Fw: Risk/Reward Vol. 99
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN
"That's life/That's what all the people say
You're riding high in April/Shot down in May"--Lyrics from "That's Life" sung by Frank Sinatra
"Mr. In-Between, Mr. In-Between/Pickin's mighty lean, Mr. In-Between
I feel like a sailboat kept in a bottle/I feel like an engineer that can't find the throttle"---Lyrics from "Call Me Mr. In-Between" by Burl Ives
"Anti-wrinkle cream there may be, but anti-fat bastard cream, there is not."--Quote from the movie "The Full Monty"
"Neither a borrower nor a lender be. For loan oft loses both itself and friend. As borrowing dulls the edge of husbandry."---from " Hamlet", Act I Scene III
"A banker is a fellow who lends his umbrella when the sun is shining and wants it back the minute it begins to rain."---Mark Twain
Happy New Year, dear Readers. My hope is that 2012 brings you wealth and wisdom, but most of all good health.
For all of my work, my study, my risk taking---I netted only a 3.5% gain on my holdings for the year. I started out very well, but we all "got shot down" in late July when Congress decided to run the risk of default, an event that didn't occur but which focused attention on sovereign debt across the pond. But for a few false starts thereafter, I have been out of the market since July 29th, when the Dow was at 12,300--near where it is today. In the interim, I missed a lot of roller coaster activity and more than 3% of gain from dividend payments. Oh well, I also avoided the risk of a sub 11,000 Dow which looked realistic just a few weeks ago, and remember that at no time was I less than 25% in cash.
So, what have I learned?
First, I learned that I cannot support my profligate life style on a 3.5% return. Accordingly, I am thankful that I kept my day job. I need to improve my investing skills--- or keep adding to principal.
Second, I need more conviction. I am not rethinking my exit in July--it was well timed and justified. But, I do regret bailing on the investments I made on August 9th. That day I deployed about 25% of my capital and repurchased a host of excellent stocks (tobacco, utilities, oil, telco's, etc.) that had been unfairly battered by the early August panic. In the succeeding days of incredible volatility, I sold everything again even though most of my re-acquired holdings never approached my 8% loss limit. Had I held the throttle steady, my net return for 2011 would have been double.
Third, I need to be more discerning. Going into this year, all but my 25% cash position (and a small amount in tech stocks) was invested in a beautiful, "widow and orphan" portfolio--full of the common stock of utilities, tobacco, telco, oil companies and the preferred stock of financials (bank and insurance companies). When the sovereign default and banking crises arose in July, I sold everything without appreciating that what happens in the world of financials may jolt the market, but in the long run is not going to impact how much electricity Duke Power sells or how many cigarettes teen agers smoke. Not all my sailboats were in a bottle and "my pickin" was not nearly as lean as I feared. I was not (Mr.) In-Between a rock and a hard place. I owned some great stocks worthy of keeping, and I did not.
Fourth, I need to appreciate that although world events (i.e. the European debt crisis) do impact our stock markets, those events are not the only factors to be considered. United States companies currently have extremely healthy balance sheets, very high productivity, excellent managers and world class franchises. As a consequence, McDonalds, CocaCola, Johnson & Johnson, Yum Brands, Apple, Caterpillar etc, are positioned to grow here and abroad for years to come, and should not be abandoned for any substantial period of time simply because Greece can't repay its debt
Oh, don't get me wrong. I am not upset with myself. (Shockingly, neither Barb nor I can ever remember me being so). But I do want to learn from the 20-20 vision that hindsight affords.
Speaking of Europe, things still don't look too rosy. Italy--which has acted like a "fat bastard" for years--had a disappointing 10 year bond auction on Thursday finding fewer buyers than desired and having to pay nearly 7% in yield. This led Italy's prime minister, Mario ("The Full") Monti, to implore his European neighbors to enlarge the pool of Euros available to borrow cheaply from the European Financial Stablity Fund (EFSF) so that Italy can be spared from high interest rates as it refinances over 400billion Euros of debt in 2012. I suspect we will continue to experience Euro related volatility for some time to come.
So what are my first moves in 2012?
I plan to slowly repurchase a variety of utilities, tobacco and domestic oil plays on dips, and hopefully I will have the conviction to keep them unless and until they hit my 8% loss limit.
I also plan to buy some financials---yes, I said financials--everyone's ugly ducklings. As I admitted above, I am guilty of a lack of discernment, but I suggest the market has been as well, at least when it comes to financial stocks. For example, I fail to see the type of peril that has the preferred stock of HSBC trading below par ($25) and yielding more than 6.5% despite it being rated A or better by all rating agencies. HSBC is a well respected world bank which, as its name implies, has roots not only in London, its headquarters, but in Hong Kong and Shanghai as well. Moreover, keep in mind that the preferred dividend must be paid before the very healthy common dividend (4.9%) can be distributed, a fact that provides a substantial amount of security--at least to me.
As another example, does anyone believe that what happens in Europe will unduly impact the business of Associated Bank of Wisconsin which has now repaid all of its TARP money, which has shored up its balance sheet and which pays a healthy 8% dividend on its recently issued trust preferred shares?
In addition, do you really think that Aegon, the American/Dutch insurance company (here known as Transamerica) will not pay the dividend on its preferred shares (now yielding an outsized 8+%) having done so throughout the entirety of the 2008-2009 financial crisis, especially in light of the fact that it has fully repaid the Dutch government for the aid received during that crisis, has announced an intent to reinstitute a common stock dividend and has reduced its total exposure to the PIIGS to less than 4% of its assets?
The simple fact is that from before the time Jesus cleansed the Temple, to the time of Shakespeare, to the time of Mark Twain , to the time of Barack Obama, most people simply hate banks and bankers. That said, you might as well hate apple pie and motherhood, too, because you cannot exist without any of them. Banks make the world go 'round. When was the last time you bought anything on line--or anywhere else for that matter---using cash? From debit cards, to credit cards, to lines of credit, to working capital revolvers---from the most modest individual to the greatest commercial enterprise--all of us are dependent upon banks. When they are run responsibly, they provide the kind of steady income I desire.
So as 2012 dawns, I draw inspiration from Ol' Blue Eyes who crooned:
"I've been up and down and over and out/And I know one thing
Each time I find myself flat on my face/ I just pick myself up and get back in the race
That's life..."
