Building a Stockless Portfolio

Yes, it is possible to run your portfolio sans stock. I have toyed with this notion on and off for a while. A recent article by Money Morning chief investment strategist Keith Fitz-Gerald addressed this concept quite well.

According to Fitz-Gerald, the allocation model looks like this:

• Bonds 45%
• Master Limited Partnerships (MLPs) 25%
• Commodities 10%
• Gold 10%
• Preferred Stocks 10% (true, they are stocks but their performance is more bond-like)

Bonds should be split between high-yield corporate bonds and intermediate/short term investment-grade municipals. IShares IBoxx $ High Yield Corporate Bond ETF (HYG) is recommended, as is Vanguard's Short-Term Corporate Bond ETF (VCSH). PIMCO's Municipal Income Bond Fund (PMF) is an appealing choice to round off this portion of the portfolio.

Gold hedges the principal value of bonds. This is especially true, according to Fitz-Gerald, in a stockless portfolio. A good choice is the SPDR Gold Trust ETF (GLD).

Fitz-Gerald adds a healthy dose of Master Limited Partnerships. MLPs may trade like stocks, but technically they are different in character. J.P. Morgan's Alerian MLP Index ETN (AMJ) provides reasonable coverage for this portion of the portfolio, until a better method and index comes along.

Commodities can be covered by a stake in MarketVectors Agribusiness ETF (MOO) and PowerShares Deutsche Bank Commodity Index Tracking Fund (DBC). A higher yield commodity security is the Pimco Commodity Real Return Fund (PCRDX), yielding over 8%. In all likelihood, the long term trend for commodities is bullish.

Preferred Stocks are needed to include relatively high fixed dividends or inflation protected dividends present in some of these investment vehicles. The ETF choice here is the IShares U.S Preferred Stock Index Fund (PFF).

There are obvious downsides to a stockless portfolio. Fitz-Gerald points out the major hurdles. The current Fed zero interest policy is bullish for common stocks. Investors interested eliminating stocks are introducing additional risks to their portfolio by reducing the level of diversity and balance . Thus, I believe a non-stock portfolio is a significantly more volatile investment using the past four generational metrics for the market.

The much-divined dividend appreciation method many investors flock to with common stocks is lacking, although this stockless portfolio appears to contain plenty of fixed income. Those seeking consistently rising dividends from stocks depend upon a company's track record to justify their dividend shill. Since the 1940s, they are correct. But bitter and unforeseen surprises may be in store for those absolutely, definitely sure beyond any doubt that this trend will continue -- usually when it is least expected.

Importantly, Fitz-Gerald points out that by cutting common stock from a portfolio, it is definite that one would have to significantly increase personal savings to make up the difference with common stock's century-long historical performance. A 32-year-old earning $50,000/year aiming for about $3,200/month retirement would have to increase his savings from 12% to 16% of his annual salary. I am of the opinion that saving 20% of gross income is necessary regardless of one's retirement nest egg approach.

The objective of this unusual exercise is not to convince the reader that this type of portfolio is the best road to riches. It is published to encourage investors to think of alternative ways to manage and design a portfolio -- to resist following the herd instinct chasing "sure bets" with common stocks, or a sector investment, as we lurch into an uncertain future. The past is littered with foolproof stocks and investment schemes gone awry.

Austerity vs. Stimulus: Damned Either Way?

At the highest corporate and government levels, there is confusion about how to heal national and global economies. The US and Japan lean towards further stimulus. The EU and UK are pursuing austerity.

As I tried to sort it out, here’s a summary of the arguments, track record and risks of each. Dear Reader, I welcome your input (and so should our economic elites, who clearly share my uncertainty).

The Basic Argument Against Austerity

On a private individual level austerity makes sense. However it is not as applicable to governments because spending cuts reduce GDP and tax revenues and risk making a recession worse. That’s expected in the short term, but the risk is that the economy never escapes the spiral of lower GDP making debt reduction harder if not impossible. Even if austerity would ultimately work, democracies may lack the political will to stay the course until it works, if the economic suffering provokes enough popular opposition.

The metric everyone is watching is the debt/GDP ratio.

So the big question becomes, when austerity plans take effect, will debt shrink faster than GDP so that debt service costs drop and national finances can return to health.

Greece Brief Case Study

An August 18th Der Shpiegel article suggested that while Greece has made great progress cutting debt, it nonetheless may be entering a death spiral in which GDP may fall too fast for Greece to pay even its reduced spending obligations and debt service, making recovery impossible without outright bailouts, defaults, or debt restructure.

The report noted that some areas are suffering from 70% unemployment, businesses are closing, tax revenue needed for closing the budget gap is falling, and that social tensions are reaching a boiling point. Together these raise doubts about not only whether austerity will work for Greece, but even if it ultimately could, can Greek society bear the pain before abandoning the program before meaningful improvements occur. See here for the full article. Many credited the report with contributing to the general market drop the following day, particularly in the Euro.

Meanwhile, the European Commission announced last Thursday that Greece’s budget reduction justified payment of the second tranche of €9 bln ($11.57 bln) in Euro-zone financial aid in September, deferring any immediate Greek crisis for a few months, though Greek bond and CDS rates are once again spiking towards Spring 2010 crisis levels.

Ireland Brief Case Study

Ireland has been a poster child for voluntary adherence to strict austerity programs. However it’s not making progress in restoring its government balance sheet to health.

News of a new Irish bank bailout on August 11th officially ended the Euro’s summer rally, sending it, and markets in general, sharply lower. The bailout was correctly seen as adding significantly to Ireland’s sovereign debt burden. Ireland still managed to stage a successful bond auction, though it’s unclear if demand was genuine or via ECB manipulation to restore shaken confidence. On August 23rd Standard and Poor’s downgraded Ireland’s credit rating from AA+ to AA, with a negative outlook. That means more downgrades could follow. On August 23rd it was reportedhere that Ireland’s bond spreads (over German bunds) are now back to crisis levels seen in May.

Click to enlarge

FT.com via businessinsider.com

Spain Brief Case Study

Spain has also been making vigorous efforts to rein in its deficits, with similar effects on GDP. It too is seeing rising CDS spreads that will complicate its recovery. See here for a detailed look at Spain’s deteriorating growth and debt situation.

Other Austerity Opponents

There have been additional repeated reports (by assorted economic heavyweights like Nobel Prize winning economist Joe Stiglitz) questioning whether austerity measures will not only fail to restore nations to fiscal health but may make their economies even weaker, throwing them into double dip recession or outright depression

Nomura Bank Chief Economist Richard Koo has also argued extensively that the nature of the current global downturn, a ‘balance sheet recession,’ characterized by the bursting of a debt-financed asset price bubble that leaves many private sector balance sheets with more liabilities than assets, cannot return to self-sustaining growth until private sector balance sheets are repaired, which requires continued stimulus. See here for details.

Pro-Austerity Arguments

Here’s the short version. The Keynesian pro-stimulus approach has also failed to produce thus far in the current crisis, if in fact it ever really worked in the past, and the end result is likely to be worse than that of austerity. Stimulus merely delays the collapse until the time when bond markets no longer accept the sovereign debt that funds the stimulus at affordable rates (or at least threatens to do so soon). When it comes, the collapse is much worse due to the accumulated mountain of debt and deeply devalued currency. No nation has ever inflated their way into prosperity.

In response to Richard Koo, David Merkel responds:

Ridiculous. He is arguing that we need to follow Japan’s path of useless stimulus and more government debt. Do we have to see the US govt debt market fail through default or inflation?

You can’t escape the need to liquidate debts. Economies don’t work well at high debt levels. Until total Debt/GDP gets down to 1.4x, we won’t see strong growth. The depression did not end because of FDR’s policies, or WWII, but because debts got paid down and compromised. By 1941, total debt/GDP got down to 1.4x, and stay near there for the next 43 years, which were years of rapid growth in the real economy not led by leverage. The period 1985-2009 saw the enormous growth in debt up to 3.7x GDP, which now has produced our current crisis.

Stimulus thus far in the US, EU, and UK has also failed to spark unequivocal recovery, and recent data suggests the US and most of the EU may be tipping back into recession, if in fact they ever exited it. Concerning the US, Dave Rosenberg of Gluskin Sheff says the US has remained in recession.

Andy Xie argues against stimulus programs here, essentially because capital released winds up flowing to emerging markets where production costs are lower and demand growth is higher, thus failing to aid the intended economies and sparking inflation in the emerging markets that will ultimately spread to the still stagnant developed world economies.

Conclusion: Which Is The Lesser Evil? Depends Which Risks You Fear More

It is not clear whether austerity or continued stimulus is the way to go, and the confusion appears to be at the highest private and official levels, with the US opting for more stimulus and the EU and UK enacting austerity. Neither has worked thus far, but advocates of both approaches would argue that merely more time is needed to prove their approach correct.

What is clear is that neither stimulus nor austerity has worked yet. Meanwhile here is a summary of the risk each approach presents.

Austerity: Kill off nascent recovery so that GDP fails to grow faster than debt falls, locking the economies into a death spiral of lower GDP, inability to pay off debts or even the need to add debt. Meanwhile contracting growth and unemployment risk social unrest and political instability. Current examples of failed austerity thus far include Ireland and Greece.

Stimulus: Has yet to provide conclusive recovery, though advocates say it has averted a much worse contraction thus far. Opponents argue that crash has merely been delayed and will be worse due to the massive additional debt burden and/or currency devaluation and possible hyperinflation if liquidity is withdrawn too late. The argument is somewhat complicated because Quantitative Easing involves giving money to banks, and that money can neither cause inflation nor aid recovery if banks choose to simply retain the funds to repair their own balance sheets and/or refrain from all but the safest lending. At some point, once recovery gets moving, they will start lending, and that is when the inflation risks start, unless central banks are adept at quickly withdrawing the liquidity from bank coffers.

