Risk/Reward Vol. 145
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Remember all the things we wanted/Now all our memories, they're haunted
We were always meant to say goodbye/Even with our fists held high
But I want you to move on/So I 'm already gone."---lyrics from "Already Gone" by Kelly Clarkson
"No deposit/No return
Boy, if you wanna real love/You got a lot to learn"---lyrics from "No Deposit No Return" sung by Sheena Easton
"There is safety in numbers/In numbers my friend
You'll find me well protected/When you come around again"---lyrics from "Safety in Numbers" by Joan Osborne
The Dow Jones Industrial Average (DJIA) spiked 421 points this week even though Fiscal Cliff concerns have not "moved on." Democrats and Republicans still have "their fists held high," and neither party has achieved any of "the things they wanted." So why did the market skyrocket? Because by Monday, all of the politicos were "already gone" from Washington---the President overseas and Congress on Thanksgiving Week break. No news on the Fiscal Cliff was indeed good news for investors. We will see what happens next week when Congress reconvenes with only a month left in which to reach a deal. My "memories" of the previous month are "haunted" by volatility--up on rumors of a compromise, down on rumors of a fissure.
To me, the most important news this week came from Fed Chairman Ben Bernanke who stated on Tuesday that the Fed's commitment to low interest rates will continue until employment improves. This guarantees that meager returns on safe investments will persist. Simply put, the Fed has no "real love" for conservative investors. Ponder these facts: 1) in 2007 the average yield on an investment grade corporate bond was 5.7%, today it is 2.67% : 2) in 2008 a five year certificate of deposit yielded 4%, today it yields 1.3%. And yet, because of fearful events such as the Fiscal Cliff, money continues to pour out of equities and into bonds. "No (certificates of) deposit" for yield hunters like me, because "no return" is available. Today, folks like me are forced to be risk takers or traders or both---and in these areas I "got a lot to learn."
One thing I have learned is that there is "safety in numbers, in numbers my friend." Allow me to elaborate. You may recall from earlier posts that I purchased stock in HiCrush Partners (HCLP), an entitiy that owns an income share in Wisconsin fracking sand mines. I liked its 8+% yield and the fact that it had hedged any downside in fracking sand pricing by signing several "take or pay" contracts with large oil service companies like Baker Hughes. On November 13, 2012 (after I sold for other reasons, thank goodness), HCLP announced that Baker Hughes had cancelled its contract, a fact that caused the stock to drop nearly 30% in one day. Who needs that! I still want exposure to fracking sand in general and to HCLP in particular, but next time I will buy it as part of an exchange traded fund (ETF) or closed end fund (CEF) where I will "be well protected" by the fact that HCLP will be one of several similar holdings in the fund. And this was not my first lesson in the concept of "safety in numbers". Back on April 19, 2010, Barb owned BP stock that traded at $60. On that day, BP was viewed as one of the best companies in the world with a huge balance sheet and an excellent dividend. One day later, because of the Deepwater Horizon disaster, BP was considered one of the worst corporate citizens in history, and its stock fell each day thereafter until June 20, 2010 when it hit $27. That fall would have been much more palatable if cushioned by an uptick in the stock of its competitors also housed in an oil ETF or CEF.
Although the DJIA has recovered nearly half of what it lost since my October exit, I remain on the sidelines. Until the Fiscal Cliff is resolved, I foresee more down than up days. However, when I do re-enter, I will seek safety in the diversity readily available in ETF's and CEF's. Yes, I have learned "a lot" from HCLP, BP and Kelly Clarkson---"Because of you, I learned to play on the safe side, so I don't get hurt.."
Saturday, November 24, 2012
Saturday, November 17, 2012
November 17, 2012 R.E.M.
Risk/Reward Vol. 144
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Uncertainty is killing me/And I'm certainly not asleep
Maybe I've gone far too deep/Maybe I'm just far too weak"---lyrics from "Uncertainty" by The Fray
"It can happen too fast/Or a little too late
Timing is everything"---lyrics from "Timing is Everything" by Trace Adkins
"Consider this/The hint of the century
Consider this/The slip that brought me to my knees"---lyrics from "Losing My Religion" by R.E.M.
