Occupancy rates increased to 94.6% at the end of 2011, up from 93.5% a year ago and from 91.8% when the occupancy rates bottomed in late 2009.

MPF Research predicts occupancy rates to increase another 50 basis points, and rents to rise 4.5%.

Northern California’s apartment markets ranked as the nation’s rent growth leaders during calendar 2011, despite the fact that some weakness registered in the performances recorded in parts of the Pacific Northwest specifically during the fourth quarter. Year-over-year, effective rents for new leases jumped 14.6% in San Francisco, 12.3% in San Jose, and 9% in Oakland. With rents down 0.4%, Las Vegas was the nation’s only major apartment market that lost pricing power during calendar 2011.

Rent Growth Leaders in Calendar 2011

Related: Apartment Vacancies Fall to Lowest in 3 Years in the USA (April 2011) – Top USA Markets for Buying Rental Property – Apartment Rents Rise, Slightly, for First Time in 5 Quarters – It’s Now a Renter’s Market

• 2 Billionaire Brothers’ Insider Buying At Colfax by Zack Miller – “[In] the Danaher Business System… management believes its found a demonstrable, repeatable recipe for success, and it drives both culture and process at the company and its acquisitions. DBS is a form of Japanese kaizen, comprising 4 components: 1) People 2) Plans 3) Processes 4) Performance” [I own Danaher and have it in my 12 stocks for 10 year portfolio - John, my management blog focuses on such management systems]
• Apple’s Impossibly Good Quarter by John Hunter – “You can’t grow quarterly sales from $26.7 billion to $46.3 billion. $26 million to $46 million, fine that is possible, billions however – not possible. Except Apple did. You can’t grow a $6 billion quarterly profit to $13 billion in 1 year. Except Apple did. You can’t generate a cash flow of $17.5 billion in a quarter. Except Apple did. You can’t have a stockpile of $100 billion in cash. Except Apple does. These figures would not have been seen as unlikely just 3 years ago. They were impossible. But Apple achieved them.”
• How to Save the Euro by George Soros – “the cuts in government expenditures that Germany wants to impose on other countries will push Europe into a deflationary debt trap. Reducing budget deficits will put both wages and profits under downward pressure, the economies will contract, and tax revenues will fall. So the debt burden, which is a ratio of the accumulated debt to the GDP, will actually rise, requiring further budget cuts, setting in motion a vicious circle.”
• Japan’s Trade Figures: Some Perspective by Eamonn Fingleton – “In a typical maneuver, goods might be shipped to China via Hong Kong. The goods are exported from Japan at heavily discounted prices and a Hong Kong subsidiary takes a huge profit in selling to China. Such profits constitute hidden export revenues that are not caught in the visible trade numbers. The maneuver makes sense because Japan’s corporate tax rate is one of the world’s highest.” [This is one, of many things, that make economic data difficult to rely on - you have to pay close attention to the details - John]
• Krugman Take on $12 Trillion Question Rings True – “Japan’s toxic mix of too much debt, too little growth, too many old people and too few babies will end badly if Tokyo doesn’t get its act together. It’s important, though, to highlight where Fingleton is right. Japan is pretty close to a model society. It is an incredibly safe, clean, efficient, predictable…”
• Wall Street’s Achilles’ Heel – Efficient Market Hypothesis Doesn’t Always Work by Shailesh Kumar – “Market inefficiencies create undervaluation that an investor can buy into. In some other cases, it can also create overvaluation that an investor can sell into or avoid. It is beneficial for a self managed investor to be alert for these situations as the difference in performance between a value biased portfolio and a market neutral portfolio can be very significant over the life of the portfolio.”
• These Three Jobs Are a Great Way for a Teen to Earn Money and Learn Something About Life at the Same Time – “My opinion is that one of the best ways for a teenager to learn about making and saving money is to get a summer-job, or work part-time. These are absolutely amazing ways to gain valuable experience in helping others and learn about responsibility, endurance, and teamwork, and earn money in the process”
• USA Spends $7,960 Compared to $3,800 for Other Rich Countries on Health Care with No Better Health Results by John Hunter – “It is possible to argue the USA provides mediocre results, which is consistent with most global health care performance measures. Unless you directly benefit from the current USA system it is hard to see how you can argue it is not the worst system of any rich country: costing twice as much and achieving middling performance.”

