RiskReward Vol. 335
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
I am at the Denver airport awaiting the arrival of my son in law. We are headed to the mountains for a few days of skiing. This will be short.
Eight weeks ago, who predicted that the two major indices would experience double digit returns for the year? Up to election day, no one. I repeat no one. It is this unpredictability which several years ago gave rise to the 60/40 Rule---60% stocks and 40% bonds until retirement and then a reversal of the ratio. But with only paltry returns available in bonds these past eight years, most investors have abandoned this formula in favor of an all stock portfolio, often indexed. Those who chose that route have been rewarded handsomely as the Dow Jones Industrial Average has tripled since hitting a trough in March, 2009.
But is this a wise strategy going forward? Maybe, but not for me. Predictability is far more important for one who got burned in the DotCom crash and who avoided the 2008-2009 downdraft---mostly by luck. At age 65, I just cannot stomach another equity roller coaster ride. That is why, lo these past six years, I have been working on a more predictable strategy. As explained in the past, I have come to believe that one can achieve an acceptable return by focusing, singularly, on the yield on the 10Year US Treasury Bond (the nearest to a risk-free investment) and trading or investing in securities that are priced in relation thereto. My favorite correlates are preferred stocks and preferred stock closed end funds. This is how the strategy unfolded in the latter half of the year. The election notwithstanding, it was predictable, as early as this summer, that the yield on the 10Year would increase come December when the Federal Reserve met. Accordingly, when the yield on the 10Year dropped to near record lows causing those securities correlated thereto to reach near record highs (remember when the yields on bonds and those correlated thereto fall, their prices increase) , I sold, reaped a profit and awaited the re-pricing that inevitably would follow any rate increase. This gamut was explained at the time I sold back in July. See Vol. 316 Riskrewardblog . The anticipated re-pricing occurred in spades as Trump's election combined with the Fed's rate hike caused the yield on the 10Year to spike over 40%. I then re-entered. As I now sit, I will achieve an acceptable (6+%) return if 1) the yield on the 10Year remains in its current range or 2) that rate falls. I lose only if the yield increases significantly which is unlikely given its recent meteoric rise and the downward pressure from foreign sovereign bonds which I described in Vol. 333. If the yield does begin to increase, I will sell well before experiencing any significant loss.
Sorry this is so dense. I have little time to edit but wanted to capture my year end thoughts.
Happy New Year.
Saturday, December 31, 2016
Saturday, December 24, 2016
December 24, 2016 Back In The Saddle
Risk/Reward Vol. 334
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
Given tomorrow's schedule, I decided to publish one day early.
As noted each week, this publication does not render tax advice. That said, on Tuesday I was reminded, via a telephone conversation with the most successful fixed income investor I know, that tax considerations can and should come into play when purchasing fixed income securities. I purchase most of these in our tax deferred retirement accounts of which Barb and I have several. Since these accounts are tax deferred, I pay little attention to how the distributions from each are characterized. However, were one to own these in a taxable account, one may wish to prioritize the purchase of those securities paying "qualified dividends" (such as bank preferreds) since generally they are taxed at a lesser rate than ordinary income. The distributions from non-qualified securities (such as the preferred stocks of real estate investment trusts, closed end preferred stock funds and any exchange traded debt) are taxed at one's marginal rate. A quick way to ascertain if a distribution is qualified is to read the precis of its prospectus found at www.quantumonline.com
Speaking of taxable accounts Barb and I have five. Two are for cash and legacy holdings. Two are in the hands of two investment advisors. And I manage one. The one I manage is reserved for cash, for tax advantaged securities (municipal bond funds, primarily) and for those investments that are unsuited for retirement accounts (e.g. master limited partnerships). This last category can be a sticky wicket. That is why I recommend retaining a knowledgeable tax consultant/preparer to anyone wishing to play the game as I do.
