wrong thing and doesn’t let the interest rates rise but keeps printing money instead then we will going to have a runaway inflation and a much bigger financial disaster then what would happen if the FED just let rates rise.
Paul: Interesting stuff, thanks Peter for joining us.
What do you think? Will it pay to prepare your portfolio for the FED’s hangover?
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Here is my first trade under a new direction or goal (which was supposed to start next year, but due to completing my previous earlier I could start a new one earlier too). I am excited to be able fully focus on my ROTH IRA investments right now as my last year’s goal has been accomplished.
If you remember my previous post announcing that my TD Ameritrade taxable account reached $10,000 value (or balance) which was my goal for 2013 (to recover the account from my reckless gambling in previous years) then I could move to my next money management plan.
My next direction or plan will be to save and deposit all savings and available cash to my ROTH IRA account. I will be contributing to ROTH IRA as long as I max the allowable contributions for ROTH accounts, (currently $5,500 a year). Once I max my ROTH IRA, all additional contributions will be contributed back to my taxable TD account.
So my ROTH will be funded first and when fully funded I will continue saving in my regular taxable account.
Of course, on top of this I still have a priority number one eliminating my debt, then contributing to my 401k, and contributing to new 529 education accounts for our two daughters.
As you may remember I decided to stop investing in Lending Club due to changes LC did in their trading platform. Those changes were unfavorable to me and limited my freedom and choice trading notes the way I wanted.
As I was liquidating the account (it is still under the process) I transferred majority of money to my daughters accounts (all their money since we used Lending Club as a vehicle for saving for their education) and now I am transferring my wife and my money out of the account and moving them to our ROTH IRA account.
As the cash is slowly arriving, I will continue investing in 1000 dollars increments (so I will not invest everything at once) buying equities.
I will be buying high yielding, riskier dividend stocks paying dividends monthly to boost my dividend income. I know that the stocks I will be buying will not fit exactly into dividend growth income strategy, but here is my reasoning:
I believe, and I am hoping that the higher dividend yield stocks will help me generating cash which I can use investing into standard dividend growth stocks. For this purpose I am willing to take a higher risk.
The stocks of my attention are:
Realty Income
Full Circle Capital (FULL)
Gladstone Capital
Mesa Royalty Trust
Prospect Capital Corporation (PSEC)
Main Street Capital
I have been investing into PSEC for more than 2 years in my ROTH IRA account and Scottrade account. It is somewhat lazy company, so do not expect capital gains, but it pays monthly dividends. The current yield is 11.7% and it trades at around 11 dollars a share. It increased dividends only last year, so it is not a true dividend growth stock. Its payout is however steady and it satisfies my money generating machine. All payments received will be immediately reinvested into dividend growth stocks.
PSEC trades at 10.30 P/E which is in line with the sector (Financial) and industry (Asset Management) and in line with its peers. Net margin is 57% and revenue growth is 57%.
Prospect Capital Corporation is a financial services company that primarily lends to and invests in middle market privately-held companies. The Company is a closed-end investment company. It invests primarily in senior and subordinated debt and equity of companies in need of capital for acquisitions, divestitures, growth, development and recapitalization. The Company works with the management teams or financial sponsors to seek investments with historical cash flows, asset collateral or contracted pro-forma cash flows. Its investment objective is to generate both current income and long-term capital appreciation through debt and equity investments. The Company lends in private equity sponsored transactions; lends directly to companies not owned by private equity firms; control investments in corporate operating companies; control investments in financial companies; invests in structured credit, real estate investments, and investments in syndicated debt.
Tomorrow I will open the following trade:
BTO 87 shares of PSEC at limit 11.45 GTC
I will also start adding data and tables about my trades to “My ROTH IRA holdings page” and to “My trades” page so you will be able to see and follow my trades.
What do you think, is it a good trade? Would you take it?
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If you are a dividend growth investor investing into dividend growth stocks, you may have noticed that the market is somewhat overpriced. You can read on many blogs complaints from dividend investors that it is very difficult to find fairly valued or undervalued stocks today.
I agree, that some stocks of my interest are expensive today. My favorite stock JNJ is way above the price I would be willing to pay to add more shares to my portfolio.
(MORE: Johnson and Johnson: Let it Dip to a 3% Yield)
As income seeking investors are fleeing from bonds and moving their capital into dividend stocks they will be driving the market and dividend stocks higher.
