Risk/Reward Vol. 125
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"The object of the Rules of Order is to assist an assembly to accomplish in the best possible manner the work for which it was designed"---quote from the Preface to Robert's Rules of Order (1915)
"You'd better stop, stop, stop/Using me up
You'd better stop/Cause I've had enough"---lyrics from "Stop" by Matchbox 20
"God of freedom, all victorious/Give us Souls serene and strong
Strength to make the future glorious/Keep the echo of our song"---lyrics from "North Dakota Hymn" (state song)
As I am sure my writings betray, I am a fiscal conservative. I do not like the idea, let alone the specifics, of Obamacare. That said, I recognize that it was duly passed by Congress and signed into law by the President. It is bad legislation, but it IS legislation. And, if it is to be amended or repealed, it should be done by legislative act---not by judicial fiat. Therefore, I applaud Justice Roberts for exercising judicial restraint---restoring, if you will, an appropriate, "Robert's" rule of judicial order where justices explore every plausible legal theory to UPHOLD legislation, not to overturn it. After all, that is the proper role of the judiciary (in effect, "to assist an assembly to accomplish... the work for which it was designed"). The United States Supreme Court should not to be a foil in the political battles of the day. I have two further observations on the ruling. First, isn't it refreshing to know that at least one of the branches of government can keep a secret? And, second, no practicing lawyer who regularly argues motions, tries cases or takes appeals would ever have the temerity to predict a decision based upon questions from the bench.
As significant as the Obamacare ruling may have been, it did not move the market---not like the news from the Eurozone summit reported on Friday morning. FINALLY, Italy and Spain stood up to Germany, and proclaimed "Stop, Stop, Stop/ I've had enough" At the outset of this week's Euro summit, the leaders of those two battered countries announced that they would block any and every Eurozone initiative unless and until the mounting and immediate problems with their banks and sovereign debt were addressed. In return for begrudgingly acquiescing to direct capital infusions into those banks and sovereign debt purchases by the European Financial Stability Fund (and ultimately its successor, the yet to be formed European Stability Mechanism or ESM---both of which are heavily subsidized by Germany), Chancellor Merkel extracted a commitment that a strong centralized Eurozone banking authority would be established. In reality, however, Germany's bluff was called. As recent financial news stories have highlighted , the biggest loser if the Euro implodes would be Germany because a highly valued, independent deutsche mark would kill German exports--its economic lifeblood. Indeed Germany's heretofore intransigence has aroused sentiment that in lieu of expelling Greece, maybe Germany should be given "das boot", freeing the rest of the Eurozone to inflate its way to solvency. Mein Gott, that would throw a flame on the Matchbox! Well, whatever the reason, what happened late this week looks and feels like real progress toward a stable Euro. Oh, don't get me wrong, Europe's greatest problem--its fiscal mess (its members spend more than they receive in revenue)---still exists (P.S. same for the U.S.) However, stability of the Euro is all that I needed in advance of my re-entry into the stock market, and I think I got it.
Friday's good Euro news came the same day an article was published about the jobs boom in North Dakota, where unemployment is so low even immigrant labor is at a premium. All of this is due to an oil and gas exploration bonanza there resulting from fracking. Hopefully, this wonderful technology will provide us with energy independence some day--"freedom, all victorious"--from the OPEC cartel. Can you imagine how "serene and strong" our Souls will be then--"all victorious"? As I have written repeatedly, I love domestic gas and oil and, good to my word, my first foray back into the market was in US based energy: AMLP, an exchange traded fund holding a nice sampling of oil and gas pipeline master limited partnerships (mlp) but in a vehicle that makes it suitable for ownership in a deferred income account. I have owned stock in individual mlp's in the past through my personal (non retirement) account, but I am keeping my retirement account in cash pending some visibility on the tax aspects of the looming Fiscal Cliff (discussed at http://www.riskrewardblog.blogspot.com/ vol. 118 ). AMLP fits very nicely into my 401k account. I also bought the preferred stock of Magnum Hunter Resources (MHRpD, paying 9%), and some Conoco (COP). I also bought shares in JPC, a closed end fund holding the preferred shares of several banks and insurance companies which should be more stable in light of the Eurozone actions announced this week.
