Saturday, March 28, 2015
March 28, 2015 Two Steps Back
Risk/Reward Vol. 260
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
“We've given each other some hard lessons lately
But we ain't learnin'
We're the same sad story that's a fact
One step up and two steps back”---lyrics from “One Step Up” sung by Bruce “The Boss” Springsteen
“For a small piece of paper/ It carries a lot of weight
Oh, that mean, mean, mean, mean, mean green”---lyrics from “For the Love of Money” sung by the O’Jays
“I got no fever/But I'm feeling the heat
Oh boy, someone get me out of here”---lyrics from “Get Me Out of Here” sung by Paul McCartney
Both the Dow Jones Industrial Average and the S&P500 fell this week. Year to date, both sit in the red. There are many cross currents at work (e.g. the divergent monetary policies here and in Europe, the rise in the dollar, the crisis in the Arabian peninsula, etc.) Indeed, it seems this year we take “one step up and two steps back.” “We’ve given ourselves some hard investing lessons lately”, but “we ain’t learning"”---at least I'm not. If you can make sense of it all, please contact me. Indeed, it is this pervasive uncertainty that caused me to sell several positions earlier this month (as discussed in Vol. 258 www.riskrewardblog.blogspot.com ). And I am not alone. So far this year, net outflows from equity exchange traded funds (ETF’s) total $44billion, more than at any time since the crash of 2009. SPY, the S&P500 ETF, alone has experienced $26billion in net outflows.
I still am heavily in cash. In the absence of inflation and without any ability to receive a return on short term deposits (have you checked money market and cd rates lately), cash is not a bad place to be. “For a small piece of paper/It carries a lot of weight/That mean, mean, mean, mean, mean green.” I am locked and loaded and ready to invest. I just don’t see many desirable targets. Again, I am not alone. Where are we headed? After six years of zero bound interest rates, we have a Federal Reserve which seems hell bent on raising rates in the face of contrary moves by virtually every other central bank in the world and, as noted above, in the complete absence of inflation. In so doing, corporate profits will suffer, and our balance of payments will worsen as consumers opt for cheaper imported items. To add to this uncertainty, the Fed has become more opaque in its communications.
Even though “I got no fever” to invest at present, I have repurchased some irresistibly cheap oil and gas plays and some preferred stock positions. These were made without great conviction, so if “I’m feeling the heat” from rising interest rates or otherwise, I will “get me out of here.” Accordingly, a major consideration in this round of investing was liquidity---the ability to sell at or near the last quoted price. The best way to insure liquidity is to purchase securities for which there is a robust market; to wit a lot of volume. Much of what has appealed to me in the past (e.g. closed end funds) is thinly traded. From time to time I have been disappointed by the spread between what is asked and what is bid on these. Volume lessens this spread. How has this affected my recent purchases? Here is an example. I opted for more PGX than FFC in the preferred stock fund space because PGX trades at 10 times the average daily volume of FFC. I did so even though PGX pays a substantially smaller dividend. For a discussion of the role of liquidity in investing, read Howard Marks’ ( see Vols. 173 and 234 www.riskrewardblog.blogspot.com ) excellent memo on the topic published just this week. It can be found at www.oaktreecapital.com/memo.aspx .