As foretold in the last edition, I entered the market in force this week. I deployed a third of the funds that I manage. I concentrated on preferred stocks and exchange traded debt. Each averages annual distributions in excess of 6%, and all were purchased below par. In addition, I bought leveraged closed end funds yielding above 8% but trading below net asset value. I also bought oil company stocks. I was asked whether I foresaw holding any of these for a prolonged period. My response was consistent with my philosophy: to wit, I seek a 6% annual return with the least amount of risk. If I achieve that return via capital appreciation in a matter of a few weeks or months (as I did last year), I will sell. Or if I perceive a marked downturn in the value of what I bought, I will sell. Frankly, for the reasons stated last week (in particular the forces that should moderate further upward movement in the yield on 10Year US Treasury Bond) I see a period of stability in the securities I now own. If that is the case, I will hold them indefinitely and harvest my 6% return via distributions (and not capital appreciation).
The most speculative purchases I made this week were some closed end municipal bond funds. I say speculative, not because of any underlying credit risk, but due to the uncertainty surrounding President-elect Trump' s plans for income taxes. Any significant decrease in the individual marginal rate traditionally decreases the value of muni's. That said, they just seem oversold. Getting a 6% tax preferred return on a portfolio of bonds trading well below their net asset value was too good to resist. Helping me make the decision was a well reasoned article from Columbia Threadneedle which I follow on Twitter. For those of you who do not tweet, I highly recommend opening an account and following your favorite investment gurus (in addition to PEOTUS). In addition to Twitter, I derive a great deal of investment news across a variety of social media outlets such as my CNBC and Seeking Alpha apps.
For those who observe, Merry Christmas and/or Happy Hanukkah. To all others, enjoy your holiday
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
Given tomorrow's schedule, I decided to publish one day early.
As noted each week, this publication does not render tax advice. That said, on Tuesday I was reminded, via a telephone conversation with the most successful fixed income investor I know, that tax considerations can and should come into play when purchasing fixed income securities. I purchase most of these in our tax deferred retirement accounts of which Barb and I have several. Since these accounts are tax deferred, I pay little attention to how the distributions from each are characterized. However, were one to own these in a taxable account, one may wish to prioritize the purchase of those securities paying "qualified dividends" (such as bank preferreds) since generally they are taxed at a lesser rate than ordinary income. The distributions from non-qualified securities (such as the preferred stocks of real estate investment trusts, closed end preferred stock funds and any exchange traded debt) are taxed at one's marginal rate. A quick way to ascertain if a distribution is qualified is to read the precis of its prospectus found at www.quantumonline.com
Speaking of taxable accounts Barb and I have five. Two are for cash and legacy holdings. Two are in the hands of two investment advisors. And I manage one. The one I manage is reserved for cash, for tax advantaged securities (municipal bond funds, primarily) and for those investments that are unsuited for retirement accounts (e.g. master limited partnerships). This last category can be a sticky wicket. That is why I recommend retaining a knowledgeable tax consultant/preparer to anyone wishing to play the game as I do.
As foretold in the last edition, I entered the market in force this week. I deployed a third of the funds that I manage. I concentrated on preferred stocks and exchange traded debt. Each averages annual distributions in excess of 6%, and all were purchased below par. In addition, I bought leveraged closed end funds yielding above 8% but trading below net asset value. I also bought oil company stocks. I was asked whether I foresaw holding any of these for a prolonged period. My response was consistent with my philosophy: to wit, I seek a 6% annual return with the least amount of risk. If I achieve that return via capital appreciation in a matter of a few weeks or months (as I did last year), I will sell. Or if I perceive a marked downturn in the value of what I bought, I will sell. Frankly, for the reasons stated last week (in particular the forces that should moderate further upward movement in the yield on 10Year US Treasury Bond) I see a period of stability in the securities I now own. If that is the case, I will hold them indefinitely and harvest my 6% return via distributions (and not capital appreciation).