As you know, this trend will have a very negative effect to a metric every dividend investor is looking for – yield.
As the price is marching upwards, the yield goes the right opposite.
And therefore my favorite stock JNJ’s yield is now at 2.8%. In the past, it was around 3.5%. My threshold for committing cash in any dividend paying stock is 3.0%. As long as any dividend stock pays 3% or more in dividends I invest. JNJ is below my threshold.
(MORE: Getting Started With Dividend Growth Investing)
Another metric dividend investors usually look at is P/E. Investors should evaluate P/E from many perspectives – historical, competitors, industry, etc. Typically when you ask any dividend growth investor they will tell you that they would invest in companies which trade at 20 or lower P/E.
My favorite JNJ trades at 21.03 P/E. Again above the threshold.
But I like this company and want to be adding more shares!
What shall I do?
You have basically the following options:
(MORE: $10,000 Worth of Dividends (so far))
I like the third option – apply strategies which will allow you buying expensive stocks cheap.
Yes, I am talking about basic option strategy – put selling. Selling puts can provide you with two benefits:
A great trader Teddy Knight from Fullyinformed.com once wrote on her blog why she likes put selling and what strategy you should use. It is a very simple and powerful cash generating strategy:
I like the first part of the cycle. Sell puts as long as you collect enough cash to buy the stock. You buy the stock using other people’s money.
(MORE: The Most Undervalued Dividend Stock in the Market)
That’s why I use options trading in my taxable portfolio (and I am planning on start using this strategy on my ROTH too). Not only I get income, but I can lower the cost basis of my stock and improve all metrics of that stock. I will be buying a lot cheaper than the current market price. I get a solid discount.
For example Safeway stock I wrote about in my previous post. I like the stock and I want to buy it. But let’s take a look at its metrics:
Current price – $33.04 a share
Current P/E – 18.28
Current yield – 2.30%
(Of course there are other metrics I usually look at, but I will list only these three for the sake of this article).
When I first added SWY in my watch list the above metrics looked like the following:
Price back then – $23.00 a share
P/E back then – 12.57
Yield back then – 3.47%
As you can see, at the beginning of the year, SWY was an attractive dividend stock, paying nice dividend, increasing dividends for 7 years with a payout ratio in its 40s and almost 20% growth rate.
(MORE: 5 Great Dividend Paying Stocks With Double-Digit Short-Term Dividend Growth)
Today, the stock doesn’t meet my criteria to invest in it. But by using options strategy I still can buy this stock cheaper. I started selling puts against SWY at the beginning of this year and here are the premiums I already collected:
+2.20 sold put in March 2013
+0.35 sold put in September 2013
+0.40 sold put in October 2013
+1.80 sold put in November 2013
——————————-
=4.75 total premiums received
This means that if I decide to buy this stock now or get assigned to this stock early or later, my purchase stock will be $28.29 a share. The metrics I look for will change as follows (being all other metrics the same):
Adjusted price – $28.29 a share
Adjusted P/E – 15.46
Adjusted yield – 2.83% (so I need to continue selling more puts)
(MORE: Should We Expect a Crisis After Bernanke Leaves the Fed?)
Don’t be afraid selling puts against the stock you want to own. There are only two possible outcomes which can happen to you – the option expires worthless or you will have to buy the stock at strike price minus received premium.
Both outcomes are good for you. This trade will always be a win-win trade.
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If you are interested in knowing to which stocks billionaires invest, now you have a chance. NYSE introduced a new index – iBillionaire (BILLION).
The index tracks a group of filthy wealthy men and women and it basically polls them into which stocks they invest. They do not ask them directly of course, but monitor their portfolios to create the index.
Among the well-known investors included in the index are Warren Buffett, Carl Icahn, Daniel Loeb, David Tepper and David Einhorn. The index tracks 30 large-cap equities listed on S&P 500 into which the billionaires invested the most of their capital. The information is devised from 13F fillings and it can provide you with a nice review what stocks these investors are buying, selling or holding in a nut shell.
Now you can track their portfolio and start buying or selling the same stocks if you want.
I will however stay with my dividend growth strategy, although it is interesting to watch this index. At least I may use it to buy dividend growth stocks from this index and ignore other equities.
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