The only real objections to Apple’s stock I can see are: the overall market value is so huge it just has to collapse (over $400 billion – the largest in the world) or it has to be time for a huge reversal of fortunes.

The problem with the view that it will fall is that the stock is very cheap by any rational measure. You are not paying much for all the earnings. Even if Apple does not continue the trend of the last 5 years, if it just stopped growing altogether, it is still cheap (if it does continue that trend it will break $1 trillion by 2014 – but I don’t think it will). The biggest risk is the profit margin shrinks drastically. That is possible. It is even somewhat likely to shrink a fair amount. But there isn’t much reason to think revenues will not grow. And to me, the current price makes sense only if revenues fall and profit margins fall. It takes the worst case scenario to make this stock seem overpriced.

The data on the last quarter (and for 2011 overall) are impossible (except they actually happened).

• record quarterly revenue of $46.33 billion ($26.74 billion in 2010)
• record quarterly net profit of $13.06 billion ($6 billion in 2010)
• Gross margin was 44.7 percent compared to 38.5 percent in the year-ago quarter
• $17.5 billion in cash flow from operations during the quarter (and $38 billion in the last year)
• $100 billion in cash now ($97.6 billion to be exact but since the data was gathered they probably passed $100 billion anyway). That is more than the market cap of all but 52 companies in the world.

You can’t grow quarterly sales from $26.7 billion to $46.3 billion. $26 million to $46 million, fine that is possible, billions however – not possible. Except Apple did. You can’t grow a $6 billion quarterly profit to $13 billion in 1 year. Except Apple did. You can’t generate a cash flow of $17.5 billion in a quarter. Except Apple did. You can’t have a stockpile of $100 billion in cash. Except Apple does. These figures would not have been seen as unlikely just 3 years ago. They were impossible. But Apple achieved them.

These figures are not short term blips. They are the latest in a long stream of amazingly results.

Related: How Apple Can Grow from $200 Billion to $300 Billion In Market Cap – Apple Tops Google (August 2008)

Apple has numerous, incredibly strong businesses. Each could be the linchpin of an extremely valuable company.

• iPhone initial sales and reoccurring income (over 50% of Apple’s revenue)
• app sales (for iPhones, iPads and Macs)
• iPads
• iTunes
• Macs
• Their retail store business – selling all their products

Potentially huge business: Apple TV and ebook sales. It is hard to see how they could have serious stumbles in numerous of these extremely profitable businesses all at the same time.

Some more interesting figures:

• international sales accounted for 58% of sales
• 37 million iPhones (128% growth)
• 15.4 million iPads (111% growth)
• 5.2 million Macs (26% growth) – this used to be their whole business, now you forget it even exists. The MacAir is excellent, by the way, that is what I am using to write this post.
• 15.4 million iPods (21% decline)
• Apple paid $700 million to developers (as part of the app business) last year, and has paid out over $4 billion in total.
• Apple’s profit for the quarter ($13 billion) exceeded Google’s revenue ($10 billion)

I do strongly believe Apple should pay a sizable regular dividend (at least 1.5%). But I don’t know if the odds are great that they will. One risk is they blow the money in foolish ways. When you $100 billion and generate over $3 billion more each month it is hard to appreciate that risking a few billion here and a few billion there really matters.

For each business there is risk and certainly possibilities of slower growth, decline and profit margin contraction. The stock is priced for quite a bit of earnings decline. And has been for awhile. I understand the reluctance to buy a company that has a market cap over $400 billion. But when you look at the finances and contemplate the future it is hard to see how the stock is not cheap. There are risks. There are risks with every stock and risks to the future profitability of every company.

