Risk/Reward Vol. 103
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN
"I want the easy/Easy money/Easy money
I could get lucky/Things could go right"--lyrics from "Easy Money" by Billy Joel
"Got a handful of stacks/Better grab an umbrella
I make it rain/ I make it rain"---lyrics from "Make It Rain" by Fat Joe
"Give 'em hell boy, while you can/Make them fight to take the title you defend
"Til they nail you with a double cross again/It's a risky business"--lyrics from "Risky Business" by Kris Kristofferson
"Wait I'm talkin' fast car, big estate/Money come in cash plus in the bank
Brother don't believe me, throw it in your face/Women, I'm in the building like real estate"--lyrics from "Real Estate" by Wiz Khalifa
"You are the sunshine of my life/That's why I'll always be around
You are the apple of my eye/Forever you'll stay in my heart"--lyrics from "Apple of My Eye" by Stevie Wonder
"And while he was handlin' this risky chore/Made himself a legend, forevermore
Davy, Davy Crockett, the man who don't know fear/Davy, Davy Crockett, the King of the Wild Frontier"--lyrics from "Legend of Davy Crockett" sung by everybody 60 and older
Talk about EASY MONEY! How about the non-political (tongue caught in cheek) Ben Bernanke and his best buds on the Federal Reserve? Apparently the modest, but real recovery we are experiencing was not enough to satisfy Uncle Ben and his cohorts in this election year. So, on Wednesday, the Federal Reserve announced that we are in for three more years of "Easy Money" in the form of low, short term interest rates and another round of government bond purchases by the Fed (QE3) if we "get lucky". Not since fabled footballer Pacman Jones visited a Las Vegas strip club has anyone "made it rain" more dollar bills than good Ol' Ben. Let's all shake our booties in celebration. NOT.
I simply observe the following. Because of the Federal Reserve's unholy desire to keep all interest rates low, one can no longer look to Treasury notes (and instruments pegged to them such as bank cd's) for a decent, safe return on one's nest egg. This not only adversely impacts individuals trying to build, or worse, exist on savings and 401K's, but it is a huge problem for pension funds which now need to invade principal to meet benefit obligations. For some perspective on this, consider that from 1980 to 1985 the interest on 10 year Treasury notes never fell below 10%. From 1985 through 1992, it never fell below 7%. From 1992 through 2000, it averaged 6%, and from 2000 through 2008, it averaged 4%. Today it hovers at 1.90%. We are all being forced into progressively riskier investments while the "double cross" of government deficit spending mounts in force and effect. Look at Europe, dear Readers, we are not far behind.
Enough lamentation! How do we prosper in the upcoming times of uber-low interest rates?
An obvious way is to invest in companies that rely on leverage (the difference between the cost and the return on borrowed funds). Companies in the business of buying government guaranteed mortgages do just that. These companies, known as mortgage investment companies or mortgage reits, buy guaranteed mortgages from Fannie Mae and Freddie Mac using a combination of equity and borrowed funds. They have very little "top line" or gross income risk and make their money by borrowing, short term, on the cheap. Voila! This week I added to my positions in AGNC and Annaly (NLY) (even though on Wednesday, NLY announced that its founder and CEO Mike Farrell was undergoing chemotherapy for cancer). Both pay double digit dividends which I believe will continue.
On a larger scale, commercial real estate, which is rebounding nicely on its own, should do better in a low interest rate environment. Even Wiz Khalifa can appreciate that profits will be enhanced by lower borrowing costs whether rents escalate or remain constant. For tax reasons, most commercial real estate (office buildings, apartments, shopping centers, warehouses, etc.) is owned by real estate investment trusts (REITs). I like REITs because they are required to "pass through" 90% of their income to shareholders and thus pay excellent dividends. There are scores of publicly traded REITs, many of which are listed and described at www.quantumonline.com Out of caution, I often invest in the preferred shares of REITS, the dividends on which must be paid before any distributions to common shareholders. For those that prefer a diversified approach, I suggest looking at some real estate investment trust closed end funds, which operate much like mutual funds or etf's, but can use leverage (there's that concept again! ) to enhance returns. I own RQI.
Business development companies (BDC's) about which I have written recently also should do well in a low interest environment. Again, those looking for diversification in this sector may want to buy a closed end fund. I like FGB.