Saturday, December 31, 2011
Saturday, December 24, 2011
December 24, 2011 Backdoor Bazooka
Fw: Risk/Reward Vol. 98
THIS IS NOT INVESTMENT OR TAX ADVICE. THIS IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Hey all you people that are tryin' to sleep
I'm out to make it with my midnight dreams, yeah
'Cause I'm a backdoor man"---lyrics "Back Door Man" by The Doors
"The road is long/With many a winding turn
That lead us to who knows where/Who knows where
But I'm strong/Strong enough to carry him
He ain't heavy/He's my brother"---lyrics "He Ain't Heavy" by the Hollies
"This little piggy went to market
This little piggy stayed home..."---Nursery Rhyme
"Give me golf clubs, fresh air and a beautiful partner, and you can keep the clubs and the fresh air."---Jack Benny
Merry Christmas and Happy Hanukkah---and with France and the UK "airing grievances" and Germany demonstrating "feats of strength", Happy Festivus (the holiday for the rest of us), as well.
As reported in Volume 96 ( www.riskrewardblog.blogspot.com ), on Wednesday, the European Central Bank (ECB) launched its Longer Term Refinancing Operation (LTRO) (a/k/a the "Backdoor Bazooka", name explained below) making available 3year loans in unlimited amounts at 1% interest to all Eurozone banks. In anticipation of this event, the markets skyrocketed on Tuesday. It was and remains the hope of ECB President, and noted Backdoor Man, Mario Draghi, that Eurozone banks would draw heavily on the LTRO in order 1) to quench their thirst for liquidity and thus thaw the recent European credit freeze and 2) to, perhaps, induce the banks to purchase more of the sovereign debt of their heavily indebted brothers, Portugal, Italy, Ireland, Greece or Spain (PIIGS) and to "carry" it on their books for a few years, reaping profits from the spread between the inexpensive cost of the loans (1%) and the yield on the heavily depressed PIIG bonds (6+%). It is Mr. Draghi's dream that by flooding banks with a 'bazooka" blast of Euros, he will stabilize the PIIGS sovereign debt crisis through the backdoor ( to wit; lending money to banks to allow THEM to carry the debt); something he refuses to allow the ECB to do through the front door (to wit; purchasing and carrying PIIGS sovereign debt directly). With more than 490billion Euros lent on the first day of the LTRO, it appears that liquidity has been restored, but with 10 year Italian bonds trading at a yield of nearly 7%, it remains to be seen whether the Backdoor Man's "midnight dream" of Eurozone banks carrying the debt of their "heavy" PIIG "brothers" comes to pass. Much will be learned come mid-January when Italy, the first little PIIG-y, goes to market with a new issuance of debt. If it cannot refinance 10 year notes at yields near 5% ( as noted, they are currently trading at 7% on the secondary market), most of my cash is going to "stay home".
While the longer term impact of the LTRO is still unknown, the immediate impact has given lift and stability to the stock markets, with the Dow sitting comfortably for the past few days above 12,000, almost to the penny where I exited in late July. This provided impetus for me to pick up a few bargains---and there are plenty to be had. I bought some Ford debt paying 7.7% (XKN) when it fell below its "call" price of $25 (Remember, when purchasing exchange traded debt or preferred stock that is subject to redemption or "call" at any time, always do so below the call price--typically $25).
I also bought shares in JMF, a closed end fund (CEF), comprised of "beautiful" oil and gas pipeline master limited "partner"ships. JMF pays a 7.8% dividend ( a return even the parsimonious Jack Benny could appreciate) and is priced below its net asset value (NAV). As you may recall from earlier posts, I like CEF's which have some of the same characteristics of mutual funds and ETF's (e.g. comprised of the shares of a basket of companies thereby giving diverse exposure to a given sector or industry). In times of low interest rates, I prefer CEF's to the others because CEF's can use borrowed funds to leverage returns (e.g. borrow money at 3%, invest in MLP's paying 7% and distribute the difference to shareholders). They are also attractive because they do not distribute unrelated business taxable income (UBTI) to shareholders thus allowing retirement accounts (which have severe limits on the amount of UBTI they can receive) to invest indirectly in master limited partnerships. (THIS IS MY PERSONAL VIEW ON THE ISSUE AND NOT TAX ADVICE---CONSULT YOUR OWN TAX ADVISOR ON THE SUBJECT.)
With the announcement this week that AT&T (T) is abandoning its bid for T-Mobile, the prospect improved that Sprint (S) could survive as a distant, third alternative to T and Verizon in the US wireless arena. So far this year, every investment associated with Sprint has tanked, including its exchange traded debt (JZK, PYG, GJD). Although this debt is not investment grade, it trades at a significant discount to similarly rated paper (B1) and is currently yielding over 10%. I bought some JZK.
I remain impressed by the US economy which will likely surpass all estimates in Q4 and the US stock market. Unfortunately, news from Europe bespeaks recession, and news from China stinks. This latter fact has resulted in a severe drop off in commodity prices with platinum, tin, copper,etc. down 20% or more from the year's high. One commodity bright spot is oil--particularly US domestic oil production and delivery. World wide demand for oil is still high and the uncertainty associated with Iran has caused a supply shortage and price resiliency. US crude oil inventories are at record lows, a fact that should spur domestic production. Billions of dollars of investment are afoot in exploration, pipeline and storage construction. My trigger finger is itching, and I likely will re-einter the oil patch soon with the lion's share of my holdings still in cash.
I am not expecting much news next week, but early January promises more fireworks--and hopefully more liftoff.
THIS IS NOT INVESTMENT OR TAX ADVICE. THIS IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Hey all you people that are tryin' to sleep
I'm out to make it with my midnight dreams, yeah
'Cause I'm a backdoor man"---lyrics "Back Door Man" by The Doors
"The road is long/With many a winding turn
That lead us to who knows where/Who knows where
But I'm strong/Strong enough to carry him
He ain't heavy/He's my brother"---lyrics "He Ain't Heavy" by the Hollies
"This little piggy went to market
This little piggy stayed home..."---Nursery Rhyme
"Give me golf clubs, fresh air and a beautiful partner, and you can keep the clubs and the fresh air."---Jack Benny
Merry Christmas and Happy Hanukkah---and with France and the UK "airing grievances" and Germany demonstrating "feats of strength", Happy Festivus (the holiday for the rest of us), as well.