Having so many extremely strong, extremely profitable business puts Apple in a great position. It is hard to see how they can come up with another business line that can make a difference to the profits of a $400 billion company. But the stock price isn’t expecting that. It isn’t expecting growth in revenue. It isn’t expecting growth in profits. From where I sit the potential for Apple from the current price (PE of 13) is much greater than the risk. And even with a 8% increase today is cheaper than yesterday (the news is so impossibly great that 8% doesn’t capture the value of that news).

I own Apple stock, but not enough. My sleepwell portfolio includes Apple stock. I was smart enough to finally buy it after waiting for years thinking the price wasn’t good enough.

Related: Intel Reports Their Best Quarter Ever (July 2010) – Google up 13% on Great Earnings Announcement – Amazon Soars on Good Earnings and Projected Sales – Leadership quotes from Steve Jobs

• Recovering Adam Smith’s ethical economics – “He justified commercial society for its tremendous contribution to the prosperity, justice, and freedom of its members, and most particularly for the poor and powerless in society.” [This post covers a topic I think is very important and have written about several times - John]
• A Man. A Van. A Surprising Business Plan. by Zoe Chace – “Adam had tricked out the van to be a mobile solution to Chinese bureaucracy. There are a couple of Mac laptops and a printer, plus an old couch, Christmas lights and bamboo mats. It’s as cozy as a dorm room. And confused visa applicants line up outside.” [wonderful - John]
• Chart of Manufacturing Output from 2000 to 2010 by Country by John Hunter – “Europe has 4 countries in this list (if you exclude Russia) and they do not appear likely to do particularly well in the next decade, in my opinion. I would certainly expect Brazil, India, Korea and Indonesia to out produce Italy, France, UK and Spain in 2020. In 2010 the total was $976 billion by the European 4 to $961 billion by the non-European 4. In 2000 it was $718 billion for the European 4 to $343 billion (remember all the data is in 2010 USD).”
• Ultimate Sustainable Dividend Portfolio – “I would expect the Ultimate Sustainable to do better in difficult times and worse in great times. Why? The USDP is a more stable portfolio that will fluctuate less over time…”
• 
  The Renminbi is the Love Child of the Baht and the Króna – “When crisis hit Thailand in 1996 and Iceland in 2008, the baht lost half of its value against the U.S. dollar, and the króna lost over 60% against the euro. The growth in the money supply leading up to the crisis in both currencies is the same trend we see occurring with the Renminbi now.”
• Making It in America by Adam Davidson, the Atlantic – “manufacturing output continues to grow strongly; in the past decade alone, output from American factories, adjusted for inflation, has risen by a third. Yet the success of American manufacturers has come at a cost. Factories have replaced millions of workers with machines.”
• Why I Am Switching Career Tracks – “My plan is to expand my online efforts to the point that it replaces day job. Once this happens, I plan to work on creating truly passive income streams that can be managed in less than 3 days each week. I plan to incorporate real estate and dividend stocks to complement my online business.”

If you would like to be considered for guest hosting a future edition of the carnival please make a comment including a link to your blog. I will be selective in what blogs I have guest host. My management blog has been hosting a carnival for years now.

Related: 2011 annual management blog roundup

Since April of 2005 the portfolio Marketocracy* calculated annualized rate or return (which excludes Tesco) is 5.7% (the S&P 500 annualized return for the period is 3.9%). Marketocracy subtracts the equivalent of 2% of assets annually to simulate management fees – as though the portfolio were a mutual fund – so without that (it is not like this portfolio takes much management), the return beats the S&P 500 annual return by about 380 basis points annually (it would be a bit less with Tesco, but still close above 3%, I would think – calculating rates of return with purchases and sales and dividends is a complete pain, which is one reason Marketocracy is so nice).

The current stocks, in order of return:

The current marketocracy results can be seen on the Sleep Well marketocracy portfolio page.