The most speculative purchases I made this week were some closed end municipal bond funds. I say speculative, not because of any underlying credit risk, but due to the uncertainty surrounding President-elect Trump' s plans for income taxes. Any significant decrease in the individual marginal rate traditionally decreases the value of muni's. That said, they just seem oversold. Getting a 6% tax preferred return on a portfolio of bonds trading well below their net asset value was too good to resist. Helping me make the decision was a well reasoned article from Columbia Threadneedle which I follow on Twitter. For those of you who do not tweet, I highly recommend opening an account and following your favorite investment gurus (in addition to PEOTUS). In addition to Twitter, I derive a great deal of investment news across a variety of social media outlets such as my CNBC and Seeking Alpha apps.
For those who observe, Merry Christmas and/or Happy Hanukkah. To all others, enjoy your holiday
Sunday, December 18, 2016
December 18, 2016 Re-entry
Risk/Reward Vol. 333
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
And so the Trump Rally continues as both major stock indices are up double digits year to date. But for me the stunning movement in Treasury securities, in particular movement in the 10 Year US Treasury Bond (10Year), is where I see opportunity. As loyal readers know, I invest based upon signals emanating from the 10Year. Its movement since the election has been nothing short of spectacular. Its yield has skyrocketed 44% since early November which in turn has caused a massive reset of myriad securities priced in relation thereto. With Mr. Market's rotation out of bonds and into stocks slowing, with the Fed funds rate increase on Wednesday and with the Fed signaling, via its "dot plot", three 25 basis point raises next year, one can anticipate that the rate on the 10Year will stabilize between 2.5 and 2.75% for the foreseeable future. Adding stability is the massive 230 basis point spread between the yield on the 10Year and the yield on the German Bund, a gulf that has not been seen since the fall of the Berlin Wall in 1989. I foresee a prolonged period where foreign investors will seek better returns by buying US Treasury securities thus dampening yield increases. (Remember the more demand for a bond the higher the price and the lower the yield.). This move already has begun as indicated by the dollar/Euro exchange rate (which now sits at $1.04) as investors sell Euro bonds, buy dollars and invest in Treasuries. This combination of events is what I have been awaiting and had it not been for a day spent earning CLE credits, I would have entered in force on Friday. I will buy on Monday.
So is my re-entry wholly dependent upon the rate on the 10Year stabilizing? No, Why not? Harken back to June, 2010, Vol. 1 www.riskrewarblog.blogspot.com . Therein I wrote the following:
"...I am in search of a 6%, pre tax return. Throughout most of my life, this would have been a layup. From 1969 through 1997, the 10 Treasury rarely fell below 6%. From 1980 through 1985, it never fell below 10%. So, at this stage in my life all I need is a little inflation. Indeed, right now 90% of my money is parked, waiting for that to happen. Unfortunately, it looks like we are into a prolonged period of stagflation and perhaps deflation. So, Barb and I decided to get off our duffs, and to become more active money managers..."
I have achieved that goal since, but only through trial and error and darting in and out of the market. Now, with the Federal Reserve raising rates for only the second time in ten years, with the prospect of the heavy foot of regulation off of the throats of financial institutions, with unemployment below 5%, with re-inflation a real possibility and with the stock market hitting record highs, reasonably safe 6% returns are available for the first time in several years. The repricing of securities which I noted above has resulted in the availability of investment grade or near investment grade bond like securities issued by reputable (some blue chip) institutions at or below par. Most are preferred stocks or exchange traded debt instruments. Check out SOJB, KYYPP, COFF COFP, AXSD, AHTG, ACGLP, AHLD, ASBD, BACD, CTBB, CTY, WFCW , and the exchange traded fund PGX just to name a few. They are listed daily on the Wall Street Journal Preferred Stock Closing Table, available free of charge. This means I can now enjoy a 6+% annual return from very safe investments without the fear that they will be redeemed at a price less than what I paid (such securities are redeemable, but at par, not below). For an even better return, I plan to purchase some leveraged closed end preferred stock funds such as HPF, HPS, HPI, JPC and DFP. For more information on these take a look at CEF Connect at www.cefconnect.com . In my opinion several are very oversold. Currently, they yield in excess of 8%. Due to the leverage employed (each borrows up to 30% of net asset value which is used to reinvest in additional preferred issues), they are more rate sensitive than individual preferred issues or unleveraged funds. However, they are currently on sale at deep discount which provides a layer of downside protection. Several real estate investment trusts also have repriced into zones that are very appealing. And for my taxable account, several municipal bond closed end funds are ripe for the picking. In sum, in the span of one month I have gone from wanting no securities to desiring more than I can manage.