As reported in Volume 96 ( www.riskrewardblog.blogspot.com ), on Wednesday, the European Central Bank (ECB) launched its Longer Term Refinancing Operation (LTRO) (a/k/a the "Backdoor Bazooka", name explained below) making available 3year loans in unlimited amounts at 1% interest to all Eurozone banks. In anticipation of this event, the markets skyrocketed on Tuesday. It was and remains the hope of ECB President, and noted Backdoor Man, Mario Draghi, that Eurozone banks would draw heavily on the LTRO in order 1) to quench their thirst for liquidity and thus thaw the recent European credit freeze and 2) to, perhaps, induce the banks to purchase more of the sovereign debt of their heavily indebted brothers, Portugal, Italy, Ireland, Greece or Spain (PIIGS) and to "carry" it on their books for a few years, reaping profits from the spread between the inexpensive cost of the loans (1%) and the yield on the heavily depressed PIIG bonds (6+%). It is Mr. Draghi's dream that by flooding banks with a 'bazooka" blast of Euros, he will stabilize the PIIGS sovereign debt crisis through the backdoor ( to wit; lending money to banks to allow THEM to carry the debt); something he refuses to allow the ECB to do through the front door (to wit; purchasing and carrying PIIGS sovereign debt directly). With more than 490billion Euros lent on the first day of the LTRO, it appears that liquidity has been restored, but with 10 year Italian bonds trading at a yield of nearly 7%, it remains to be seen whether the Backdoor Man's "midnight dream" of Eurozone banks carrying the debt of their "heavy" PIIG "brothers" comes to pass. Much will be learned come mid-January when Italy, the first little PIIG-y, goes to market with a new issuance of debt. If it cannot refinance 10 year notes at yields near 5% ( as noted, they are currently trading at 7% on the secondary market), most of my cash is going to "stay home".
While the longer term impact of the LTRO is still unknown, the immediate impact has given lift and stability to the stock markets, with the Dow sitting comfortably for the past few days above 12,000, almost to the penny where I exited in late July. This provided impetus for me to pick up a few bargains---and there are plenty to be had. I bought some Ford debt paying 7.7% (XKN) when it fell below its "call" price of $25 (Remember, when purchasing exchange traded debt or preferred stock that is subject to redemption or "call" at any time, always do so below the call price--typically $25).
I also bought shares in JMF, a closed end fund (CEF), comprised of "beautiful" oil and gas pipeline master limited "partner"ships. JMF pays a 7.8% dividend ( a return even the parsimonious Jack Benny could appreciate) and is priced below its net asset value (NAV). As you may recall from earlier posts, I like CEF's which have some of the same characteristics of mutual funds and ETF's (e.g. comprised of the shares of a basket of companies thereby giving diverse exposure to a given sector or industry). In times of low interest rates, I prefer CEF's to the others because CEF's can use borrowed funds to leverage returns (e.g. borrow money at 3%, invest in MLP's paying 7% and distribute the difference to shareholders). They are also attractive because they do not distribute unrelated business taxable income (UBTI) to shareholders thus allowing retirement accounts (which have severe limits on the amount of UBTI they can receive) to invest indirectly in master limited partnerships. (THIS IS MY PERSONAL VIEW ON THE ISSUE AND NOT TAX ADVICE---CONSULT YOUR OWN TAX ADVISOR ON THE SUBJECT.)
With the announcement this week that AT&T (T) is abandoning its bid for T-Mobile, the prospect improved that Sprint (S) could survive as a distant, third alternative to T and Verizon in the US wireless arena. So far this year, every investment associated with Sprint has tanked, including its exchange traded debt (JZK, PYG, GJD). Although this debt is not investment grade, it trades at a significant discount to similarly rated paper (B1) and is currently yielding over 10%. I bought some JZK.
I remain impressed by the US economy which will likely surpass all estimates in Q4 and the US stock market. Unfortunately, news from Europe bespeaks recession, and news from China stinks. This latter fact has resulted in a severe drop off in commodity prices with platinum, tin, copper,etc. down 20% or more from the year's high. One commodity bright spot is oil--particularly US domestic oil production and delivery. World wide demand for oil is still high and the uncertainty associated with Iran has caused a supply shortage and price resiliency. US crude oil inventories are at record lows, a fact that should spur domestic production. Billions of dollars of investment are afoot in exploration, pipeline and storage construction. My trigger finger is itching, and I likely will re-einter the oil patch soon with the lion's share of my holdings still in cash.
I am not expecting much news next week, but early January promises more fireworks--and hopefully more liftoff.
Saturday, December 17, 2011
December 17, 2011 Third Rate Romance
Fw: Risk/Reward Vol. 97
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"I'm sittin on the dock of the bay
Watchin the tide roll away
Oh, I'm just sittin on the dock of the bay
Wastin time"---lyrics "Dock of the Bay" by Otis Redding
"For we can fly up, up and away
For we can fly
In my beautiful, my beautiful balloon."--lyrics from "Up, Up and Away" by the 5th Dimension
"She said, "You don't look my type
But I guess you'll do"
Third rate romance, low rent rendezvous."--lyrics from "Third Rate Romance" by Rosanne Cash
"Hear my phone keep ringing
Sound like a long distance call
When I picked up my receiver
The party said " Muddy Waters, there's another mule kickin' in your stall".---lyrics "Long Distance Call" by Muddy Waters
For the most part, I'm like Otis Redding, sittin' on the dock of the bay; watchin'. Hopefully, I'm not just wastin' time. The only move I made this week was a double short of the S&P 500 on Wednesday after reading another depressing edition of the Financial Times. I made approximately 2% by the time I sold the position an hour before the market closed that day. I am 2 for 2 in my directional bets. That said, day to day wagers are a crappy way to make a buck. The news this week was otherwise too mixed (good news from the US on jobs, bad news from Europe on debt and from China on a real estate bubble) to place any other directional wagers.
What has emerged from the smoke and mirrors of last week's summit in Brussels is one clear point: absent a bold, decisive pan-European move, the Eurozone is going to slide then fall into another recession. Time is short, and time is a-wasting. Even the perpetually optimistic Boo-yah Boy himself, Jim Cramer, placed the stock market on DefCon Level II, stating that it is now a matter of when (not if) a major European bank is nationalized, an event which will freeze an already cold credit market which in turn will send tremors through the stock markets. Statistics reported this week in the Wall Street Journal and the Financial Times indicate that the freeze is well on its way. Overnight borrowing by Eurozone banks from the European Central Band (ECB), a very expensive means of accessing cash utilized only by the least credit worthy, grew by 400% last week. US money market funds, once a major source of capital, have effectively withdrawn all deposits from European banks. Credit Agricole, France's third largest bank, is closing branches in over 20 countries in a major cost cutting move. Credit downgrades of European banks are being announced on a daily basis.