Holy Steve Jobs, Batman! How about Apple! After reporting blockbuster numbers this week, it is now tied with Exxon as the most valuable company in the world, with a market capitalization of over $400billion. Moreover, it continues to grow revenue and profits at a prodigious pace. It is clearly the world's best company---but it is not the world's best stock. It trades at only 9 times forward earnings (only 7 times if you subtract its $100billion in cash) which is far below the historic average of the S&P 500 (12-15x). Apple may "forever stay in the hearts" of its cult-like users (I am one), but I " (Stevie) Wonder" if its shareholders (I am one also) will "always be around" if they don't get some "sunshine"---like a juicy dividend, perhaps.
For those looking to "handle a risky chore", I suggest studying Frontier Communications (FTR), the legacy land line telecom company about which I have written in the past. Like a june bug to a blue light, I have been attracted to its outsized dividend for 2 years, and have been in and out of the stock in a disappointing way. Obviously, the conventional wisdom is that FTR cannot maintain its $0.75 dividend which at Friday's closing price of $4.31 represents a return of 17.4%! I am betting (and this is BETTING, my friends, not investing) that the company performs well enough to keep the dividend. I should get a good read on this next month when it reports earnings. If I am right, I, too, will be a King of the Wild Frontier. But in the interim, I am ignoring my 8% loss limit. This cuts against my nature, which, unlike that of Davy Crockett, "knows fear".
And so dear Readers, we must not only accept risk, we must embrace it. Recall if you will, some other Billy Joel lyrics:
"Some people hope for a miracle cure/Some people just accept the world as it is
But, I'm not willing to lay down and die/Because I am an innocent man
Saturday, January 28, 2012
Saturday, January 21, 2012
January 21, 2012 Pusherman
Risk/Reward Vol. 102
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"I've never had a single thing that is new/Even Jake the Plumber, he's the man I adore
Had the nerve to tell me he's been married before
Everyone knows that I'm just Second Hand Rose from Second Avenue"--lyrics "Second Hand Rose" by Fannie Brice/Barbra Steisand
"I'm your doctor in need/Want some coke/ Want some weed
You know me/I'm your friend/Your main boy-thick and thin/I'm your Pusherman."---lyrics "Pusherman" by Curtis Mayfield
"There's talk on the street, it sounds so familiar/Great expectations, everybody's watching you
Johnny Come Lately, the new kid in town/Everybody loves you, so don't let them down."--lyrics "New Kid in Town" by the Eagles
"She takes my money when I'm in need/ Yeah, she's a trifling friend indeed
Oh, she's a gold digger way over town/ That digs on me"--lyrics "Gold Digger" by Kanye West
As early subscribers know, I am a yield hunter. As such, I am a fan of real estate investment trusts (REIT's), master limited partnerships (MLP's) and business development companies (BDC's) because each must distribute 90% of their earnings in order to qualify as a "pass-through" entity for income tax purposes. One by-product of this requirement is the need for these entities to issue new stock from time to time. The reason: they cannot retain earnings/cash to fund growth. (Unlike Apple which has nearly $100billion---yes I said BILLION--of retained earnings/cash sitting on its books.) When these pass-through entities issue new stock--called a "secondary offering"-- they do so at a price which will assure that all the shares will be sold; thus usually at a discount to the market. This causes a drop in the stock price which can frustrate current shareholders but which also can present an excellent buying opportunity, considering that the stock of good companies rebounds within a few days of the offering. I used secondary offerings of DFTpB, ERF, MMLP and NAT this week to make what I believe will be excellent buys. Fannie Brice made a fortune as a Second(ary) Hand Rose, and we can as well.
This week the central banks of Europe, China and the United States expressed dissatisfaction with economic growth, and it is expected that each will take action to spur it. China is expected to lower interest rates; in February the European Central Bank will make another 500billion Euros worth of inexpensive three year loans available to Eurozone banks: and the Federal Reserve next week is expected to hint that a trillion dollars of QE3 may be in the offing. Everyone is addicted to cheap money, and the heads of central banks (the "Pushermen") are most accommodating in providing liquidity. Whether it is weed, coke or cheap funding, all addictions end badly--ultimately.
