Deleveraging Is By No Means Done

There has been about $1 trillion of debt deleveraging that has occurred in the U.S. household sector over the past two years and to normalize debt/asset and debt/income ratios, there is another $6 trillion to go, and it will likely last another five years, if the historical record is any indication.

When the consumer is paying down debt, there is less money being "spent" in the U.S. economy. In addition, baby boomers are still too heavily weighted in stocks, with not enough in bonds and will be shifting money out of stocks for years to come.

Despite all the advertisements to buy gold, the average investor has less than 1% of their net worth invested in gold. Despite the current price of gold, the secular theme is in place for gold to continue to perform well over the next decade.

INVESTING LESSON:
Only by standing against the prevailing winds–selectively, but resolutely–can an investor prosper over time. Such a strategy may underperform during markets that are rising based upon the momentum of the herd vs. fundamental valuations.

Has the Economy Turned the Corner or Just Turned Over?

It is fascinating to watch how emotions shift each week. Some view that the economy as turning some sort of corner. Keep in mind how equity markets behaved in the summer of 2000, the fall of 2007, the spring of 2008 and the fall of 2008 too — all huge head fakes.

The S&P 500 stood at 1,109 last Friday, 9/10/10.

The S&P 500 was also at 1,109 back on 4/1/88, over 12 years ago.
That is 12 years of nothing and the majority of talking heads believed/believe we were/are in a new bull market.

The S&P 500 was also at 1,109 back on 11/16/09, 10 months ago.
That is 10 months of nothing and the the majority of talking heads believed/believe we were/are in a new bull market.

Over this 10-month period, the S&P 500 has see-sawed above and below the 1,100 mark 15 times. Can you say roller coaster!

At what level would I be more bullish? Approximately 20% below 1,109 is a level I would consider to offer compelling value.

INVESTING WISDOM

“It is impossible to produce a superior return unless you do something different from the majority.”

Source: Legendary value investor, Sir John Templeton

"Paid to Wait" Analysis of Illinois Tool Works (ITW)

The following analysis of ITW is courtesy of Kelly Wright and the excellent research from his company, Investment Quality Trends.

Illinois Tool Works (ITW): Based in Glenview, Illinois, Illinois Tool Works is a multinational manufacturer of a diversified range of industrial products and equipment with approximately 840 operations in 57 countries. Illinois Tool Works reports in the following eight business segments: Transportation, Industrial Packaging, Food Equipment, Power Systems and
Electronics, Construction Products, Polymers and Fluids, Decorative Surfaces and All Others.

Over the past year, Illinois Tool Works has generated an 18.20% Return on Equity (ROE), which represents a 21% increase over the previous year. Additionally, the 10% profit margin is significantly higher than the 5.90% industry average.

Founded in 1912, ITW has paid an uninterrupted cash dividend since 1933 and has consistently increased the dividend for the last 47 consecutive years.

Investing Lesson
If you are going to invest in the stock market, why not get "Paid to Wait" for the future appreciation of the stock(s) that you own to unfold over time and ignore the day-to-day ups and downs!

Jive Talking!

Federal Reserve Chairmen have an uncanny ability to combine words in such a way as to use "jive talk" ('70s method of speaking) to confuse the reader.

“The economic outlook is unusually uncertain.”

Federal Reserve Chairman: Ben Bernake

Paid to Wait Stock: Chubb

The information below is courtesy of www.dividendgrowthinvestor.com. The information is believed to be reliable. www.dividendgrowthinvestor.com is well known as a reliable source of quality information on the topic of dividend investing.

The Chubb Corporation (CB) provides property and casualty insurance to businesses and individuals. Chubb has increased dividends for 45 years in a row. The company announced a 5.70% dividend increase in February 2010, plus a 14 million share repurchase initiative.

Dividend Growth

• Over the past decade, this dividend stock has delivered an average total return of 5.90% annually.
• Annual dividends have increased by an average of 8.70 % annually since 2000.
• A 9 % annual growth in dividends translates into the dividend payment doubling almost every eight years.
• Looking at historical data, going back to 1984, Chubb has actually managed to double its dividend payment every nine years on average.
• The dividend payout ratio has been on the decline and is lower than our typical 50% threshold. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

Current Stats

• Chubb is trading at 9.20 times earnings, yields 3.10%
• In comparison, rival Travelers Cos (TRV) trades at a P/E multiple of 8 and yields 2.90%, while Cincinnati Financial (CINF) trades at a P/E multiple of 9 and yields 5.90%.
• Berkshire Hathaway (BRK.B) is also a competitor, although it trades at a P/E of 22, and does not pay a dividend.

Future Potential

• The company allocates significant cash flow on stock buybacks, which could prove beneficial in the long run since it could provide above average dividend growth over time for the same effort.
• We like the company and its business model. Chubb (CB) is a way for investors to fill in the need for exposure to the financial sector, after companies like Citigroup (C) and Bank of America (BAC) cut their distributions.
• We believe that the company is attractively valued at this time and we would add to our position if a significant pullback were to occur.

Investing Lesson
If you are going to invest in the stock market, why not get Paid to Wait for the future appreciation of the stock(s) that you own to unfold over time and ignore the day-to-day ups and downs!