I will also buy oil companies next week. OPEC's decision to limit production ten days ago plus Russia's unilateral decision to impose production limits will redound to the benefit of both domestic and international producers. I have not decided on which but included will be Shell. The stabilization of oil prices has contributed mightily to the safety of its nearly 7% dividend.
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
And so the Trump Rally continues as both major stock indices are up double digits year to date. But for me the stunning movement in Treasury securities, in particular movement in the 10 Year US Treasury Bond (10Year), is where I see opportunity. As loyal readers know, I invest based upon signals emanating from the 10Year. Its movement since the election has been nothing short of spectacular. Its yield has skyrocketed 44% since early November which in turn has caused a massive reset of myriad securities priced in relation thereto. With Mr. Market's rotation out of bonds and into stocks slowing, with the Fed funds rate increase on Wednesday and with the Fed signaling, via its "dot plot", three 25 basis point raises next year, one can anticipate that the rate on the 10Year will stabilize between 2.5 and 2.75% for the foreseeable future. Adding stability is the massive 230 basis point spread between the yield on the 10Year and the yield on the German Bund, a gulf that has not been seen since the fall of the Berlin Wall in 1989. I foresee a prolonged period where foreign investors will seek better returns by buying US Treasury securities thus dampening yield increases. (Remember the more demand for a bond the higher the price and the lower the yield.). This move already has begun as indicated by the dollar/Euro exchange rate (which now sits at $1.04) as investors sell Euro bonds, buy dollars and invest in Treasuries. This combination of events is what I have been awaiting and had it not been for a day spent earning CLE credits, I would have entered in force on Friday. I will buy on Monday.
So is my re-entry wholly dependent upon the rate on the 10Year stabilizing? No, Why not? Harken back to June, 2010, Vol. 1 www.riskrewarblog.blogspot.com . Therein I wrote the following:
"...I am in search of a 6%, pre tax return. Throughout most of my life, this would have been a layup. From 1969 through 1997, the 10 Treasury rarely fell below 6%. From 1980 through 1985, it never fell below 10%. So, at this stage in my life all I need is a little inflation. Indeed, right now 90% of my money is parked, waiting for that to happen. Unfortunately, it looks like we are into a prolonged period of stagflation and perhaps deflation. So, Barb and I decided to get off our duffs, and to become more active money managers..."