But, in the short term, we can all enjoy the "high" that the influx of money will provide. It will afford some help in stabilizing Europe (note how little news has come from that front lately--and to such good effect). It will spur further development in China. And, it should boost the stock market, as investors are "pushed"out of ever-lower yielding Treasuries and into riskier investments like equities. The Dow Jones is already up 500 points (4%) this month, and the introduction of even more money portends higher stock prices if the upcoming earnings reports warrant them. I do not intend to be a Johnny Come Lately. I have "great expectations", and I do not intend to "let myself down." I am currently 40% invested. A list of my holdings is attached.
Financials have been very good to me so far this year (AEG up 23% since 1/5/12; IDG up 14% since 12/30/11; BCSpD up 9.5% since 1/4/12; AEF up 8.5% since 12/29/11), but I have reached my exposure limit to this sector. Oil continues to do well although the companies primarily committed to natural gas are suffering somewhat as nat gas hit a 10 year low. With worldwide demand increasing and continued anxiety surrounding the Gulf of Hormuz, I don't see oil prices plummeting any time soon.
I look for my "trifling friend" gold (GLD) to appreciate again this year so I bought some this week. Moreover, if the market continues to appreciate, I see tech, especially Apple, also doing well. And why not! Do you own an I-Phone 4S? What a magnificent product! I have a position in AAPL in advance of it earnings report. Indeed, I could have cited O.C. Smith and his "Little Green Apples" song to the same effect as Kanye West. Apple and GLD both look like excellent trading stocks for the foreseeable future. I will likely "trade" index ETF's as well.
Enjoy perusing my holdings. As noted, I am overweight financials and oil and will use the remaining 60% to balance the portfolio. Any tips, observations, leads or criticisms are appreciated. Worry not, you won't "Rain on My Parade". The upcoming week is chock full of earnings reports and should be very interesting.
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"I've never had a single thing that is new/Even Jake the Plumber, he's the man I adore
Had the nerve to tell me he's been married before
Everyone knows that I'm just Second Hand Rose from Second Avenue"--lyrics "Second Hand Rose" by Fannie Brice/Barbra Steisand
"I'm your doctor in need/Want some coke/ Want some weed
You know me/I'm your friend/Your main boy-thick and thin/I'm your Pusherman."---lyrics "Pusherman" by Curtis Mayfield
"There's talk on the street, it sounds so familiar/Great expectations, everybody's watching you
Johnny Come Lately, the new kid in town/Everybody loves you, so don't let them down."--lyrics "New Kid in Town" by the Eagles
"She takes my money when I'm in need/ Yeah, she's a trifling friend indeed
Oh, she's a gold digger way over town/ That digs on me"--lyrics "Gold Digger" by Kanye West
As early subscribers know, I am a yield hunter. As such, I am a fan of real estate investment trusts (REIT's), master limited partnerships (MLP's) and business development companies (BDC's) because each must distribute 90% of their earnings in order to qualify as a "pass-through" entity for income tax purposes. One by-product of this requirement is the need for these entities to issue new stock from time to time. The reason: they cannot retain earnings/cash to fund growth. (Unlike Apple which has nearly $100billion---yes I said BILLION--of retained earnings/cash sitting on its books.) When these pass-through entities issue new stock--called a "secondary offering"-- they do so at a price which will assure that all the shares will be sold; thus usually at a discount to the market. This causes a drop in the stock price which can frustrate current shareholders but which also can present an excellent buying opportunity, considering that the stock of good companies rebounds within a few days of the offering. I used secondary offerings of DFTpB, ERF, MMLP and NAT this week to make what I believe will be excellent buys. Fannie Brice made a fortune as a Second(ary) Hand Rose, and we can as well.
This week the central banks of Europe, China and the United States expressed dissatisfaction with economic growth, and it is expected that each will take action to spur it. China is expected to lower interest rates; in February the European Central Bank will make another 500billion Euros worth of inexpensive three year loans available to Eurozone banks: and the Federal Reserve next week is expected to hint that a trillion dollars of QE3 may be in the offing. Everyone is addicted to cheap money, and the heads of central banks (the "Pushermen") are most accommodating in providing liquidity. Whether it is weed, coke or cheap funding, all addictions end badly--ultimately.
But, in the short term, we can all enjoy the "high" that the influx of money will provide. It will afford some help in stabilizing Europe (note how little news has come from that front lately--and to such good effect). It will spur further development in China. And, it should boost the stock market, as investors are "pushed"out of ever-lower yielding Treasuries and into riskier investments like equities. The Dow Jones is already up 500 points (4%) this month, and the introduction of even more money portends higher stock prices if the upcoming earnings reports warrant them. I do not intend to be a Johnny Come Lately. I have "great expectations", and I do not intend to "let myself down." I am currently 40% invested. A list of my holdings is attached.