What I have written above reads negative. Truthfully, I am less negative than I am frustrated. But frustrated I must not become. I remain convinced that someday, I will find the secret sauce to investing. In that regard, I am like The Boss:
“Oh-oh, someday girl
I don't know when
We're gonna get to that place
Where we really wanna go
And we'll walk in the sun
But till then, tramps like us,
Baby we were born to run”
Saturday, March 21, 2015
March 21, 2015 Say What You Mean
Risk/Reward Vol. 259
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
“Say what you mean
Mean what you say
Think about the words
That you’re using”---lyrics from “Say What You Mean” sung by The Moody Blues
“And I don't give a damn about a greenback dollar
Spend it fast as I can/For a wailin song and a good guitar
The only thing that I understand, poor boy”---lyrics from “Greenback Dollar” sung by Hoyt Axton
“It was an itsy bitsy, teenie, weenie, yellow polka dot bikini
That she wore for the first time today”---lyrics from “Itsy Bitsy….” sung by Brian Hyland
Going into this week’s meeting of the Federal Reserve’s Open Market Committee (FOMC), the conventional wisdom was that if the FOMC removed the word “patient” from its forward guidance, an interest rate increase could be expected in June. In addition, it was believed that any such removal would cause the dollar to rise, the interest rate on the 10Year US Treasury to spike, the price of oil to drop and the stock market to plummet. “Patient” was removed, but in so doing the FOMC did not “Say what it meant/Or mean what it said. Instead, Chair Yellen emphasized that removal of the word “patient” does not mean that the FOMC will be “impatient” when it comes to any rate increase. Really? How disappointing, Janet. Is this casuistic double speak any kind of guidance? Did you really “think about the words/That you’re using?” To explain the ensuing spike in the stock market, the precipitous drop in the rate on the US Treasury 10Year Bond (10Year), the decline in the dollar vs. the euro and the rise in oil prices (all of which occurred in the 90 minutes between the issuance of FOMC press release and the end of Yellen’s press conference), commentators pointed to the obvious synonymity of “patient” and “not impatient” and to the following data points. First, the FOMC lowered the natural unemployment rate (that is, the rate at which wages will impact inflation) from 5.5-5.2% to 5.2-5% thereby effectively removing low unemployment as a reason to raise rates (as predicted in Vol. 254 www.riskrewardblog.blogspot.com ). Second, the FOMC lowered its 2015 GDP growth forecast from 2.6-3.0% to 2.3-2.7%. Third, the FOMC is now predicting ultra-low inflation for 2015 of 0.6-0.8%, well below its target of 2%. All of these augur a later rather than sooner rate increase, if one at all.
Mentioned only in passing by Yellen, but of equal importance to the three points above was the FOMC’s concern about the currency war of which I wrote last week. (See Vol. 258 www.riskrewardblog.blogspot.com). Raising rates any time soon will have the side effect of strengthening the dollar even more versus every other world currency. And a strong dollar already has begun to negatively impact our economy. As discussed last week, corporate profits for multinational corporations are down due in large part to currency exchange rates. Exports are suffering. And foreign tourists are staying home in droves. After all, one hundred dollar’s worth of entertainment which cost Eurotourists only sixty nine euros last year now costs them ninety six euros. By its charter, the Federal Reserve is to address only domestic economic issues. But clearly, domestic issues are “not the only thing it understands.” Indeed, it would be folly for the Fed to “not give a damn about (anything other than) a greenback dollar” because in this world, no currency exists in a vacuum.
The above points may have grabbed the attention of commentators this week, but I predict that the data point with the most significant long term impact is the shift in the individual FOMC member’s predictions as to what the year-end 2015 and 2016 overnight borrowing rates will be. These predictions are plotted on a graph called the “dot plot.” From these “itsy, bitsy, teeny, weeny polka dots”, one could see “for the first time today” a significant slowing of the pace of rate increases should they ever begin. The consensus of the members is now that at year end 2015 the overnight (or Fed funds) rate will be 0.625% as opposed to their consensus just three months ago that the rate would be 1.125%. Equally telling was the lowering of the consensus year end 2016 rate from 2.5% to 1.875%. These changes are significant for all investors, but particularly for income investors; those whose securities are priced in relation to the yield on the benchmark US 10Year. Once the dust settles from this week’s volatility, I can repurchase what I sold with more confidence that any profit I garner will not be eroded by a spike in the 10Year rate and a concomitant drop in price---even if a modest rate increase is instituted in June.
On Wednesday between 1:30 and 3:30 pm, the DJIA average spiked 2% and the yield on the bellwether 10Year dropped 6%. Billions of dollars were made or lost, all because a few, enigmatic words were written and/or spoken by a handful of economists. This leads one to ponder the awesome power that we have conferred on the Federal Reserve Board. No member is elected, and during one’s term, no member is answerable to anyone. Is this wise? Well, at present, perhaps. The alternative is leaving such weighty decisions to a community organizer or to an overly tanned, weepy weekend golfer. In the long run, however, the role of the Fed should be re-examined. Until then, we, like the Moody Blues, are left with the following “Question” about the Fed:
“Why do we never get an answer
When we're knocking at the door
It's not the way that you say it
When you do those things to me.
It's more the way that you mean it
When you tell me what will be”.