Notwithstanding the market's rise Friday following the Kumbaya moment at the White House between Republicans and Democrats, the Dow Jones Industrial Average (DJIA) lost 227 points this week and has fallen 7% since I began to exit October 1st. My portfolio, had I remained, would have suffered a similar percentage drop. The primary cause is the "Uncertainty" as to how or even if the Fiscal Cliff will be resolved. What our politicians do not appreciate is how much the stock market abhors uncertainty. "Uncertainty is killing me" and is causing other investors "certainly not to sleep." Moreover, prolonged uncertainty morphs into a lack of confidence, and when investors lack confidence they leave the market. Obviously, many have joined me on the sidelines. Once there, the doubts become "far too deep" for most to return quickly. Returning when others are "far too weak" can result in outstanding profits.
The above paragraph is a prime example of market timing. Most investing savants will tell you that no one can time the market. They say market timing "can happen too fast/or a little too late"---but rarely satisfactorily. Yet these same gurus (e.g. Graham and Buffett) preach that the first rule of investing is "Don't lose money" and the second rule is "Don't forget the first rule." How pray tell could one have avoided losing money over the past six weeks without selling? And how can one "buy low" if one has not raised cash? Thousands of pages have been written on when to buy stock; little has been written on when to sell.
"Consider this." As I wrote at the time, I sold in October because I anticipated that no matter who was elected President, a battle over the resolution of the Fiscal Cliff would ensue during this lame duck session and perhaps beyond. The most recent analogous circumstance, the July-August, 2011 debt ceiling crisis (brought about by this VERY SAME Congress and this VERY SAME President) resulted in a 16% drop in the DJIA recovery from which took months. Here we are, far from a resolution of the current crisis and already down 7%. What I did and what I wrote was not "the hint of the century"; it was common sense. Having attained my investment objective for the year, what was my downside? Paying some capital gains tax and foregoing one quarter's dividends--that's it. Yet, I am unaware of any market guru advocating that one should preserve one's gains by going all (or even overweight) cash---despite a clear warning from the Congressional Budget Office that failure to reach a resolution on the Fiscal Budget will result in a second dip into recession.
Can't time the market, they say. Undoubtedly they are correct, but right know believing that "timing is everything" is very comforting to me "Consider this." If you had purchased an S&P Index fund (which many gurus recommend as one's primary investment) any time between October, 2006 and January, 2008, you would STILL be in a loss position on your principal today---more than six years later, even after a triple digit gain from 2009 to 2012. That kind of investing would have "brought me to my knees". Lady Barbara would be forced to introduce me thus: "That's him in the corner/That's him in the spotlight/Losing his religion."
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Uncertainty is killing me/And I'm certainly not asleep
Maybe I've gone far too deep/Maybe I'm just far too weak"---lyrics from "Uncertainty" by The Fray
"It can happen too fast/Or a little too late
Timing is everything"---lyrics from "Timing is Everything" by Trace Adkins
"Consider this/The hint of the century
Consider this/The slip that brought me to my knees"---lyrics from "Losing My Religion" by R.E.M.
Notwithstanding the market's rise Friday following the Kumbaya moment at the White House between Republicans and Democrats, the Dow Jones Industrial Average (DJIA) lost 227 points this week and has fallen 7% since I began to exit October 1st. My portfolio, had I remained, would have suffered a similar percentage drop. The primary cause is the "Uncertainty" as to how or even if the Fiscal Cliff will be resolved. What our politicians do not appreciate is how much the stock market abhors uncertainty. "Uncertainty is killing me" and is causing other investors "certainly not to sleep." Moreover, prolonged uncertainty morphs into a lack of confidence, and when investors lack confidence they leave the market. Obviously, many have joined me on the sidelines. Once there, the doubts become "far too deep" for most to return quickly. Returning when others are "far too weak" can result in outstanding profits.
The above paragraph is a prime example of market timing. Most investing savants will tell you that no one can time the market. They say market timing "can happen too fast/or a little too late"---but rarely satisfactorily. Yet these same gurus (e.g. Graham and Buffett) preach that the first rule of investing is "Don't lose money" and the second rule is "Don't forget the first rule." How pray tell could one have avoided losing money over the past six weeks without selling? And how can one "buy low" if one has not raised cash? Thousands of pages have been written on when to buy stock; little has been written on when to sell.