Disclosure: No Relevant Positions

Masimo Passes This Key Test

There's no foolproof way to know the future for Masimo (Nasdaq: MASI  ) or any other company. However, certain clues may help you see potential stumbles before they happen -- and before your stock craters as a result.

A cloudy crystal ball
In this series, we use accounts receivable and days sales outstanding to judge a company's current health and future prospects. It's an important step in separating the pretenders from the market's best stocks. Alone, AR -- the amount of money owed the company -- and DSO -- the number of days' worth of sales owed to the company -- don't tell you much. However, by considering the trends in AR and DSO, you can sometimes get a window onto the future.

Sometimes, problems with AR or DSO simply indicate a change in the business (like an acquisition), or lax collections. However, AR that grows more quickly than revenue, or ballooning DSO, can also suggest a desperate company that's trying to boost sales by giving its customers overly generous payment terms. Alternately, it can indicate that the company sprinted to book a load of sales at the end of the quarter, like used-car dealers on the 29th of the month. (Sometimes, companies do both.)

Why might an upstanding firm like Masimo do this? For the same reason any other company might: to make the numbers. Investors don't like revenue shortfalls, and employees don't like reporting them to their superiors.

Is Masimo sending any potential warning signs? Take a look at the chart below, which plots revenue growth against AR growth, and DSO:

Source: S&P Capital IQ. Data is current as of last fully reported fiscal quarter. FQ = fiscal quarter.

The standard way to calculate DSO uses average accounts receivable. I prefer to look at end-of-quarter receivables, but I've plotted both above.

Watching the trends
When that red line (AR growth) crosses above the green line (revenue growth), I know I need to consult the filings. Similarly, a spike in the blue bars indicates a trend worth worrying about. Masimo's latest average DSO stands at 50.5 days, and the end-of-quarter figure is 52.0 days. Differences in business models can generate variations in DSO, and business needs can require occasional fluctuations, but all things being equal, I like to see this figure stay steady. So, let's get back to our original question: Based on DSO and sales, does Masimo look like it might miss its numbers in the next quarter or two?

I don't think so. AR and DSO look healthy. For the last fully reported fiscal quarter, Masimo's year-over-year revenue grew 5.5%, and its AR grew 7.1%. That looks OK. End-of-quarter DSO increased 1.5% over the prior-year quarter. It was about the same as the prior quarter. Still, I'm no fortuneteller, and these are just numbers. Investors putting their money on the line always need to dig into the filings for the root causes and draw their own conclusions.

What now?
I use this kind of analysis to figure out which investments I need to watch more closely as I hunt the market's best returns. However, some investors actively seek out companies on the wrong side of AR trends in order to sell them short, profiting when they eventually fall. Which way would you play this one? Let us know in the comments below, or keep up with the stocks mentioned in this article by tracking them in our free watchlist service, My Watchlist.

• Add Masimo to My Watchlist.

Moms Spend on Cothes for Infants and Kids as a Priority

For example; Consolidated net sales increased $82.7 million, or 17.6%, to $551.7 million. Net domestic sales of the Company's Carter's brands increased $47.2 million, or 12.4%, to $426.7 million. Net domestic sales of the Company's OshKosh B'gosh brand increased $4.2 million, or 5.7%, to $78.3 million. Net international sales to customers outside the United States increased $31.3 million to $46.7 million.

I like all those Q1 increases; if the Co can get its bottom line more finely tuned; I think it could ride the recovery quite well...

No Jobs, No Sales, No Recovery

A little further down is a chart I made that I think may be helpful in explaining the current market to new investors.

This chart shows the trailing four-quarter sales and earnings for the S&P 500. This needs a little explanation. The black line is the sales for the S&P 500 and it follows the right axis. The blue line represents the operating earnings and the red is the as-reported earnings. Both of those lines follow the left axis. Notice that sales are much less volatile than profits.

I�ve scaled the two axes at a ratio of 12-to-1, which means whenever the red or blue line crosses the black line, the profit margin is exactly 8.33%. Unfortunately, the data only goes up to the first quarter of this year, but nonetheless, I still think it gets the point across.

Let me explain the difference between the red and blue lines. The as-reported figure refers to simply the bottom line that companies report each quarter. The blue line is the earnings number that�s adjusted for special items. Personally, I prefer to look at operating earnings because the market has historically been more closely correlated to it. Some analysts only look at as-reported earnings and I respect that choice. You can use either but just be aware of the pitfalls of either choice.

The problem with as-reported earnings is that they can fall off a cliff as they did during the fourth quarter of 2008. AIG, for example, reported an earnings loss of over $280 a share. When all those financial stocks reported monster losses it gave the impression that the entire market was worthless. The red line plunged to nearly nothing. The market, obviously, didn�t put a standard multiple on $7 of trailing earnings. Instead, the market�s behavior followed the blue line. I�ll skip the accounting debates. My view is that if market thinks the blue line is important, then I think it�s important.

The problem with the operating earnings, however, is that it can reflect poor �earnings quality,� meaning companies get creative with their accounting. A good warning sign of poor earnings quality is when there�s a big gap between the red and blue lines. This was a bigger issue a few years ago, but I�m not so concerned about it today.

Either way, let’s not get bogged down on the issue of operating versus as-reported. The important point I want to get across to new investors is that the market has responded to a dramatic upsurge in operating earnings since March 2009. That�s great news. The problem is that companies haven’t grown their profits by generating new business. Instead, they’ve grown their profits by increasing profits margins. And they’ve done that by cutting costs, principally labor costs. They’ve fired and laid off their way to prosperity!

Basic economics tells us that profits can only go so far without sales growth and that’s been dismal, and it’s partly due to all those lay offs. That black line needs to get moving. The Q2 data point isn�t up yet but it will show pretty much the same thing, sluggish sales growth.

I scaled the two lines at 12-to-1 because once the blue line passes the black line (meaning, the overall profit margin exceeds 8.33%), that�s usually when the economy starts hitting the breaking point. When you can�t increase sales quickly, you need to grow earnings by raising prices. But when you increase margins, you slow sales growth. Hence, the economy moves in a cycle. Notice how the blue line tends to lead the black line by a year or two.

In other words, profits generate sales. But this time around, it just doesn’t seem to be working.

Ed Elfenbein is editor of Crossing Wall Street, a Web site about stocks and the market designed to help individual investors. Check out his free Buy List of stock recommendations.

Triple-Digit Profits No Matter What the Market Does – You are not at the mercy of the markets. You can start adding triple-digit winners to your portfolio now if you’re ready to embrace the new rules of investing. Here’s how to make money every day in up markets AND down.

Consumptionomics: Time to Shift to the Beijing Consensus

Reading Chandran Nair's Consumptionomics was like a breath of fresh air! Nair tackles all the stultifying dogmas of market fundamentalism and shows how the West's peddling of its Washington Consensus policies over the developing world has resulted in a form of globalization that is unsustainable and will lead to further disasters beyond the financial, social and ecological crises it has unleashed.

Nair calls for Asian countries to now break with this broken Western model and move beyond economics to a more scientific basis for its own development path. While acknowledging that "trickle down economics" has brought many out of poverty, Nair asserts that its resource-intensity due to mispricing and "externalizing" of social and environmental costs makes it infeasible and destructive of other values and forms of wealth. This mis-pricing extends to national accounts where GDP also ignores externalities, includes clean-up costs and other defensive expenditures as part of national output (confusing "goods" and "bads") while omitting many forms of national wealth: well-educated workers, efficient infrastructure and productive ecosystems. This has led to mis-pricing of sovereign bonds of Ireland, Greece, Portugal and other EU countries (see "GDP: Grossly Distorted Picture").

I applaud Nair's approach. I have called for a similar reshaping of capitalism toward resource-efficiency and the transition from the fossil-fueled Industrial Era to the cleaner, green, information-rich Solar Age.

We have measured private investments in this transition since 2007 at $2 trillion. In my interview with Nair in Hong Kong, I learned that he is a green investor interested in making a positive social impact. He has founded Advantage Ventures. We hope that Nair will join our call for pension funds to shift at least 10% of their assets away from risky hedge funds, dark pools and commodity speculation to direct investments in the green sectors now growing around the world - with Asia in the lead.

I agree with Nair's risk-reduction approach and focusing investment in this transition to a more equitable resource-efficient path to our common future. To this end, Nair calls for stronger, more competent governments. Nair recommends that governments focus on curbing and down-sizing finance to its original purpose and to shift tax policies to proscribe tax waste, pollution and superfluous financial transactions. Nair emphasizes the need to encourage other activities in place of mass consumption, waste, obsolescence, based on capital and resource intensity. He rightly calls for redirecting advertising and marketing toward conservation and new forms of satisfaction.

This book slays many tottering sacred cows: "efficient markets," "rational actors," GDP-growth as well as the Washington Consensus and the dominance of faulty economics over public and private decision-making which ordinary citizens in 12 countries seem to understand (Beyond GDP). Nair might have spent more time exploring the burgeoning socially and environmentally responsible institutional investing models we cover on our site, including the UN Principles of Responsible Investing now comprising over 850 institutional investors with AUM of over $25 trillion.