I left the stock market in mid May reaping a nice profit. Had I stayed put, I would be further ahead today for sure--- but not as well off as I would have been had I exited in April. Was I right? Was I wrong? Can one time the market? Who knows, but I sure slept well these past 6 weeks. I do believe something substantive and positive occurred in Europe on Friday, and I am really glad to be back in the game, albeit if only dipping my toe. The lack of progress in Europe will surely depress second quarter earnings which will begin to be reported in 10 days or so. But those reports should set up buying opportunities.
Like Matchbox 20 sings, it has been a "Mad Season"
"I feel stupid, but I know it won't last for long/And I been guessin', and I could have been guessin' wrong" (Or maybe not)
Saturday, June 30, 2012
Sunday, June 24, 2012
June 23, 2012 A Sight for Sore Eyes
Risk/Reward Vol. 124
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"So why must it be/Chaos lives in everything
Trapped inside a dream/It all comes back to me---lyrics from "Chaos Lives in Everything" by Korn
"And they drive along the pipeline/They tango til they're sore
They take apart their nightmares/And leave them by the door"---lyrics from "Tango Til They're Sore" by Tom Waits
"Clickity clack, clickity clack
The money goes into my piggy bank"---"Piggy Bank" by 50 Cent
On a macro level, good news from the Greek election is blunted by a spike in Spanish interest rates; an announcement that 400bn Euros from the EFSF will be available to buy Eurozone sovereign debt is countered by a dissent from Angela Merkel; an extension of Operation Twist is dashed by a downgrade of fifteen major banks. On a micro level, earning guidance is lowered for PG, PM, Pepsi, Fed Ex, Bed Bath and Beyond and Darden. Yeah/boo; up/down---and then some more boo. "So why must it be?--Does "chaos live in everything?"
Yet, the most remarkable aspect of the stock market over the past several weeks is its continued strength and vitality. Really folks, day after day, uncertainty rules in Europe, banks get battered, commodities (including oil) drop and blue chips warn on earnings. Yet, the Dow is still up 300 points on the year. Even I am becoming a believer in American equities---frankly there simply is no where else one can go if one wishes any return at all. But where?
This week the spot price of oil fell below its futures price---in other words oil moved from backwardation into con"tango" which is a more normal condition. For more than a year, the fear of Lybian and Iranian supply disruption has caused the cost of spot oil (for current delivery) to exceed the price of oil for future delivery. The backwardation "nightmare" has been "left at the door" and a more normal "pipeline" appears to have arrived. I see the price of oil stabilizing somewhere at or above $70/bbl (WTI) and if it does I see myself buying the oil companies that I have highlighted previously.
And shockingly, "clickity clack", I may put "money into piggy bank" stocks. All of the majors absorbed a Moody's downgrade---and their prices ROSE indicating that the market had previously effected a discount. Indeed, the preferred shares of the majors (my favorite way to play banks) have remained remarkably stable while still paying handsome dividends. I will likely buy a few preferred issues of C, BAC and MS.
I am near re-entry. Checking my daily returns again will be like another Tom Waits song--"A Sight for Sore Eyes".
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"So why must it be/Chaos lives in everything
Trapped inside a dream/It all comes back to me---lyrics from "Chaos Lives in Everything" by Korn
"And they drive along the pipeline/They tango til they're sore
They take apart their nightmares/And leave them by the door"---lyrics from "Tango Til They're Sore" by Tom Waits
"Clickity clack, clickity clack
The money goes into my piggy bank"---"Piggy Bank" by 50 Cent
On a macro level, good news from the Greek election is blunted by a spike in Spanish interest rates; an announcement that 400bn Euros from the EFSF will be available to buy Eurozone sovereign debt is countered by a dissent from Angela Merkel; an extension of Operation Twist is dashed by a downgrade of fifteen major banks. On a micro level, earning guidance is lowered for PG, PM, Pepsi, Fed Ex, Bed Bath and Beyond and Darden. Yeah/boo; up/down---and then some more boo. "So why must it be?--Does "chaos live in everything?"