I have achieved that goal since, but only through trial and error and darting in and out of the market. Now, with the Federal Reserve raising rates for only the second time in ten years, with the prospect of the heavy foot of regulation off of the throats of financial institutions, with unemployment below 5%, with re-inflation a real possibility and with the stock market hitting record highs, reasonably safe 6% returns are available for the first time in several years. The repricing of securities which I noted above has resulted in the availability of investment grade or near investment grade bond like securities issued by reputable (some blue chip) institutions at or below par. Most are preferred stocks or exchange traded debt instruments. Check out SOJB, KYYPP, COFF COFP, AXSD, AHTG, ACGLP, AHLD, ASBD, BACD, CTBB, CTY, WFCW , and the exchange traded fund PGX just to name a few. They are listed daily on the Wall Street Journal Preferred Stock Closing Table, available free of charge. This means I can now enjoy a 6+% annual return from very safe investments without the fear that they will be redeemed at a price less than what I paid (such securities are redeemable, but at par, not below). For an even better return, I plan to purchase some leveraged closed end preferred stock funds such as HPF, HPS, HPI, JPC and DFP. For more information on these take a look at CEF Connect at www.cefconnect.com . In my opinion several are very oversold. Currently, they yield in excess of 8%. Due to the leverage employed (each borrows up to 30% of net asset value which is used to reinvest in additional preferred issues), they are more rate sensitive than individual preferred issues or unleveraged funds. However, they are currently on sale at deep discount which provides a layer of downside protection. Several real estate investment trusts also have repriced into zones that are very appealing. And for my taxable account, several municipal bond closed end funds are ripe for the picking. In sum, in the span of one month I have gone from wanting no securities to desiring more than I can manage.
I will also buy oil companies next week. OPEC's decision to limit production ten days ago plus Russia's unilateral decision to impose production limits will redound to the benefit of both domestic and international producers. I have not decided on which but included will be Shell. The stabilization of oil prices has contributed mightily to the safety of its nearly 7% dividend.
Sunday, December 11, 2016
December 11, 2016 Fortune 100
Risk/Reward Vol. 332
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
And the beat goes on! Since Donald Trump's election, the Dow Jones Industrial Average is up a stunning 6.28% and the S&P 500 is up 4.5%. Year to date they are up 13.4% and 10.5% respectively. So, John, how does it feel to be on the sidelines? I am reminded of George Gobel's most famous line: "Did you ever get the feeling that the world was a tuxedo and you were a pair of brown shoes?" Well, that is how I feel. That said, this incredible run was predicted by no one. Indeed, as previously reported here, most financial mavens were predicting a market decline if Trump were elected. Is Mr. Market's reaction completely emotional or are there fundamental changes afoot which justify this upward move? I know that emotion plays some role in every human endeavor, but I would like to think Mr. Market is also rational. And I believe he is. Think about it. If you had invested several years and several billion dollars in a 1200 mile pipeline, consulted and reached agreement with 50 separate Indian tribes, been vetted and approved by several environmental agencies, overcome two major court challenges only to find that your President would not approve the last 1100 feet because a few hundred protestors objected to it crossing underneath a river that already has dozens of pipelines operating beneath it, wouldn't you think twice about building another? Well, that won't happen to ETP or any other company under Trump. Nor will a national minimum wage of $15, nor a Clean Air Act override of state air quality regulations. Maybe, just maybe "Making America Great Again" is not a white nationalist paen. Maybe it is intended to evoke images of a stronger Navy capable of maintaining order in the South China Sea. Maybe is about upgrading our roads and airports. Maybe it is about jawboning Carrier to keep jobs in America. Maybe the Department of Defense should be headed by a man whose nickname is "Mad Dog" instead of one named---what's that guy's name? Anyway, I am beginning to believe that Mr. Markets' enthusiasm is not only justified, but sustainable.
So why didn't American industrial leaders support Trump during the election? Well, this Dear Reader is the most underreported story of the post election stock boom. The reason is obvious to me. If you thought HRC was going to win and that Elizabeth Warren would control the Senate, you would have been a fool to support their opponents. What chance if any would the CEO of any major bank have to moderate the heavy regulations emanating from the Dodd-Frank Act if he/she supported a losing Trump? You think I am wrong? Check Fortune Magazine's report in October of this year. NOT ONE CEO OF A FORTUNE 100 COMPANY CONTRIBUTED TO TRUMP'S CAMPAIGN. NOT ONE. In 2012, Romney garnered the support of 33 of them. In 2016, HRC received contributions from more than twice the number that supported Obama in 2012. What do you think they think of Trump now? Freeing companies from the tyranny of regulation alone could be responsible for this tremendous gain. Who knew? More importantly, who reported it? Most importantly, why not? No wonder the main stream media is losing its influence.