On the sovereign debt front, Italian debt "ballooned--up, up and away" with yields hovering near 7%. This week, the president of Italy's central bank announced that if Italy cannot reduce the yield on its sovereign debt to no more than 5%, Italy will not be able to meet its 2012 budget numbers. To add insult to injury, Eurozone borrowing costs will likely escalate if the rating agencies downgrade Eurozone debt, six members of which still have a AAA rating. Downgrades are becoming increasingly more likely. On Friday, Fitch, one of three recognized rating agencies, set the stage for a "lower rate rendezvous" warning that many European countries face credit downgrades and further stating as follows:
"Of particular concern is the absence of a credible financial backstop. In Fitch's opinion this requires more active and explicit
commitment from the ECB to mitigate the risk of self-fulfilling crises for potentially illiquid, but solvent Euro Area Member
States."
Has Fitch been reading Risk/Reward?
But, from my vantage point here on the dock, what I find most amazing (and encouraging) is how well the US stock markets have done these past few weeks. Take a look at a chart. The Dow remains near 12,000 despite the onslaught of horrible news from Europe and has not returned to the 10,600 -11,600 trading range that dominated from August through late October. Leading the buoyancy in these "Muddy Waters" are solid, high dividend payers whose businesses are primarily US based. Stocks in the following sectors are still "kickin in their stalls": telecoms (T, VZ), utilities (DUK, UIL, FE), tobacco companies (RAI, MO) and domestic oil/gas/pipeline plays (PER, SDT, KMP, LINE, EEP, CHKR, ETP). GE has also rebounded. Eurocentric companies in similar industries have not fared as well. For example, NGG, the large British utility, has fallen, and TEF (Telefonica), the large Spanish telecom, dropped through its stall with the announcement this week that it is cutting its dividend.
Pressure to do more in Europe is mounting, particularly from rating agencies. Today's financial news was dominated by France and Britain trading barbs on whose economy is more worthy of a downgrade. Fitch's call for the ECB to operate as a "backstop" as a condition to the Eurozone's remaining AAA countries (read, France) keeping their rating may cause the ECB and its puppet master, Germany, to rethink their resistance to permitting the ECB to become the sovereign debt buyer of last resort. Look for some movement on this before January 1. If it happens this week, we will see the stock markets rise, and we will all have a Merrier Christmas..
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"I'm sittin on the dock of the bay
Watchin the tide roll away
Oh, I'm just sittin on the dock of the bay
Wastin time"---lyrics "Dock of the Bay" by Otis Redding
"For we can fly up, up and away
For we can fly
In my beautiful, my beautiful balloon."--lyrics from "Up, Up and Away" by the 5th Dimension
"She said, "You don't look my type
But I guess you'll do"
Third rate romance, low rent rendezvous."--lyrics from "Third Rate Romance" by Rosanne Cash
"Hear my phone keep ringing
Sound like a long distance call
When I picked up my receiver
The party said " Muddy Waters, there's another mule kickin' in your stall".---lyrics "Long Distance Call" by Muddy Waters
For the most part, I'm like Otis Redding, sittin' on the dock of the bay; watchin'. Hopefully, I'm not just wastin' time. The only move I made this week was a double short of the S&P 500 on Wednesday after reading another depressing edition of the Financial Times. I made approximately 2% by the time I sold the position an hour before the market closed that day. I am 2 for 2 in my directional bets. That said, day to day wagers are a crappy way to make a buck. The news this week was otherwise too mixed (good news from the US on jobs, bad news from Europe on debt and from China on a real estate bubble) to place any other directional wagers.
What has emerged from the smoke and mirrors of last week's summit in Brussels is one clear point: absent a bold, decisive pan-European move, the Eurozone is going to slide then fall into another recession. Time is short, and time is a-wasting. Even the perpetually optimistic Boo-yah Boy himself, Jim Cramer, placed the stock market on DefCon Level II, stating that it is now a matter of when (not if) a major European bank is nationalized, an event which will freeze an already cold credit market which in turn will send tremors through the stock markets. Statistics reported this week in the Wall Street Journal and the Financial Times indicate that the freeze is well on its way. Overnight borrowing by Eurozone banks from the European Central Band (ECB), a very expensive means of accessing cash utilized only by the least credit worthy, grew by 400% last week. US money market funds, once a major source of capital, have effectively withdrawn all deposits from European banks. Credit Agricole, France's third largest bank, is closing branches in over 20 countries in a major cost cutting move. Credit downgrades of European banks are being announced on a daily basis.
On the sovereign debt front, Italian debt "ballooned--up, up and away" with yields hovering near 7%. This week, the president of Italy's central bank announced that if Italy cannot reduce the yield on its sovereign debt to no more than 5%, Italy will not be able to meet its 2012 budget numbers. To add insult to injury, Eurozone borrowing costs will likely escalate if the rating agencies downgrade Eurozone debt, six members of which still have a AAA rating. Downgrades are becoming increasingly more likely. On Friday, Fitch, one of three recognized rating agencies, set the stage for a "lower rate rendezvous" warning that many European countries face credit downgrades and further stating as follows:
"Of particular concern is the absence of a credible financial backstop. In Fitch's opinion this requires more active and explicit
commitment from the ECB to mitigate the risk of self-fulfilling crises for potentially illiquid, but solvent Euro Area Member
States."
Has Fitch been reading Risk/Reward?
But, from my vantage point here on the dock, what I find most amazing (and encouraging) is how well the US stock markets have done these past few weeks. Take a look at a chart. The Dow remains near 12,000 despite the onslaught of horrible news from Europe and has not returned to the 10,600 -11,600 trading range that dominated from August through late October. Leading the buoyancy in these "Muddy Waters" are solid, high dividend payers whose businesses are primarily US based. Stocks in the following sectors are still "kickin in their stalls": telecoms (T, VZ), utilities (DUK, UIL, FE), tobacco companies (RAI, MO) and domestic oil/gas/pipeline plays (PER, SDT, KMP, LINE, EEP, CHKR, ETP). GE has also rebounded. Eurocentric companies in similar industries have not fared as well. For example, NGG, the large British utility, has fallen, and TEF (Telefonica), the large Spanish telecom, dropped through its stall with the announcement this week that it is cutting its dividend.