Yet, the most remarkable aspect of the stock market over the past several weeks is its continued strength and vitality. Really folks, day after day, uncertainty rules in Europe, banks get battered, commodities (including oil) drop and blue chips warn on earnings. Yet, the Dow is still up 300 points on the year. Even I am becoming a believer in American equities---frankly there simply is no where else one can go if one wishes any return at all. But where?
This week the spot price of oil fell below its futures price---in other words oil moved from backwardation into con"tango" which is a more normal condition. For more than a year, the fear of Lybian and Iranian supply disruption has caused the cost of spot oil (for current delivery) to exceed the price of oil for future delivery. The backwardation "nightmare" has been "left at the door" and a more normal "pipeline" appears to have arrived. I see the price of oil stabilizing somewhere at or above $70/bbl (WTI) and if it does I see myself buying the oil companies that I have highlighted previously.
And shockingly, "clickity clack", I may put "money into piggy bank" stocks. All of the majors absorbed a Moody's downgrade---and their prices ROSE indicating that the market had previously effected a discount. Indeed, the preferred shares of the majors (my favorite way to play banks) have remained remarkably stable while still paying handsome dividends. I will likely buy a few preferred issues of C, BAC and MS.
I am near re-entry. Checking my daily returns again will be like another Tom Waits song--"A Sight for Sore Eyes".
Saturday, June 16, 2012
June 16, 2012 Deutscheland Uber Alles
Risk/Reward Vol. 123
"Everyone's watchin' to see what you will do/Everyone's lookin' at you
Everybody's workin' for the weekend/Everybody's goin' off the deep end"---lyrics from "Workin' for the Weekend" by Loverboy
"Germany, Germany above everything
Above everything in the world"---lyrics from "Deutscheland uber Alles" once and now the German National Anthem
"Turn around, every now and then/I get a little bit lonely and you're never comin' round
Turn around, every now and then/I get a little bit tired of listening to the sound of my tears"---lyrics from "Total Eclipse of the Heart" by Bonnie Tyler
Congratulations to those that have remained in the stock market since mid-May! "Everyone was lookin' at you," and so far you have prospered. The Dow Jones Industrial Average finished the week up 213 points, well above where I exited a few weeks ago. The reasons for this upward movement are not mysterious despite the deluge of bad news and uncertainty (Spanish bank debt, Greek elections, lower copper prices, lower corn prices, lower demand for oil, etc.) In fact, the news is so bad, market participants are "watchin' to see what central bankers and politicians will do." Many investors have "gone off the deep end" (in my opinion) continuing to buy in the belief that the European Central Bank and the Federal Reserve will turn on the printing presses pumping more "liquidity" into Eurozone banks and re-instituting quantitative easing (QE3), both of which have traditionally resulted in stock prices rising. If the leftists prevail in Greece on Sunday, those printing presses better start "workin' this weekend".
But are rumors of ECB liquidity and/or QE3 valid reasons to re-enter the market? I don't think so. I dipped into and out of the market on such rumors during the 2011 Eurozone crisis (which lasted from August through mid-December's announcement of the LTRO, see www.riskrewardblog.blogspot.com Vol 98) and ended up losing money. This time I am staying on the sidelines until I see some sign that a longer term solution to the Eurozone sovereign debt crisis is in place.
And that may be some time in arriving. France under the leadership of newly elected President Hollande is aligning with Italy and Spain calling for the "mutualization" of Eurozone debt by replacing the sovereign debt of individual countries by Eurobonds backed by the full faith and credit of ALL Eurozone members. Understandably, this is a non starter for the Western world's only solvent economy, Germany, which heretofore has refused to put its balance sheet on the line for the likes of Greece, Ireland, Portugal or any other bankrupt Euro-flop. If and when Germany relents, it will be only after huge political and economic concessions are extracted which will make Germany the de jure as well as de facto ruler of all of Europe. OH, you think not! Remember dear Readers, this is a poker game that is more than two hundred fifty years old with domination at stake. Today, all of the aces and face cards are in the hands of a power hungry nation that last century started two world wars resulting in the death of over 75,000,000 people. The lyrics are "Germany, Germany above everything" not "Oh, come fellow Krauts let's help those lazy ass Greeks and French who retire before age 60." I see a vengeful Germany visiting a little more pain before any resolution is reached.
