Risk/Reward Vol. 117
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Out in the choppy waters the sharks swim and play
You're all washed up when Poseidon has his day"---lyrics "Fleet of Hope" by Indigo Girls
"Didn't you know/I was waiting on you
Waiting on a dream/That'll never come true
When you decide to break the rules
'Cause I just heard some real bad news"---lyrics "Bad News" by Kanye West
"You know you gotsa be the baddest
If you really goin' make me add this"---lyrics "Gotta Be the Baddest" by Chamillionaire
"Those days are past now
And in the past they must remain
But we can still rise now"---lyrics "Flower of Scotland" (the de facto Scottish National Anthem)
Talk about "choppy waters"! The Dow Jones Industrial Average rose 66 points Tuesday on an encouraging report from purchasing managers only to fall at week's end on a mixed jobs report and the fear of this weekend's elections in Europe. The Dow was down 190 points for the week, but still finished above 13,000. Friends, in this market we are surely swimming with the sharks. So if you don't want to "be washed up (or out)", "play" like one yourself--- be stealthy, nimble and opportunistic.
Contrarians don't wait for "dreams to come true". They "break the rules": buying on bad news and selling on good news. And recently, the natural gas market and related stocks have been nothing but bad news. In mid April, nat gas fell below $2/mmBTU (See Vol. 104 at www.riskrewardblog.blogspot.com ). In response, all of the big players including Encana and Exxon cut production. However, we may have reached nat gas's nadir as electric utilities have made nat gas the generating fuel of choice, and nat gas futures have climbed above $2.30/mmBTU. If not now, soon may be a good time to re-enter some nat gas plays like SDT, ERF and PWE---although I have not as yet.
If you are tempted to buy the "baddest" of the bad, then you may wish "to add this" to your speculative plays: Chesapeake Energy. Once the darling of the nat gas world, Chesapeake's CEO, Aubrey McClendon is under attack for seemingly self dealing, allegations that have caused various Chesapeake securities to plummet. They now trade well below the consensus value of Chesapeake's assets. I bought some CHKpD preferred which in my hands pays over a 6% dividend and which has appreciated 9% since I bought it a week ago. I also bought CHK on Wednesday, and have a 2% gain. But remember, buying CHK securities is not investing---it is gambling.
Once the "Flower" of its homeland, the Royal Bank of Scotland took a beating during the 2008-2009 financial crisis and only survived after a huge emergency loan and the purchase of 82% of its common stock by the UK government. Having operated under strict scrutiny but also having improved its capital structure, RBS may "now be rising". At its quarterly earnings call this week, RBS announced it was repaying the emergency loan in its entirety and was reinstating quarterly dividends on a variety of its preferred shares. I hope some of you purchased RBSpT back in March. (see Vol. 110). If you did, you have seen an 11% gain on a stock that, at the March price, pays over 10% in dividends. I say it is still not too late to buy dividend paying RBS preferreds (caution---some RBS preferred issues still are not paying dividends; go to its website for more information). I, for one, bought more RBSpT this week. Even at its current price of $20.30, RBSpT pays nearly a 9% dividend and likely will continue to appreciate in principal another 10%. Moreover, I don't see RBS's owner, the UK government, pulling the plug on that dividend as long as it maintains control of the bank.
I am still 40% in cash, and I like my dividend paying portfolio. But with Europe's economic outlook uncertain (pay attention to elections in France and Greece this weekend) and a Fiscal Cliff facing the U. S. at year's end (to be discussed in future edition), I am only a few clicks away from a clean sweep into 100% cash. Remember: if you want to be a Chamillionaire, don't let them "catch you ridin' dirty"!
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