Financials have been very good to me so far this year (AEG up 23% since 1/5/12; IDG up 14% since 12/30/11; BCSpD up 9.5% since 1/4/12; AEF up 8.5% since 12/29/11), but I have reached my exposure limit to this sector. Oil continues to do well although the companies primarily committed to natural gas are suffering somewhat as nat gas hit a 10 year low. With worldwide demand increasing and continued anxiety surrounding the Gulf of Hormuz, I don't see oil prices plummeting any time soon.
I look for my "trifling friend" gold (GLD) to appreciate again this year so I bought some this week. Moreover, if the market continues to appreciate, I see tech, especially Apple, also doing well. And why not! Do you own an I-Phone 4S? What a magnificent product! I have a position in AAPL in advance of it earnings report. Indeed, I could have cited O.C. Smith and his "Little Green Apples" song to the same effect as Kanye West. Apple and GLD both look like excellent trading stocks for the foreseeable future. I will likely "trade" index ETF's as well.
Enjoy perusing my holdings. As noted, I am overweight financials and oil and will use the remaining 60% to balance the portfolio. Any tips, observations, leads or criticisms are appreciated. Worry not, you won't "Rain on My Parade". The upcoming week is chock full of earnings reports and should be very interesting.
Saturday, January 14, 2012
January 14, 2012 Kohoutek
Risk/Reward Vol. 101
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN
"She carried ribbon, she wore them out/Courage built a bridge/Jealous tore it down
At least it's something you've left behind/Like Kohoutek, you were gone"--Lyrics from "Kohoutek" by REM
"I was born in a cross fire hurricane/And I howled at my mom in the driving rain
But it's all right now, in fact it's a gas/ But it's all right now, I'm Jumpin' Jack Flash
It's a gas!"---Lyrics from "Jumpin' Jack Flash" by The Rolling Stones
"A European/ I wish I had European style
Designer cars and the way of living/ With burning eyes
I could watch you smile"---Lyrics from "European" by A Flock of Seagulls
In December, 2010, Meredith Whitney, the stock analyst who accurately predicted the 2008 banking crisis, opined that in 2011, between 50 and 100 cash-strapped and debt-laden municipalities would default on municipal bonds. No prediction since the ill fated Comet Kohoutek has proven such a dud, and all that Ms. Whitney's prophecy
"left behind" were several months of depressed municipal bond prices. By year end 2011, however, this sector had rebounded handsomely with no more than the usual number of defaults. In fact, a large number of municipalities are now getting their bloated budgets in order and are experiencing better than expected tax revenues. Before Ms. Whitney's prognostication, I held positions in several municipal bond closed end funds (NMO, NPM, EIM) which I sold for a loss. As part of my diversification effort, I am investigating a re-entry. In the interim, I have invested in the exchange traded debt of Assured Guaranty Municipal Holdings, Inc.(AGOB), a Bermuda based insurer of municipal bonds, which carries an A3/A+ rating and currently pays 7% in interest.
That (Jumpin' Jack) Flash you see in the Western skies, "it's a gas!" In fact, it is the wasteful burning of natural gas emanating from hundreds of new wells made possible by hydraulic fracturing (fracking). As discussed in several previous editions (www.riskrewardblog.blogspot.com ), thanks to fracking the United States, which as recently as 2008 was a net importer of natural gas at $9/mmBTU, is now awash in this resource which last week was priced as low as $2.70/mmBTU. Due to commitments to ground lessors and to the value of other products from the same wells (e.g. oil and natural gas liquids), several producers have elected to burn the now too-cheap natural gas at the well head instead of paying to pipe it to already-full storage facilities. What a shame! If our government gave the same incentives to natural gas that it does to pie-in-the-sky "green" energy sources (wind and solar), over-the-road trucks, taxis, electric generators of all types, etc. would be powered predominantly by this cheap, plentiful and clean fuel source. Think of it---energy independence is within our grasp, but is going up in smoke (quite literally) because our administration needs votes from anti-fracking environmentalists.