Pressure to do more in Europe is mounting, particularly from rating agencies. Today's financial news was dominated by France and Britain trading barbs on whose economy is more worthy of a downgrade. Fitch's call for the ECB to operate as a "backstop" as a condition to the Eurozone's remaining AAA countries (read, France) keeping their rating may cause the ECB and its puppet master, Germany, to rethink their resistance to permitting the ECB to become the sovereign debt buyer of last resort. Look for some movement on this before January 1. If it happens this week, we will see the stock markets rise, and we will all have a Merrier Christmas..
Saturday, December 10, 2011
December 10, 2011 Like a Rolling Stone
Risk/Reward Vol. 96
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION UPON INVESTING. RELY ON NOTHING STATED HEREIN.
"How does it feel?/How does it feel?
To be on your own/With no direction home
Like a complete unknown/Like a rolling stone"---lyrics "Like a Rolling Stone" by Bob Dylan
"The measure of who we are is what we do with what we have."---Vince Lombardi
""Set it, and forget it."---Ron Popeil's directions on how to use the Ronco Rotisserie
"gimme pound, gimme pound, gimme euro, gimme yen
i'm international baby
i'm international, pay me"--- lyrics from "Pay Me" by Usher
As stated last week, I will not reinvest in the stock market unless and until some certainty surrounding Europe's sovereign debt situation emerges. The mixed messages emanating from the Continent this week only add to the confusion. Here is a sampling: on the plus side, a promise from the summit of leaders of more unity; the European Central Bank (ECB) extending from one to three years the term of its loans to Eurozone banks; the ECB implying that ample liquidity will be made available for these commercial banks to buy sovereign debt; summit leaders hinting that in the future private bondholders will not take "haircuts" , but to the negative, the ECB categorically refusing to be the sovereign debt buyer of last resort; major French banks downgraded by rating agencies; and the UK refusing to join in the unity move. What does this all mean? I don't know, and the commentators are giving little guidance. If you want an excellent summation of the confusion, read today's Financial Times most notably John Authers' Comment. Accordingly, I remain on the sidelines until the impact of this weeks's action (or inaction) is understood--at least for the most part. Allow me to explain.
I usually spend Sunday afternoons fine tuning my market acquisitions and divestitures for the upcoming week. Having exited (again) last week with firm conditions on my re-entry, I spent Sunday, instead, reviewing my conduct since my first exit en masse in July (see volumes 78 and 79 at www.riskrewardblog.blogspot.com ). My forays in and out since then have been unworthy of me, and I am fortunate not to have lost more than a modest amount. Given a redo, I would have stayed out entirely. My desire to grow my nest egg pales in comparison to my need to maintain it. That said, had this period of uncertainty occurred during my retirement, I could not have afforded to go 6 months with my nest egg merely gathering moss. I would have needed some income to "roll" my way---but, pray tell Mr. Dylan, from what direction?
Inspired by an Aaron Rodgers comeback and the words of Vince Lombardi, I realized that doing nothing was not acceptable. I had to do something--and do it with what I had. So, first things first, on Tuesday I did what any sane investor should do. I bought Lady Barbara and me one share each of the stock of the Green Bay Packers. Huge dividends will be paid in grins this summer when we attend our first shareholder's meeting at Lambeau Field.
Second, I researched, contemplated and discussed with my investment muse the concept of directional trading. Directional trading is a simple strategy used by traders who take positions, either long or short, on the belief that they are able to correctly predict movement upward or downward. It can be deployed upon individual stocks or, thanks to the emergence of exchange traded funds (ETF's), upon market sectors or entire market indices such as the Dow Jones Industrials or the S&P 500. Thus, if a trader were reasonably certain that on a given day the stock market were going up (long) or down (short), he/she could place a bet using a single, a two times (2x) or even a 3 times (3x) ETF on the direction, long or short, and hedge against a loss using a stop order.
The following will provide a real life example of the strategy. On Thursday, I awoke in time to hear the news conference of Mario Draghi, the head of the ECB, wherein he announced, to the world's chagrin, that the ECB would not be the purchaser of last resort of European sovereign debt. Based upon my reading over the past several weeks, I knew that a more positive answer was "baked" into the market and that the news would have a negative impact--at least until Friday's summit of European leaders. So, at the opening on Thursday, I bought SDS ( a 2x S&P 500 short ETF) at around $19.50 per share and immediately placed a stop order mandating a sale if the price fell to $19.40 which would occur if the market went up. (Remember, short positions go up when the market goes down.) Like Ron Popeil, I just set it and forgot it. My gambit held the promise that I would receive two times the percentage drop in the S&P 500 (assuming it dropped), and I limited my exposure to $0.10 ( 0.5%) per share if the market went up. As I suspected, the market fell throughout the day, and I sold my position a few minutes before close. The S&P fell over 2% that day, which meant I made roughly 4% because the ETF I used doubled the impact. (P.S. This also means that losses mount twice as fast--but I was hedged.) I placed no "bets" on Friday because I had no feel for how the market would absorb the news from the summit.
My contemplated future approach is simple. There are 3 or 4 days per month when I have an almost-certain feel as to market direction---good/bad job numbers, good/bad economic data, a huge surprise/disappointment, an international incident, etc. On those few days, I intend to place a 2x or 3x directional bet, hedged by a very conservative stop loss--such that should the market go in a direction opposite my bet, I will be out with very little lost. By putting a modest amount on the line (no more than 3% of my nest egg), I would be able to meet my monthly income needs in retirement if I predicted correctly 3 out of 4 times per month--- assuming the move up or down were significant, say, 100 points or more on the Dow. Don't worry, loyal readers, I am starting with itsy, bitsy, tiny, baby steps and keeping track of my success rate. Wish me luck. Your thoughts and comments are appreciated.
Despite the market's uptick on Friday, I see little encouragement on the immediate or intermediate horizon. Treaty change may comfort some, but it is months away, if all. Moreover, the jury is still out as to whether the promised liquidity from the ECB will prompt Eurozone banks to even hold the sovereign debt currently on their books, let alone buy new issues going forward. According to today's Financial Times, Eurozone banks still hold 513bn Euros worth of the sovereign debt from the PIIGS, having shed 65billion Euros worth of it since March. Do they really want more exposure? Why? In this regard, note that the news from the summit overshadowed a pronouncement by the European Banking Authority that as a consequence of failing a "stress test", 31 large European banks will need to raise an additional 15billion Euros in capital if they intend to conduct business at their current size. Frankly, unlike Usher's vixen, I don't see the international equity markets giving these banks pounds, euros or yen. Their only means of complying is to shrink by selling assets and reducing lending activity. For reasons previously discussed, this, in turn, will severely limit credit availability globally which traditionally is dependent on loans from large European banks.
