Risk/Reward Vol. 120
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Keep on talking to me baby/I'm hanging on your every word
Keep those drinks a coming/Maybe we'll both get what we deserve"---lyrics from "Lookin' for a Good Time" by Lady Antebellum
"I could've been a Princess/You'd be a King
Could've had a castle/And worn a ring
But no/You let me go/And stole my star"---lyrics from "Princess of China" by Coldplay (featuring Rihanna)
"Get a copper kettle, get a copper coil
Fill it with new corn mash and never more you'll toil"---lyrics from "Copper Kettle" by Bob Dylan
If one only compared the closing numbers of the Dow Jones Industrial Index last Friday to this Friday, one would conclude it was a good week with the Dow rising 84 points. But was it? Take Wednesday, for example. Dragged down by worries about a possible Greek exit ("Grexit") from the Eurozone, the Dow was down 190 points mid day only to rally late in the afternoon to close down a mere 6 points on the RUMOR that some breakthrough on the Greek crisis had been reached in a pre-dinner meeting between French President Hollande and Italian Premier Monti. What kind of market is this? Not one in which I want to participate. Fundamentals be damned---this market "hangs on every word" from any number of European heads of state who "keep on talking" about various fixes to the Eurozone debt crisis in general and a Grexit in particular. Surprisingly, the stock market "keeps drinking" the Kool-Aid dispensed by those heads of state, none of whom mean a hill of beans except Frau Merkel who has remained remarkably quiet.
Participating in a market that keeps the "drinks a coming" will result in getting "what we deserve". It may be good; it may be bad; but for sure it is unpredictable. I, for one, will remain on the sidelines at least until some clarity on the future of Greece is reached which will not be before the next round of elections on June 17--and maybe not then. The simple fact is that no one--and I mean no one-- knows the collateral effect that a Grexit or a worse, a Spanish bond default will have on world markets. Perhaps all of the liquidity pumped into Eurozone banks over the past 6 months via the LTRO (see www.riskrewardblog.blogspot.com vols. 95, 98 and 107) will be a sufficient buffer. Or perhaps, it will result in another Lehman Brothers-like meltdown. I am not willing to chance the latter.
The fact that I am on the sidelines does not mean that I am idle. Indeed, my studies are more intense when in a cash position than when fully invested; with an eagle eye on how and when an entry point will appear. Currently, my eye is on China which clearly has been the "King and Princess" of worldwide economic expansion for the past several years. Unfortunately, the building of "castles" and apartments and other housing units which has driven much of China's internal growth has come to a grinding halt. Steel production is a a standstill, and copper (the bellwether of all economic expansion) is overflowing warehouses and being stacked in parking lots. China's "star" may be falling. Let's hope not because the world wide implications would be devastating. Think of the impact of a declining China on capital goods manufacturers (CAT, CMI, JOY), on consumables (YUM, MCD, SBUX, COH), on oil (RDS, TOT, STAT), on Australia and on all of South America which are the sources of so many raw materials. YIKES! Below are some statistics from www.riskrewardblog.blogspot.com Vol. 74:
China has 1.3 billion people, 20% of the world's population; China is the largest manufacturer in the world; China is the world's largest exporter; China is the world's largest automobile manufacturer; China consumes the following percentages of the WORLD'S commodities: 53% of cement, 48% of iron ore, 47% of coal, 45% of lead, 40% of copper, 36% of nickel, 10% of oil.
If and when China does restart, however, you will see it first in mining--particularly copper miners (BHP, RIO, FCX), each of which is trading at 2009 levels. When the time is right, buy these miners and ride them up. It will be like "filling up with new corn mash---never more will you toil".
I am not a pessimist, but I embrace reality. Today's reality is that the Eurozone crisis, which currently dominates the stock market, is one that can be fixed by Germany putting its full faith and credit behind the issuance of Eurobonds---an event which likely will occur sooner or later. And as soon as it occurs, the crisis will abate. Unfortunately, the Eurozone crisis is masking a more serious and longer term reality--a slowdown in China. Let's hope the Kings, Princes and Princesses of China are wise enough to kick start renewed expansion. Otherwise, as Dylan says, you can take the current "reality and cast it to the wind/And it ain't never gonna be the same again."