The above notwithstanding, I am not going to chase Mr. Market. I remain resolute in my oft described strategy. It will not result in the spectacular return that equity index investors have seen these past four weeks, but it is predictable. And as so often written here, predictability is what I seek at this stage in my investing career. This is a big week for me. The Federal Reserve meets December 13 and 14 with a press release and news conference to follow. A rate increase is a virtual certainty. What I will be watching is the dot plot, the predictions of each FOMC member as to where interest rates will be over the next several months. In September (the last time the dot plot was published), the consensus was that there would only be two 25 basis point raises in 2017. I suspect this will be revised to 4 quarterly raises. Either way, I will await its announcement and then begin my re-entry. I have my selections picked and am anxious to return. I may even buy some oil related stocks as the price has stabilized above $50/bbl.
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
And the beat goes on! Since Donald Trump's election, the Dow Jones Industrial Average is up a stunning 6.28% and the S&P 500 is up 4.5%. Year to date they are up 13.4% and 10.5% respectively. So, John, how does it feel to be on the sidelines? I am reminded of George Gobel's most famous line: "Did you ever get the feeling that the world was a tuxedo and you were a pair of brown shoes?" Well, that is how I feel. That said, this incredible run was predicted by no one. Indeed, as previously reported here, most financial mavens were predicting a market decline if Trump were elected. Is Mr. Market's reaction completely emotional or are there fundamental changes afoot which justify this upward move? I know that emotion plays some role in every human endeavor, but I would like to think Mr. Market is also rational. And I believe he is. Think about it. If you had invested several years and several billion dollars in a 1200 mile pipeline, consulted and reached agreement with 50 separate Indian tribes, been vetted and approved by several environmental agencies, overcome two major court challenges only to find that your President would not approve the last 1100 feet because a few hundred protestors objected to it crossing underneath a river that already has dozens of pipelines operating beneath it, wouldn't you think twice about building another? Well, that won't happen to ETP or any other company under Trump. Nor will a national minimum wage of $15, nor a Clean Air Act override of state air quality regulations. Maybe, just maybe "Making America Great Again" is not a white nationalist paen. Maybe it is intended to evoke images of a stronger Navy capable of maintaining order in the South China Sea. Maybe is about upgrading our roads and airports. Maybe it is about jawboning Carrier to keep jobs in America. Maybe the Department of Defense should be headed by a man whose nickname is "Mad Dog" instead of one named---what's that guy's name? Anyway, I am beginning to believe that Mr. Markets' enthusiasm is not only justified, but sustainable.
So why didn't American industrial leaders support Trump during the election? Well, this Dear Reader is the most underreported story of the post election stock boom. The reason is obvious to me. If you thought HRC was going to win and that Elizabeth Warren would control the Senate, you would have been a fool to support their opponents. What chance if any would the CEO of any major bank have to moderate the heavy regulations emanating from the Dodd-Frank Act if he/she supported a losing Trump? You think I am wrong? Check Fortune Magazine's report in October of this year. NOT ONE CEO OF A FORTUNE 100 COMPANY CONTRIBUTED TO TRUMP'S CAMPAIGN. NOT ONE. In 2012, Romney garnered the support of 33 of them. In 2016, HRC received contributions from more than twice the number that supported Obama in 2012. What do you think they think of Trump now? Freeing companies from the tyranny of regulation alone could be responsible for this tremendous gain. Who knew? More importantly, who reported it? Most importantly, why not? No wonder the main stream media is losing its influence.
