Econintersect: Every day our editors collect the most interesting things they find from around the internet and present a summary "reading list" which will include very brief summaries of why each item has gotten our attention. Suggestions from readers for "reading list" items are gratefully reviewed, although sometimes space limits the number included.
Ukraine crisis: US extends sanctions on Russia (Geoff Dyer, Jack Farchy and Guy Chazan, Financial Times) The U.S. accused Russia of failing to live up to a diplomatic agreement reached in Geneva last week and imposed further sanctions on 7 government officials and 17 companies with links to close associates of Russian premier Vladimir Putin.
Igor Sechin: Poster Boy for Sovokistan (Streetwise Professor) This blog says "Putinism is an economic dead end." The oligarchy is composed of "huge, inefficient state companies run by Putin cronies who have no clue about economics or how to create value".
But you'll say: "Sechin has a PhD in economics!" Well, a PhD in economics from a Soviet university is best described as an advanced degree in idiocy.
[A Bloomberg Businessweek article] describes Sechin as having an encyclopedic knowledge of Communist Party congresses dating from before the Revolution. So yeah, that definitely comes in handy in maximizing the value of the largest oil reserves of any publicly traded oil company.
PCIP deadline delayed again (Brian M. Kalish, Employee Benefit Advisor) The Pre-Existing Conditions Insurance Plan was originally set to expire on Dec. 31, 2013 and has been extended monthly since. The latest extension is to 30 June 2014. This is a program for sick Americans who were previously denied insurance coverage. The full ban on health insurance underwriting that started 01 January 2014 left some sick and uninsured Americans in limbo at the end of 2013.
Heartbleed causes heartache for Healthcare.gov users (Melissa A. Winn, Employee Benefit Advisor) Even though there was no specific indication that Heartbleed posed a threat to the site, the federal government reset passwords for all Healthcare.gov. Heartbleed is an internet security bug that leaves personal information on some websites vulnerable to hackers. The author says that the resets have caused "frustration of many, including brokers and advisers". The CMS (Centers for Medicaid and Medicare Services) said the passwords were changes "out of an abundance of caution".
Today there are 12 articles discussed 'behind the wall'.
The focus today is on articles about investing.
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Green Grass and High Tides: Economic Turn Coming? (Liz Ann Sonders, Charles Schwab) This quarter is the first in 2 1/2 years that more companies have raised guidance than lowered it. The last time this scenario occurred was second quarter 2009, the start of a five-year bull market.
Estate Planning with Roth IRAs (Bob Carlson, Investing Daily) Bob Carlson has contributed to GEI. There are situations where converting a traditional IRA to a Roth creates estate tax savings as well as providing the heir(s) more flexibility in timing use of the money and saving them tax expense as well. Carlson has a very clear explanation of how this works and when it works.
The Devolution of Diversification (Chris Richey, Neosho Capital, Advisor Perspectives) A common problem today comes from over-diversification within portfolios. A smaller set of assets more carefully analyzed offers the best risk management according to this author. He discusses the factors that should be considered in diversification for risk management (and often are not).
7 myths about dividend-paying stocks (Daniel Solin, U.S. News & World Report) While it is true that several percent of total stock market returns has historically come from dividends, it is not true that dividend paying stocks provide a greater total return than non-dividend payers. Those who argue for dividend payers on this basis are creating a false equivalency. And this is just one myth; there are six more.
The Illogic of Active Trading (Carl Richards, The New York Times) Study after study shows that retail investors who trade frequent do less well as a group than those who trade less. In the past several months trading is up 35% year over year. Does that indicate more people will be doing less well this year?
What Buffett Sees in IBM (Brian O'Connell, Investing Daily) Warren Buffett has an ongoing accumulation program for IBM stock. O'Connell says this is "a good lesson for risk-averse investors" and "Buffett knows he'll always make money, but without having to worry too much about asset risk in his portfolio". Disclosure: The Econintersect Managing Editor has had a dividend reinvestment plan with IBM for almost 25 years and it is now the largest individual stock holding in his portfolio.
Hedge Funds Short Small Caps Most Since í04 (Alexis Xyclias, Bloomberg) After a year where hedge funds had predominantly long positions in stocks, as of April 2014 short positions, especially for small caps, is the highest in ten years. Before you get too excited and short the farm, review the historical returns for the Russell 2000 ETF (NYSE:IWM). In 2004, +44%; 2005, +16%; 2006, +8%; 2007, +10%; amd 2008, -4%. In other words, after the last there was this level of short interest in small caps it took five years before there was loss for an entire year - and in the intervening four years holders of IWM more that doubled their money (including dividends).
Why New Reforms Make Chinese Stocks Attractive (Michelle Gibley, Charles Schwab) Almost three months ago Schwab recommended that the prospects for Chinese stocks had changed and a long period of poor performance had ended. Since then (03 February) when the iShares China Large-Cap ETF (NYSE:FXI) closed at 33.75, it has traded as low as 32.98 and as high as 36.82, closing 28 April at 34.61, up 2.6% since 03 February. If the call is correct it seems the train has not yet left the station.
DoubleLine's Gundlach Suggests Shorting Homebuilder ETFs (Reuters, Financial Advisor) The very successful investment manager Jeffrey Gundlach says to short homebuilder ETFs. What's he buying? Among other things, long-term treasuries, an asset that many eschew. He doesn't agree with Schwab (preceding article) about China. He says to wait.
Why Energy is Catching the Marketís Eye (Frank Holmes, U.S. Global Investors) Frank Holmes has contributed to GEI. In the past 30 days energy is up about 8& while the S&P 500 is nearly flat. That is attention getting.
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