Related: 12 Stocks for 10 Years: Feb 2011 Update – 12 Stocks for 10 Years, July 2011 Update – 12 Stocks for 10 Years, July 2009 Update – hand picked articles on investing

I decided to lighten up on Tesco and will likely buy Abbot (ABT). I am considering selling Cisco (largely to reduce the overload on technology and to keep the number of stocks down – I still think it is a perfectly good stock). I would still consider replacing PetroChina and Pfizer: I like both sectors more than I like the companies themselves. Still as part of the portfolio I think they are valuable. I would like a bit more exposure to commodities and health care but I haven’t found the right companies to add to this portfolio (I tend to like smaller, companies and haven’t found ones I am happy to lock away for a 5-10 year holding period).

In order to comply with the marketocracy diversification rules and deal with not being able to buy Tesco (in marketocracy) I own fairly small amounts of several other stocks in the portfolio (that are included in the marketocracy return). I only have: ATP Oil & Gas (ATPG) and USG left (and may sell them soon – especially if I keep Cisco).

* In order to track performance created a marketocracy portfolio but had to make some minor adjustments (and marketocracy doesn’t allow Tesco to be purchased, though it is easily available as an ADR to anyone in the USA to buy in real life – it is based in England).
** Tesco had a purchase price of $22.55 on Dec 11th 2006 and has paid approximately 40 cents a year in dividends. The current price is $17.89. The -13% return is just an estimate.

I’ll take a look at a few of them here (I looked at the new additions in my previous post: Investing in stocks that have raised dividends consistently).

Just looking at this data Aflac sure looks appealing. Having both a high yield and strong growth is an appealing combination. And Warren Buffet agree (he owns quite a bit) which is also reassuring (he also owns a large stake in Coke). Of course strong growth over the last 11 years won’t necessarily repeat (in fact it gets much harder). On the other had some slow growth companies would likely continue slow growth (at best): Exxon Mobil, 3M…

Really almost all of these stocks are pretty attractive. Medtronic, Johnson & Johnson and Abbot Laboratories look particularly appealing to me (along with Aflac and Kimberly-Clark). I would have to do more research on any of these (other than Abbot Laboratories, which I already own) before deciding to buy, but they sure look good as safe long term investments. Health care is a growing need (in the USA and globally). It is true the costs in the USA have to be reduced, and this could make things more difficult for companies in the health care industry.

Related: Sleep well investing portfolio – Looking for Dividend Stocks in the Current Extremely Low Interest Rate Environment – Is the Stock Market Efficient?

Full list of Dividend Aristocrats, an index measures the performance of large cap, blue chip companies within the S&P 500 that have followed a policy of increasing dividends every year for at least 25 consecutive years.

3M (MMM)
AFLAC (AFL)
Abbott Laboratories (ABT)
Air Products & Chemicals (APD)
Archer-Daniels-Midland (ADM)
AT&T (T)
Automatic Data Processing (ADP)
Bard, C.R. (BCR)
Becton, Dickinson (BDX)
Bemis (BMS)
Brown-Forman (BF/B)
Franklin Resources (BEN)
Chubb Corp (CB)
Cincinnati Financial Corp (CINF)
Cintas (CTAS)
Clorox (CLX)
Coca-Cola Co (KO)
Colgate-Palmolive (CL)
Consolidated Edison (ED)
Dover Corp (DOV)
Ecolab (ECL)
Emerson Electric (EMR)
Exxon Mobil Corp (XOM)
Family Dollar Stores Inc (FDO)
Genuine Parts (GPC)
Grainger, W.W. (GWW)
HCP Inc (HCP)
Hormel Foods Corporation (HRL)
Illinois Tool Works (ITW)
Johnson & Johnson (JNJ)
Kimberly-Clark (KMB)
Leggett & Platt (LEG)
Lowe’s Cos Inc (LOW)
McCormick & Company (MKC)
McDonald’s Corp (MCD)
McGraw-Hill Cos Inc (MHP)
Medtronic (MDT)
Nucor (NUE)
PPG Industries Inc (PPG)
PepsiCo Inc (PEP)
Pitney Bowes Inc (PBI)
Procter & Gamble (PG)
Sherwin-Williams Co (SHW)
Sigma-Aldrich Corp (SIAL)
Stanley Black & Decker (SWK)
Sysco (SYY)
Target Corp (TGT)
T-Rowe Price (TROW)
VF Corp – (VFC)
Wal-Mart Stores – (WMT)
Walgreen Co – (WAG)

You can’t expect members of the Dividend Aristocrats to match the dividend increases shown here. As companies stay in this screen of companies the rate of growth often decreases as they mature. Also some have already increased the payout rate (so have had an increasing payout rate boost dividend increases) significantly.