From an investor's perspective, take care to select the securities of those companies and trusts that concentrate their drilling efforts on oil and/or natural gas liquids (which are much desired due to various industrial uses). Do your homework, and don't "howl" at me if you are caught in the "driving rain"!
Even though the short term Italian and Spanish bond auctions went well on Thursday, I'd rather be a flock of seagulls than a European right now---at least financially speaking. On Friday, the never ending saga of Greek debt raised its ugly head again, doubt about Italy and Spain's ability to sell longer term bonds (e.g. 10yr.) surfaced, and after the markets closed, S&P downgraded 9 European countries including France.. That said, the market this week differentiated between those European companies that have distanced themselves from the sovereign debt crisis and others. For example, the preferred stock of AEG and ING did well as did the preferreds of several British banks (NWpC, HBCpA, BCSpD).
Year to date (all of 2 weeks!), my big winner is JZK, the exchange traded debt of Sprint which is up 23% since I purchased it on December 22nd. I am also impressed by the stability of the preferreds/exchanged traded debt of real estate investment trusts (particularly those companies in the storage industry such as PSApS and CUBEpA) and of insurance companies (MHNA, AHLpA).
I am now about 25% invested, overweight on financials and oil, but in the process of diversifying, picking up some blue chip industrial exposure and always in the hunt for good dividend payers like tobacco, REITS, utilities, etc. The portfolio averages well over 7% in dividend/interest payments, and has experienced decent capital appreciation. I have made 64 purchases since December 8, 2011, and I have a long list of others to buy, assuming reasonable market stability. In effect, I am reassembling that which I had pre-July 29, 2011, another Baskerville Fund (my "7% Solution"--an homage to Sherlock Holmes). I don't need the stock market to spike. To quote another 'Stones hit, just "Gimme Shelter" from volatility.
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN
"She carried ribbon, she wore them out/Courage built a bridge/Jealous tore it down
At least it's something you've left behind/Like Kohoutek, you were gone"--Lyrics from "Kohoutek" by REM
"I was born in a cross fire hurricane/And I howled at my mom in the driving rain
But it's all right now, in fact it's a gas/ But it's all right now, I'm Jumpin' Jack Flash
It's a gas!"---Lyrics from "Jumpin' Jack Flash" by The Rolling Stones
"A European/ I wish I had European style
Designer cars and the way of living/ With burning eyes
I could watch you smile"---Lyrics from "European" by A Flock of Seagulls
In December, 2010, Meredith Whitney, the stock analyst who accurately predicted the 2008 banking crisis, opined that in 2011, between 50 and 100 cash-strapped and debt-laden municipalities would default on municipal bonds. No prediction since the ill fated Comet Kohoutek has proven such a dud, and all that Ms. Whitney's prophecy
"left behind" were several months of depressed municipal bond prices. By year end 2011, however, this sector had rebounded handsomely with no more than the usual number of defaults. In fact, a large number of municipalities are now getting their bloated budgets in order and are experiencing better than expected tax revenues. Before Ms. Whitney's prognostication, I held positions in several municipal bond closed end funds (NMO, NPM, EIM) which I sold for a loss. As part of my diversification effort, I am investigating a re-entry. In the interim, I have invested in the exchange traded debt of Assured Guaranty Municipal Holdings, Inc.(AGOB), a Bermuda based insurer of municipal bonds, which carries an A3/A+ rating and currently pays 7% in interest.
That (Jumpin' Jack) Flash you see in the Western skies, "it's a gas!" In fact, it is the wasteful burning of natural gas emanating from hundreds of new wells made possible by hydraulic fracturing (fracking). As discussed in several previous editions (www.riskrewardblog.blogspot.com ), thanks to fracking the United States, which as recently as 2008 was a net importer of natural gas at $9/mmBTU, is now awash in this resource which last week was priced as low as $2.70/mmBTU. Due to commitments to ground lessors and to the value of other products from the same wells (e.g. oil and natural gas liquids), several producers have elected to burn the now too-cheap natural gas at the well head instead of paying to pipe it to already-full storage facilities. What a shame! If our government gave the same incentives to natural gas that it does to pie-in-the-sky "green" energy sources (wind and solar), over-the-road trucks, taxis, electric generators of all types, etc. would be powered predominantly by this cheap, plentiful and clean fuel source. Think of it---energy independence is within our grasp, but is going up in smoke (quite literally) because our administration needs votes from anti-fracking environmentalists.