Once I do re-enter the stock market, I will first buy oil and natural gas. In addition to LINE, MHRpD, COP, I like Statoil (STO), the Norwegian exploration and development company that is finding oil in such diverse places as the Gulf of Mexico, Tanzania and the Bakken. And shockingly, I am looking for a "turn around" from Total, the integrated French oil company. Its stellar performance has been "totally eclipsed" by its association with France, the nation. But Total is truly a global enterprise that pays a handsome and safe dividend. I also like BlackRock Enhanced Dividend Fund (BDJ) a closed end fund comprised of 100 dividend paying stocks. It trades at a discount to its net asset value (read about this concept at www.cefconnect.com , an excellent resource), and pays a delicious 9+% dividend. Two other closed end funds worthy of consideration are Cohen and Steers Quality Real Estate (RQI) and Nuveen Energy MLP (JMF). These likewise provide instant diversification within each sector and great yields.
For those that have prospered in the past month, I again congratulate you. However, give some thought to taking some profits. You don't want to be caught short like the 80's group Loverboy which lamented as follows in its hit "Turn Me Loose"
"Too much, too soon, you got it all so easily
Too much, too soon, now somebody got the squeeze on me".
"Everyone's watchin' to see what you will do/Everyone's lookin' at you
Everybody's workin' for the weekend/Everybody's goin' off the deep end"---lyrics from "Workin' for the Weekend" by Loverboy
"Germany, Germany above everything
Above everything in the world"---lyrics from "Deutscheland uber Alles" once and now the German National Anthem
"Turn around, every now and then/I get a little bit lonely and you're never comin' round
Turn around, every now and then/I get a little bit tired of listening to the sound of my tears"---lyrics from "Total Eclipse of the Heart" by Bonnie Tyler
Congratulations to those that have remained in the stock market since mid-May! "Everyone was lookin' at you," and so far you have prospered. The Dow Jones Industrial Average finished the week up 213 points, well above where I exited a few weeks ago. The reasons for this upward movement are not mysterious despite the deluge of bad news and uncertainty (Spanish bank debt, Greek elections, lower copper prices, lower corn prices, lower demand for oil, etc.) In fact, the news is so bad, market participants are "watchin' to see what central bankers and politicians will do." Many investors have "gone off the deep end" (in my opinion) continuing to buy in the belief that the European Central Bank and the Federal Reserve will turn on the printing presses pumping more "liquidity" into Eurozone banks and re-instituting quantitative easing (QE3), both of which have traditionally resulted in stock prices rising. If the leftists prevail in Greece on Sunday, those printing presses better start "workin' this weekend".
But are rumors of ECB liquidity and/or QE3 valid reasons to re-enter the market? I don't think so. I dipped into and out of the market on such rumors during the 2011 Eurozone crisis (which lasted from August through mid-December's announcement of the LTRO, see www.riskrewardblog.blogspot.com Vol 98) and ended up losing money. This time I am staying on the sidelines until I see some sign that a longer term solution to the Eurozone sovereign debt crisis is in place.
And that may be some time in arriving. France under the leadership of newly elected President Hollande is aligning with Italy and Spain calling for the "mutualization" of Eurozone debt by replacing the sovereign debt of individual countries by Eurobonds backed by the full faith and credit of ALL Eurozone members. Understandably, this is a non starter for the Western world's only solvent economy, Germany, which heretofore has refused to put its balance sheet on the line for the likes of Greece, Ireland, Portugal or any other bankrupt Euro-flop. If and when Germany relents, it will be only after huge political and economic concessions are extracted which will make Germany the de jure as well as de facto ruler of all of Europe. OH, you think not! Remember dear Readers, this is a poker game that is more than two hundred fifty years old with domination at stake. Today, all of the aces and face cards are in the hands of a power hungry nation that last century started two world wars resulting in the death of over 75,000,000 people. The lyrics are "Germany, Germany above everything" not "Oh, come fellow Krauts let's help those lazy ass Greeks and French who retire before age 60." I see a vengeful Germany visiting a little more pain before any resolution is reached.
