THIS IS NOT INVESTMENT OR TAX ADVICE. THIS IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN
"The restatement of the obvious is the first duy of intelligent men"---George Orwell
"The obvious is that which is never seen until someone expresses it simply"---Kahlil Gibran (again)
Last fall, hedge fund billionaire David Tepper was the guest host on "Squawk Box". When asked about the secret of his success, he responded that he grasped the significance of the obvious. In 2009, he understood that the US government meant what it said when it stated that it would support the 4 large money center banks and AIG. He bought the preferreds and bonds of these instituions at penny's on the dollar and hit a homerun. When asked what was obvious at the time of the interview, he said that the announced intention of the Fed to do quantitative easing (keep interest rates very low by buying Treasuries) was intended to push investors into equities because no one would tolerate near zero returns on Treasuries or bank cd's. Therefore, he was long on equities---he was right--see interview here. http://www.dailyfinance.com/story/investing/hedge-fund-titan-david-tepper-pounds-the-table-for-stocks/19647953/
What is obvious today?
1) The demand for electricity world wide grows at 2.5% annually. Currently, 18% of that demand is met with nuclear power (78% of France's needs; 28 % of Japan's-pre tsunami; 20% of US's). 20% of worldwide demand is met by hydro. Over 60% is met by fossil fuel---coal, nat gas and oil. "Alternative" sources (wind, solar, etc.) account for less than 1%. Post tsunami, IT IS OBVIOUS TO ME that nuclear will not grow--indeed I believe it will shrink as a percentage especially when you consider that no new nuclear facilities have been built in the US since 1979 and 64 of the 104 plants here are operating beyond their 40 year useful life. Likewise, the environmental problems associated with hydro dams will delay any signficant growth of this source. The last major dam was built in 1968 and US reliance on hydro for electricity has fallen from 40% to less than 7%.
2)From the above, IT IS OBVIOUS TO ME that over the next several years investment in fossil fuels and the means of extracting same are good bets. I know this was a theme last week as well, but it continues to stare me in the face. Oil is in demand for purposes other than electricity generation e.g. gasoline. (China produced 5000 cars in 1980 and 11,000,000 in 2010. That said, there are only 125 autos/1000people in China while in the US the ratio is 850 auto/1000people). Natural gas is expensive to transport internationally. It must be converted to a liquid form (LNG) for oceanic transport then regasified once it lands. (Note: Golar LNG (GLNG) a LNG shipping company is up 34% since March 1st.). Ironically, natural gas transported domestically (by pipeline) is very cheap having fallen from $13 in 2008 to a current $4 per million BTU. Once again, coal seems like the winner, at least for the generation of electricity. I will continue to add CAT, BTU, NSC and BCF on pullbacks. Does anyone else have a good play?
3)IT IS OBVIOUS TO ME that the dollar is weak and will become weaker. If the international scene were a bit clearer, I would reduce my 25% cash position. Ironically, for people of a certain age (say 60 or older), the end of the Fed's quantative easing (which currently is scheduled to stop in June) combined with the exit of Japan as the third largest purchaser, behind the Fed and China, of Treasury securities (that money needed to rebuild its infrastructure) will likely cause the rates paid on Treasuries to rise sharply making them once again attractive for yield hunters like me looking for a "secure" cash equivalent.
Lastly, it strikes me that I have not updated my readers on my holdings. Attached find a list with dates of purchase. Most of them reside in one of four Baskerville accounts. Those are ones engineered to give an annual yield of 7% (like the solution of cocaine used by Sherlock Holmes). Those listed below line 169 on the spreadsheet are housed in the Cloncs account which is designed for principal appreciation, not current yield.
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