The above notwithstanding, I am not going to chase Mr. Market. I remain resolute in my oft described strategy. It will not result in the spectacular return that equity index investors have seen these past four weeks, but it is predictable. And as so often written here, predictability is what I seek at this stage in my investing career. This is a big week for me. The Federal Reserve meets December 13 and 14 with a press release and news conference to follow. A rate increase is a virtual certainty. What I will be watching is the dot plot, the predictions of each FOMC member as to where interest rates will be over the next several months. In September (the last time the dot plot was published), the consensus was that there would only be two 25 basis point raises in 2017. I suspect this will be revised to 4 quarterly raises. Either way, I will await its announcement and then begin my re-entry. I have my selections picked and am anxious to return. I may even buy some oil related stocks as the price has stabilized above $50/bbl.
Sunday, December 4, 2016
December 4, 2016 Trudeau
Risk/Reward Vol. 331
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
Here are some observations.
The Trump Stock Rally continues. Each day the major indices flirt with record highs. More importantly, Mr. Market is not slavishly following and reacting to the every word of the Federal Reserve. Monetary policy no longer rules the roost. The prospect of fiscal stimuli in the form of repatriation of overseas dollars, tax reform and infrastructure spending has spurred a rotation out of bonds and equities.
Assisting the Rally was news this week that OPEC agreed to limit production to 32.5million barrels/day, a 4.5% reduction. The reaction was immediate. Heretofore see-sawing oil prices spiked 10% and now have found stability above $50/bbl. This is a key level for oil company profitability. Accordingly, worldwide oil stocks soared with personal favorites BP gaining, 3.5%, RDS (Shell) gaining 3.8% and PAA gaining 4% this week alone. These huge gains notwithstanding many oil companies are still inexpensive. RDS's and BP's dividends are both near 7%. I am looking to buy on any pull back.
The Trump Stock Rally is also the Trump Bond Rout. As of Thursday, the yield on the 10YearUS Treasury Bond had spiked 36% since the election (2.45%-1.80%= 65bp/180bp=36%). (REMEMBER: higher yields mean lower prices.) Friday saw this moderate a bit, but not enough to reverse the trend. November was the worst performing month for U S Treasury bonds since 1990. And it was not much better for municipal bonds. They experienced their worst month since 2008 when Mr. Market feared several cities would declare bankruptcy.
The move away from globalization and toward nationalism which started with Brexit and accelerated with Trump's election may not be running out of steam. Little noticed this past week in the US was the victory in France's presidential primary achieved by Francois Fillon. Fillon is a staunch conservative who fancies himself the new Margaret Thatcher. He promises to reduce France's bloated bureaucracy, to protect its borders, to raise the retirement age to 65 and to govern consistent with France's traditional, Catholic values. His victory means that the two most likely frontrunners will be him and Marine LePen who is so far right she is deemed a neo-Fascist by much of the world's press. Couple this development with what could be a disruptive referendum to be held today in Italy and the future of the Eurozone becomes very cloudy. Keep your eye on the Euro which is now at $1.06.
Have you been following the excoriation of Justin Trudeau since he tweeted his encomium to Fidel Castro last Sunday? If not , I suggest you read some very acerbic cuts at # trudeaueulogies and similar Twitter communities. HIs comeuppance at the hand of the Twittersphere is just one more example of how powerful social media is and how irrelevant the fawning main stream press has become. Think not? Just ask Donald Trump. I write about Canada's Prince Charming Prime Minister not to add to his humiliation, but to note how even he knows where is bread is buttered. Pretending to be a climate protector, this week he approved two massive pipeline projects which will nearly double the export of oil from Alberta. Alberta's oil is deemed the least climate friendly source of petroleum in the world, a fact which has held up the Keystone pipeline in the US since the beginning of the Obama presidency. Clearly, even Justin recognizes the need for North American energy independence, something our Fearless Leader has failed to pursue despite having the means to do so. This should be a Day 1 priority for DT.
So what does this all mean? I see the US stock market maintaining its gains if not adding to them. I see the rotation out of bonds and into equities abating with some stability returning to bonds and other interest rate sensitive securities . A key indicator of this will be the market's reaction to the Federal Reserve's now certain rate increase set for later this month and what is contained in its post meeting press release. Likely, that will be the time I re-enter in force. I have my list of preferred stocks, closed end funds and REIT's already selected for my tax deferred accounts. For my taxable account, I have a long list of leveraged municipal bond closed end funds queued for purchase. This sector has been decimated recently and looks very inviting.
