Risk/Reward Vol. 90
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Oh, yes, I like it/Screaming like never before
Baby, I like it, I like it/Party, karamu, fiesta, forever"--Lyrics from "I Like It" from Enrique Iglesias' album "Euphoria"
"Angie, Angie/ When will those clouds all disappear?
Angie, Angie/ Where will it lead us to from here?"--Lyrics from "Angie" by the Rolling Stones
"This is my quest, to follow that star
No matter how hopeless/ No matter how far"--Lyrics from "Impossible Dream" from musical "Man of LaMancha"
With the markets experiencing the best month in decades, it is safe to say that "Euphoria" reigns. After months of uncertainty, SOME clarity was brought to the European sovereign debt/bank crisis this week. Oh, you don't need the wisdom of Yogi to realize "that it ain't over 'til its over" (which also makes baseball so great; note Game 6!). But, real commitment has been exhibited by the stakeholders; sufficient to give heart to a market that otherwise was ready to roar based upon good corporate earnings and news that the US economy grew at an annualized rate of 2.5% in Q3. The European deal announced Wednesday has the following components: 1) institutional holders taking a 50% haircut on Greek debt (YIKES!--can you imagine that on US Savings bonds?); 2) European banks compensating for sovereign debt writedowns by raising 106 billion Euros in "new" capital; 3) the direct subsidy to Greece being increased to 130billion Euros; and 4) the EFSF being leveraged to 1trillion Euros presumably by allowing it to "insure" a set percentage of sovereign debt.
Frankly, the above represents a significant accomplishment and great praise is due to "Angie" Merkel. Principled leadership is to be admired--we sure could use some back home. Germany's newest Iron Chancellor held tough in insisting that Germany would not contribute one more Euro unless and until private bondholders shared in the pain----and a 50% haircut is really painful! My goodness, yesterday Sarkozy went on French national television and told his people they must become "more German" (starting with repealing the 35 hour work week). Barry, how about delivering the same message-- instead of villifing success and fiscal responsibility? Angie, no matter "where it leads from here", you are my odds on favorite for Person of the Year.
As the markets return to late July levels, I am picking up some real bargains from the shopping list I compiled over the last several weeks. I am even cautiously adding some financials, swooping up some high paying preferreds from old favorites Zions Bank (ZBpC), and National Westminster (NWpC) --which already has written down its Greek debt 50%, and buying the preferreds of real estate investment trusts that pay solid common dividends (e.g. Entertainment Properties and Ashford Hospitality). I also recommend studying closed end funds for some real bargains. Many were really battered recently and are trading well below their net asset values (NAV). I am back into BCF which holds a variety of mining and mineral stocks which I believe will again soar. BCF is trading 5% below its already low NAV---all the while paying over 8% in dividends!
On October 22, 2011, the Wall Street Journal interviewed John Rowe, CEO of Exelon, the large Chicago based electrical utility. Refreshingly candid, Mr. Rowe positied that it is time for Washington to stop tilting at the windmill of "clean energy"---investing in the "Impossible Dream(s)" of wind and solar power is quixotic--they can't supply our needs. Moreover, no one supports atomic power, and there is no such thing as "clean" coal. The only near and long term solution is natural gas. It is 50% cleaner than coal and thanks to recent break throughs in shale horizontal drilling and fracking , the US is now the world's leading producer with huge reserves. In 2008, we were importing natural gas paying $8per million BTU. Now we are paying less than $4, and last week Cheniere Energy announced a 20 year contract to supply natural gas in liquid form (LNG) to a British utility for a huge premium---natural gas in Britain costs $11per million BTU! Cheniere stock went up 90% in two days---yeah, that's right 90%! There are so many profitable ways to play US natural gas and oil exploration. On the exploration side I like LINE, SDR, PER, SBR, PBT, BPT and in the pipeline/storage area I like KMP, EEP and ETP. I also see a consolidation in this space (read merger and acquistion activity like KMP's acquisiton of El Paso last week) especially in light of the diminishing production by mega oil companines like Chevron (see this week's announcement).
I am resisting the euphoria--and with good reason as the precarious condition of Italy becomes the next focus of possible contagion. But, it feels good to loosen the purse strings and to begin to purchase positions with some conviction. Cautious aggression may make for some money making opportunites---it sure did last week.
Past editions available at www.riskrewardblog.blogspot.com
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