Nair can also be gratified, as I am, that the Nobel family has now dissociated from the Bank of Sweden Prize in Memory of their ancestor Alfred Nobel as a fraud infringing on the Nobel's intellectual property ("The Cuckoo's Egg in the Nobel Prize Nest"). This alone should release Asian policymakers to go full steam ahead with their own resource-conserving, labor-intensive, green economy plans, as China, Korea, India, Singapore and other countries are pioneering. This book will hopefully spark a wide debate on the future development paths for our common future on this small planet.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Why RIM Is Turning Off The Lights

Research In Motion (RIMM) produced another awful-terrible-no-good-very-bad-quarter. Numbers were disappointing, missing on both earnings and revenues. Smartphone deliveries were down 25%.

Moreover, RIM is going dark: No guidance to future earnings, revenue, or unit volume. The company is leaving investors to guess what's in store.

My take: It's going from bad to worse.

Per its conference call, RIM doesn't have a high end smartphone to compete with the iPhone and it is selling low ASP merchandise. The promised Blackberry 10 is pushed back to the end of year.

As we move into the first quarter, we expect revenue will show a sequential decrease based on lower unit volumes, less favorable smartphone ASP mix and the adoption of new pricing smartphone and service initiatives in order to increase the sell-through and selling of BB7 products. We expect the downward pressure on operating earnings to continue throughout the year based on the market dynamics noted above, existing fixed costs being spread over lower volume of shipment.

I've been warning investors off RIM for years.

RIM's profits per unit have crumbled, now less than half last year's numbers. The trend is worsening. (Note: The numbers remove the one-time inventory write-offs. Left in, the numbers are even worse.)

(Fiscal years 2007 thru 2012. Average profits per unit = operating income/number of devices.)

RIM makes $42 on each sale, a two-third drop from 2007 and one-half drop from 2011. It wouldn't be so bad if its competitors were finding the same market conditions. They are not. Consider Apple (AAPL), the company that has been responsible for much of RIM's pain. Here are Apple's average profits per unit.

When the destroyer can command increasing profits on its products and yours are collapsing, that's a recipe for disaster.

By the way, look at RIM's operating margins, a much more conventional method of assessing a company. You'll note abysmal numbers for 2011. However, margins didn't disintegrate until 2011, hiding the pain that awaited investors. Note that average profits per unit, my metric, signaled RIM's coming troubles as early as 2009 when the stock was $75 rather than $15.

(Fiscal Years 2006 to 2012)

RIM is no longer guiding investors, leaving them stumbling in the dark. That makes sense: Silence is preferable to declaring the bitter numbers ahead. Analysts haven't gone quiet. Consensus estimates for the next two quarters' EPS has been cut by a third over the last week and will probably go lower.

RIM sells an outmoded product. If you want to see RIM's future, extend my graph of average profits per unit. Why has RIM gone dark? The future is way too scary: Best to leave the lights off. That way, investors won't have to see the miserable future ahead. RIM has a lot to solve. In the meantime, I'd stay away the stock.

Disclosure: I am long AAPL.

Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.

EA sales beat targets; ‘Star Wars’ takes hit

MARKETWATCH FRONT PAGE

Electronic Arts reported adjusted revenues for the March quarter that beat Wall Street�s targets, though subscribers for the key �Star Wars: The Old Republic� MMO game slid by 24% from the previous quarter. See full story.

Third Point demands Yahoo CEO documents

Third Point is demanding that Yahoo release documents related to the appointment of CEO Scott Thompson who is under fire for misstating his academic credentials. A source close to the Third Point says the firm will sue if Yahoo does not comply. See full story.

Yahoo investors appear to bet on Loeb

Yahoo is in another mess of its own making, with its latest CEO under fire for lying on his resume. Investors are betting the mess will help hedge fund investor Daniel Loeb win his seats on the board and push for major change. See full story.

Greece �worst case� outcome sparks new turmoil

Investors come to grips with a �worst case� scenario in Greece as the outcome of voting there potentially raises doubts over the country�s ability to remain in the euro. See full story.

Fateful choice for France

Fran�ois Hollande carries the ambitions of the �no-hope brigade� of peripheral countries challenging German-style austerity. If he fails, they�ll all go down together, writes David Marsh. See full story.

MARKETWATCH COMMENTARY

Instead of acknowledging that banks have become a part of government, we keep pretending they are private institutions, writes David Weidner. See full story.

MARKETWATCH PERSONAL FINANCE

Home prices in a majority of the markets covered in Zillow�s Home Value Forecast are set to bottom this year � if they haven�t already, according to a Zillow report released on Wednesday. See full story.

Best Stocks To Invest In 6/14/2012-3

Heritage Oaks Bancorp (Nasdaq:HEOP), the parent company of Heritage Oaks Bank (the “Bank”), reported its fifth consecutive quarter of profitability with fourth quarter net income of $4.1 million, $2.0 million higher than third quarter’s $2.1 million and $3.6 million above fourth quarter 2010. After incorporating accrued dividends and accretion on preferred stock of $0.3 million, net income applicable to common shareholders for fourth quarter was $3.9 million. Net income per basic and diluted common share was $0.16 and $0.15, respectively in the fourth quarter; $0.09 and $0.08 higher than the basic and diluted earnings per share reported in the third quarter. For full year 2011, the Company reported net income of $7.7 million; $25.3 million higher than the $17.6 million net loss reported in 2010. The improvements in quarterly earnings are primarily due to $0.7 million higher non-interest income, a $0.4 million lower provision for loan losses, and a $1.5 million decrease in the $7.1 million deferred tax asset valuation allowance established in 2010.

Heritage Oaks Bancorp operates as the holding company for Heritage Oaks Bank that provides commercial banking services to retail customers, and small to medium-sized businesses in California.

FBR & Co (Nasdaq:FBRC) a leading investment bank serving the middle market, announced that the company will release results for the fourth quarter and full year of 2011 before the market opens on Wednesday, February 8, 2012. Investors wishing to listen to the earnings call at 9:00 A.M. U.S. EST, Wednesday, February 8, 2012.

FBR & Co., through its subsidiaries, provides investment banking, institutional brokerage, and asset management services primarily in the United States.

MHI Hospitality Corporation (NASDAQ:MDH) announced that the Company will report financial results for the fourth quarter 2011 prior to the market opening on Tuesday, February 21, 2012. A conference call for investors and other interested parties is scheduled for 10:00 a.m. Eastern Time (ET) that same day, at which time management will discuss the Company’s fourth quarter 2011 results. The information to be discussed on the call will be contained in the Company’s earnings release, which will be available via MHI Hospitality Corporation’s website at www.mhihospitality.com in the Investor Relations section under Financial Information.

MHI Hospitality Corporation, a real estate investment trust (REIT), engages in the ownership and operation of upper upscale and midscale hotels in the mid-Atlantic and southeastern United States.

Crown Equity Holdings Inc. (CRWE)
Video marketing is a very powerful marketing tool. People would rather watch a video over reading an article. Television and movies are more popular and reach a wider demographic then books or newspapers.
What does the demographic look like? (According to YouTube)
- 71% Employed, 15% are students
- Median Income $75,000
- Almost 50% are married
- 70% are college educated That is a GREAT audience!

Now you’re probably asking yourself. Wow, that’s great, but how can my online home business benefit from video marketing.
Reasons you should consider video marketing!
- You can get high volumes of traffic, quickly
- Effective Self
- Branding Tool
- Position Yourself as a Leader/Expert
- Increase Website Conversions
- Can Target Specific Keywords

Crown Equity Holdings Inc., together with its digital network, currently provides electronic media services specializing in online publishing, which brings together targeted audiences and advertisers.

Crown Equity Holdings Inc. (CRWE.OB) announced that it has launched CRWE Tube, www.crwetube.com, a video sharing site that allows billions of people around the world to upload watch and share original videos.
“The CRWE Tube team has built an exciting media platform, which allows people and businesses large and small to quickly and efficiently reach a vast new audience,” said Kenneth Bosket, President of Crown Equity Holdings Inc. “With online videos continuing to experience explosive, viral growth and the web rapidly moving from text to video, businesses will need to adapt to the shift in video distribution technology or quickly become irrelevant to their consumers who anticipate seeing video everywhere online.”

For more information about Crown Equity Holdings Inc., please visit: www.crownequityholdings.com.

Why Jive Software Shares Popped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of enterprise collaborative software company Jive Software (Nasdaq: JIVE  ) are jumping by as much as 12% today following speculation that one of its competitors will be bought out.

So what: Jive Software's rally can be attributed to feverish rumors from Bloomberg and Twitter that Microsoft (Nasdaq: MSFT  ) might be interested in purchasing privately held Yammer. It would be an interesting move, as Microsoft's SharePoint is still the premium collaborative software in business. Other competitors in this space include salesforce.com (NYSE: CRM  ) with its Chatter service and VMware (NYSE: VMW  ) , which owns SocialCast, but neither of these two are seeing the pure-play move higher like Jive, as they have their fingers in so many other business segments.

Now what: I'd hesitate to believe the rumors of a possible Yammer buyout and stick to my investment thesis on Jive prior to hearing today's "news." Personally, I've maintained a CAPScall of underperform on Jive as expenses continue to outpace sales growth. Until I see that elusive profit, I really feel Jive has a lot to prove to investors.

Craving more input? Start by adding Jive Software to your free and personalized watchlist so you can keep up with the latest news on the company.

Banks Shrug Off Obama Tax: Will “Obscene” Bonuses Bring Contrition, or Higher Bank Fees?

Confirming various news reports overnight from The Wall Street Journal and others, President Obama late this morning gathered with his economic team to unveil a $90 billion levy on banks, which he referred to as the “financial crisis responsibility fee,” that he said should be imposed “until the American people are fully compensated for the extraordinary assistance they provided to Wall Street.”

