CLC et al,
There was quite a bit of news today about speculation in various commodity markets including a huge fine on a former Amaranth trader who quite possibly did illegal things. This article covers the administrations stance on energy speculation:
I am struck by the fact that if the administration wants to understand how it is that commodities rise dramatically in price, they would need look no further than to two issues: (1) the Fed's jawboning of the dollar down and (2) the Fed's over-amply supplying the market with cheap funds to invest in hard assets. Owning commodities in various forms--physical and derivatives-based--is astonishingly easy and, as I've pointed out here several hundred times before, if you believe that a cheaper dollar will increase hard assets you are advantaged by simply owning the commodity rather than the company because with the former you run absolutely no transaction, event or operating risks associated with groups of human beings where, as we all know, mistakes happen.
To my mind, the current debate about silver pricing and the valuations of miners is very interesting. There are a lot of contradictions in that debate. For example, generally the silver miners say that they don't hedge because their shareholders want exposure to the change in silver prices. CLC this am, indicated, however, that she was concerned about owning a silver miner over as short a period as a weekend despite the fact that they are astonishingly cheap, maybe nearly 3.5 X OCF at these silver numbers. Silver is very easy and inexpensive to store and so you wouldn't expect a big contango ever in price. Silver is now in the mildest of contangoes @ $46 front month. As a silver producer, you could fix your income stream for the next 4 years at $46 an ounce:
I would worry about economies themselves, which are constantly being manipulated by central governments, rather than worry about the resources themselves:
That's the most recent of a long line of tightening notices in China after a two year binge of excess liquidity there and a multi-decade period of excess liquidity in the West. Much of what investors should worry about is whether or not the developing world can manage a soft landing. They know that they cannot live with 7% inflation. Can they manage to, for example, halve growth without running the risk that they reverse it?
We can only watch.
ALL. China and raw materials: Hugh
The Most Crucial Event Since The Industrial Revolution
Apr. 25 2011 - 5:50 pm | 1,302 views | 0 recommendations | 1 comment
This is the “most important economic event since the Industrial Revolution,” according to Jeremy Grantham, a highly respected Boston investment manager and philosophe on the most cutting edge economic and financial matters facing the world. It is the coming shortage of everything– cement, iron ore, coal, steel, lead, zinc, aluminum and copper. Time to go exploring for metals and arable land to grow wheat, soybeans, rice.
So, pay attention. I am about to share with you China’s share of the globe’s commodity consumption. And the only conclusion you can make is that in your 401k, your trust fund, your childrens’ college account, you had better find the natural resource ETF or mutual fund to put away as the potentially fastest growing nest-egg in history.
China, today, consumes 53.2% of the globe’s cement production; 47.7% of the iron ore; 46.9% of the coal, 45.4% of the steel; 44.6% of the lead; 41.3% of the zinc, 40.6% of the aluminum,38.9% of the copper, 36.3% of the nickel,, only 10% of the oil(just wait until everybody is driving a car). And that’s not including the chickens, pigs, cattle, soybeans, wheat, and rice that can be grown every year if there’s enough land and fertilizer and the weather is accomodating.
Sounds like shooting ducks in a barrel, doesn’t it?
Not so fast. Here’s Grantham’s alarming prediction; “No compound growth is sustainable. If we maintain our desperate focus on growth, we will run out of everything and crash. “ History is out of control. We have finite resources. So, enjoy the results of Chinese demand for these finite resources while you can.
One should always consider the value of harvesting LT gains to take advantage of low tax rates. It's very hard to beat 15%, let alone 0% if you're in lower tax brackets...assuming your state taxes don't eat you alive. In addition to just turning around and buying back the shares you just sold, you can consider whether there are multiple classes of stock or buying in one account while selling in another. I tended to use the latter options so avoid Uncle Sam disagreeing with my determination of LT/ST gains. This risk is removed by the requirements for specifying to the broker which specific shares are sold at time of sale.
"...my Fed rate currently is over 17%...".
what you need to look at is not your "currently" rate, it's the rate at which your last or next $s are taxed at.
the best place to look at these rates for 2011 is on page 34 at
long term capital gains though, are taxed at 0% if your taxable income is in the 15% or less bracket: 15% max if your taxable income is above the 15% bracket.
Thanks for the multiple posts and the thoughts behind them.
I hear echos of my concerns in those replies and get a lot of insight.
Since my Fed rate currently is over 17% and another 7% to the state, I don't need the cash that selling would generate at this time. I also don't believe the current market can continue the torrid pace it's displayed over the past 6 months. Taxable YTD is +20% and 1 yr +40%. Parabolic just doesn't work over the long term. My IRA has some trading capacity but most everything taxable is in the long category.
I'm concerned about a number of events that I consider imminent. Black Swans are not predictable but the end of QE 1,2 or 3 should be more apparent. The changes to the tax law that have to happen are also a concern. Better to be positioned now than later IMHO. And av, I'm not on the list of 10, I feel I don't get much value returned for all that tax money I pay however.
Enjoy your weekend and families.
Tom, all- great comments on tax issues. I think your conclusion is correct, that accelerating gains and buying the stock back doesn't trip the wash sale rules. It's only when you take a loss and buy the stock back.
I have learned to not be driven by tax considerations, I hope. I generally stay fully invested, under weighting stocks for me is 2% cash, and I sometimes will go 100%+ stocks with margin, I'm slightly over 100% now. I don't invest in bonds. That approach takes away the issue of trying to time the market. I try to buy things that I can hold for years, and will fairly quickly, within a year, decide if I want to hold it long term. If I get it right, and it appreciates 3x, 5x or more or whatever, it's not as painful when it falls x% or whatever. But the decision in my mind is not whether you pay the tax, but whether it is a good long term hold, and then whether it will appreciate more than something else in the economic scenario that you envision, the "pigs at the trough rule".
But as someone said, the 15% LTCG tax rate is a small issue, imo, if you have picked a winner and it's up 5x of your cost. My bias is long term homeruns vs short term trading gains, and if it is short term, you focus on making money and paying the 35% max tax. The challenge I see in short term trading now is there is $2+ trillion in hedge funds mostly trading short term, and they have underperformed the averages the past couple of years, makes sense, they are the market. If you can trade against their trends then you probably can make some money. Sounds like a lot of work, compared to taking long term positions.
Apply the Starbucks and a $1.50 rule or maybe the Dunkin Donuts and a $1.25 rule to my comments. I do think you have to find a discipline that works for you personally and stick with it. Otherwise, the noise is overwhelming. There are probably many ways to make money, and hopefully you have tax payment problems. Harold
Taxes should be considered when making a decision but it is only one factor. I believe a lot of people lose $20 to save $19 in taxes. One has to make a risk/reward bet. Not easy until it's in your rear view mirror. I do way more trading in my IRA accounts than in my taxable accounts. I put buy and hold long term in my taxable accounts to delay as long as possible the taxes. e.g. BRK-B. Delaying taxes is the best most of us can hope for.
Happy Easter all, Tom
catch. i ask myself the question , What has changed in the stock, in the market, in the world..
has news from company came out that is not what they said on a previous CC or presentation. Has the market for this product softened, or strengthened.
i keep constructive Skepticism about a company.
i also keep notes from CC and copies of transcripts and Earnings.
i believe the one thing i learned early on is DO not fall in LOVE with a stock..