On the domestic front, the news is also not cheery. Dow favorite, DuPont, cut its profit forecast. More importantly, the EPA announced a preliminary conclusion that the presence of benzene and methane in the drinking water in a rural Wyoming town came from a nearby fracking operation. This connection is what environmentalists have been seeking in order to shutter the explosive growth of this oil and gas exploration technique. Why the Obama administration wants to curb fracking is beyond me, but it does. If it succeeds, the prospect of US energy independence and tens of thousands of high paying jobs are out the window.
I apologize for casting negativity on your upcoming holiday. I sincerely hope that the prospect of Eurozone treaty change and the ECB's promise of liquidity to Eurozone banks stems the run on European sovereign debt, and that some relief from these wild swings in the stock market prevails. Next week should give some signs. Watch the interest rates on Italian and Spanish debt. But whether the stock market stabilizes or not, I intend to prosper.
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION UPON INVESTING. RELY ON NOTHING STATED HEREIN.
"How does it feel?/How does it feel?
To be on your own/With no direction home
Like a complete unknown/Like a rolling stone"---lyrics "Like a Rolling Stone" by Bob Dylan
"The measure of who we are is what we do with what we have."---Vince Lombardi
""Set it, and forget it."---Ron Popeil's directions on how to use the Ronco Rotisserie
"gimme pound, gimme pound, gimme euro, gimme yen
i'm international baby
i'm international, pay me"--- lyrics from "Pay Me" by Usher
As stated last week, I will not reinvest in the stock market unless and until some certainty surrounding Europe's sovereign debt situation emerges. The mixed messages emanating from the Continent this week only add to the confusion. Here is a sampling: on the plus side, a promise from the summit of leaders of more unity; the European Central Bank (ECB) extending from one to three years the term of its loans to Eurozone banks; the ECB implying that ample liquidity will be made available for these commercial banks to buy sovereign debt; summit leaders hinting that in the future private bondholders will not take "haircuts" , but to the negative, the ECB categorically refusing to be the sovereign debt buyer of last resort; major French banks downgraded by rating agencies; and the UK refusing to join in the unity move. What does this all mean? I don't know, and the commentators are giving little guidance. If you want an excellent summation of the confusion, read today's Financial Times most notably John Authers' Comment. Accordingly, I remain on the sidelines until the impact of this weeks's action (or inaction) is understood--at least for the most part. Allow me to explain.
I usually spend Sunday afternoons fine tuning my market acquisitions and divestitures for the upcoming week. Having exited (again) last week with firm conditions on my re-entry, I spent Sunday, instead, reviewing my conduct since my first exit en masse in July (see volumes 78 and 79 at www.riskrewardblog.blogspot.com ). My forays in and out since then have been unworthy of me, and I am fortunate not to have lost more than a modest amount. Given a redo, I would have stayed out entirely. My desire to grow my nest egg pales in comparison to my need to maintain it. That said, had this period of uncertainty occurred during my retirement, I could not have afforded to go 6 months with my nest egg merely gathering moss. I would have needed some income to "roll" my way---but, pray tell Mr. Dylan, from what direction?
Inspired by an Aaron Rodgers comeback and the words of Vince Lombardi, I realized that doing nothing was not acceptable. I had to do something--and do it with what I had. So, first things first, on Tuesday I did what any sane investor should do. I bought Lady Barbara and me one share each of the stock of the Green Bay Packers. Huge dividends will be paid in grins this summer when we attend our first shareholder's meeting at Lambeau Field.
Second, I researched, contemplated and discussed with my investment muse the concept of directional trading. Directional trading is a simple strategy used by traders who take positions, either long or short, on the belief that they are able to correctly predict movement upward or downward. It can be deployed upon individual stocks or, thanks to the emergence of exchange traded funds (ETF's), upon market sectors or entire market indices such as the Dow Jones Industrials or the S&P 500. Thus, if a trader were reasonably certain that on a given day the stock market were going up (long) or down (short), he/she could place a bet using a single, a two times (2x) or even a 3 times (3x) ETF on the direction, long or short, and hedge against a loss using a stop order.
The following will provide a real life example of the strategy. On Thursday, I awoke in time to hear the news conference of Mario Draghi, the head of the ECB, wherein he announced, to the world's chagrin, that the ECB would not be the purchaser of last resort of European sovereign debt. Based upon my reading over the past several weeks, I knew that a more positive answer was "baked" into the market and that the news would have a negative impact--at least until Friday's summit of European leaders. So, at the opening on Thursday, I bought SDS ( a 2x S&P 500 short ETF) at around $19.50 per share and immediately placed a stop order mandating a sale if the price fell to $19.40 which would occur if the market went up. (Remember, short positions go up when the market goes down.) Like Ron Popeil, I just set it and forgot it. My gambit held the promise that I would receive two times the percentage drop in the S&P 500 (assuming it dropped), and I limited my exposure to $0.10 ( 0.5%) per share if the market went up. As I suspected, the market fell throughout the day, and I sold my position a few minutes before close. The S&P fell over 2% that day, which meant I made roughly 4% because the ETF I used doubled the impact. (P.S. This also means that losses mount twice as fast--but I was hedged.) I placed no "bets" on Friday because I had no feel for how the market would absorb the news from the summit.
My contemplated future approach is simple. There are 3 or 4 days per month when I have an almost-certain feel as to market direction---good/bad job numbers, good/bad economic data, a huge surprise/disappointment, an international incident, etc. On those few days, I intend to place a 2x or 3x directional bet, hedged by a very conservative stop loss--such that should the market go in a direction opposite my bet, I will be out with very little lost. By putting a modest amount on the line (no more than 3% of my nest egg), I would be able to meet my monthly income needs in retirement if I predicted correctly 3 out of 4 times per month--- assuming the move up or down were significant, say, 100 points or more on the Dow. Don't worry, loyal readers, I am starting with itsy, bitsy, tiny, baby steps and keeping track of my success rate. Wish me luck. Your thoughts and comments are appreciated.