Once I do re-enter the stock market, I will first buy oil and natural gas. In addition to LINE, MHRpD, COP, I like Statoil (STO), the Norwegian exploration and development company that is finding oil in such diverse places as the Gulf of Mexico, Tanzania and the Bakken. And shockingly, I am looking for a "turn around" from Total, the integrated French oil company. Its stellar performance has been "totally eclipsed" by its association with France, the nation. But Total is truly a global enterprise that pays a handsome and safe dividend. I also like BlackRock Enhanced Dividend Fund (BDJ) a closed end fund comprised of 100 dividend paying stocks. It trades at a discount to its net asset value (read about this concept at www.cefconnect.com , an excellent resource), and pays a delicious 9+% dividend. Two other closed end funds worthy of consideration are Cohen and Steers Quality Real Estate (RQI) and Nuveen Energy MLP (JMF). These likewise provide instant diversification within each sector and great yields.
For those that have prospered in the past month, I again congratulate you. However, give some thought to taking some profits. You don't want to be caught short like the 80's group Loverboy which lamented as follows in its hit "Turn Me Loose"
"Too much, too soon, you got it all so easily
Too much, too soon, now somebody got the squeeze on me".
Saturday, June 9, 2012
June 9, 2012 All Out of Love
Risk/Reward Vol. 122
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Hope springs eternal through your eyes
Draws me closer to your side
And keeps me there where I belong"---lyrics from "Hope Springs Eternal" by Air Supply
"Oh, when them cotton bolls get rotten/You can't pick very much cotton
In them old cotton fields back home"---lyrics from "Cotton Field" by Huddie Ledbetter
"I'm just an old chunk of coal
But I'm gonna be a diamond some day"---lyrics from "Chunk of Coal" by Johnny Cash
The stock market is an unpredictable place these days. Despite signs everywhere that a double dip into world wide recession is a real possibility, "hope springs eternal" as evidenced by this week's move upward. On Wednesday, the Dow Jones average spiked 287 points on the rumor of a breakthrough in the game of brinksmanship being played in the Eurozone between Germany and everyone else, and the hint by Fed Vice Chair Janet Yellen that, domestically, a new round of quantitative easing (either a further cut in already rock bottom rates or a continuation of Operation Twist---the replacing of short term with long term notes) may be in the offing. Many more market participants were drawn "closer to the positive side" on Thursday morning with the announcement by the Chinese central bank that for the first time since 2008 it was cutting interest rates in order to spur economic growth which has declined from 10.4% (annualized) in Q1 2010 to 8.1% in Q1 2012. That news was moderated later in the day by comments from Fed Chair Ben Bernanke indicating that further quantitative easing may not be in the cards. On Friday, the average moved steadily upward on the hunch that Spain will formally request assistance for its banks on Saturday. The Dow closed the week up 436 points---its best performance of the year. Go figure!
I view all of this as a repeat of what we saw last August: the stock market rising (or falling) on comments, rumors and hunches attributed to government officials and central bankers. Discussions of market fundamentals (like the profits and growth prospects of individual companies) have been relegated to the sidelines---which is "where I belong"--in cash. I simply have no faith that any bureaucrat in Europe (facing a monstrous sovereign debt and banking crisis) or here (facing the Fiscal Cliff discussed in Vol. 118 www.riskrewardblog.blogspot.com) will act before significantly more upheaval is experienced. I hope I am wrong.
I continue to search for positive signals to re-enter the stock market if and when the Eurozone and Fiscal Cliff situations are addressed. I am finding little so far. Two traditionally early indicators of economic growth, copper and cotton, are not faring well. Copper prices were down 12% in May. And, the cotton market is "rotten"; down 60% in the last 6 months and down 20% in May alone. You simply can't justify "pickin' very much cotton" at those levels.
Oh, and as for coal, about which I wrote last week---Fuggedaboutit! Stockpiles at China's largest coal importing seaport are near capacity. And domestically, it was reported this week that the percentage of electricity generated by "chunks of coal" has fallen to 34% which ties it with natural gas (33%), a progressively cheaper (thanks to fracking) and significantly cleaner source of energy. Indeed, the use of natural gas as a source of power generation (which now appears as a more likely source of "diamonds" than coal) has increased 40% in one year. This new information, however, does whet my appetite even more for Linn Energy (LINE) which has the following attractive characteristics: it is involved primarily in the domestic US market (oil and natural gas); it is well capitalized and opportunistic in its acquisitions; its natural gas production is hedged (price guaranteed) at attractive rates through 2017 and its oil production is hedged through much of 2016; it yields nearly 8%; it is currently attractively priced due to a perceived glut of natural gas; and lastly (but significantly) its stated corporate objective is "stability and growth of distributions for the long term benefit of unit holders" (that would be me!).