Saturday, May 26, 2012
Saturday, May 19, 2012
May 19, 2012 My Name Is Johnny Cash
Risk/Reward Vol. 119
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"I don't want no aggravation/When my train has left the station
If you're there or not/I may not know"---lyrics from "Let the Train Blow the Whistle" by Johnny Cash
"I fell into a burning ring of fire/I went down, down, down
And the flames went higher/ And it burned, burned, burned
The ring of fire, the ring of fire"---lyrics from "Ring of Fire" by Johnny Cash
"I was told to grease his palm/To walk from school without fear of harm
He knocked me down and took my dollar from me/And he lay these pearls of wisdom on me
He say, business is business, nothing is free"---lyrics from "Business is Business" by Johnny Cash
If you can not tell from the lyrics above, this Johnny is in Cash. "I don't want no (more) aggravation". So I loaded my profits (albeit less than those of a month ago) on the train, "left the station" and headed to Liquid City. "I don't know if you were there or not", but I've been blowing the exit "whistle" for some time.
The reason is simple. I did not want my year-to-date gains to "fall into a ring" of Euro crisis "fire". I refused to watch them go "down, down, down"; or to "burn, burn, burn" as the "flames of (sovereign debt) went higher." As the week unfolded, the stock market posted losses each day, the flight to safety continued (the 10 year US Treasury is at record high prices and record low yields) and a Greek exit from the Eurozone became more likely. The signal was clear----exit.
There may be other reasons for this mess, but one stands above all. For the third year in a row, "Grease" has its "palm" out---demanding another hand out from other Eurozone nations while refusing to curb its profligate spending on government jobs and retirement benefits (sound familiar?) Will the rest of Europe acquiesce and kick the problem down the road for another few months like it has for the past three years? Or will this be it---will "business be business"? Either way, at some time--and soon---something has to give, because "nothing is free." And whenever and however it comes, the "knock down" will not be pretty. The collateral effects of a Greek exit (followed perhaps by one from Portugal and a Spanish meltdown) are a huge unknown. And the stock market hates unknowns.
So, I am on the sidelines. In times past, I would be lamenting this development--but, no more. If I am going to a savvy investor, I must learn to prosper from these events. As of today, I have made a decent profit this year---and I still have most of it. I believe that staying in the market into the foreseeable future would erode those profits and likely would result in a loss. Just like last year, I see the Dow falling into a trading range 10-15% below today's close until clarity on the future of the Euro appears---which may be just in time for the uncertainty of our November election and the Fiscal Cliff discussed last week. No good news is coming from China, and South America (most notably Brazil) is experiencing negative growth.
So, let the decline continue. I will look for an opportune time to re-enter--slowly at first. Undoubtedly, I will make some false starts, but at some juncture (like last December see www.riskrewardblog.blogspot.com Vols. 99 and 100), I will know the time is right, and I will deploy substantial capital to good ends. Patience, study and discipline.
If "I Walk the Line", prosperity will be mine.
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"I don't want no aggravation/When my train has left the station
If you're there or not/I may not know"---lyrics from "Let the Train Blow the Whistle" by Johnny Cash
"I fell into a burning ring of fire/I went down, down, down
And the flames went higher/ And it burned, burned, burned
The ring of fire, the ring of fire"---lyrics from "Ring of Fire" by Johnny Cash
"I was told to grease his palm/To walk from school without fear of harm
He knocked me down and took my dollar from me/And he lay these pearls of wisdom on me
He say, business is business, nothing is free"---lyrics from "Business is Business" by Johnny Cash
If you can not tell from the lyrics above, this Johnny is in Cash. "I don't want no (more) aggravation". So I loaded my profits (albeit less than those of a month ago) on the train, "left the station" and headed to Liquid City. "I don't know if you were there or not", but I've been blowing the exit "whistle" for some time.