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
“Say what you mean
Mean what you say
Think about the words
That you’re using”---lyrics from “Say What You Mean” sung by The Moody Blues
“And I don't give a damn about a greenback dollar
Spend it fast as I can/For a wailin song and a good guitar
The only thing that I understand, poor boy”---lyrics from “Greenback Dollar” sung by Hoyt Axton
“It was an itsy bitsy, teenie, weenie, yellow polka dot bikini
That she wore for the first time today”---lyrics from “Itsy Bitsy….” sung by Brian Hyland
Going into this week’s meeting of the Federal Reserve’s Open Market Committee (FOMC), the conventional wisdom was that if the FOMC removed the word “patient” from its forward guidance, an interest rate increase could be expected in June. In addition, it was believed that any such removal would cause the dollar to rise, the interest rate on the 10Year US Treasury to spike, the price of oil to drop and the stock market to plummet. “Patient” was removed, but in so doing the FOMC did not “Say what it meant/Or mean what it said. Instead, Chair Yellen emphasized that removal of the word “patient” does not mean that the FOMC will be “impatient” when it comes to any rate increase. Really? How disappointing, Janet. Is this casuistic double speak any kind of guidance? Did you really “think about the words/That you’re using?” To explain the ensuing spike in the stock market, the precipitous drop in the rate on the US Treasury 10Year Bond (10Year), the decline in the dollar vs. the euro and the rise in oil prices (all of which occurred in the 90 minutes between the issuance of FOMC press release and the end of Yellen’s press conference), commentators pointed to the obvious synonymity of “patient” and “not impatient” and to the following data points. First, the FOMC lowered the natural unemployment rate (that is, the rate at which wages will impact inflation) from 5.5-5.2% to 5.2-5% thereby effectively removing low unemployment as a reason to raise rates (as predicted in Vol. 254 www.riskrewardblog.blogspot.com ). Second, the FOMC lowered its 2015 GDP growth forecast from 2.6-3.0% to 2.3-2.7%. Third, the FOMC is now predicting ultra-low inflation for 2015 of 0.6-0.8%, well below its target of 2%. All of these augur a later rather than sooner rate increase, if one at all.
Mentioned only in passing by Yellen, but of equal importance to the three points above was the FOMC’s concern about the currency war of which I wrote last week. (See Vol. 258 www.riskrewardblog.blogspot.com). Raising rates any time soon will have the side effect of strengthening the dollar even more versus every other world currency. And a strong dollar already has begun to negatively impact our economy. As discussed last week, corporate profits for multinational corporations are down due in large part to currency exchange rates. Exports are suffering. And foreign tourists are staying home in droves. After all, one hundred dollar’s worth of entertainment which cost Eurotourists only sixty nine euros last year now costs them ninety six euros. By its charter, the Federal Reserve is to address only domestic economic issues. But clearly, domestic issues are “not the only thing it understands.” Indeed, it would be folly for the Fed to “not give a damn about (anything other than) a greenback dollar” because in this world, no currency exists in a vacuum.
The above points may have grabbed the attention of commentators this week, but I predict that the data point with the most significant long term impact is the shift in the individual FOMC member’s predictions as to what the year-end 2015 and 2016 overnight borrowing rates will be. These predictions are plotted on a graph called the “dot plot.” From these “itsy, bitsy, teeny, weeny polka dots”, one could see “for the first time today” a significant slowing of the pace of rate increases should they ever begin. The consensus of the members is now that at year end 2015 the overnight (or Fed funds) rate will be 0.625% as opposed to their consensus just three months ago that the rate would be 1.125%. Equally telling was the lowering of the consensus year end 2016 rate from 2.5% to 1.875%. These changes are significant for all investors, but particularly for income investors; those whose securities are priced in relation to the yield on the benchmark US 10Year. Once the dust settles from this week’s volatility, I can repurchase what I sold with more confidence that any profit I garner will not be eroded by a spike in the 10Year rate and a concomitant drop in price---even if a modest rate increase is instituted in June.