The fee is a proposal and must be submitted to congress for action to be taken.

Saying he was motivated in part by “obscene bonuses at the very firms who owe their continued existence to the American people,” Obama said the tax should remain in effect for a decade or more, of neccessary, to recover every penny of TARP bailout funds.

The Administration’s said the tax will be imposed only on financials with assets of $50 billion or more, an that it is designed to raise $90 billion over 10 years and $117 billion over 12 years — the latter figure being the final “cost” the administration estimates for TARP.

The White House’s fact sheet gives a back of the envelope on how the tax will be assessed: 15 basis points against “covered liabilities,” meaning, consolidated assets minus Tier 1 Capital and FDIC-assessed deposits. For a bank with $1 trillion in assets, this could mean $600 million in taxes, which the IRS will collect.

What the Administration’s proposal doesn’t include is any discussion of how the levy may or may not be passed along to the consumer.

What do you think: will bank bonuses take a hit? Or will your checking/ATM/investment banking fees go up?

Bank stocks are mostly shrugging it off. Goldman Sachs (GS), which was down earlier this morning, is up 37 cents at $169.44.

Can You Sleep Easy With Your Current Level of Risk?

Amidst the recent, historically high volatility in the financial markets, there have been a large percentage of investors who have been sleeping like a baby – a baby that stays up all night crying! For some, the dream-like doubling of equity returns achieved from the first half of 2009 through the first half of 2011 quickly turned into a nightmare over the last few weeks. We live in an inter-connected, globalized world where news travels instantaneously and fear spreads like a dam-bursting flood. Despite the positive returns earned in recent years, the wounds of 2008-2009 (and 2000 to a lesser extent) remain fresh in investors’ minds. Now, the hundred year flood is expected every minute. Every European debt negotiation, S&P downgrade, or word floating from Federal Reserve Chairman Ben Bernanke’s lips, is expected to trigger the next Lehman Brothers-esque event that will topple the global economy like a chain of dominoes.

Volatility Victims

The few hours of trading that followed the release of the Federal Reserve’s August policy statement is living proof of investors’ edginess. After initially falling approximately -400 points in a 30 minute period late in the day, the Dow Jones Industrial Average then climbed over +600 points in the final hour of trading, before experiencing another -400 point drop in the first hour of trading the next day. Many of the day traders and owners playing with the explosive triple-leverage exchange traded funds (e.g., TNA, TZA, FAS, FAZ), suffered the consequences related to the panic selling and buying that comes with a VIX (Volatility Index) that climbed about +175% in 17 days. A VIX reading of 44 or higher has only been reached nine times in the last 25 years (source: Don Hays), and is normally associated with significant bounce-backs from these extreme levels of pessimism. Worth noting is the fact that the 2008-2009 period significantly deteriorated more before improving to a more normalized level.

Keys to a Good Night’s Sleep

The nature of the latest debt ceiling negotiations and associated Standard & Poor’s downgrade of the United States hurt investor psyches and did little to boost confidence in an already tepid economic recovery. Investors may have had some difficulty catching some shut-eye during the recent market turmoil, but here are some tips on how to sleep comfortably.

• Panic is Not a Strategy: Panic selling (and buying) is not a sustainable strategy, yet we saw both strategies in full force last week. Emotional decisions are never the right ones, because if they were, investing would be quite easy and everyone would live on their own personal island. Rather than panic-sell, investments should be looked at like goods in a grocery store – successful long-term investors train themselves to understand it is better to buy goods when they are on sale. As famed growth investor Peter Lynch said:

I’m always more depressed by an overpriced market in which many stocks are hitting new highs every day than by a beaten-down market in a recession.

• Long-Term is Right-Term: Everybody would like to retire at a young age, and once retired, live like royalty. Admirable goals, but both require bookoo bucks. Unless you plan on inheriting a bunch of money, or working until you reach the grave, it behooves investors to pull that money out from under the mattress and invest it wisely. Let’s face it, entitlements are going to be reduced in the future, just as inflation for food, energy, medical, leisure and other critical expenses continue eroding the value of your savings. One reason active traders justify their knee-jerk actions and derogatory description of long-term investors is based on the stagnant performance of U.S. equity markets over the last decade. Nonetheless, the vast number of these speculators fail to recognize a more than tripling in average values in markets like Brazil, India, China, and Russia over similar timeframes. Investing is a global game. If you do not have a disciplined, systematic long-term investment strategy in place, you better pray you don’t lose your job before age 70 and be prepared to eat Mac & Cheese while working as a Wal-Mart (WMT) greeter in your 80s.

• Diversification: Speaking of sleep, the boring topic of diversification often puts investors to sleep, but in periods like these, the power of diversification becomes more evident than ever. Cash, metals, and certain fixed income instruments were among the investments that cushioned the investment blow during the 2008-2009 time period. Maintaining a balanced diversified portfolio across asset classes, styles, size, and geographies is crucial for investment survival. Rebalancing your portfolio periodically will ensure this goal is achieved without taking disproportionate sized risks.

• Tailored Plan Matching Risk Tolerance: An 85 year-old wouldn’t go mountain biking on a tricycle, and a 10 year-old shouldn’t drive a bus to his fifth grade class. Sadly, in volatile times like these, many investors figure out they have an investment portfolio mismatched with their goals and risk tolerance. The average investor loves to take risk in up-markets and shed risk in down-markets (risk in this case defined as equity exposure). Regrettably, this strategy is designed exactly backwards for long-term investors. Historically actual risk, the probability of permanent losses, is much lower during downturns; however, the perceived risk by average investors is viewed much worse. Indeed, recessions have been the absolute best times to purchase risky assets, given our 11-for-11 successful track record of escaping post World War II downturns. Could this slowdown or downturn last longer than expected and lead to more losses? Absolutely, but if you are planning for 10, 20, or 30 years, in many cases that issue is completely irrelevant – especially if you are still adding funds to your investment portfolio (i.e., dollar-cost averaging). On the flip side, if an investor is retired and entirely dependent upon an investment portfolio for income, then much less attention should be placed on risky assets like equities.

If you are having trouble sleeping, then one of two things is wrong: 1) You are taking on too much risk and should cut your equity exposure; and/or 2) You do not understand the risk you are taking. Volatile times like these are great for reevaluating your situation to make sure you are properly positioned to meet your financial goals. Talking heads on TV will tell you this time is different, but the truth is we have been through worse times (see History Never Repeats, but Rhymes), and lived to tell the tale. All this volatility and gloom may create anxiety and cause insomnia, but if you want to quietly sleep through the noise like a content baby, make yourself a long-term financial bed that you can comfortably sleep in during good times and bad. Focusing on the despondent headline of the day, and building a portfolio lacking diversification will only lead to panic selling/buying and results that would keep a baby up all night crying.

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds (including emerging market ETFs) and WMT, but at the time of publishing SCM had no direct position in TNA, TZA, FAS, FAZ, or any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision.

FOREX-Yen suffers broadly on rate differentials – Reuters

Irish Times

FOREX-Yen suffers broadly on rate differentials Reuters LONDON, March 30 (Reuters) – The yen plunged to a 10-month low versus the euro and suffered broadly on Wednesday after recent hawkish comments from euro zone and US officials contrasted with Japan's loose monetary policy stance. … FOREX: Yen Set to Extend Losses, Euro Pressured by Spanish Default FearsDaily FX Forex: Yen loses ground across the board; Euro/Dollar at session lowsFXstreet.com WORLD FOREX: Yen May Keep Falling As Japanese Exporters InactiveWall Street Journal Forex Rate It! -YTWHW -Forex Pros all 194 news articles »

{forex} – Google News

Daimler: Unique Opportunity for Long-Term Investors

Daimler (DDAIF.PK), the automaker renowned for its luxury Mercedes cars and Freightliner trucks, traded lower for an 8th consecutive day yesterday. Since July 25th, Daimler has fallen 20% to $61 per share far in excess of the broader market. Why have investors punished Daimler? Because Daimler is a global consumer stock and investors are panicking that economies on both sides of the pond are heading back into recession. After all, if you're worried about your job you're unlikely to buy a new car. But, despite how bad things may seem, Daimler investors are getting a good opportunity to buy shares on sale ahead of the next global round of stimulus.

Daimler has made significant headway since the recession. Last quarter, revenue rose 24% from last year while earnings rose a more impressive 52%. Sales of its Mercedes passenger cars, heavy-duty trucks and efficient Sprinter vans are increasing. And analysts, who cut profit expectations in the wake of Japan's tsunami, are beginning to move estimates back up again. In the past month, the street consensus for 2012 has increased to $5.64 from $5.57.

While the market is worried over future sales, the luxury market remains a bright spot. On the company's second quarter conference call, Daimler reported its passenger car factories were working extra shifts to boost production. Daimler's inventory to sales dropped to 50 days in July, down four days from last year. Its light vehicle market share rose to 2% from 1.8% last year. And the daily sales rate rose 17.5% year-over-year last month. This brought year-to-date sales to 141,717 units, up 9.8% form 2010.

But Daimler isn't just a car company. At its truck segment, which includes market share leader Freightliner, revenue was up 14% as unit sales rose 9%. Truck orders have exceeded sales so far this year with North American orders rising 66% and sales increasing 47% last quarter. In the strong NAFTA region, Daimler held a 31.6% market share for Class 6-8 trucks going into 2011.