From an investor's perspective, take care to select the securities of those companies and trusts that concentrate their drilling efforts on oil and/or natural gas liquids (which are much desired due to various industrial uses). Do your homework, and don't "howl" at me if you are caught in the "driving rain"!
Even though the short term Italian and Spanish bond auctions went well on Thursday, I'd rather be a flock of seagulls than a European right now---at least financially speaking. On Friday, the never ending saga of Greek debt raised its ugly head again, doubt about Italy and Spain's ability to sell longer term bonds (e.g. 10yr.) surfaced, and after the markets closed, S&P downgraded 9 European countries including France.. That said, the market this week differentiated between those European companies that have distanced themselves from the sovereign debt crisis and others. For example, the preferred stock of AEG and ING did well as did the preferreds of several British banks (NWpC, HBCpA, BCSpD).
Year to date (all of 2 weeks!), my big winner is JZK, the exchange traded debt of Sprint which is up 23% since I purchased it on December 22nd. I am also impressed by the stability of the preferreds/exchanged traded debt of real estate investment trusts (particularly those companies in the storage industry such as PSApS and CUBEpA) and of insurance companies (MHNA, AHLpA).
I am now about 25% invested, overweight on financials and oil, but in the process of diversifying, picking up some blue chip industrial exposure and always in the hunt for good dividend payers like tobacco, REITS, utilities, etc. The portfolio averages well over 7% in dividend/interest payments, and has experienced decent capital appreciation. I have made 64 purchases since December 8, 2011, and I have a long list of others to buy, assuming reasonable market stability. In effect, I am reassembling that which I had pre-July 29, 2011, another Baskerville Fund (my "7% Solution"--an homage to Sherlock Holmes). I don't need the stock market to spike. To quote another 'Stones hit, just "Gimme Shelter" from volatility.
Saturday, January 7, 2012
January 7, 2011 Enter Sandman
Fw: Risk/Reward Vol. 100
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Vicks Vapo-Rub--the number 1 branded children's cough and cold protection--The Love Rub"--tag line from a Vicks commercial in the 1970's
Q: So what makes Peter, Peter?
A: I'm an avid catamaran sailor. I can homemade jam. And I love my bank's "Raise your Rate" CD.
Q: I'm sorry did you say you love watching your neighbors watching TV?"--Ally Bank commercial
"Say your prayers little one/Don't forget my son to include everyone
I tuck you in/ Warm within---Lyrics from "Enter Sandman" by Metallica
Am I delusional or did the stock market appear stable this week--not overreacting to the falling Euro (with which it has been coupled for several weeks) or to the good job news from the U.S.? Did stocks that increased/decreased in value do so on the fundamentals of their businesses? Gloriously, the answer is YES! But, can this rational conduct last?
One indicator of future market volatility is the VIX, an index comprised of the options on the S&P 500, designed to give an outlook on how much uncertainty the market expects in the next 30 days. A VIX reading of 30 or more indicates high volatility. For example, during the roller coaster days of August and September, the VIX never fell below 30 and at times skyrocketed to 45. This past Friday, the VIX measured 20.63 well below its 50 and 200 day averages. I, for one, hope that the VIX remains low and that the "Love Rub" of stability returns to the stock market.
Which stocks win when volatility abates? Logic dictates that it would be those that have been most battered by the source of the uncertainty---recently, the European debt crisis. Obviously, that would be the financials (banks and insurance companies). And sure enough, the best performing stocks of 2012 have been in this sector. Even the Administration's favorite punching bag, Bank of America, is up 11% YTD. (Congratulations to one loyal reader who bought BAC in the low $5's!) My biggest winner last week was IDG (one of ING's preferred issues) which gained 8%, but almost all the financial stocks did very well. I continue to cautiously invest in this sector, primarily in preferreds or exchange traded debt (AEF, AVF, GSJ, MHNA, BCSD, ABWB, etc.) That stated, I am not prepared to declare that "I love my bank".
As discussed previously, I intend to be overweight domestic oil this year, and one way is to "Enter Sand(ridge)". The performance of its two oil royalty trusts, SDR and PER, has been the answer to a "prayer", each returning nearly 30% last year inclusive of their delicious dividends. This week Sandridge announced it is creating another oil trust, SDR. This has not started trading, but you can bet I will be an early investor. Early investors often do very well in oil trusts---check out CHKR. For these to do well, oil needs to stay above $80/bbl, and with the uncertainty surrounding the Gulf of Hormuz (Iran), I see this as highly likely.