On Wednesday between 1:30 and 3:30 pm, the DJIA average spiked 2% and the yield on the bellwether 10Year dropped 6%. Billions of dollars were made or lost, all because a few, enigmatic words were written and/or spoken by a handful of economists. This leads one to ponder the awesome power that we have conferred on the Federal Reserve Board. No member is elected, and during one’s term, no member is answerable to anyone. Is this wise? Well, at present, perhaps. The alternative is leaving such weighty decisions to a community organizer or to an overly tanned, weepy weekend golfer. In the long run, however, the role of the Fed should be re-examined. Until then, we, like the Moody Blues, are left with the following “Question” about the Fed:
“Why do we never get an answer
When we're knocking at the door
It's not the way that you say it
When you do those things to me.
It's more the way that you mean it
When you tell me what will be”.
Saturday, March 14, 2015
March 14, 2014 Blurred Lines
Risk/Reward Vol. 258
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Over there/Over there
Send the word/Send the word over there
That the Yanks are coming/The Yanks are coming "---lyrics from "Over There" sung by George M. Cohan
"You have to learn to pace yourself
Pressure
You're just like everyone else
Pressure"---lyrics from "Pressure" sung by Billy Joel
"Can't let it get past me
You're far from plastic
Talk about getting blasted
I hate these blurred lines."---lyrics from "Blurred Lines" (apparently) written by Marvin Gaye
George M. Cohan wrote "Over There" when the US became embroiled in Europe's Great War. As described in Vol. 254 (www.riskrewardblog.blogspot.com ), the US is once again embroiled in a European war. This time it is a currency war. Since January, 2014 the Euro has dropped 25% against the dollar, falling over 12% in the past three months. It now sits at $1.04. Why is this important to US investors? It means that the profits earned by US companies with sales "Over There/Over there" are worth 25% less than a year ago. According to Thomson Reuters, this currency differential alone will cause the companies comprising the S&P 500 (which,combined, derive 35% of their total revenue from outside the US) to report 2.8% lower earnings in the first quarter of 2015 compared to last year. Lower earnings translates into lower valuations since the primary determinant of a stock's value is its earnings per share times a generally static market multiple. The converse is true for European companies, particularly those with a large presence in the US. "Send the word/send the word". Eurozone multinationals such as Luxottica, the eyewear manufacturer (e.g. Lenscrafters, Pearle Vision, RayBan, Oakley, etc.), are seeing their Euro denominated profits soar simply as a result of an appreciating dollar. One hundred dollars of profit earned from US sales translated into 69 Euros of profit one year ago. That same US profit today translates into 95 Euros of profit. With European companies booming as a result of the Euro's devaluation, "the Yanks are coming/The Yanks are coming." Or at least their investment dollars are. Several European stock indices including the broad based Stoxx Europe 600 are hitting multiyear highs.
The impact of the Euro's devaluation undoubtedly will put "Pressure" on the Federal Reserve's Open Market Committee (FOMC) when it meets next week. Any signal that the Fed is more resolute to raise interest rates in June will cause the dollar to appreciate even more against the Euro. This in turn will further depress US corporate profits. Several major US corporations such as Procter & Gamble, Apple, Intel and the auto manufactures already have warned that the strong dollar is impeding their ability to compete in the world market. With the US's recovery still very tenuous, any drop in sales by these and/or other US based multinationals could be deleterious to our economy. Add to this the deflationary effect of $45/bbl. oil and there is "Pressure", indeed, on the Fed not to act. As much as its hawkish members may want to raise rates, the entire FOMC may "have to learn to pace themselves." "Like everyone else", keep a close watch on the language of the FOMC's March 18th press release.
So what does all of this mean to an income investor like me? On the one hand, as demonstrated last week, the mere threat of an increase by the Fed can cause interest rate sensitive securities to tank. (Remember an increase in a security's interest rate means a decrease in its value). On the other hand, the major engine of the Euro's devaluation; to wit quantitative easing (bond purchasing) by the European Central Bank, has resulted in the yield on the bellwether US 10 Year Treasury Bond to fall despite the specter of the Fed moving rates up. After all, given a choice, with the German 10 Year Bund yielding only 0.26%, what rational investor wouldn't rather purchase a US 10Year yielding 2.11%? In short, I am seeing conflicting signals; signals which produced last week's volatility in both the stock and bond markets. "I hate these blurred lines." Wanting to avoid "getting blasted" by a precipitous rate hike (and price drop) which could come if the FOMC's communique next week bespeaks a June rate increase, I reduced my exposure to interest-rate-sensitive securities such as preferred stock closed end funds, real estate investment trusts and utilities. I may repurchase all that I sold this week as early as next week depending on the outcome of the FOMC meeting. I held most of these in tax deferred retirement accounts so the only costs associated with the sale were some modest trading fees ($7-9/transaction) and the off-chance of rapid capital appreciation.
