Risk/Reward Vol. 124
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"So why must it be/Chaos lives in everything
Trapped inside a dream/It all comes back to me---lyrics from "Chaos Lives in Everything" by Korn
"And they drive along the pipeline/They tango til they're sore
They take apart their nightmares/And leave them by the door"---lyrics from "Tango Til They're Sore" by Tom Waits
"Clickity clack, clickity clack
The money goes into my piggy bank"---"Piggy Bank" by 50 Cent
On a macro level, good news from the Greek election is blunted by a spike in Spanish interest rates; an announcement that 400bn Euros from the EFSF will be available to buy Eurozone sovereign debt is countered by a dissent from Angela Merkel; an extension of Operation Twist is dashed by a downgrade of fifteen major banks. On a micro level, earning guidance is lowered for PG, PM, Pepsi, Fed Ex, Bed Bath and Beyond and Darden. Yeah/boo; up/down---and then some more boo. "So why must it be?--Does "chaos live in everything?"
Yet, the most remarkable aspect of the stock market over the past several weeks is its continued strength and vitality. Really folks, day after day, uncertainty rules in Europe, banks get battered, commodities (including oil) drop and blue chips warn on earnings. Yet, the Dow is still up 300 points on the year. Even I am becoming a believer in American equities---frankly there simply is no where else one can go if one wishes any return at all. But where?
This week the spot price of oil fell below its futures price---in other words oil moved from backwardation into con"tango" which is a more normal condition. For more than a year, the fear of Lybian and Iranian supply disruption has caused the cost of spot oil (for current delivery) to exceed the price of oil for future delivery. The backwardation "nightmare" has been "left at the door" and a more normal "pipeline" appears to have arrived. I see the price of oil stabilizing somewhere at or above $70/bbl (WTI) and if it does I see myself buying the oil companies that I have highlighted previously.
And shockingly, "clickity clack", I may put "money into piggy bank" stocks. All of the majors absorbed a Moody's downgrade---and their prices ROSE indicating that the market had previously effected a discount. Indeed, the preferred shares of the majors (my favorite way to play banks) have remained remarkably stable while still paying handsome dividends. I will likely buy a few preferred issues of C, BAC and MS.
I am near re-entry. Checking my daily returns again will be like another Tom Waits song--"A Sight for Sore Eyes".
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