April 28, 2012 Hollandaise

Risk/Reward Vol. 116

THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.

"I've been praying all the week through/At home, at work and on the bus
I've been praying I can keep you/And earn enough for us."---lyrics from "Earn Enough for Us" by XTC

"I was always labelled the black sheep of the family/What a bad seed I grow up to be
But if you look at us now/You'll see the apple didn't fall far from the tree"---lyrics from "The Apple" by Eminem

"Frenchmen eat a lot of bouillabaisse there/Dutchmen eat a sauce called Hollandaise there
Smorgasbord in Swedish is the winner/In America, its TV dinner."---lyrics from "Hungarian Goulash No. 5" by Allan Sherman

Despite news from Europe that both Spain and the UK are officially back in recession, the Dow Industrial Average closed 200 points higher this week on the strength of better than expected earnings as reported by U.S. corporations. Indeed, as of mid week, over 80% of the companies reporting had exceeded their estimates. "All week through" corporations "earn(ed) enough" to answer investor "prayers".

Leading the way was Apple which recently had been viewed as a "bad seed". Its stock price had fallen 13% over the past two weeks---"far from the tree." But after reporting blockbuster earnings Tuesday at the market's close, Apple rose $49 or 8.9% on Wednesday and finished the week at $603. That said, I submit that Apple is still treated as a "black sheep" by the stock market--- by any comparative metric---price/earnings ratio/PEG rate/ growth rate---you name it. As great as its numbers are, its stock came no where near $632 which is the price point where I sold on April 10th. That is why I treat AAPL as a trading stock, not as an investment. And, unless and until Apple management is more attentive to shareholder value (e.g. how about distributing more of the $110billion of cash it holds!!), I will continue to do so.

So what gives with Holland(e) (these) daise? On Monday, the Dutch prime minister lost the confidence of his coalition cabinet which rejected the austerity measures to which he pledged Holland last fall. This followed on the heals of the French primary last Sunday where M. Hollande led the voting on a vow to re-evaluate France's commitment to austerity, a commitment made by M.Sarkozy. To add to this "bouillabaisse" of malaise, Italy's prime minister is also walking away from austerity as a means of addressing the Eurozone's sovereign debt crisis. Yikes! With each new election, it is increasingly likely that the Merkel-Sarkozy approach to the Eurozone sovereign debt crisis (austerity) will be replaced by more deficit borrowing. How that gets effected remains a mystery especially if Germany resists. In short, the "smorgasbord" of bad news from the "goulash" that is the Eurozone is far from over.

So what does this mean to me? Well, I remain over 40% in cash and wholly intolerant of any losing position. My array of preferred stock/exchange traded debt positions held steady during Monday's dip, and rose modestly throughout the week, all the while accruing dividends/interest at an average 7+% annual yield. This week, I bought two new real estate investment trust preferred issues (DLRpF and LSEpB) and added more tobacco (RAI) on a dip (no pun intended) . For the most part, I remain "risk off" (out of cyclical stocks) because I wonder what the stock market will do once the spate of stellar U.S. earnings reports abates. Pray tell, what will counter the downdraft of bad news from Europe--Spain in particular? Let's hope the stock market's reaction to Granada is more favorable than that of Allan Sherman ("Hello Muddah, Hello Fadduh/Here I am at Camp Granada/ Camp is very entertaining/ And they say we'll have some fun once it stops raining.")