In June, industry wide Class 8 truck sales of 14,647 were the highest since 2007, up 64.6% from last year. Year-to-date, heavy-duty truck sales through June were 46.3% higher than 2010. And while truck segment sales were strong, they would have been $300-400 million higher without the negative impact on Daimler's Fuso brand following Japan's tsunami. These lost sales by the way, are likely to be recaptured in future quarters as Japan rebuilds.

A lot of investor angst is tied to the risk of stalling economies dragging down truck orders. Despite this risk there are a lot of reasons truck sales will remain strong. Inventory levels remain tame - in contrast to 2008 - and retail sales, despite global macro worries, were solid in June and July. As we move into the important Q4, the backdrop remains solid for inventory growth which boosts freight miles and pressures truckers to add capacity. Particularly since so little was spent during the recession.

But, there are other reasons operators are buying new trucks too. Regulatory mandated upgrades for one, and attractive tax incentives for another. Both of these tailwinds should continue through this year. At the same time growth in South America, alongside emerging markets opportunity in China, offer upside too.

Of course the risk remains that global central banks will be unwilling, or unable, to keep economies growing. But yesterday's bond buys by the European Central Bank, and an increased likelihood of QE3, are likely to keep the auto market afloat. Meanwhile, it's very unlikely global regulatory conditions will become less restrictive, which supports truck sales.

So, for investors willing to look beyond headlines and buy companies with double digit revenue and earnings growth, Daimler is presenting a unique opportunity to buy at a fair price for upside.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in DDAIF.PK over the next 72 hours.

How to buy stock like a company insider

SAN FRANCISCO (MarketWatch) � When CEOs or corporate directors plunk down cash to buy shares of their company, it can speak volumes.

Such insider buying can mean executives believe their company�s shares are undervalued or its future is brighter than people realize. Or the insider believes this is the best use of their money compared to other investments.

Click to Play Hulbert: Why stocks are undervalued

The U.S. stock market is undervalued and poised for above-average longer-term returns, Mark Hulbert contends on Markets Hub. Photo: Reuters.

For investors, insider buying is reassuring. The motives are more apparent, much more so than insider sales.

An executive can sell stock for reasons that investors may never know. Perhaps they want to build their dream mansion or purchase a luxury yacht. A bigger fear for investors is the company will report poor results or the shares are overpriced. When an executive sells, the company rarely says why.

Purchasing power

Insider buying at Russell 2000 RUT �and Standard & Poor�s 500 SPX �companies perked up during April and May, according to InsiderScore, which analyzes stock purchases and sales by executives and directors for money-management firms.

The volume of buying activity prompted InsiderScore to issue an �industry buy inflection� indicator for the first time since August 2011. When it comes to insider buying, this is InsiderScore�s strongest quantitative macro signal.

�Insiders as a group are very predictive when it comes to buying. When we see widespread buying across sectors, it�s a good indication,� said Ben Silverman, InsiderScore�s director of research.

Executives moves following a sharp drop are particularly interesting, though of course they�re no guarantee a stock will rebound. Bed-mattress maker Tempur-Pedic TPX �, whose shares dove 49% June 6 when it slashed its outlook, said Friday �certain executives� intend to buy the company�s shares in the open market.

To be sure, current insider buying doesn�t have the intensity of last August, a time when insider buys climbed to a multi-year high and insider stock sales were extremely low, according to Silverman. Since Jan. 1, there�s been enough insider selling to mute the bull horn on U.S. stocks.

MarketWatch asked InsiderScore to mine its database for 2012 buys made by executives or directors who have demonstrated a knack for making timely purchases or continue to build positions in companies they are involved with. Interestingly, no CEOs made the cut.

Here are the people InsiderScore found:

Barry Diller: Coca-Cola

Talk about buying with conviction. Coca-Cola Co. director Barry Diller has been buying shares of the beverage giant as if there will be a run on Coke KO �at the supermarket. Diller, who runs media conglomerate InterActive Corp., has dropped $114 million to acquire nearly 2 million shares in a series of transactions since March 2009. Read more: Diller's Coca-Cola Form 4 SEC filing.

Those buys have earned a 32% return, according to InsiderScore. With each transaction, Diller has bought Coke shares at an even higher price � his latest being a 264,000-share purchase on April 27 for $20.3 million. Coke was trading near a 52-week high at the time.

4 ways to save on landscaping

(Money magazine) -- There's no better place to build sweat equity than outdoors.

A high-end landscape contractor will charge at least $5,000 to remodel a typical compact suburban front yard. Yet if you can handle a shovel, hose, and wheelbarrow, you have the physical skills to replace overgrown or mundane greenery with fresh plants, boosting curb appeal and possibly property value.

The tricky part is getting the design right; it's not as simple as putting a few plants in the ground. Here's how to achieve that upscale look on your own.

1. Broaden the beds

A single-file row of plants along the foundation and the property lines looks generic at best.

Widen the beds to four to six feet so there's room for more flora -- and to make the plants really pop, use mulch that's the color of soil, says Newport, R.I., landscape architect Kate Field.

That means the fine, dark, compost-like material that costs about 25% more than basic wood chips, or about $120 to $150 (delivered), and that lasts only one year.

2. Focus on foliage

Replace oversize or drab plants with new shrubs and perennials arranged two or three deep, with smaller plants placed in front of larger ones (check the mature size listed on the label).

"Don't get hung up on picking the best flowers," says Portland, Ore., garden designer Darcy Daniels. That's because blooms are short-lived; it's the foliage that you'll see most of the time.

Danger zones: Common threats to your home

Look for plants with red, purple, or multicolored leaves, as well as a variety of textures, from fine light-green needles to broad dark-green fronds.

Alternate shapes too, with, say, a conical spruce near a chunky hydrangea. You'll pay $20 to $100 per plant, depending on type and size.

3. Accent the architecture

Create a focal point using a dwarf tree or a large shrub. Don't just plunk it in the middle of the yard. Instead, place it in line with a structural element of the property, such as a corner of the house, garage, or lot.

Japanese maples ($100 to $400) and crepe myrtles ($30 to $50) are two good choices that look attractive in all seasons, says Severna Park, Md., nursery owner Gary Blondell.

4. Trim with technique

When it comes to caring for your plants, ditch the electric clippers, which carve bushes into perfect geometric shapes.

"That look is passé," says Field. Unless you're trimming a hedge, always cut the branches to slightly varied lengths one by one using a hand tool, such as Felco's Classic Pruner ($52 at amazon.com). You'll get a more natural, flattering look.

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Top Stocks For 6/19/2012-18

Cleantech Transit, Inc. (CLNO)

 

Biomass is a renewable energy source because we can always grow more trees and crops, and waste will always exist. Some examples of biomass fuels are wood, crops, manure, and some garbage. Biomass is organic material made from plants and animals. Biomass contains stored energy from the sun. Plants absorb the sun’s energy in a process called photosynthesis. The chemical energy in plants gets passed on to animals and people that eat them.

Cleantech Transit, Inc. was founded to capitalize on technology advances and manufacturing opportunities in the growing clean energy public transportation sector. The Company has expanded its focus to invest directly in specific green projects.

Burning biomass is not the only way to release its energy. Biomass can be converted to other useable forms of energy, such as methane gas or transportation fuels, such as ethanol and biodiesel. Methane gas is the main ingredient of natural gas. Smelly stuff, like rotting garbage, and agricultural and human waste, release methane gas also called “landfill gas”.

Recognizing the many economic and operational advances of converting wood waste into renewable sources of energy, Cleantech has selected to invest in Phoenix Energy (www.phoenixenergy.net). This project can generate shareholder returns as well benefit the Company’s manufacturing clients worldwide.

Cleantech Transit, Inc. original aim was to develop opportunities utilizing advances in technology and manufacturing processes in order to develop significant market share in the growing clean energy public transportation sector.

With the growth in the green sector as a whole CLNO has expanded its focus to invest directly in specific projects. Recent advances in the technology of converting wood waste into power have so greatly enhanced the economic value of their systems they have launched the biomass division as a separate company, Phoenix Energy, to focus exclusively on generating greater returns for manufacturing clients worldwide.

For more information Cleantech Transit, Inc http://www.cleantechtransitinc.com

Weight Watchers International, Inc. (NYSE:WTW) will release its results for the first quarter 2011 before the NYSE opens on Friday, May 6, 2011. The Company has also scheduled a conference call on May 6th at 8:00 a.m. ET. During the conference call, David Kirchhoff, President and Chief Executive Officer, and Ann Sardini, Chief Financial Officer, will discuss first quarter results and answer questions from the investment community. Live audio of the conference call will be simultaneously webcast over the Internet on the Company’s corporate website, www.weightwatchersinternational.com. A replay of the webcast will be available on this site for approximately 90 days.

Weight Watchers International, Inc. provides weight management services worldwide. It offers various services and products that are built upon weight management plans comprising nutritional, exercise, and behavioral tools and approaches.

Cooper Tire & Rubber Co. (NYSE:CTB) reported net income attributable to Cooper Tire of $16 million for the quarter ended March 31, 2011, an increase of $4 million from the same period in 2010. Net sales were $906 million, an increase of $152 million, or 20 percent, from the prior year. Operating profit was $32 million for the quarter, a decrease of $1 million from the prior year same quarter. The Company reported net income of 25 cents per share on a diluted basis compared with 19 cents in the first quarter of 2010. Results during the quarter included an after-tax gain of $3 million related to the acquisition of a controlling interest in Corporaci�n de Occidente SA de CV. The Company also incurred $4 million of costs during the quarter primarily related to the costs associated with the expiration of a 10-year lease for the Company`s airplane. The prior year first quarter included restructuring charges of $8 million, and $22 million of increased charges for an adverse verdict in a single products liability case.