"Consider this." As I wrote at the time, I sold in October because I anticipated that no matter who was elected President, a battle over the resolution of the Fiscal Cliff would ensue during this lame duck session and perhaps beyond. The most recent analogous circumstance, the July-August, 2011 debt ceiling crisis (brought about by this VERY SAME Congress and this VERY SAME President) resulted in a 16% drop in the DJIA recovery from which took months. Here we are, far from a resolution of the current crisis and already down 7%. What I did and what I wrote was not "the hint of the century"; it was common sense. Having attained my investment objective for the year, what was my downside? Paying some capital gains tax and foregoing one quarter's dividends--that's it. Yet, I am unaware of any market guru advocating that one should preserve one's gains by going all (or even overweight) cash---despite a clear warning from the Congressional Budget Office that failure to reach a resolution on the Fiscal Budget will result in a second dip into recession.
Can't time the market, they say. Undoubtedly they are correct, but right know believing that "timing is everything" is very comforting to me "Consider this." If you had purchased an S&P Index fund (which many gurus recommend as one's primary investment) any time between October, 2006 and January, 2008, you would STILL be in a loss position on your principal today---more than six years later, even after a triple digit gain from 2009 to 2012. That kind of investing would have "brought me to my knees". Lady Barbara would be forced to introduce me thus: "That's him in the corner/That's him in the spotlight/Losing his religion."
Saturday, November 10, 2012
November 10, 2012 Sweet Surrender
Risk/Reward Vol. 143
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"I've fallen out of favor/And I've fallen from grace
Fallen out of trees/And I've fallen on my face."---lyrics from "Falling" by Florence and The Machine
"Well, I won't back down/No I won't back down
You could stand me up at the gates of hell/But I won't back down"---lyrics from "I Won't Back Down" by Tom Petty
"'Cause I'd surrender everything/To feel the chance to live again
I reach to you/I know you can feel it too."---lyrics from "I Surrender" sung by Celine Dion
With the election over and the Fiscal Cliff fast approaching, stocks "have fallen out of favor". Even the much vaunted Apple has "fallen out of the tree" losing more than 20% of its value since September. Down 278 points this week, I see the Dow Jones Industrial Average continuing to fall until the Fiscal Cliff (that nasty combination of tax cut expirations and automatic spending sequestrations scheduled to occur at year's end) is resolved. If the Cliff is not averted, the result (according to a Congressional Budget Office report issued on Thursday) will be a recession in 2013 and a rise in unemployment from the current 7.9% to 9.1%; in short, an economy that has "fallen on its face."
So what are the prospects that the Fiscal Cliff will be resolved in the next few days? Based upon public statements, not good. According to ITS leader, Democrat Harry Reid, the Senate will not enact any legislation that DOES NOT raise the taxes of the upper 2% of households; those making $250,000 or more. The President echoed this position yesterday. According to ITS leader, Republican John Boehner, the House of Representatives will not enact any legislation that DOES raise the taxes of those very same households. If each is to be believed, "you can stand them up at the gates of hell/And they won't back down."
Or so each says. The fact is that the Democrats won the election---and won big. They hold all of the cards. What are the Republicans going to do? Cling to their position while the economy goes into recession (which it may do anyway) and unemployment rises, all for the benefit of the upper 2%? Talk about political suicide! I say, get what concessions you can (a 20% dividend rate, please!) and then "surrender everything"else---and do it now. Then you will have "a chance to live again"---at the polls in 2014 once the effects of increased taxes and Obamacare are felt.. Surrender is inevitable once the pain currently felt on Wall Street moves to the board room (likely there already) and then to Main Street. I feel the longer Republicans wait, the more blame they will absorb. And, Mr. Speaker, "I know you feel it too."
After the Republicans surrender, a measure of stability will return to the stock market. At that time I will re-enter, having preserved a decent profit by liquidating my stocks in early October. Yes, Celine, once again I will "touch my dividends like this/And hold them like that" (albeit at a higher tax rate) as they "all come back to me"---then.
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"I've fallen out of favor/And I've fallen from grace
Fallen out of trees/And I've fallen on my face."---lyrics from "Falling" by Florence and The Machine
"Well, I won't back down/No I won't back down
You could stand me up at the gates of hell/But I won't back down"---lyrics from "I Won't Back Down" by Tom Petty
"'Cause I'd surrender everything/To feel the chance to live again
I reach to you/I know you can feel it too."---lyrics from "I Surrender" sung by Celine Dion
With the election over and the Fiscal Cliff fast approaching, stocks "have fallen out of favor". Even the much vaunted Apple has "fallen out of the tree" losing more than 20% of its value since September. Down 278 points this week, I see the Dow Jones Industrial Average continuing to fall until the Fiscal Cliff (that nasty combination of tax cut expirations and automatic spending sequestrations scheduled to occur at year's end) is resolved. If the Cliff is not averted, the result (according to a Congressional Budget Office report issued on Thursday) will be a recession in 2013 and a rise in unemployment from the current 7.9% to 9.1%; in short, an economy that has "fallen on its face."