With Marvin Gaye so prominent in the news this week, I sought inspiration from his song titles. The "Blurred Lines" described above make it nearly impossible to determine "What's Going On". Having "All I Need to Get By", I don't need to speculate. So instead of relying on what "I've Heard Through the Grapevine", I decided to "Give It Up"--for a short while at least.
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Over there/Over there
Send the word/Send the word over there
That the Yanks are coming/The Yanks are coming "---lyrics from "Over There" sung by George M. Cohan
"You have to learn to pace yourself
Pressure
You're just like everyone else
Pressure"---lyrics from "Pressure" sung by Billy Joel
"Can't let it get past me
You're far from plastic
Talk about getting blasted
I hate these blurred lines."---lyrics from "Blurred Lines" (apparently) written by Marvin Gaye
George M. Cohan wrote "Over There" when the US became embroiled in Europe's Great War. As described in Vol. 254 (www.riskrewardblog.blogspot.com ), the US is once again embroiled in a European war. This time it is a currency war. Since January, 2014 the Euro has dropped 25% against the dollar, falling over 12% in the past three months. It now sits at $1.04. Why is this important to US investors? It means that the profits earned by US companies with sales "Over There/Over there" are worth 25% less than a year ago. According to Thomson Reuters, this currency differential alone will cause the companies comprising the S&P 500 (which,combined, derive 35% of their total revenue from outside the US) to report 2.8% lower earnings in the first quarter of 2015 compared to last year. Lower earnings translates into lower valuations since the primary determinant of a stock's value is its earnings per share times a generally static market multiple. The converse is true for European companies, particularly those with a large presence in the US. "Send the word/send the word". Eurozone multinationals such as Luxottica, the eyewear manufacturer (e.g. Lenscrafters, Pearle Vision, RayBan, Oakley, etc.), are seeing their Euro denominated profits soar simply as a result of an appreciating dollar. One hundred dollars of profit earned from US sales translated into 69 Euros of profit one year ago. That same US profit today translates into 95 Euros of profit. With European companies booming as a result of the Euro's devaluation, "the Yanks are coming/The Yanks are coming." Or at least their investment dollars are. Several European stock indices including the broad based Stoxx Europe 600 are hitting multiyear highs.
The impact of the Euro's devaluation undoubtedly will put "Pressure" on the Federal Reserve's Open Market Committee (FOMC) when it meets next week. Any signal that the Fed is more resolute to raise interest rates in June will cause the dollar to appreciate even more against the Euro. This in turn will further depress US corporate profits. Several major US corporations such as Procter & Gamble, Apple, Intel and the auto manufactures already have warned that the strong dollar is impeding their ability to compete in the world market. With the US's recovery still very tenuous, any drop in sales by these and/or other US based multinationals could be deleterious to our economy. Add to this the deflationary effect of $45/bbl. oil and there is "Pressure", indeed, on the Fed not to act. As much as its hawkish members may want to raise rates, the entire FOMC may "have to learn to pace themselves." "Like everyone else", keep a close watch on the language of the FOMC's March 18th press release.
So what does all of this mean to an income investor like me? On the one hand, as demonstrated last week, the mere threat of an increase by the Fed can cause interest rate sensitive securities to tank. (Remember an increase in a security's interest rate means a decrease in its value). On the other hand, the major engine of the Euro's devaluation; to wit quantitative easing (bond purchasing) by the European Central Bank, has resulted in the yield on the bellwether US 10 Year Treasury Bond to fall despite the specter of the Fed moving rates up. After all, given a choice, with the German 10 Year Bund yielding only 0.26%, what rational investor wouldn't rather purchase a US 10Year yielding 2.11%? In short, I am seeing conflicting signals; signals which produced last week's volatility in both the stock and bond markets. "I hate these blurred lines." Wanting to avoid "getting blasted" by a precipitous rate hike (and price drop) which could come if the FOMC's communique next week bespeaks a June rate increase, I reduced my exposure to interest-rate-sensitive securities such as preferred stock closed end funds, real estate investment trusts and utilities. I may repurchase all that I sold this week as early as next week depending on the outcome of the FOMC meeting. I held most of these in tax deferred retirement accounts so the only costs associated with the sale were some modest trading fees ($7-9/transaction) and the off-chance of rapid capital appreciation.