Cooper Tire & Rubber Company manufactures and markets replacement tires primarily in North America and internationally. The company produces passenger car and light truck tires for independent tire dealers, wholesale distributors, regional and national retail tire chains, and other large automotive product retail chains.

Consolidated Edison Inc. (NYSE:ED) the Board of directors has declared a quarterly dividend of 60 cents a share on its common stock, payable June 15, 2011, to stockholders of record as of May 18, 2011.

Consolidated Edison, Inc., through its subsidiaries, provides electric, gas, and steam utility services in the United States. The company was founded in 1884 and is based in New York, New York.

Chart of the Week: Record Low Yield on 2-Year U.S. Treasury Notes

While bonds tend to be largely a sideshow in this space, there is no ignoring the record low yields we are seeing at certain places along the yield curve.

This week’s chart of the week captures 20 years of the history of the yield on the 2-Year U.S. Treasury Note (solid black line), along with the S&P 500 index (green area chart.) In some respects, the history of the yield on this instrument reflects a history of the strength of the economy as well, with the Fed’s easy money policy during the 2000-2003 period triggering a period of extended low interest rates and the 2008 financial crisis rewriting history in terms of low yields.

I find the interesting part of the chart to be from the middle of 2009 onward. This is a period in which the stock market rallied significantly, yet the yield on the 2-year note continued to plummet, all the way down to the current low of 0.55%. This was at least partly a result of investors heeding the concerns of St. Louis Fed President James Bullard, who warned on Thursday and Friday about the possibility of the U.S. slipping into a Japan-style deflationary spiral. (Click to enlarge)

Investing for Children – Which Options Are Best?

With the potential costs of a university education spiralling, house prices still being relatively high and the cost of weddings increasing, it has never been more important to begin a programme of savings for children and grandchildren.

Added to this the effective demise of the Child Trust Fund has left a gaping hole in effective provision.

In part 1 of this 2-part series, let’s examine some of the tax-efficient opportunities that remain.

Facts and Analysis

The economic downturn has had an important indirect impact on the finances of the younger person, typically people in the age group 18 to 25. As mentioned above, the financial needs of this group of people embrace three main areas.

The Costs of Higher Education

Because of the economic downturn, it is likely that more and more students will be encouraged to stay in higher education and go on to university. But this decision will have considerable financial implications. For example, many who graduate from university will begin their working lives wondering how they will ever repay their debts to large bank overdrafts, credit and store-card debts and money owed to the Student Loans Company.

Also, if their parents are also suffering financially they are likely to be less able to help.

Moreover, this financial burden is likely to increase.

Last year, the then Labour government was reported as planning a cut in the budget for higher education with a possible increase in tuition fees above the current 3,290 cap. As we’ve seen with the recent Parliamentary debate and vote, tuition fees are set to rise to 6,000 – 9,000 pa.

Inevitably greater financial pressure will be placed on universities and students alike and it seems certain that the costs of funding a university education will rise in the future.

Assistance With House Purchase

Although interest rates are comparatively low, the impact of the credit crunch is that mortgages are more difficult to obtain. Lenders will typically now expect a bigger deposit and base lending on a lower multiple of annual income making it much more difficult for the first- time buyer.

Moreover, although house prices may have dropped recently, residential property is still relatively expensive for the first- time buyer. The combination of these factors can make it very difficult for a young person to take the first step on the property ladder.

Wedding Costs

The expectation arising from a wedding is now much greater with the parties looking for a bigger and better reception and honeymoon. Costs can easily exceed 10,000 which can be very difficult to pay without some advance planning.

Who pays?

So what can be done to help these youngsters? Where a parent has excess capital or income, he/she could make effective advance provision for a child. However, this is undoubtedly becoming increasingly difficult.

Given the recent economic climate more and more parents will be concerned to protect their own future financial position rather than give assistance to their children.

For those parents with insufficient income or capital and who may require help with funding the costs of a university education, it may be worth asking grandparents for assistance.

Frequently, grandparents will have capital available that they do not need and they may be prepared to invest on behalf of a grandchild who aspires to a university education or to get on the housing ladder.

This will particularly be the case if those grandparents have cash available, perhaps because they have benefited from the housing market by selling a private residence and downsizing and, in so doing, have realised cash that is now surplus to their anticipated future requirements.

Some may also be in receipt of a guaranteed pension from an occupational pension scheme.

So what can parents and grandparents do now to make children more financially secure in the future?

The answer here is to consider a programme of saving as soon as possible to provide those funds in a tax efficient way and in a structure which is acceptable to them.

Let’s look at some of the options that are available.

The Child Trust Fund

This is one investment that is no longer available. It is being phased out which means that from 1 August 2010, for most, the initial government payment will reduce from 250 to 50. From 1 January 2011, there will be no initial payment.

Given the phased withdrawal of new Child Trust Funds, parents will need to give consideration to other tax-efficient savings plans for children / grandchildren, such as:

ISAs

It will make sense to consider tax-efficient investments, in particular the individual savings account (ISA). Currently, 10,200 per annum can be invested in an ISA – up to 5,100 into a cash ISA, with the balance into a stocks and shares ISA.

The benefit of the ISA is complete tax freedom on capital gains and virtually complete tax freedom on income. This means that investments have scope to increase in value at a faster pace and therefore the earlier a programme of ISA saving is established the better.

Unfortunately, a child cannot generally establish an ISA (although a 16 year old can effect a cash ISA if the money for the investment comes from the parent the 100 income tax rule will apply). Further as an ISA cannot be put in trust, this will mean that it is the parent / grandparent who will need to make the investment in his / her own name with a view to using the proceeds of the ISA for the benefit of a child when encashment occurs.

Personal Pension Plan

Another investment that a parent or grandparent could make for a child would be a personal pension plan. Here, a gross amount of 3,600 could be paid by the grandparent to a personal pension plan in the grandchild’s name – even though he was a minor.

The grandparent would make the payment net of 20% income tax and so 2,880 would be paid each year. The pension provider would reclaim the tax deducted from HM Revenue and Customs.

The benefits of this arrangement are:

- Basic rate tax relief at source on the contribution

- Investments held in a highly tax efficient fund

- Whilst contributions are gifts, the normal expenditure out of income exemption and annual 3,000 exemption would normally be available

- Tax free cash of 25% of the fund from age 55 for the grandchild

The downside of this is no access to the grandchild until age 55.

So this won’t help with university costs, mortgage costs or the costs of a wedding – well at the very least it’s unlikely for the latter!

Children’s Bonus Bonds

This investment is available from National Savings and provides a return free of income tax and capital gains tax. The Bonds earn a guaranteed fixed rate of interest for five years, with a guaranteed bonus addition on the fifth anniversary. At the time of writing the current Issue 34 of the Bonds pays 2.5% per annum compound over the 5 year term.

This return is derived from compound interest at the rate of 1.85% per annum plus the bonus at the end of 5 years which is equal to 3.56% of the Bond purchase price.

The maximum investment per child per Issue is 3,000 and the minimum 25. At each 5-year anniversary the Bond can be encashed or left to run to the next 5-year anniversary at the interest rates prevailing at that time. The Bond must mature at age 21 when a final bonus is added.

Although the Bonds are owned by the child they are issued to the child’s parent(s) or guardian(s) regardless of who the purchaser is.

Early encashment is possible, with penalties. As the controller(s) of the Bond the parent(s) or guardian(s) can encash the Bond up to the child’s sixteenth birthday; thereafter encashment rights lie with the child who is then in control of the Bond.

Before investing a check must be made to ensure that the proposed investment plus any amount already invested in the particular Issue for a particular child does not exceed 3,000.

The Financial Tips Bottom Line

As can be seen, there are various options (and we’ve not covered them all yet) available to invest and save for children. Take the time now to analyse how many of these strategies might be appropriate for your own situation.

Part 2 will follow next time where we’ll look at the use of Trust arrangements.

Ray Prince is a fee based Certified Financial Planner with Rutherford Wilkinson ltd, and helps UK Resident Doctors and Dentists plan to achieve their financial objectives. Just visit http://www.medicaldentalfs.com where you can request your free retirement planning guide.

Rutherford Wilkinson ltd is authorised and regulated by the Financial Services Authority.

House, Senate GOP Blast Dodd-Frank on Jobs, Capital Flight

Republican members of the House Financial Services Committee aired their worries on Thursday that the Dodd-Frank Act will hamper U.S. competitiveness and drive capital and jobs overseas. At the same time, 10 GOP members on the Senate Banking Committee voiced their concerns the same day about reports from inspectors general reports that found the nation’s top regulators aren’t performing an adequate cost-benefit analysis on Dodd-Frank rulemakings.

During the House Financial Services Committee hearing titled, “Financial Regulatory Reform: The International Context,” the nation’s top regulators testified on their efforts to collaborate with international regulators as well as the plans to hold banks to higher capital and liquidity standards under Basel III.

Lael Brainard, undersecretary for international affairs at the Treasury Department, said during her testimony that while “some would argue that the United States is moving too fast” on financial regulatory reform under Dodd-Frank, and “that we should wait to see what other countries implement,” she disagrees. “I would argue that by moving first and leading from a position of strength, we are elevating the world’s standards to ours. By leading, we are investing in the future strength and resilience of the global financial system so that it yields results for the next generation of Americans.”

Securities and Exchange Commission (SEC) Chairman Mary Schapiro focused her testimony on the importance of international coordination in oversight of the over-the-counter derivatives (OTC) market—which she said now has a global notional value of $600 trillion. Title VII of the Dodd-Frank Act would bring this OTC market “under the regulatory umbrella,” she said.