The chart also shows that a smaller current yield need not dissuade investing in a company even when your target is dividend yield, giving the large dividend increase in just 10 years. Nucor yielded just 1.5% in 2000 (at a price of $10). Ignoring reinvested dividends your current yield on that investment would be 14.5%. To make the math easy 10 shares in 2000 cost $100, and they paid $1.50 in dividends (%1.5). Dividends have now increase so those 10 shares are paying $14.50 in dividends (14.5%). Of course Nucor worked out very well; that type of return is not common. But the idea to consider is that the long term dividend yield is not only a matter of looking at the current yield.

The period from 2000 to 2011 was hardly a strong one economically. Yet look at how many of these companies dramatically increased their dividend payouts. Even in tough economic times many companies do well.

Related: Looking for Dividend Stocks in the Current Extremely Low Interest Rate Environment – Where to Invest for Yield Today – 10 Stocks for Income Investors

• Why Financial Literacy Fails (and What to Do About It) by JD Roth – “‘For years, I struggled with money,’ I told my interviewer today. ‘I knew the math, but I still couldn’t seem to defeat debt. It wasn’t until I started applying psychology to the situation that I was able to make changes.’”
• Get ready for the three big financial crises of 2012 by Jim Jubak – “So in 2012 Ireland—and Greece and Portugal—are going to face a huge choice. They can either try to grind out more austerity in the midst of a EuroZone recession or they can try to renegotiate some of that debt. If you remember, the battle over Greek bank debt almost scuttled the euro this year. Well, we’re going to see the same problem again in 2012…”
• How Long Would It Take To Build A $5000/Year Dividend Cash Flow? – John is able to investing $1000 per month in a portfolio now yielding 2.86% and dividends increasing 9% a year (under historical level for the stocks included)… a bit over 7 years…

• Mark Cuban, invest in yourself. Keep your cash – wait to get a bargin based on the cash your have which allows you to take advantage of market opportunities.

• Fix Your Finances and Quit Your Day Job by Miranda Marquit – “Take a look at your finances. Are you in a position where the loss of your income would impact the family’s cash flow? Does your partner have a job that could make up some of the difference? How much are you earning on the side right now?”
• Year End Tax Tips by Ryan Guina – “Harvest your losses. You can sell losing investments and offset up to $3,000 of other income per year. Any additional losses can be carried forward to future years.”
• The Value of Earning a Side Income – “Let’s assume you can generate $25,000 a year in extra income during retirement. Now you only need $75,000 in income from your retirement funds. And that means your magic number is $1.875 million ($75,000 / 4%). That’s still a lot of money, of course, but a lot less than $2.5 million.”
• Relocating to Another Country by John Hunter – “There is an increasing trend to move from the USA to another country to work and live… Recently this has picked up quite a bit; I am surprised by the velocity at which this interest in moving (I figured it would be a long term mega trend but not so drastic, so quickly). Economic changes are often quite surprising in how rapidly they move forward.”

Related: Curious Cat Management Blog Carnival

An interesting survey shows USA investors have become much more interested in relocating in the last two years (the data they show though has tremendous volatility over time, so I am not really sure this means much). I wonder how much of it can be explained by investors wanting to get a deep understanding of very promising markets. I wouldn’t image the actual number that do this is huge, but maybe the number considering it is significant. Billionaire investor, Jim Rodgers moved to Asia because he sees Asia as key to the future. One of the reasons I moved to Malaysia this year was to get a in depth understanding of what South East Asia is like (it is not a deciding reason, at all but maybe the 4th or 5th reason).