The reason is simple. I did not want my year-to-date gains to "fall into a ring" of Euro crisis "fire". I refused to watch them go "down, down, down"; or to "burn, burn, burn" as the "flames of (sovereign debt) went higher." As the week unfolded, the stock market posted losses each day, the flight to safety continued (the 10 year US Treasury is at record high prices and record low yields) and a Greek exit from the Eurozone became more likely. The signal was clear----exit.
There may be other reasons for this mess, but one stands above all. For the third year in a row, "Grease" has its "palm" out---demanding another hand out from other Eurozone nations while refusing to curb its profligate spending on government jobs and retirement benefits (sound familiar?) Will the rest of Europe acquiesce and kick the problem down the road for another few months like it has for the past three years? Or will this be it---will "business be business"? Either way, at some time--and soon---something has to give, because "nothing is free." And whenever and however it comes, the "knock down" will not be pretty. The collateral effects of a Greek exit (followed perhaps by one from Portugal and a Spanish meltdown) are a huge unknown. And the stock market hates unknowns.
So, I am on the sidelines. In times past, I would be lamenting this development--but, no more. If I am going to a savvy investor, I must learn to prosper from these events. As of today, I have made a decent profit this year---and I still have most of it. I believe that staying in the market into the foreseeable future would erode those profits and likely would result in a loss. Just like last year, I see the Dow falling into a trading range 10-15% below today's close until clarity on the future of the Euro appears---which may be just in time for the uncertainty of our November election and the Fiscal Cliff discussed last week. No good news is coming from China, and South America (most notably Brazil) is experiencing negative growth.
So, let the decline continue. I will look for an opportune time to re-enter--slowly at first. Undoubtedly, I will make some false starts, but at some juncture (like last December see www.riskrewardblog.blogspot.com
If "I Walk the Line", prosperity will be mine.
Saturday, May 12, 2012
May 12, 2012 Wild Thing
Volume 118
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"This diamond ring doesn't shine for me anymore
And this diamond ring doesn't mean what it meant before"---lyrics from "This Diamond Ring" by Gary Lewis and the Playboys
"When the music stopped I returned to my seat/But there's no stopping a duck and his beat
So I got back up to try my luck/Why look, It's Disco, Disco Duck"---lyrics from "Disco Duck" by Rick Dees
"I can tell by the way you dress that you're so refined
And by the way you talk that you're just my kind"---lyrics from "With a Girl Like You" by The Troggs
After JPMorgan's (JPM) stunning announcement Thursday evening that it had suffered a $2billion trading loss, Jamie Dimon, JPM's CEO, "doesn't shine for me anymore." JPM placed an irresponsible bet (excuse me, ahem, hedge)---one which will likely be banned when the Volker Rule is implemented later this year--and lost, big time. To me resistance to the Volker Rule no longer "rings" true. Indeed, such conduct by an institution whose major debt, bank deposits, is insured by the FDIC is outrageous.
JPM's news, on top of continued uncertainty from Europe, slowing growth in China and a general malaise stateside resulted in the worst week in the stock market for 2012---the Dow dropping 219 points. And no, I was not tempted to buy JPM on "bad news" as discussed last week. Indeed, my recent bad news gambles (CHK and CHKpD) ended badly as I bailed on both--one at a loss and the other at a small gain that was not off- setting. Some day I will stop speculating.
Stateside uneasiness is due, in part, to the impending "Fiscal Cliff" about which Fed Chair Ben Bernanke reminded Congress in a meeting this week. Come year end 2012, a host of jolts to the US economy are scheduled to occur: 1) the end of the Bush Tax cuts; 2) the end of the payroll tax cuts; 3) the end of extended unemployment benefits; and 4) the automatic imposition of spending cuts brokered as part of the debt extension compromise last summer. The cumulative effect of these jolts is a negative $500 billion to the economy. This "cliff" is of much greater significance than the debt ceiling crisis that sent the stock market tumbling last August. And, not one of these issues---not one---will be addressed by Congress before November's election. Then, once the electioneering "music stops", hopefully, a lame, Disco Duck Congress will try its "luck" at finding a solution to all four of these issues before year end. Yeah--right! Are you willing to bet your retirement account and life's savings on that likelihood? So, Dear Readers, I, for one, will likely be selling everything sometime in the next few months. With no encouraging news in sight, it may be sooner than later.