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
Here are some observations.
The Trump Stock Rally continues. Each day the major indices flirt with record highs. More importantly, Mr. Market is not slavishly following and reacting to the every word of the Federal Reserve. Monetary policy no longer rules the roost. The prospect of fiscal stimuli in the form of repatriation of overseas dollars, tax reform and infrastructure spending has spurred a rotation out of bonds and equities.
Assisting the Rally was news this week that OPEC agreed to limit production to 32.5million barrels/day, a 4.5% reduction. The reaction was immediate. Heretofore see-sawing oil prices spiked 10% and now have found stability above $50/bbl. This is a key level for oil company profitability. Accordingly, worldwide oil stocks soared with personal favorites BP gaining, 3.5%, RDS (Shell) gaining 3.8% and PAA gaining 4% this week alone. These huge gains notwithstanding many oil companies are still inexpensive. RDS's and BP's dividends are both near 7%. I am looking to buy on any pull back.
The Trump Stock Rally is also the Trump Bond Rout. As of Thursday, the yield on the 10YearUS Treasury Bond had spiked 36% since the election (2.45%-1.80%= 65bp/180bp=36%). (REMEMBER: higher yields mean lower prices.) Friday saw this moderate a bit, but not enough to reverse the trend. November was the worst performing month for U S Treasury bonds since 1990. And it was not much better for municipal bonds. They experienced their worst month since 2008 when Mr. Market feared several cities would declare bankruptcy.
The move away from globalization and toward nationalism which started with Brexit and accelerated with Trump's election may not be running out of steam. Little noticed this past week in the US was the victory in France's presidential primary achieved by Francois Fillon. Fillon is a staunch conservative who fancies himself the new Margaret Thatcher. He promises to reduce France's bloated bureaucracy, to protect its borders, to raise the retirement age to 65 and to govern consistent with France's traditional, Catholic values. His victory means that the two most likely frontrunners will be him and Marine LePen who is so far right she is deemed a neo-Fascist by much of the world's press. Couple this development with what could be a disruptive referendum to be held today in Italy and the future of the Eurozone becomes very cloudy. Keep your eye on the Euro which is now at $1.06.
Have you been following the excoriation of Justin Trudeau since he tweeted his encomium to Fidel Castro last Sunday? If not , I suggest you read some very acerbic cuts at # trudeaueulogies and similar Twitter communities. HIs comeuppance at the hand of the Twittersphere is just one more example of how powerful social media is and how irrelevant the fawning main stream press has become. Think not? Just ask Donald Trump. I write about Canada's Prince Charming Prime Minister not to add to his humiliation, but to note how even he knows where is bread is buttered. Pretending to be a climate protector, this week he approved two massive pipeline projects which will nearly double the export of oil from Alberta. Alberta's oil is deemed the least climate friendly source of petroleum in the world, a fact which has held up the Keystone pipeline in the US since the beginning of the Obama presidency. Clearly, even Justin recognizes the need for North American energy independence, something our Fearless Leader has failed to pursue despite having the means to do so. This should be a Day 1 priority for DT.
So what does this all mean? I see the US stock market maintaining its gains if not adding to them. I see the rotation out of bonds and into equities abating with some stability returning to bonds and other interest rate sensitive securities . A key indicator of this will be the market's reaction to the Federal Reserve's now certain rate increase set for later this month and what is contained in its post meeting press release. Likely, that will be the time I re-enter in force. I have my list of preferred stocks, closed end funds and REIT's already selected for my tax deferred accounts. For my taxable account, I have a long list of leveraged municipal bond closed end funds queued for purchase. This sector has been decimated recently and looks very inviting.
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