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."
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