So in sum, I am not tempted to re-enter the stock market (except for LINE), even with this week's stellar performance. The signs, overall, simply do not look positive. If I remain idle for a while---so be it. Frankly, my current attitude toward the market is best articulated by noted 80's hair group Air Supply---"I'm all out of love."
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Hope springs eternal through your eyes
Draws me closer to your side
And keeps me there where I belong"---lyrics from "Hope Springs Eternal" by Air Supply
"Oh, when them cotton bolls get rotten/You can't pick very much cotton
In them old cotton fields back home"---lyrics from "Cotton Field" by Huddie Ledbetter
"I'm just an old chunk of coal
But I'm gonna be a diamond some day"---lyrics from "Chunk of Coal" by Johnny Cash
The stock market is an unpredictable place these days. Despite signs everywhere that a double dip into world wide recession is a real possibility, "hope springs eternal" as evidenced by this week's move upward. On Wednesday, the Dow Jones average spiked 287 points on the rumor of a breakthrough in the game of brinksmanship being played in the Eurozone between Germany and everyone else, and the hint by Fed Vice Chair Janet Yellen that, domestically, a new round of quantitative easing (either a further cut in already rock bottom rates or a continuation of Operation Twist---the replacing of short term with long term notes) may be in the offing. Many more market participants were drawn "closer to the positive side" on Thursday morning with the announcement by the Chinese central bank that for the first time since 2008 it was cutting interest rates in order to spur economic growth which has declined from 10.4% (annualized) in Q1 2010 to 8.1% in Q1 2012. That news was moderated later in the day by comments from Fed Chair Ben Bernanke indicating that further quantitative easing may not be in the cards. On Friday, the average moved steadily upward on the hunch that Spain will formally request assistance for its banks on Saturday. The Dow closed the week up 436 points---its best performance of the year. Go figure!
I view all of this as a repeat of what we saw last August: the stock market rising (or falling) on comments, rumors and hunches attributed to government officials and central bankers. Discussions of market fundamentals (like the profits and growth prospects of individual companies) have been relegated to the sidelines---which is "where I belong"--in cash. I simply have no faith that any bureaucrat in Europe (facing a monstrous sovereign debt and banking crisis) or here (facing the Fiscal Cliff discussed in Vol. 118 www.riskrewardblog.blogspot.com) will act before significantly more upheaval is experienced. I hope I am wrong.
I continue to search for positive signals to re-enter the stock market if and when the Eurozone and Fiscal Cliff situations are addressed. I am finding little so far. Two traditionally early indicators of economic growth, copper and cotton, are not faring well. Copper prices were down 12% in May. And, the cotton market is "rotten"; down 60% in the last 6 months and down 20% in May alone. You simply can't justify "pickin' very much cotton" at those levels.
Oh, and as for coal, about which I wrote last week---Fuggedaboutit! Stockpiles at China's largest coal importing seaport are near capacity. And domestically, it was reported this week that the percentage of electricity generated by "chunks of coal" has fallen to 34% which ties it with natural gas (33%), a progressively cheaper (thanks to fracking) and significantly cleaner source of energy. Indeed, the use of natural gas as a source of power generation (which now appears as a more likely source of "diamonds" than coal) has increased 40% in one year. This new information, however, does whet my appetite even more for Linn Energy (LINE) which has the following attractive characteristics: it is involved primarily in the domestic US market (oil and natural gas); it is well capitalized and opportunistic in its acquisitions; its natural gas production is hedged (price guaranteed) at attractive rates through 2017 and its oil production is hedged through much of 2016; it yields nearly 8%; it is currently attractively priced due to a perceived glut of natural gas; and lastly (but significantly) its stated corporate objective is "stability and growth of distributions for the long term benefit of unit holders" (that would be me!).