Despite the market's uptick on Friday, I see little encouragement on the immediate or intermediate horizon. Treaty change may comfort some, but it is months away, if all. Moreover, the jury is still out as to whether the promised liquidity from the ECB will prompt Eurozone banks to even hold the sovereign debt currently on their books, let alone buy new issues going forward. According to today's Financial Times, Eurozone banks still hold 513bn Euros worth of the sovereign debt from the PIIGS, having shed 65billion Euros worth of it since March. Do they really want more exposure? Why? In this regard, note that the news from the summit overshadowed a pronouncement by the European Banking Authority that as a consequence of failing a "stress test", 31 large European banks will need to raise an additional 15billion Euros in capital if they intend to conduct business at their current size. Frankly, unlike Usher's vixen, I don't see the international equity markets giving these banks pounds, euros or yen. Their only means of complying is to shrink by selling assets and reducing lending activity. For reasons previously discussed, this, in turn, will severely limit credit availability globally which traditionally is dependent on loans from large European banks.
On the domestic front, the news is also not cheery. Dow favorite, DuPont, cut its profit forecast. More importantly, the EPA announced a preliminary conclusion that the presence of benzene and methane in the drinking water in a rural Wyoming town came from a nearby fracking operation. This connection is what environmentalists have been seeking in order to shutter the explosive growth of this oil and gas exploration technique. Why the Obama administration wants to curb fracking is beyond me, but it does. If it succeeds, the prospect of US energy independence and tens of thousands of high paying jobs are out the window.
I apologize for casting negativity on your upcoming holiday. I sincerely hope that the prospect of Eurozone treaty change and the ECB's promise of liquidity to Eurozone banks stems the run on European sovereign debt, and that some relief from these wild swings in the stock market prevails. Next week should give some signs. Watch the interest rates on Italian and Spanish debt. But whether the stock market stabilizes or not, I intend to prosper.
Saturday, December 3, 2011
December 3, 2011 A Pair of Brown Shoes
Risk/Reward Vol. 95
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Did you ever get the feeling that the world is a tuxedo and you are a pair of brown shoes?"---George Gobel on the Tonight Show, 1969
"Now don't be sad/Cause two out of three ain't bad."--Lyrics from "Two Out of Three Ain't Bad" by Meatloaf
"Get your money for nothing, get your chicks for free
Money for nothing, chicks for free"---Lyrics from "Money for Nothing" by the Dire Straits
Having enjoyed the market's uptick on Monday, I began Tuesday in the usual way: reading the Wall Street Journal (WSJ), the Investor Business Daily and the Financial Times (FT). As shared previously, FT is by far the best of the three at reporting financial news, its editorial page nothwithstanding. I have never read a more depressing edition: caution from commodity miners; UK bank regulators requiring UK banks to plan for the disintegration of the Eurozone; Italy and Portugal secretly pressuring their banks not to sell sovereign bonds while their shareholders demand they do; the Polish foreign minister pleading with Germany to do whatever is necessary to prevent a Euro crisis of "apocalytic proportions". But, what really freaked me was a small story on how in the previous week, the European Central Bank (ECB) had lent 8.6bn. Euro to some European banks but had not received in return customary long term deposits in corresponding amounts from other banks. It was also reported that the cost of European banks to access all important dollars was becoming price prohibitive. This spelled the potential of a huge liquidity crisis (read; banks literally running out of money, especially dollars, causing a run on others) which could unfold very quickly---a possibility that was discussed on CNBC that afternoon on my drive to Madison. I decided to exit virtually all of my positions at that time.
Come Wednesday morning, I awoke to the news that the US Federal Reserve and the central banks of Canada, Switzerland, the UK were riding to the liquidity rescue of European banks by providing them access to unlimited amounts of dollars--on the cheap. On this news, some positive US economic data and word that China was making credit more available by lowering its reserve requirements, the market SKYROCKETED almost 500 points--with me on the sidelines. Talk about the world celebrating in a tuxedo and me being a pair of brown shoes!
But, was I wrong to exit? Don't get me wrong, I would have loved to take the 500 point ride upward on Wednesday. However, knowing what I knew and when I knew it, I still believe I made the right choice--for me. I did not need to chance what could have been a run on some European banks if the Fed had not acted. Moreover, even if I had enjoyed the 500 point ride, I would have exited on Thursday or Friday for the reasons stated below. So in retrospect, I took advantage of Monday and Tuesday to exit at nearly a break even point, but forfeited the Wednesday rise. As Meatloaf croons, "two out of three ain't bad."
So what does the action taken by the Fed mean for Europe? It allows European banks to operate--at least in the short term. As detailed previously, the traditional sources of liquid funds, especially the US dollar, available to these banks (e.g. US money market deposits, interbank lending, etc.) have evaporated because they are currently deemed too risky of a "counterparty". And now, their lender of last resort, the ECB, is literally running out of long term deposits and refuses to print more Euros for fear of inducing inflation. The Fed has interceded and is now, in effect, discharging one of the ECB's roles by providing an unlimited amount of dollars (more desirable than Euros these days) to these banks at a rate much lower than that available to US banks. It is now clear that the third phase of quantitative easing (QE3) has begun, and that QE3 is a ship full of dollars heading to Europe! I am not criticizing this action. Indeed, it stemmed (or at least postponed) a catastrophe, but don't think it won't eventually cheapen the dollar. There is no such thing as "money for nothing". And believe me, as the husband of one and the father of four, chicks aren't free, either.
Supplying money (at least dollars), moreover, does not solve the underlying problems facing Europe---too much debt, too little growth and an unholy fear of inflation. As I have written numerous times in the past, like it or not, the quickest and most direct way to address the sovereign debt situation is for the ECB to print more Euros, to be used to buy and hold as much of the sovereign debt of the PIIGS as is necessary to stabilize the situation. This is how individual European counties have handled debt crises in the past when each controlled its own currency and had its own central bank. It's called inflation. Why not now? Because, Germany believes that such an action will operate as a huge transfer of individual country debt to the EU collectively and thus disproportionately to Germany (which is true) and will only encourage future irresponsibility on the part of its Euro partners to its south. Sorry, Deutschland, you when you partner with irresponsible countries there are consequences. Will Germany continue to resist ECB sovereign debt purchasing even if further resistance means the destruction of the Eurozone, the consequences of which are unfathonable? The clock is ticking. Italy alone must refinance a huge portion of its debt in January and February, 2012, and it cannot afford to do so at the sky high interest rates that will persist if the ECB is not allowed to purchase more Italian bonds. What a mess! Think of it--the health of the financial world is now dependent on the good will that Germany feels toward its neighbors--a country that in the past 100 years started two world wars against those very same neighbors and commited the most heinous act of genocide in modern history. Geez!
