1. Accuracy of Government Data: I received a comment to a recent post questioning the accuracy of the government's unemployment data. Morning Notes 6 5 09/Unemployment: Good or Bad News?/ Cramer Hot on Aerospace-Bought 100 ETF PPA Whenever anyone collects data about an economy the size of ours, then the results are at best an estimation of whatever is being sampled, possibly the estimate may be reasonable by giving it a wide range for accuracy. The data collection is based on sampling and surveys. Moreover, the results are often adjusted in ways that most layman would not understand. The recent unemployment report from the BLS has a number of assumptions in it, one source of data massage is called the birth/death model. Birth-death model Alan Abelson in his Barron's column calls the loss of 345,000 jobs in May to be a "hokey number" caused by the birth/death model creating 220,000 jobs. Barrons.com
A similar point of view is expressed by the author of this missive: K
The BLS summary of how the birth/death model was developed can be found at: CES Net Birth/Death Model
I do not question the motives of the BLS and simply believe that this agency is doing the best that it can do. I certainly do not have the expertise to challenge the assumptions being made by the BLS. As a result, I just treat this kind of a release as a raw estimate, subject to revision later on, and reliable only by giving it a wide range of latitude before claiming an error. In other words, I would not trade off the data, but simply form opinions about the economy from a wide range of sources, including the government releases. I personally believe that the unemployment rate will increase to over 10%, and the rate of decline will start to slow soon, if it has not already, and then level off possibly in the 1st quarter of 2010. In some industries, the slashing of jobs as a reaction to the sharp downturn in business activity shortly after the Lehman failure was probably overdone, and those businesses may need to start hiring again. But, there will invariably be a lag in rehiring after a pick up in economic activity, as businesses want to feel more comfortable about hiring those people that they just laid off. And, that is about the only conclusion that I can draw from the government's data. Unemployment and under employment is undeniably bad now, and will likely continue to increase some though at a slower pace than between October 2008 to now.
(if you add those who are too discouraged to look for work, and those who are doing part time work involuntarily, the unemployment rate is not 9.4% but 16.4%.)
I discussed the problem of having to reach investment decisions based on incomplete and unreliable data in this post: Bungee Jumping Aegon and ING Preferred Stocks/ BlackJack and Stock Investing: Lessons Learned & Applied I mention in that post the important macro type issues such as GDP, unemployment and inflation, and that the data provided by the government is at best an estimate. And, that is just one of the problems in having to make investment decisions based on incomplete and/or inaccurate current information, in addition to trying to cope with the unknowables and unknowns.
2. CB & L Properties: I recently sold my small position in CBLPRC and decided to keep my lottery ticket in the common shares of CBL, a REIT that owns primarily retail malls. The preferred is rallying this morning, while the common is getting smacked. CBL lowered its FFO guidance for 2009 to $2.51 to $2.52 with the consensus estimate being $2.92 prior to this announcement. CB & L also announced that it would sell 50 million shares. YFin This is always bad news for an existing shareholder, since the pricing of those shares will not only be dilutive but also at a distressed price. The company asserted that it has received commitments to extend its 560 million unsecured credit facility to April 2014 and will gradually convert that facility into a secured line over the next 18 months. Y Fin Reu Another credit facility, which is secured and in the amount of 525 million, was extended to 2/2012 as noted by the company in a previous announcement.
3. Bogle Advice/Vanguard ETF for the Total Stock Market (VTI): I listened to an interview with John Bogle on CNBC this morning. He says that individuals should never buy an individual stock or bond, and should stick with a total bond and stock market indexes, varying the allocation between those two indexes based on each person's risk tolerance and needs. I am not going to say that is bad advice. I am just going to say to each his own. Vanguard does have an ETF for the Total U.S. Stock Market, VTI, which has an expense ratio of .09%. Vanguard - Vanguard Total Stock Market ETF Overview
I am not adverse to buying a 100 shares, as part of my effort to substitute ETFs for the few stock mutual funds that I intend to jettison during the next bull market. I have already starting buying some ETFs now, including VV and VEU, to replace some mutual funds that I will sell when stocks recover more. For the past five years, VTI would have declined 1.24% according to the Vanguard data. Vanguard - ETF Performance
Bogle's rule of thumb is to have your percentage bond holdings equal your age. So, he is 80 and he has 80% in bonds and 20% in stocks. FBus I am 57, and a very young looking 57 judging from the current profile picture, so he would have me 57% in BND and I am not going to buy a single share in BND now for the reasons previously discussed in several posts with the last being For BND: Is it Safe is not the Right Question. Instead Ask What are the Risks & Rewards/Assume Lost of Principal Possible
I am increasing my exposure to bonds as I grow older. Being an old stubborn Stock Jock, I am not likely to ever have my bond allocation percentage equal my age.
4. BOUGHT VTI AT $47.57: After writing about Bogle's views, I decided to go ahead and buy 100 shares of VTI which was filled at $47.57. This will be a core stock position and will replace a stock mutual fund that I will sell at a more opportune time than now. I may however finance this purchase by selling COP that I bought in March for a nice gain. Or, maybe I will let the coin decide COP's fate.
5. VIX VXN VXD: The volatility indexes for all three major averages are trading below 30 as of 1 P.M. C.S.T. today.
DISCLAIMER
I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. I have never worked for a financial institution and never will. In these posts, I am acting as an unpaid financial journalist and an occasional political commentator. I am also aggregating financial news stories that I view as important and providing readers of these posts with links to those articles, sort of a filtered, somewhat intelligent, free search engine. Any discussion made by me of particular securities is not a recommendation to buy or to sell. Trade at your own risk. Consult with your financial advisor prior to making any purchase or sale. I will try to identify my sales too but it may take a few minutes after I implement them to create a post explaining my reasons. The sale may before or after the post. Before buying or selling any stock, even one recommended by a trusted financial advisor, please research it and make up your own mind which is what I always try to do. Research would include reading reports, reviewing financial records, earnings estimates, sec filings and prior earnings releases and news. In this post, and all others by me, I am merely describing my reasons for purchasing or selling securities, and the potential pitfalls that I identified prior to purchase or the reasons for a sale. The securities mentioned in this and all posts written by me may not be suitable for others based on their unique financial position and risk profile. By way of example, it is unlikely that I will ever need the funds contained in my retirement accounts. Always read the prospectus before buying a Trust Certificate, bond, preferred stock or other bond or bond like investments. Information contained in my posts has been obtained from sources believed to be reliable but cannot be guaranteed. It is always important to follow the investment process. the investment process/links to further information on canadian energy or royalty trustsInvestment Process Part II: Bonds and Bond Like Investments NOT A RESEARCH SERVICE/Add of PWE Last Week These posts by me do not constitute investment advice, nor shall they be construed as a guarantee of future results, or as an offer of any transaction in securities. All content in these posts is provided for informational and entertainment purposes only, and it is a form of entertainment for me. Anyone interested in a topic may want to review all discussions contained in the blog about it by using a relevant search term in the box at the top. Opinions are subject to change and they certainly evolve over time as information is assessed and analyzed for compatibility with prior opinions, the only process for a serious investor, and a topic of frequent discussion in this post.
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