So in sum, I am not tempted to re-enter the stock market (except for LINE), even with this week's stellar performance. The signs, overall, simply do not look positive. If I remain idle for a while---so be it. Frankly, my current attitude toward the market is best articulated by noted 80's hair group Air Supply---"I'm all out of love."
Saturday, June 2, 2012
June 2, 2012 Evil Woman
Risk/Reward Vol. 121
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Your European son is gone/You'd better say so long
Your clown's bid you goodbye"---lyrics from "European Son" by The Velvet Underground
"Hello, How are you?
Have you been alright/Through all those lonely nights
That's what I'd say/I'd tell you everything
If you'd pick up that telephone, yeah"---lyrics from "Telephone Line" by Electric Light Orchestra
"Spark and it's like gasoline/I start pumping like a machine
My heart only runs on supreme/So hot, give me your gasoline, yeah"---lyrics from "Gasoline" by Britney Spears
"I loaded sixteen tons of number nine coal
And the straw boss said "Well a-bless my soul"---lyrics from "Sixteen Tons" by Tennessee Ernie Ford
To no one's surprise, Greece has been a head fake all along. The problem is much larger. Indeed, all of the Eurozone, led by Spain, is on the brink of imploding due to the weight of bloated sovereign debt, an undercapitalized, incestuous banking system and the flight of funds out of euros and into the safe havens of dollars and pounds. In response, Eurozone leaders only bicker and dither as their prodigal "European son"--the euro-- marches toward oblivion. Bidding that "clown goodbye" is not beyond the realm of possibility. As a result of this Eurozone mess and a slowing economy in China, May ended as the worst month in the market since 2010. And with a lousy jobs report on Friday, June is starting even worse. All the stock market gains of 2012 have now been erased. Whew! Am I glad to be in cash!
Last week, one reader commented that my reports are becoming a broken record of Euro-bashing and bad news. He expressed interest in learning what I intend to buy once the market stabilizes. Fair enough.
First, I am staying in the US. Even if a Euro fix is instituted, it will take a long time to implement. Second, unlike last winter's re-entry, I will likely shy away from financials. There is just too much uncertainty in that arena and frankly, JPMorgan's recent blunder has shaken my confidence in even the best of that breed.
As always, I will look to dividend payers with steady cash flow. Telecoms fit this bill nicely, providing a safe source of income "through the lonely nights" that may lie ahead. So, I intend to "pick up (some) telephone" stocks. AT&T (T) and Verizon (VZ) have remained market darlings recently, and thus their yields are not attractive to me. On the other hand, legacy land line companies like Century Link (CTL), Windstream (WIN) and Frontier Communications (FTR) have fallen with the market in general. As a consequence, they carry outsized dividends and present excellent buying opportunities. My research leads me to prefer CTL and FTR over WIN. I will open positions once the stock market starts responding to traditional investment criteria (e.g. individual company profitability) as opposed to Eurozone headlines.
Assuming that the price of oil stays at or above $70/bbl (which justifies domestic production) and the price of natural gas continues to move upward from its recent low of $2/mmBTU, I will invest in oil and gas which have taken a beating in recent days. I believe that once the market stabilizes, this sector will "spark like gasoline and start pumping profits like a machine." I like Conoco (COP) since its recent disposition of several non-core assets. It has an excellent balance sheet and pays a good dividend. I also like the high yielding preferred stock of Magnum Hunter (MHRpD) which is a small but aggressive company involved in both oil and gas exploration in the most promising areas in the US. I like Linn Energy (LINE) in the natural gas exploration space, and I like Energy Transport Partners (ETP) in the natural gas and oil transport and storage space. All of these stocks are currently oversold and present excellent opportunities in a more stable environment.
Last, I am intrigued by the most battered of all sectors---coal. Although the abundance of natural gas (thanks to fracking) has made it the electrical power generating fuel of choice, coal still generates 40% of all electricity in this country and is used extensively throughout the world for this purpose. Companies that produce it will be with us for years to come, and some pay very handsome returns. I am a fan of Alliance Resource Partners (ARLP).