That is why I am out--- again. Call me a yo-yo, a traitor (or worse a trader), unsubscribe and burn all back editions--I don't care. I am ahead for the year albeit a little below where I exited in July. And, unless and until more certainty comes from Europe, I will remain out-- just like the proverbial fat kid in dodgeball. Certainty may emerge next week at the European summit; it may happen in advance of the Italian debt issuance in January; it may not happen at all, in which case there will be a period of ugly disengagement and most certainly a precipitous fall in the stock market. At my age and stage where preserving principal is of paramount importance and where I still can generate a good income from the sweat of my brow, I just don't need to take the risk.
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Did you ever get the feeling that the world is a tuxedo and you are a pair of brown shoes?"---George Gobel on the Tonight Show, 1969
"Now don't be sad/Cause two out of three ain't bad."--Lyrics from "Two Out of Three Ain't Bad" by Meatloaf
"Get your money for nothing, get your chicks for free
Money for nothing, chicks for free"---Lyrics from "Money for Nothing" by the Dire Straits
Having enjoyed the market's uptick on Monday, I began Tuesday in the usual way: reading the Wall Street Journal (WSJ), the Investor Business Daily and the Financial Times (FT). As shared previously, FT is by far the best of the three at reporting financial news, its editorial page nothwithstanding. I have never read a more depressing edition: caution from commodity miners; UK bank regulators requiring UK banks to plan for the disintegration of the Eurozone; Italy and Portugal secretly pressuring their banks not to sell sovereign bonds while their shareholders demand they do; the Polish foreign minister pleading with Germany to do whatever is necessary to prevent a Euro crisis of "apocalytic proportions". But, what really freaked me was a small story on how in the previous week, the European Central Bank (ECB) had lent 8.6bn. Euro to some European banks but had not received in return customary long term deposits in corresponding amounts from other banks. It was also reported that the cost of European banks to access all important dollars was becoming price prohibitive. This spelled the potential of a huge liquidity crisis (read; banks literally running out of money, especially dollars, causing a run on others) which could unfold very quickly---a possibility that was discussed on CNBC that afternoon on my drive to Madison. I decided to exit virtually all of my positions at that time.
Come Wednesday morning, I awoke to the news that the US Federal Reserve and the central banks of Canada, Switzerland, the UK were riding to the liquidity rescue of European banks by providing them access to unlimited amounts of dollars--on the cheap. On this news, some positive US economic data and word that China was making credit more available by lowering its reserve requirements, the market SKYROCKETED almost 500 points--with me on the sidelines. Talk about the world celebrating in a tuxedo and me being a pair of brown shoes!
But, was I wrong to exit? Don't get me wrong, I would have loved to take the 500 point ride upward on Wednesday. However, knowing what I knew and when I knew it, I still believe I made the right choice--for me. I did not need to chance what could have been a run on some European banks if the Fed had not acted. Moreover, even if I had enjoyed the 500 point ride, I would have exited on Thursday or Friday for the reasons stated below. So in retrospect, I took advantage of Monday and Tuesday to exit at nearly a break even point, but forfeited the Wednesday rise. As Meatloaf croons, "two out of three ain't bad."
So what does the action taken by the Fed mean for Europe? It allows European banks to operate--at least in the short term. As detailed previously, the traditional sources of liquid funds, especially the US dollar, available to these banks (e.g. US money market deposits, interbank lending, etc.) have evaporated because they are currently deemed too risky of a "counterparty". And now, their lender of last resort, the ECB, is literally running out of long term deposits and refuses to print more Euros for fear of inducing inflation. The Fed has interceded and is now, in effect, discharging one of the ECB's roles by providing an unlimited amount of dollars (more desirable than Euros these days) to these banks at a rate much lower than that available to US banks. It is now clear that the third phase of quantitative easing (QE3) has begun, and that QE3 is a ship full of dollars heading to Europe! I am not criticizing this action. Indeed, it stemmed (or at least postponed) a catastrophe, but don't think it won't eventually cheapen the dollar. There is no such thing as "money for nothing". And believe me, as the husband of one and the father of four, chicks aren't free, either.
Supplying money (at least dollars), moreover, does not solve the underlying problems facing Europe---too much debt, too little growth and an unholy fear of inflation. As I have written numerous times in the past, like it or not, the quickest and most direct way to address the sovereign debt situation is for the ECB to print more Euros, to be used to buy and hold as much of the sovereign debt of the PIIGS as is necessary to stabilize the situation. This is how individual European counties have handled debt crises in the past when each controlled its own currency and had its own central bank. It's called inflation. Why not now? Because, Germany believes that such an action will operate as a huge transfer of individual country debt to the EU collectively and thus disproportionately to Germany (which is true) and will only encourage future irresponsibility on the part of its Euro partners to its south. Sorry, Deutschland, you when you partner with irresponsible countries there are consequences. Will Germany continue to resist ECB sovereign debt purchasing even if further resistance means the destruction of the Eurozone, the consequences of which are unfathonable? The clock is ticking. Italy alone must refinance a huge portion of its debt in January and February, 2012, and it cannot afford to do so at the sky high interest rates that will persist if the ECB is not allowed to purchase more Italian bonds. What a mess! Think of it--the health of the financial world is now dependent on the good will that Germany feels toward its neighbors--a country that in the past 100 years started two world wars against those very same neighbors and commited the most heinous act of genocide in modern history. Geez!
That is why I am out--- again. Call me a yo-yo, a traitor (or worse a trader), unsubscribe and burn all back editions--I don't care. I am ahead for the year albeit a little below where I exited in July. And, unless and until more certainty comes from Europe, I will remain out-- just like the proverbial fat kid in dodgeball. Certainty may emerge next week at the European summit; it may happen in advance of the Italian debt issuance in January; it may not happen at all, in which case there will be a period of ugly disengagement and most certainly a precipitous fall in the stock market. At my age and stage where preserving principal is of paramount importance and where I still can generate a good income from the sweat of my brow, I just don't need to take the risk.
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