THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN
"If I could turn, turn back the hands of time. Then, Darlin' (dollars) you'd still be mine."---R. Kelly
OUCH! The sky was falling! (See last week's edition below)
The Dow drops for the sixth week in a row, closes below 12,000 for the first time since March and flashes no good news. Knowing what I know now, I would have "raised cash" (read, sold) last week. It is NEVER too late to do that, however.
I was forced out of only one company, a speculative real estate investment trust(REIT) by the 8% loss rule (IStar preferreds Series I and E), but I decided not to wait on others. I dumped my newly acquired business development plays, PSEC and FSC (discussed a few weeks ago) and Commonwealth, another REIT. I own several REITs and will likely reduce exposure in this sector over time.
In light of continuing negative news out of China, I exited large positions in natural gas (KYN) and commodity (BCF) funds, and in coal transporter Norfork Southern. If the slowdown in Chinese real estate development is the start of a bubble burst, it could have the same effect that the bursting of the bubble in US consumerism (fed by easy credit) had in 2008. For the first time, I am open to the possibility that we could be headed to a second dip of world wide recession. Even a modest slow down in China has had a negative impact on most commodities--especially copper. Copper also took a jolt this week with the election of the leftist candidate as president of Peru, the second largest copper exporter. He ran on the promise to significantly raise taxes on copper miners.
In addition, OPEC met last week and decided not to "collectively" increase the supply of oil, despite a world wide shortage caused in part by the lessening of supply from Lybia. Saudi Arabia may ignore the vote and unilaterally increase supply, but one does not know for certain. I took profits in Chevron, Conoco-Phillips, and BP and may shed my last "big oil" holding in Shell. Ironically, the uncertainty in the world oil market resulted in an increase this week in my small, domestic plays such MHRpC and D, GMXRp and Sabine (SBR)--you are welcome unnamed subscriber. With domestic oil production literally piling up in the central storage facilities in Cushing, OK (where most oil pipelines terminate), a historic divergence in the price of West Texas Crude (WTI), priced at Cushing, and Brent Crude, priced in London, has occurred. Many transport companies are hurrying to find ways to exit crude out of Cushing and down to Houston so as to open a new intermediary pricing location. Thus, this may be a good time to buy Energy Transport Partners (ETP), which has taken a beating lately but which actually gained last week. It is one of the companies building such a Cushing-Houston pipeline. Its CEO was interviewed this week on Cramer and made a very strong statement about the continuing vitality of its 7.5+% dividend. I have not bought yet, but may---always looking for a silver lining.
I took a beating this week, for sure, but still am up 8% for the past six months with my "widow and orphans" stocks holding ground. This means that I have given back 20% of my gains (10%-8%=2%/10%=20%) Thus, I am in a profit taking mood, and certainly a loss prevention one. I don't need to be greedy--plus a few more weeks like this and all my gains will be a fleeting memory. I like cash today--and likely will like cash/profits next May when the adage discussed last week is ripe for review.
So, all of you Jacks, be nimble, I say---and avoid the flame. (Note the shameless mix of nursery rhymes and fables)
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN
"Sell in May and go away"---Investment Adage
"The sky is falling in! The sky is falling in!"--Chicken Little
"Know when to hold 'em, know when to fold 'em, know when to walk away"---Kenny Rogers
Conventional wisdom preaches that the summer months are not great for investors: that most money is made in the period November through April. Nothing about this year disproves this adage. The Dow fell for the fifth consecutive week; sinking 2.3% just last week and over 5% since the end of April. With disappointing news on the jobs front, a slowdown in growth in China, a debt crisis in Europe, stubbornly high gasoline prices and a game of "bluff poker" being played in D.C. over our debt ceiling, there is no reason for optomism.
But what to sell? Due to the makeup of my five Baskerville portfolios (purpose: 7% annual return), I have actually been positive 3 of the 5 weeks as investors seek safer returns. I am down a total of 1/2 of 1% (0.4% to be precise) over the past 5 weeks across my entire holdings. As reported over that time period, I have shed most of my "growth" stocks (primarily tech) housed in the Cloncs Fund (purpose: principal appreciation). What is left in Cloncs are staples (Coke, Yum (KFC)), energy plays (Chevron, BP, Conoco-Phillips and Norfolk Southern) and gold. Frankly, the preponderance of "widow and orphan" high yielding common stocks (tobacco, utilities, telecoms, etc), preferred shares ( financials, insurance and energy exploration), real estate investment trusts, oil trusts, and exchange traded debt (insurance and financials) housed in the Baskervilles have worked as designed. The 5% negative correction in the Dow over the past five weeks, in light of the huge run up from November through April (I am still up over 10% for that period), does not seem out of line considering the adage above and the steady stream of bad news. As a consequence, I am holdin'---at least for now.
On a longer horizon, I do have concerns.
One is whether China is ready to re-accelerate its economy. A series of articles in the Financial Times this week was very illuminating on the tug of war at play between the hard line communists and the capitalists (who have held sway for the past several years). This struggle is not over, and how it unfolds has huge implications considering how much the world has come to rely on China's economy as it transitions from an exporter to a consumer. A slowdown in housing development, alone, in China (which accounts for a huge percentage of its steel and copper consumption) could rock the world--literally. China consumes for use or production nearly 50% of several of the world's commodities---cement, iron ore, coke, steel and copper. Think what a slow down in those items would bring.
A second concern is the growing drumbeat by environmentalist here and abroad over "fracking". This is the revolutionary drilling technique that is used to extract oil and natural gas (including liquids) from shale. It promises to be one avenue of energy independence for America, unless derailed by heretofore groundless environmental concerns. Keep a vigilant eye on this.
Good luck, Henny Penny (Turkey Lurkey and Foxy Woxy, as well)!!!
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