And so I end where I began---with Europe, the fate of which will determine the time of my re-entry. Lest we forget, Europe is named after Europa, a Phoenician princess abducted by the Greek god Zeus. Let us all hope she does not morph into another Electric Light Orchestra lyric----(An) "Evil Woman".
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Your European son is gone/You'd better say so long
Your clown's bid you goodbye"---lyrics from "European Son" by The Velvet Underground
"Hello, How are you?
Have you been alright/Through all those lonely nights
That's what I'd say/I'd tell you everything
If you'd pick up that telephone, yeah"---lyrics from "Telephone Line" by Electric Light Orchestra
"Spark and it's like gasoline/I start pumping like a machine
My heart only runs on supreme/So hot, give me your gasoline, yeah"---lyrics from "Gasoline" by Britney Spears
"I loaded sixteen tons of number nine coal
And the straw boss said "Well a-bless my soul"---lyrics from "Sixteen Tons" by Tennessee Ernie Ford
To no one's surprise, Greece has been a head fake all along. The problem is much larger. Indeed, all of the Eurozone, led by Spain, is on the brink of imploding due to the weight of bloated sovereign debt, an undercapitalized, incestuous banking system and the flight of funds out of euros and into the safe havens of dollars and pounds. In response, Eurozone leaders only bicker and dither as their prodigal "European son"--the euro-- marches toward oblivion. Bidding that "clown goodbye" is not beyond the realm of possibility. As a result of this Eurozone mess and a slowing economy in China, May ended as the worst month in the market since 2010. And with a lousy jobs report on Friday, June is starting even worse. All the stock market gains of 2012 have now been erased. Whew! Am I glad to be in cash!
Last week, one reader commented that my reports are becoming a broken record of Euro-bashing and bad news. He expressed interest in learning what I intend to buy once the market stabilizes. Fair enough.
First, I am staying in the US. Even if a Euro fix is instituted, it will take a long time to implement. Second, unlike last winter's re-entry, I will likely shy away from financials. There is just too much uncertainty in that arena and frankly, JPMorgan's recent blunder has shaken my confidence in even the best of that breed.
As always, I will look to dividend payers with steady cash flow. Telecoms fit this bill nicely, providing a safe source of income "through the lonely nights" that may lie ahead. So, I intend to "pick up (some) telephone" stocks. AT&T (T) and Verizon (VZ) have remained market darlings recently, and thus their yields are not attractive to me. On the other hand, legacy land line companies like Century Link (CTL), Windstream (WIN) and Frontier Communications (FTR) have fallen with the market in general. As a consequence, they carry outsized dividends and present excellent buying opportunities. My research leads me to prefer CTL and FTR over WIN. I will open positions once the stock market starts responding to traditional investment criteria (e.g. individual company profitability) as opposed to Eurozone headlines.
Assuming that the price of oil stays at or above $70/bbl (which justifies domestic production) and the price of natural gas continues to move upward from its recent low of $2/mmBTU, I will invest in oil and gas which have taken a beating in recent days. I believe that once the market stabilizes, this sector will "spark like gasoline and start pumping profits like a machine." I like Conoco (COP) since its recent disposition of several non-core assets. It has an excellent balance sheet and pays a good dividend. I also like the high yielding preferred stock of Magnum Hunter (MHRpD) which is a small but aggressive company involved in both oil and gas exploration in the most promising areas in the US. I like Linn Energy (LINE) in the natural gas exploration space, and I like Energy Transport Partners (ETP) in the natural gas and oil transport and storage space. All of these stocks are currently oversold and present excellent opportunities in a more stable environment.
Last, I am intrigued by the most battered of all sectors---coal. Although the abundance of natural gas (thanks to fracking) has made it the electrical power generating fuel of choice, coal still generates 40% of all electricity in this country and is used extensively throughout the world for this purpose. Companies that produce it will be with us for years to come, and some pay very handsome returns. I am a fan of Alliance Resource Partners (ARLP).
And so I end where I began---with Europe, the fate of which will determine the time of my re-entry. Lest we forget, Europe is named after Europa, a Phoenician princess abducted by the Greek god Zeus. Let us all hope she does not morph into another Electric Light Orchestra lyric----(An) "Evil Woman".
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