So what are the prospects that the Fiscal Cliff will be resolved in the next few days? Based upon public statements, not good. According to ITS leader, Democrat Harry Reid, the Senate will not enact any legislation that DOES NOT raise the taxes of the upper 2% of households; those making $250,000 or more. The President echoed this position yesterday. According to ITS leader, Republican John Boehner, the House of Representatives will not enact any legislation that DOES raise the taxes of those very same households. If each is to be believed, "you can stand them up at the gates of hell/And they won't back down."
Or so each says. The fact is that the Democrats won the election---and won big. They hold all of the cards. What are the Republicans going to do? Cling to their position while the economy goes into recession (which it may do anyway) and unemployment rises, all for the benefit of the upper 2%? Talk about political suicide! I say, get what concessions you can (a 20% dividend rate, please!) and then "surrender everything"else---and do it now. Then you will have "a chance to live again"---at the polls in 2014 once the effects of increased taxes and Obamacare are felt.. Surrender is inevitable once the pain currently felt on Wall Street moves to the board room (likely there already) and then to Main Street. I feel the longer Republicans wait, the more blame they will absorb. And, Mr. Speaker, "I know you feel it too."
After the Republicans surrender, a measure of stability will return to the stock market. At that time I will re-enter, having preserved a decent profit by liquidating my stocks in early October. Yes, Celine, once again I will "touch my dividends like this/And hold them like that" (albeit at a higher tax rate) as they "all come back to me"---then.
Saturday, November 3, 2012
November 3, 2013 Barry White
Risk/Reward Vol. 142
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"I know how to make you feel like you wanna feel/But I can't lose what I use
I'm qualified to satisfy you/Anyway you want me to"---lyrics from "I'm Qualified to Satisfy You" by Barry White
"It's no surprise/I won't be here tomorrow
I can't believe that I stayed til today"---lyrics from "No Surprise" by Daughtry
"Wake up, wake up, wake up it's the 1st of the month
To get up, get up, get up so cash your checks and get up"---lyrics from "1st of Tha' Month" by Bone Thugs-N-Harmony
Sitting here on the sidelines, I am amazed at the continued vitality of stocks that pay dividends which "qualify" for a 15% tax rate under the Bush Tax Cuts ("BTC's"). Those dividends are scheduled to be taxed as high as 43.4% once the BTC's expire on January 1, 2013. And yet, as recently as yesterday, Forbes, The Motley Fool and Cramer were all advocating "qualified" dividend paying stocks as "can't lose" investments, ones that will "make you feel like you wanna feel"; not even mentioning this tax issue. The fact is, Dear Readers, that absent some attitude re-adjustment on the part of the current Administration, "qualified" dividend rates cease at year end, no matter who is elected. This could reduce the value of "qualified dividend" paying stocks significantly especially in comparison to higher paying "unqualified" dividend paying stocks such as real estate investment trusts, business development companies and oil trusts which are taxed at marginal rates even now. Frankly, I am surprised that there has not been a significant sell-off of "qualified" dividend payers.
But then again, I am "surprised" that the stock market has not fallen more generally in light of the impending Fiscal Cliff, of which the end of the BTC's is just one component. "I can't believe" that the Dow Jones Industrial Average (DJIA) has "stayed above 13000 through today." The DJIA is only 420 points (3%) below where it is was on October 1, 2013 when I started to sell. I do not regret selling because there is considerably more downside risk than upside potential over the next two months, and this year's gains (which I have already captured) may not be "here tomorrow". Indeed, I believe that the uncertainty surrounding the resolution (or not) of the Fiscal Cliff will result in an additional 10% correction before 2013 dawns. I base this on what occurred in July, 2011 during the debt ceiling stand-off and the resultant downgrade of U. S. debt. I have raised plenty of cash to profit from any such dip. But, dip or not, I do not envision the stock market rising significantly before year end under any circumstance; so the most that I will have lost from liquidating is one quarter's worth of dividends and the timing of some capital gains tax.
