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Tuesday, September 14, 2010

Why Toilet Paper is Better Than Cash

I saw this article and just had to laugh at the title, but then you read it and it is some what serious.  Russell Napier writes in the WSJ about how putting money in the bank may earn you 0.5% while Kimberly Clark, the maker of toilet paper (and other personal items) pays 4.0% interest on your money and has never cut it dividend in the data going back to 1977.  He uses this to make the case that people will tire of not making money in interest from savings or bonds and pile back into the stock market seeking higher returns on their money.  This, in his mind, will spark a short term rally in the market.  Even though I find humor in what he is saying, I think the message isn't complete.  People didn't just pile out of the stock market due to the scars of losing more than half their 401k's and IRA's.   Some piled out because their is sufficient evidence that the market is rigged against them, by the big players (not an even playing field).  Now while getting paid a 4% dividend on your money sounds really great (and I like dividends) the potential losses in your principle is a greater concern with rumors of a double dip (which I think is becoming less likely in the short term due to market hype and distorted numbers announcements).  Lets look at how Kimberly Clark did in 2008/2009.
It took losses like the rest of the stock market and is almost back to where its high was in 2007.  From a peak of 71.94 in 2007 the stock lost 39% by March of 2009 to a low close of 43.92.  Currently it has clawed its way back to 66.46 toward the end of 2010, just 8.24% away from where it was.  Now you do have to think long term though and over the longer term here is how Kimberly Clark performed.
If you have many years to invest this looks pretty good.  Generally the stock has been moving in a sideways channels since 2000 (and upwards in the decade and a half prior)  and as long as your in on the low end of that channel, the 4% return seems very nice.  For my money, I'll sit this one out.  I think we need the government to level the playing field in the market so that everybody has a chance to win, besides the big boys who get a nice bailout when their investments go majorly wrong.   You can read more on Russell's article in the WSJ here.

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