With Marvin Gaye so prominent in the news this week, I sought inspiration from his song titles. The "Blurred Lines" described above make it nearly impossible to determine "What's Going On". Having "All I Need to Get By", I don't need to speculate. So instead of relying on what "I've Heard Through the Grapevine", I decided to "Give It Up"--for a short while at least.
Saturday, March 7, 2015
March 7, 2015 Long Time Comin'
Risk/Reward Vol. 257
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Oh, bring it to me/Bring your sweet lovin'
Bring it on home to me."---lyrics from "Bring It On Home To Me" sung by Sam Cooke
"She's so European/She's one of a kind
And she's so European/I found out today."---lyrics from "She's So European" sung by KISS
"It's going down for real
It's going down for real"---lyrics from "GDFR" sung by Flo Rida
On Monday, the NASDAQ, the technology index, closed above 5000; up nearly 20% over the past 12 months and up 170% since I first began writing this blog in 2010. Oh, such "sweet lovin" it would have "brought home to me" had I invested in QQQ (the exchange traded fund that tracks the NASDAQ) back then. But the news of the NASDAQ attaining 5000 also "brought something else home to me,"--- very unpleasant memories. You see, it was March, 2000 when the NASDAQ last hit 5000. It has taken 15 years to reach that mark again. Back in March, 2000, I was a tech stock devotee and was riding very high. However within a matter of weeks of the NASDAQ hitting 5000, tech stocks generally and mine in particular (remember JDSUniphase, Nortel, Corning, etc.) began to fall. I rode them down to nearly nothing. That was a bitter lesson, but one I have not forgotten. That experience and the Crash of 2009 (which through dumb luck I avoided in its entirety ) have shaped my investment philosophy. Rule #1: Sell any stock before absorbing an 8% loss. Rule # 2: Never forget Rule #1.
If you read financial newspapers or blogs, you have noticed that nearly everyone is advocating exposure to European stocks. Many market gurus believe that the launching of quantitative easing there will have the same effect that it had here; to wit, to drive investors out of bonds and into equities. Indeed, if you have not noticed it before now, you are "finding out today" that Mrs. Market is "so European/She's so European." The exchange traded fund (ETF) that I use to invest in Europe, HEDJ, is up 18% year to date, and I continue to add positions. There are several other ETF's that invest in European stocks (e.g. Vanguard's VGK). I chose HEDJ because, as its name suggests, its holdings are hedged against the deflating Euro which now is worth only $1.08, its lowest point in 13 years.
Investing in oil became a bit riskier this week. Although the price of domestic crude held above $49/bbl., two news stories caused second thoughts in regard my re-entry into the sector. First, the storage facilities for domestic crude located at the US hub in Cushing, OK are nearing capacity. Should domestic oil supply outstrip storage capacity, the price of crude is "Going down for real/It's going down for real.". Some market watchers see a free fall to $25/bbl or lower. Second, the CEO of Exxon stated this week that investors should expect an extended period of depressed oil prices. The impact of hydraulic fracturing ("fracking") has yet to be fully felt even with the cutbacks in production announced recently by virtually every oil exploration and production company. Put simply, oil is becoming more plentiful everyday. I am keeping my oil stocks for now, but will watch crude prices like a hawk.
My discussion above of other market trends notwithstanding, I remain laser focused on the yield on the 10Year US Treasury ("10Year"). A better than expected jobs report on Friday and comments this week by several members of the Federal Reserve's Open Market Committee (FOMC) improved the odds that a rate increase will come as soon as June. The yield on the 10Year is now so portending as it skyrocketed to 2.24% on Friday, its highest close since December 26, 2014. Oh, and don't tell me that the major indices are not impacted by the yield on the 10Year as the Dow Jones Industrial Average gave up 279 points on Friday. It now stands where it was at year end 2014. The FOMC meeting on March 17-18 could be very telling on the timing of any rate increase; so much so that in advance of it, I may reduce temporarily my exposure to the most interest rate sensitive portion of my portfolio. To quote Sam Cooke, when it comes to any interest rate increase
"It's been a long time, a long time coming
But I know a change gonna come, oh yes it will."