GOP members of the House Financial Services Committee such as Rep. Steve Garrett (left), R-N.J., chairman of the House Subcommittee on Capital Markets, expressed their concerns that Dodd-Frank’s “overreaching policies” will send capital and jobs overseas. “Some substantial differences are beginning to emerge between Dodd-Frank’s financial reforms and those of the rest of the world,” Garrett said. “Instead of ‘you lead on reform and we will follow’; it’s now ‘you lead and we will pick and choose how we want to follow.’”

The U.S., Garrett continued, “now risks capital and jobs going overseas and severely impairing the global competitiveness of U.S. financial markets. The overreaching policies codified in Dodd-Frank have incentivized other countries to increase their taxable revenue through strategic regulatory arbitrage.”

Meanwhile, on May 4, 10 Senators on the Senate Banking Committee asked the IGs of the Commodity Futures Trading Commission (CFTC), the Federal Deposit Insurance Corp. (FDIC), the Federal Reserve Board, the Office of the Comptroller of the Currency (OCC), and the SEC to review of the economic analysis performed by the regulatory agency under their supervision. The IGs reports were released on June 13.

Sen. Richard Shelby, R-Ala., ranking member on the committee, said that the IG reports “deepened” his concern “that the regulatory agencies charged with implementing Dodd-Frank are not undertaking the type of economic analysis that is necessary to reveal how Dodd-Frank will affect our economy.”

Shelby said in his June 16 remarks that the Republican Banking Committee staff will, “in the coming days,” conduct in-depth briefings with each of the inspectors general to discuss the methodologies and findings contained in their reports, as well as next-steps. “We must continue to monitor and improve the amount and type of analysis that the financial regulators are conducting in implementing this far-reaching law,” he said.

The SEC’s inspector general has stated that he will be conducting “a more in-depth review of the cost-benefit analyses performed by the agency under his supervision,” Shelby said.

Jabil FY Q3 Tops Forecasts; Divesting Ops In France, Italy

Jabil Circuit (JBL) this afternoon reported better-than-expected results for its fiscal third quarter ended May 31.

For the quarter, Jabil posted revenue of $3.5 billion, up from $2.6 billion a year ago, and ahead of the Street at $3.2 billion. Core EPS was 40 cents a share, ahead of the Street at 33 cents.

For FY Q4, the company sees revenue of $3.8 billion to $4 billion, and core profits of 45-50 cents; the Street has been expecting $3.4 billion and 38 cents.

The company expect record profits and revenues for FY 2010.

Update: Jabil also said it has signed a letter of intent to divest its remaining operations in France and Italy, which includes four sites and about 1,500 employees. The company said the transaction is expected to close in the fiscal fourth quarter, subject to final negotiations. The company said it will take a loss on divested operations of about five cents. The company did not name the buyer for the assets.

In late trading, JBL is up $1.11, or 8.2%, to $14.70.

Rent your car for cash

NEW YORK (CNNMoney) -- Neil St. Clair owns a BMW 5-series and if you want, he'll let you drive it for $15 an hour or $75 a day.

St. Clair -- like thousands of people -- doesn't actually need his car all the time, so he's decided to take advantage of a new peer-to-peer car sharing service that allows him to rent his car out to strangers and defray his ownership costs.

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Neil St. Clair rents out his BMW 5-series on RelayRides.

"With monthly payments and insurance, I was in the black last month," he said. "Basically, I have the car for free."

He made about $700 in May, he said, his first month using the site.

But for St. Clair and a lot of others, it's not just about the money. They like the fact that their unused car is doing someone some good.

"I'm glad I can help people out when the car is just sitting there as dead weight," said St. Clair.

St. Clair rents his car through a national company called RelayRides. A smaller competitor, Getaround, operates in California's Bay Area, Portland, Ore. and Austin, Texas.

The rental companies each provide up to $1 million worth of liability insurance coverage on the cars during the times they are being rented. Getaround's insurance coverage is provided by Warren Buffett's Berkshire Hathaway (BRKA, Fortune 500). RelayRides' users are covered by Hudson Insurance.

To make sure customers are protected, some states have passed laws that dictate minimum insurance requirements for peer-to-peer car-sharing companies.

Besides insurance, RelayRides and Getaround require that renters submit license information and submit to a check of their driving records before being allowed to rent cars.

Also, owners have the right to decline a rental request for any reason -- or no reason -- at all. St. Clair said he won't rent to people who sound unfriendly. He figures it's not a good sign for how they're going to treat his car.

For St. Clair there have been occasional problems. Mostly they've been small nuisances like a soda bottle left in the car or the lingering smell of cigarette smoke. But others have experienced much more serious issues.

A nightmare scenario: There has been at least one case, as reported recently by the New York Times, in which a car owned by a RelayRides user, was involved in a fatal wreck with damages that could top $1 million.

The case has yet to be sorted out. But because determining who pays is still unclear, the insurance industry remains leery of covering individuals renting out their cars.

"We advise consumers who participate in peer-to-peer ride sharing to read their insurance policies carefully and talk to their insurance agent to make sure they know exactly what is covered," said Loretta Worters, vice president of the Insurance Information Institute.

RelayRides founder Shelby Clark said, "We feel very confident that the car owner [and his or her insurance company] should not have any liability."

In a more typical sort of situation, Emily Castor of San Francisco, who rents her car out through Getaround, said the car was once returned to her with a large scratch on one side.

"The company took it and had it repaired in a shop and brought it back to me," she said. "They had it fixed better than new."

There are still unanswered questions, though. For instance, Worters asked, "What if a crash is caused by an improperly maintained car?"

But despite these issues, car rental programs are picking up steam and attracting the attention of larger corporations.

For example, General Motors (GM, Fortune 500) is teaming up with RelayRides so that owners of GM vehicles will be able to use the automaker's OnStar system to provide quick access to their car without the owner and the renter ever having to meet.

As it is now, renters and owners have to meet to hand off the keys or a separate device has to be installed on the car to allow renters access with a magnetic card.

OnStar currently has six million active subscribers and another 9 million cars have OnStar hardware installed, ready to be activated. That makes for a huge pool of available cars for potential customers, said Clark.  

Inflation Watch: Headline CPI Hotter Than Expected

The Bureau of Labor Statistics released the CPI data for July this morning. Year-over-year Headline CPI came in at 3.63%, which the BLS rounds to 3.6%, up 0.07% from 3.56% last month. Year-over year-Core CPI came in at 1.77%, which the BLS rounds to 1.8%, up from 1.64% last month.

Here are excerpts from the BLS summary:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.5 percent in July on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 3.6 percent before seasonal adjustment.

The gasoline index rebounded from previous declines and rose sharply in July, accounting for about half of the seasonally adjusted increase in the all items index. The food at home index accelerated in July and also contributed to the increase, as dairy and fruit indexes posted notable increases and five of the six major grocery store food groups rose.

The index for all items less food and energy increased as well, though the 0.2 percent increase was slightly smaller than the two previous months. The shelter index accelerated in July, and the apparel index again increased sharply. In contrast, the index for new vehicles was unchanged after a long string of increases. The index for household furnishings and operations was flat in July as well, and the recreation index declined slightly. More...

The Briefing.com consensus forecast was for a month-over-month increase of 0.2%, well below the 0.5% reported by the BLS.

The first chart is an overlay of Headline CPI and Core CPI (the latter excludes Food and Energy) since 1957. The second chart gives a close-up of the two since 2000.

Click for a larger image

Shorting With ETFs: 3 Things to Consider

Due to the recent downturn in the markets, I have been approached by several friends and family members asking me for advice on shorting the markets. I recommend shorting through ETFs. Why? Because shorting individual stocks right now can be very risky – a new product offering or a potential acquisition can cause a individual stock to skyrocket in what is otherwise a downwardly trending market. If you are looking for additional risk, you can find this through leveraged ETFs, but there are some things you need to be aware of so that you aren't taking on more risk than you planned.

Liquidity

With the large number of new ETF offerings over the past few years there are options to short virtually any index you choose, sometimes with double or even triple leverage built in. Since there are so many ETFs out there to choose from, some of them are pretty thinly traded and make liquidity a big concern. As an example of this, the ProShares UltraShort (2x) Nasdaq Biotech ETF (BIS) has a three month average daily volume ("ADV") of 1,489 shares. ProShares UltraShort Industrials (SIJ) is only slightly better with an ADV of 41k shares. Low volume means large bid/ask spreads and a large position moving in or out of the ETF could move the price significantly.

Decay

The second problem is decay. Decay only occurs in leveraged ETFs and in volatile markets. If the market goes up 1% one day and then back down 1% the following day and this repeats, a leveraged ETF will actually lose value over time due to the compounding nature of its leverage. It can be difficult to understand, so I built a spreadsheet to replicate this. After 10 weeks of simulated trading (one day down 1%, next day up 1%, repeat) a 2x leveraged ETF loses 1.5% and a 3x leveraged ETF loses 3% even though the underlying index ends flat (for the mathematicians out there, yes, I adjusted the final day to make the index end flat). It doesn't matter if you alternate the days or if you have 15 days in a row one direction followed by 15 days the other direction, the decay is the same. Decay is exaggerated even more when you have larger daily moves in the underlying index.

There is a corollary to this though. If you have a trending market you can get compounded returns. For example, a market that goes down 1% a day for 10 days in a row is down only 9.56% from its starting point, yet a 2x leveraged short ETF is up 21.9% and a 3x leveraged short ETF is up 34.4%. If you run this same formula out for 50 days, the underlying index would be down roughly 40%, but a 3x leveraged short ETF would be up an astounding 338%!

