Welcome to the Curious Cat Investing, Economics and Personal Finance Carnival: find useful recent personal finance, investing and economics blog posts and articles. The carnival is published twice each month. This carnival is different than others in two significant ways. First, I select posts from the blogs I read (instead of just posting those that submit to the carnival). I think this provides readers a better selection of valuable material (many of the best blogs don’t take time to submit to carnivals). And second, I include articles when I think they are interesting. I figure the primary purpose is to provide links to good recent content, so just because something isn’t a blog post doesn’t exclude it from inclusion. What would happen if Greece defaulted and left the euro? by Jim Jubak – “I think it’s much too late to head off an eventual Greek default sometime, in my opinion, in 2012. But it still does make a huge difference how that default happens. Right now it looks like Greece is headed toward the kind of disorderly default—if not in March then in June or so–that results in the country leaving the euro and produces all the long-term damage I’ve described above… My Top 6 Financial Commandments by Ryan Yates – “Don’t overlook saving for retirement. Remember, there’s no amount too little to save. Everything helps. Setting up an IRA or making the maximum contributions to your 401k are essential to keeping your future financial status secure.” Euro is not to blame for crisis, interview with Jim Rodgers – “You can debase currency, and history is replete with governments that have debased their own currency and ruined their own currency for hundreds of – well for thousands of years it has been going on. You can do that and everything is okay for a while, but eventually you have inflation, you have high interest rates, you have currency turmoil, you have people no longer trusting each other to invest with each other, and then you have the end of the system, and we have chaos, and it starts over again.” Apple’s Stock May Not Be as Cheap as It Looks by Jonathan Weil – “Using the fiscal 2009 earnings that Apple initially reported, its price-earnings ratio that day was about 33. Using its restated numbers, the ratio would have been about 23. My guess is a similar effect is occurring today: Had it not been for the rule change, Apple’s P/E ratio would be higher, because the ‘E’ would be lower.” Why Dropbox Is A Major Disruption by Bill Gurley – “Once you begin using Dropbox, you become more and more indifferent to the hardware you are using, as well as the operating system on that device. Dropbox commoditizes your devices and their OS, by being your “state” system in the sky. Storing credentials and configurations of devices, and even applications are natural next steps for this company.” [I'll admit I still don't understand why Dropbox is worth so much, it seems useful but doesn't seem to have much a "moat" (in Warren Buffett's meaning) - John]

Empire State Building, New York City by John Hunter

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The national occupancy climbed 110 basis points during the year, and effective rents jumped 4.7% according MPF Research.

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

The Curious Cat Investing, Economics and Personal Finance Carnival is published twice each month. We find useful recent personal finance, investing and economics blog posts and articles to share with you.

• 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]

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Apple has been performing amazingly well for years. They keep producing blockbuster hits over and over. Not only are these hits enormously popular they are enormously profitable.

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

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Welcome to the Curious Cat Investing, Economics and Personal Finance Carnival: find useful recent personal finance, investing and economics blog posts and articles. The carnival is published twice each month. This carnival is different than others in two significant ways. First, I select posts from the blogs I read (instead of just posting those that submit to the carnival). I think this provides readers a better selection of valuable material (many of the best blogs don’t take time to submit to carnivals). And second, I include articles when I think they are interesting. I figure the primary purpose is to provide links to good recent content, so just because something isn’t a blog post doesn’t exclude it from inclusion.

• 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…”

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The 12 stock for 10 years portfolio consists of stocks I would be comfortable putting into an IRA for 10 years. The main criteria is for companies with a history of large positive cash flow, that seemed likely to continue that trend. I am considering adding Abbot to the portfolio, and maybe dropping Cisco.

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
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See the full list of Dividend Aristocrats below. The stocks in this index are companies within the S&P 500 that have increased dividends every year for at least 25 consecutive years. After 10 were added and 1 removed, this month, there are now 51 companies included (so just over 10% of all S&P 500 stocks) – and remember many S&P 500 stocks haven’t existed for 25 years, or pay no dividend today, or didn’t 10 or 20 years ago (Google, Apple, Intel, …). It is surprising so many companies have successfully done this.

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.

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The Dividend Aristocrats index measures the performance of S&P 500 companies “that have followed a policy of increasing dividends every year for at least 25 consecutive years.” S&P makes additions and deletions from the index annually. This year 10 companies were added and 1 was deleted.

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

Welcome to the Curious Cat Investing, Economics and Personal Finance Carnival: find useful recent personal finance, investing and economics blog posts and articles.

• 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.

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There is an increasing trend to move from the USA to another country to work and live. This is not surprising to me. 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.

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