Enough negativity! Thanks to a reminder from a fellow subscriber, I bought more Calumet Specialty Products master limited partnership units (CLMT) this week on a dip occasioned by a large secondary offering. CLMT, run by fellow NCHS '69 grad, Fred Fehsenfeld, is one of my top performing stocks this year. This "refinery" of specialty petroleum products is "just my kind" of stock. It pays a 9 % dividend and has appreciated 11% this year.
In closing, this year's market, so far, reminds me of another song by The Troggs---"Wild Thing". It "moves me"---likely to the nearest exit.
Saturday, May 5, 2012
May 5, 2012 Scotland on the Rise
Risk/Reward Vol. 117
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Out in the choppy waters the sharks swim and play
You're all washed up when Poseidon has his day"---lyrics "Fleet of Hope" by Indigo Girls
"Didn't you know/I was waiting on you
Waiting on a dream/That'll never come true
When you decide to break the rules
'Cause I just heard some real bad news"---lyrics "Bad News" by Kanye West
"You know you gotsa be the baddest
If you really goin' make me add this"---lyrics "Gotta Be the Baddest" by Chamillionaire
"Those days are past now
And in the past they must remain
But we can still rise now"---lyrics "Flower of Scotland" (the de facto Scottish National Anthem)
Talk about "choppy waters"! The Dow Jones Industrial Average rose 66 points Tuesday on an encouraging report from purchasing managers only to fall at week's end on a mixed jobs report and the fear of this weekend's elections in Europe. The Dow was down 190 points for the week, but still finished above 13,000. Friends, in this market we are surely swimming with the sharks. So if you don't want to "be washed up (or out)", "play" like one yourself--- be stealthy, nimble and opportunistic.
Contrarians don't wait for "dreams to come true". They "break the rules": buying on bad news and selling on good news. And recently, the natural gas market and related stocks have been nothing but bad news. In mid April, nat gas fell below $2/mmBTU (See Vol. 104 at www.riskrewardblog.blogspot.com ). In response, all of the big players including Encana and Exxon cut production. However, we may have reached nat gas's nadir as electric utilities have made nat gas the generating fuel of choice, and nat gas futures have climbed above $2.30/mmBTU. If not now, soon may be a good time to re-enter some nat gas plays like SDT, ERF and PWE---although I have not as yet.
If you are tempted to buy the "baddest" of the bad, then you may wish "to add this" to your speculative plays: Chesapeake Energy. Once the darling of the nat gas world, Chesapeake's CEO, Aubrey McClendon is under attack for seemingly self dealing, allegations that have caused various Chesapeake securities to plummet. They now trade well below the consensus value of Chesapeake's assets. I bought some CHKpD preferred which in my hands pays over a 6% dividend and which has appreciated 9% since I bought it a week ago. I also bought CHK on Wednesday, and have a 2% gain. But remember, buying CHK securities is not investing---it is gambling.
Once the "Flower" of its homeland, the Royal Bank of Scotland took a beating during the 2008-2009 financial crisis and only survived after a huge emergency loan and the purchase of 82% of its common stock by the UK government. Having operated under strict scrutiny but also having improved its capital structure, RBS may "now be rising". At its quarterly earnings call this week, RBS announced it was repaying the emergency loan in its entirety and was reinstating quarterly dividends on a variety of its preferred shares. I hope some of you purchased RBSpT back in March. (see Vol. 110). If you did, you have seen an 11% gain on a stock that, at the March price, pays over 10% in dividends. I say it is still not too late to buy dividend paying RBS preferreds (caution---some RBS preferred issues still are not paying dividends; go to its website for more information). I, for one, bought more RBSpT this week. Even at its current price of $20.30, RBSpT pays nearly a 9% dividend and likely will continue to appreciate in principal another 10%. Moreover, I don't see RBS's owner, the UK government, pulling the plug on that dividend as long as it maintains control of the bank.