Although the compounding effect looks tempting, markets almost never go in a straight line and history shows us that due to market volatility, decay ends up trumping compounding returns given any reasonable period of time. A perfect example of this was during the financial crisis of late '08 – early '09. Direxion has a 3x leveraged Financial Services short ETF (FAZ). If you had purchased FAZ in November '08 when the financial companies really started tanking and held it until March '09 when the Financials were at their lowest, you would have lost money on the trade. Split adjusted, FAZ closed at $1,654.80 on November 20 2008 and $991.70 on March 9, 2009, even though the underlying index (the Russell 1000 Financial Services Index - $RIFIN) dropped over 25% during the same time period. You were both right and wrong. You picked the right direction, but you picked the wrong vehicle, so you ended up losing money.

Margin Requirements

FINRA (Financial Industry Regulatory Authority) put in place new margin requirements for leveraged ETFs in December 2009. Margin requirements are now increased in proportion to the leverage in the fund. For example, a short ETF (no leverage) has a margin requirement of 30%. Under the new rules, a 2x fund has a requirement of 60%, and a 3x has a requirement of 90%. I am not aware of any funds that have 4x leverage, but according to the formula provided by FINRA, such a fund would have a 120% margin requirement (not that this makes sense, just reading the rules!).

The important thing to note is that due to the higher margin requirements of the leveraged ETFs, you can't realistically get more than 3x leverage through the use of margin, but there are different ways of achieving this sort of margin. For example, if you wanted to get 3x leverage you could do so by buying three times as many shares of a non-leveraged ETF by using margin, you could buy 50% more shares of a 2x leveraged ETF with margin, or you could buy a 3x leveraged ETF. Although all three of these options result in you having 3x leverage, the risk and results of these three different strategies will be VERY different due to decay and/or compounding returns.

Conclusion

When evaluating how much leverage you wish to get in a fund, you should consider your time horizon. Due to decay, a 3x leveraged fund should only be used if you are certain that the market is going to be going down virtually every day during your time horizon. Since the market is volatile right now, hoping for more than 3-5 days of a downward market without any up days is not very realistic. The whipsawing of the markets back and forth can erode your profits in a 3x fund even if you are right. I try to steer people away from the 3x funds for this reason.

For liquidity reasons I prefer to stay with the big ETFs, such as SPY (non-leveraged S&P 500 index ETF), or SDS (2x inverse SPY). You can also trade the Nasdaq funds (QQQQ – 1x, or QID - inverse 2x).

Depending on your appetite for risk, if you wish to be short the markets through ETFs, shorting SPY is the safest and you will not experience any decay over time. Going long SDS (which gives you a negative 2x position on the S&P) provides you with the ability to earn compounded returns, but increases your risk due to having a leveraged position as well as having to deal with decay if it takes longer for the markets to drop than you expected.

Since I believe that the markets are going to drop over the next couple of months, I have chosen to be long SDS in order to benefit from compounded returns and I am using margin in my account to bring my total leverage up to around 2.5-3%. I am able to increase my exposure through a 2x fund and by using margin, yet reducing my risk of market volatility by doing it this way versus purchasing a 3x leveraged fund.

You will have to decide the best strategy for your needs depending on your appetite for risk and your time horizon for your investment. Although this article deals with shorting the markets, everything in this article applies to using leveraged funds to go long the markets as well (margin requirements are slightly different, 25%, 50%, and 75%). In general, I recommend that 3x funds not be played more than a few days, 2x funds no more than a few months, and non-leveraged funds can be played as long as you like. Decay can and has caused investors to lose money even when they picked the right side to be on. Nothing is worse than losing money when you are right. Be smart, understand how these leveraged funds work and you can get them to work for you.

Disclosure: Author is long SDS

Devon: A Hidden Gem In A Bad Sector

Last week's capital markets were unkind to energy stocks. The per barrel price of oil decreased by more than 17% to below $83.23 per barrel for West Texas Intermediate crude, a 15% decrease to and natural gas dropped 3.4% to $2.34 per 1,000 cubic feet. Last week there were price decreases across the board in major oil producers, Exxon Mobil (XOM), Anadarko Petroleum (APC), Chesapeake Energy (CHK), Encana (ECA), Chevron (CVX) and Conoco Phillips (COP). Energy producers are now in a state of flux, either waiting for oil prices to stabilize at higher levels, or waiting for natural gas prices to pick up.

Meanwhile, Devon Energy's (DVN) first quarter 2012 results showed net earnings of $393 million or $0.97 per share compared with $416 million or $0.97 per share from the same period in the previous year. Earnings were as a result of the wide Canadian oil differentials from U.S. West Texas Intermediate and Brent crude. The differential between WTI and Edmonton Par or Western Canada Select crude is in the range of $18. The differential between Edmonton Par and Brent crude is $16. The Canadian Oil Sands crude has been trading at this discount because of the increased production in the Oil Sands and the continued state of flux over pipeline constraints.

Production of oil, natural gas and natural gas liquids showed the highest daily production rates in Devon's onshore North American properties in the first quarter 2012. The 694,000 barrels of oil equivalent (BOE) per day was increase was a 10% increase from the same period last year. There was a 3% increase in the sale of oil, natural gas and natural gas liquids from the same quarter last year. Marketing and midstream operating profit was down 7% from the same period in 2011 which is attributed to lower natural gas and natural gas liquids prices.

Two thirds of Devon's recent output is natural gas, prices of which are at a decade low. The company increased operating and property activity in its Permian basin properties and now has a 500,000 net acre position and 21 rigs operating in the Basin. Rising oil fields services and supply costs were partially mitigated through cost containment measures.

Devon had concentrated its drilling activities on shore after liquidating it offshore assets. It has sold its offshore assets in the Gulf of Mexico to Apache (APA). Devon received over $7 billion in proceeds from this sale. Part of the proceeds from the sale of those assets was used to re-purchase over 10% of its outstanding shares and to pay down debt. It has approximately $7 billion to make acquisitions. Proceeds from the sale of its offshore assets have not been repatriated to the U.S. to avoid taxation. The company is likely waiting for a repatriation holiday to see what it will do with that cash.

Devon has cashed up in the U.S. by selling a partial interest in 1.4 million acres new exploration areas in Tuscaloosa Marine Shale, Niobrara Mississippian, Ohio Utica Shale and the Michigan Basin to China Petroleum and Chemical/Sinopec (SNP). This sale will allow China Petroleum/Sinopec to have access to more North American oil without upsetting U.S. regulators. Devon received $900 million up front and expects an additional $1.6 billion which will cover as much as 70% of its exploration expenditures in these areas. Devon remains as an operator on these properties selling only a 33% share.

Devon is concentrating its efforts on drilling for oil and natural gas liquids in North America mainly the Canadian Oil Sands and the Permian Basin in the U.S. Companies in the same area as Devon in the Permian are Energen (EGN), Pioneer Natural Resources (PXD), Berry Petroleum (BRY) and Gulfport Energy (GPDR). All of these operators are buy rated companies. The implied value to the acreage could increase the value of Devon's shares. This activity will improve Devon's output of oil by 19% and natural gas liquids by 13%. Devon gets an excess of 35% of its cash flow from the Canadian oil sands and from pipeline assets used to transport oil and gas. Devon's concentration on North America and its joint venture activity is allowing it to expand and expedite it activities while keeping a lid on expenses.

Friday, June 1st saw disappointing job growth in the U.S. and heightened the sense that there is a lot of worry about the pace of global economic growth. The unemployment figures added one tenth of one percent gain to 8.2% which is the first increase in almost a year. Oil prices have dropped to the lowest since October 2011 in the last week.

The decline is due to slower than expected economic recovery and the recent strength in the U.S. dollar relative to the Euro. It is believed by some that the current price levels will serve as the low point for prices during the second half of the year into 2013. The U.S. Energy Association is predicting average of $104 per barrel for the duration of the year with refinery costs being $110. The projected cost of refining is up $8 per barrel from 2011, the projected price per barrel is down $2 from 2011.

U.S. crude inventories are above the five year average range with the slowdown in world demand, indicating that crude oil supply still outpaces demand. In the alternative, gasoline inventories have fallen below the five year average levels, sending upward pressure to prices at the pump. Production issued related to up-graders and unforeseen repairs at plants in the Oil Sands were partially responsible for the price Canadian Oil Sands differentials in February and March. The price discount returned to normal in April 2012.

Increased production of natural gas and higher crude oil stocks and fewer imports will keep prices the same or a bit better going forward. There is still some hope that demand for personal use vehicles, the need to enhance methods of public transportation and the need for heavy equipment needed to fuel growth in emerging markets will be responsible for keeping oil prices out of the basement. The stagnant economy is keeping price hikes in check.

Devon has some valuable natural gas assets onshore and is managing its oil, natural gas and natural gas liquids business well. The company is achieving the same per share earnings on lower revenues than in the previous year. Despite Devon's cost cutting measures, asset sales, share buyback program and its distribution of dividends, it is evident that even well managed energy companies that do everything right to add value to shareholders face a lot of difficulty in today's markets.

The market is demonstrating that energy stocks are extremely vulnerable to any bad economic news either domestically and abroad. Devon is trading near its year low. It is possible that if oil and natural gas prices do not recover soon, Devon's book value will be impacted and a break through the bottom end of the 52 week price is likely. Devon is a great company, it is just in a bad market sector for investors who don't have any tolerance for volatility.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.