And despite my heretofore belief to the contrary, it is looking more and more like it will come in June.
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Oh, bring it to me/Bring your sweet lovin'
Bring it on home to me."---lyrics from "Bring It On Home To Me" sung by Sam Cooke
"She's so European/She's one of a kind
And she's so European/I found out today."---lyrics from "She's So European" sung by KISS
"It's going down for real
It's going down for real"---lyrics from "GDFR" sung by Flo Rida
On Monday, the NASDAQ, the technology index, closed above 5000; up nearly 20% over the past 12 months and up 170% since I first began writing this blog in 2010. Oh, such "sweet lovin" it would have "brought home to me" had I invested in QQQ (the exchange traded fund that tracks the NASDAQ) back then. But the news of the NASDAQ attaining 5000 also "brought something else home to me,"--- very unpleasant memories. You see, it was March, 2000 when the NASDAQ last hit 5000. It has taken 15 years to reach that mark again. Back in March, 2000, I was a tech stock devotee and was riding very high. However within a matter of weeks of the NASDAQ hitting 5000, tech stocks generally and mine in particular (remember JDSUniphase, Nortel, Corning, etc.) began to fall. I rode them down to nearly nothing. That was a bitter lesson, but one I have not forgotten. That experience and the Crash of 2009 (which through dumb luck I avoided in its entirety ) have shaped my investment philosophy. Rule #1: Sell any stock before absorbing an 8% loss. Rule # 2: Never forget Rule #1.
If you read financial newspapers or blogs, you have noticed that nearly everyone is advocating exposure to European stocks. Many market gurus believe that the launching of quantitative easing there will have the same effect that it had here; to wit, to drive investors out of bonds and into equities. Indeed, if you have not noticed it before now, you are "finding out today" that Mrs. Market is "so European/She's so European." The exchange traded fund (ETF) that I use to invest in Europe, HEDJ, is up 18% year to date, and I continue to add positions. There are several other ETF's that invest in European stocks (e.g. Vanguard's VGK). I chose HEDJ because, as its name suggests, its holdings are hedged against the deflating Euro which now is worth only $1.08, its lowest point in 13 years.
Investing in oil became a bit riskier this week. Although the price of domestic crude held above $49/bbl., two news stories caused second thoughts in regard my re-entry into the sector. First, the storage facilities for domestic crude located at the US hub in Cushing, OK are nearing capacity. Should domestic oil supply outstrip storage capacity, the price of crude is "Going down for real/It's going down for real.". Some market watchers see a free fall to $25/bbl or lower. Second, the CEO of Exxon stated this week that investors should expect an extended period of depressed oil prices. The impact of hydraulic fracturing ("fracking") has yet to be fully felt even with the cutbacks in production announced recently by virtually every oil exploration and production company. Put simply, oil is becoming more plentiful everyday. I am keeping my oil stocks for now, but will watch crude prices like a hawk.
My discussion above of other market trends notwithstanding, I remain laser focused on the yield on the 10Year US Treasury ("10Year"). A better than expected jobs report on Friday and comments this week by several members of the Federal Reserve's Open Market Committee (FOMC) improved the odds that a rate increase will come as soon as June. The yield on the 10Year is now so portending as it skyrocketed to 2.24% on Friday, its highest close since December 26, 2014. Oh, and don't tell me that the major indices are not impacted by the yield on the 10Year as the Dow Jones Industrial Average gave up 279 points on Friday. It now stands where it was at year end 2014. The FOMC meeting on March 17-18 could be very telling on the timing of any rate increase; so much so that in advance of it, I may reduce temporarily my exposure to the most interest rate sensitive portion of my portfolio. To quote Sam Cooke, when it comes to any interest rate increase
"It's been a long time, a long time coming
But I know a change gonna come, oh yes it will."
And despite my heretofore belief to the contrary, it is looking more and more like it will come in June.
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