I am still 40% in cash, and I like my dividend paying portfolio. But with Europe's economic outlook uncertain (pay attention to elections in France and Greece this weekend) and a Fiscal Cliff facing the U. S. at year's end (to be discussed in future edition), I am only a few clicks away from a clean sweep into 100% cash. Remember: if you want to be a Chamillionaire, don't let them "catch you ridin' dirty"!
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Out in the choppy waters the sharks swim and play
You're all washed up when Poseidon has his day"---lyrics "Fleet of Hope" by Indigo Girls
"Didn't you know/I was waiting on you
Waiting on a dream/That'll never come true
When you decide to break the rules
'Cause I just heard some real bad news"---lyrics "Bad News" by Kanye West
"You know you gotsa be the baddest
If you really goin' make me add this"---lyrics "Gotta Be the Baddest" by Chamillionaire
"Those days are past now
And in the past they must remain
But we can still rise now"---lyrics "Flower of Scotland" (the de facto Scottish National Anthem)
Talk about "choppy waters"! The Dow Jones Industrial Average rose 66 points Tuesday on an encouraging report from purchasing managers only to fall at week's end on a mixed jobs report and the fear of this weekend's elections in Europe. The Dow was down 190 points for the week, but still finished above 13,000. Friends, in this market we are surely swimming with the sharks. So if you don't want to "be washed up (or out)", "play" like one yourself--- be stealthy, nimble and opportunistic.
Contrarians don't wait for "dreams to come true". They "break the rules": buying on bad news and selling on good news. And recently, the natural gas market and related stocks have been nothing but bad news. In mid April, nat gas fell below $2/mmBTU (See Vol. 104 at www.riskrewardblog.blogspot.com ). In response, all of the big players including Encana and Exxon cut production. However, we may have reached nat gas's nadir as electric utilities have made nat gas the generating fuel of choice, and nat gas futures have climbed above $2.30/mmBTU. If not now, soon may be a good time to re-enter some nat gas plays like SDT, ERF and PWE---although I have not as yet.
If you are tempted to buy the "baddest" of the bad, then you may wish "to add this" to your speculative plays: Chesapeake Energy. Once the darling of the nat gas world, Chesapeake's CEO, Aubrey McClendon is under attack for seemingly self dealing, allegations that have caused various Chesapeake securities to plummet. They now trade well below the consensus value of Chesapeake's assets. I bought some CHKpD preferred which in my hands pays over a 6% dividend and which has appreciated 9% since I bought it a week ago. I also bought CHK on Wednesday, and have a 2% gain. But remember, buying CHK securities is not investing---it is gambling.
Once the "Flower" of its homeland, the Royal Bank of Scotland took a beating during the 2008-2009 financial crisis and only survived after a huge emergency loan and the purchase of 82% of its common stock by the UK government. Having operated under strict scrutiny but also having improved its capital structure, RBS may "now be rising". At its quarterly earnings call this week, RBS announced it was repaying the emergency loan in its entirety and was reinstating quarterly dividends on a variety of its preferred shares. I hope some of you purchased RBSpT back in March. (see Vol. 110). If you did, you have seen an 11% gain on a stock that, at the March price, pays over 10% in dividends. I say it is still not too late to buy dividend paying RBS preferreds (caution---some RBS preferred issues still are not paying dividends; go to its website for more information). I, for one, bought more RBSpT this week. Even at its current price of $20.30, RBSpT pays nearly a 9% dividend and likely will continue to appreciate in principal another 10%. Moreover, I don't see RBS's owner, the UK government, pulling the plug on that dividend as long as it maintains control of the bank.
I am still 40% in cash, and I like my dividend paying portfolio. But with Europe's economic outlook uncertain (pay attention to elections in France and Greece this weekend) and a Fiscal Cliff facing the U. S. at year's end (to be discussed in future edition), I am only a few clicks away from a clean sweep into 100% cash. Remember: if you want to be a Chamillionaire, don't let them "catch you ridin' dirty"!
Subscribe to:
Posts (Atom)