I believe the globalization of the employment market is a long term trend that will continue – especially for “knowledge workers.” The USA rested on the post WW II economic domination for nearly 50 years. The policies also helped this continue: investing in science and engineering, favoring entrepreneurship… But other countries have realized the value of these things (and the USA is slipping – not investing nearly as much in science and engineering and favoring large corporations that give politicians large amounts of cash over innovation – see things like the incredibly outdated “intellectual property” system, SOPA, favoring huge financial institutions…

The combination of long term policy weakness, the inevitable decline in the USA to world ratio of economic wealth, and the financial crisis caused by the policy weaknesses have seemingly greatly accelerated the trend. The next 2 or 3 years will determine if that is a permanent acceleration or if we go back to a slower pace – but on the same path. My guess is that we will stay on this path but the pace will not follow the level surveys might indicate (showing interest in such a big change is far different from actually moving).

There don’t seem to be any decent estimates of Americans living abroad. The US State Department claims releasing their estimates would be a national security risk? And the Census bureau says it would cost too much to try. Wild guesses seem to be between 4 and 6 million.

Related: I want out (subreddit) – Why Investing is Safer Overseas – USA Heath Care System Needs Reform – Copywrong

• The Unemployment Plan – “I just found out that I’m being “downsized” at the end of the year. While I have a small emergency fund, I do have a mortgage and a bit of credit card debt. I also have three kids at home. My wife will continue to work, but she has only a part-time job with minimal benefits. I am receiving a pretty good severance package, though.
  Rather than panicking, I’m trying to be calm and rational about figuring out what’s next…”
• Choosing Between An Annuity And A Dividend Portfolio – “Personally, I consider the choice between an annuity or a dividend portfolio to be a no-brainer. I think a systematic, sustainable and disciplined approach to dividend investing will outperform in almost all cases and while it will require a bigger time investment, that is a small price to get more flexibility, better returns and a much stronger growth potential.”
• From the webcast (see above) with Jim Rodgers. He sees a difficult period worldwide the next 2 years. He is short many shares everywhere (including emerging market). He also owns some shares. But overall he sees a difficult few years for stock markets.
  He says China has a price bubble in real estate and many bankruptcies will take place. But it is not as bad as the USA problems where there was a credit bubble (you have to have a job to get real estate loans, while in the USA and UK you didn’t have too). Chinese banks are is less bad shape than the USA and Europe.
• Manufacturing Employment Data: USA, Japan, Germany, UK… 1990-2009 by John Hunter – “Compensation in the countries currency is remarkably consistent across all countries from 1990-2009. Japan shows the only significant divergence in the period of 2002 – 2009 actually decreasing pay in real terms (a small amount – from 100 to 98) while the average increases to about 110.”
• Economist on the Euro Crisis – “The crisis in the euro area is turning into a panic and dragging the zone into recession. The risk that the currency disintegrates within weeks is alarmingly high.”
• Retirement age across countries: The role of occupations by Philip Sauré and Hosny Zoabi – “In Mexico, the average male worker retires at 75. In Bulgaria, he does so at 58. This column argues that an economy’s composition of occupations matters for its average effective retirement age as the nature of different occupations leads workers to retire at different ages. It suggests the differences in occupational composition explain up to 40% of the observed cross-country variation in retirement age.”
• Buy Western Gas Partners by Jim Jubak – “units of Western Gas Partners pay a dividend of 4.4%. I think the units also offer good potential for capital appreciation. As more wells in the areas served by Western Gas Partners plants and pipelines go into production, the partnership will see rising volumes through its system and increasing cash flow.”
• Europe’s Financial Crisis, in Plain English – “The Germans are also wary of the widespread calls for the European Central Bank to buoy Spain and Italy by buying their bonds. If they know the E.C.B. will bail them out, what will be their incentive to act responsibly in the future? Worse, Germans argue, printing money to pay off government debt (which is what the E.C.B. would essentially be doing) is the first step to hyperinflation.”