As I construct, in the abstract, my post-Fiscal Cliff portfolio, I am emphasizing stocks that pay a monthly dividend. For yield hunters like me, the thought that I could "wake up, wake up, wake up" and "get up, get up, get up" to "cash my checks" on the "1st of every month" is very appealing. These companies clearly are focused on what I value most---steady income to shareholders. A portfolio that yields a stable, 6-7% return (and nothing is more stable than a monthly dividend) is all that I need to support my profligate lifestyle once I reach age 62 (March 23, 2013) should I choose to retire (which, dear law firm Partners, I will NOT do.) Look for a list of my favorite monthly dividend payors in the near future.
I close by announcing the birth yesterday of my fifth grandchild, Ms. Evelyn Jane McClement. She is beautiful, and everyone is doing well. What I value most about financial security is that it affords one the ability to enjoy one's family more fully---and to me, in the words of Barry White, family is "my first, my last, my everything.
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"I know how to make you feel like you wanna feel/But I can't lose what I use
I'm qualified to satisfy you/Anyway you want me to"---lyrics from "I'm Qualified to Satisfy You" by Barry White
"It's no surprise/I won't be here tomorrow
I can't believe that I stayed til today"---lyrics from "No Surprise" by Daughtry
"Wake up, wake up, wake up it's the 1st of the month
To get up, get up, get up so cash your checks and get up"---lyrics from "1st of Tha' Month" by Bone Thugs-N-Harmony
Sitting here on the sidelines, I am amazed at the continued vitality of stocks that pay dividends which "qualify" for a 15% tax rate under the Bush Tax Cuts ("BTC's"). Those dividends are scheduled to be taxed as high as 43.4% once the BTC's expire on January 1, 2013. And yet, as recently as yesterday, Forbes, The Motley Fool and Cramer were all advocating "qualified" dividend paying stocks as "can't lose" investments, ones that will "make you feel like you wanna feel"; not even mentioning this tax issue. The fact is, Dear Readers, that absent some attitude re-adjustment on the part of the current Administration, "qualified" dividend rates cease at year end, no matter who is elected. This could reduce the value of "qualified dividend" paying stocks significantly especially in comparison to higher paying "unqualified" dividend paying stocks such as real estate investment trusts, business development companies and oil trusts which are taxed at marginal rates even now. Frankly, I am surprised that there has not been a significant sell-off of "qualified" dividend payers.
But then again, I am "surprised" that the stock market has not fallen more generally in light of the impending Fiscal Cliff, of which the end of the BTC's is just one component. "I can't believe" that the Dow Jones Industrial Average (DJIA) has "stayed above 13000 through today." The DJIA is only 420 points (3%) below where it is was on October 1, 2013 when I started to sell. I do not regret selling because there is considerably more downside risk than upside potential over the next two months, and this year's gains (which I have already captured) may not be "here tomorrow". Indeed, I believe that the uncertainty surrounding the resolution (or not) of the Fiscal Cliff will result in an additional 10% correction before 2013 dawns. I base this on what occurred in July, 2011 during the debt ceiling stand-off and the resultant downgrade of U. S. debt. I have raised plenty of cash to profit from any such dip. But, dip or not, I do not envision the stock market rising significantly before year end under any circumstance; so the most that I will have lost from liquidating is one quarter's worth of dividends and the timing of some capital gains tax.
As I construct, in the abstract, my post-Fiscal Cliff portfolio, I am emphasizing stocks that pay a monthly dividend. For yield hunters like me, the thought that I could "wake up, wake up, wake up" and "get up, get up, get up" to "cash my checks" on the "1st of every month" is very appealing. These companies clearly are focused on what I value most---steady income to shareholders. A portfolio that yields a stable, 6-7% return (and nothing is more stable than a monthly dividend) is all that I need to support my profligate lifestyle once I reach age 62 (March 23, 2013) should I choose to retire (which, dear law firm Partners, I will NOT do.) Look for a list of my favorite monthly dividend payors in the near future.
I close by announcing the birth yesterday of my fifth grandchild, Ms. Evelyn Jane McClement. She is beautiful, and everyone is doing well. What I value most about financial security is that it affords one the ability to enjoy one's family more fully---and to me, in the words of Barry White, family is "my first, my last, my everything.
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