As noted, our stock market is no longer lockstepped with the disaster that is Europe, but that could change quickly. The news from across the Pond is not encouraging, and the Euro is currently trading at $1.27, well below its 200 day average of $1.40. Last week, UniCredit, Italy's largest bank, struggled to raise 7.5bn Euro even though it offered stock to current shareholders at a 43% discount. Yikes! This does not bode well for the rest of the Eurozone which needs to raise hundreds of billions of Euros this year just to refinance its banks and countries.
All tolled, it was a good week for me. I am about 15% invested and likely will hold there until next Thursday when both Italy and Spain are set to auction new bonds. If those auctions don't go well, other lyrics from "Enter Sandman" may be more appropriate:
"Exit light/Enter night
Take my hand/We're off to Never-neverland."
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Vicks Vapo-Rub--the number 1 branded children's cough and cold protection--The Love Rub"--tag line from a Vicks commercial in the 1970's
Q: So what makes Peter, Peter?
A: I'm an avid catamaran sailor. I can homemade jam. And I love my bank's "Raise your Rate" CD.
Q: I'm sorry did you say you love watching your neighbors watching TV?"--Ally Bank commercial
"Say your prayers little one/Don't forget my son to include everyone
I tuck you in/ Warm within---Lyrics from "Enter Sandman" by Metallica
Am I delusional or did the stock market appear stable this week--not overreacting to the falling Euro (with which it has been coupled for several weeks) or to the good job news from the U.S.? Did stocks that increased/decreased in value do so on the fundamentals of their businesses? Gloriously, the answer is YES! But, can this rational conduct last?
One indicator of future market volatility is the VIX, an index comprised of the options on the S&P 500, designed to give an outlook on how much uncertainty the market expects in the next 30 days. A VIX reading of 30 or more indicates high volatility. For example, during the roller coaster days of August and September, the VIX never fell below 30 and at times skyrocketed to 45. This past Friday, the VIX measured 20.63 well below its 50 and 200 day averages. I, for one, hope that the VIX remains low and that the "Love Rub" of stability returns to the stock market.
Which stocks win when volatility abates? Logic dictates that it would be those that have been most battered by the source of the uncertainty---recently, the European debt crisis. Obviously, that would be the financials (banks and insurance companies). And sure enough, the best performing stocks of 2012 have been in this sector. Even the Administration's favorite punching bag, Bank of America, is up 11% YTD. (Congratulations to one loyal reader who bought BAC in the low $5's!) My biggest winner last week was IDG (one of ING's preferred issues) which gained 8%, but almost all the financial stocks did very well. I continue to cautiously invest in this sector, primarily in preferreds or exchange traded debt (AEF, AVF, GSJ, MHNA, BCSD, ABWB, etc.) That stated, I am not prepared to declare that "I love my bank".
As discussed previously, I intend to be overweight domestic oil this year, and one way is to "Enter Sand(ridge)". The performance of its two oil royalty trusts, SDR and PER, has been the answer to a "prayer", each returning nearly 30% last year inclusive of their delicious dividends. This week Sandridge announced it is creating another oil trust, SDR. This has not started trading, but you can bet I will be an early investor. Early investors often do very well in oil trusts---check out CHKR. For these to do well, oil needs to stay above $80/bbl, and with the uncertainty surrounding the Gulf of Hormuz (Iran), I see this as highly likely.
As noted, our stock market is no longer lockstepped with the disaster that is Europe, but that could change quickly. The news from across the Pond is not encouraging, and the Euro is currently trading at $1.27, well below its 200 day average of $1.40. Last week, UniCredit, Italy's largest bank, struggled to raise 7.5bn Euro even though it offered stock to current shareholders at a 43% discount. Yikes! This does not bode well for the rest of the Eurozone which needs to raise hundreds of billions of Euros this year just to refinance its banks and countries.
All tolled, it was a good week for me. I am about 15% invested and likely will hold there until next Thursday when both Italy and Spain are set to auction new bonds. If those auctions don't go well, other lyrics from "Enter Sandman" may be more appropriate:
"Exit light/Enter night
Take my hand/We're off to Never-neverland."
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