Risk/Reward Vol. 127
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Very superstitious, writing's on the wall/Very superstitious ladder's about to fall
Thirteen month old baby broke the lookin' glass/Seven years of bad luck, the good things in your past"---lyrics from "Superstitious" by Stevie Wonder
"Deep rhythms captivate me/Hot rhythms stimulate me
Can't help but swing it boy/ Swing it brothers, swing"---lyrics from "Swing, Brother Swing" sung by Billie Holliday
"Mirror, mirror on the wall/Who's the baddest of them all
Don't lie to me/I'm a hot commodity"---lyrics from "Hot Commodity" by Trina
Holy Jason Voorhees! Casting "Superstition" aside, the Dow Jones Industrial Average rallied over 200 points on Friday to close even with last week. Obviously, the stock market doesn't suffer from triskaidekaphobia! I admit that I don't own a magic "lookin' glass", but I continue to "ladder" up my portfolio, believing that "good things are in the future--not the past".
As discussed last week, faced with overwhelming negativity, the world's economic and political leaders remain generally and genuinely concerned about a worldwide recession. There is a real sense of urgency to "Stimulate" economies and to "swing" them to an upward trajectory. I say, "Swing it brothers, swing!" For example, in Norway, the president interceded to stop a strike by oil rig workers so that the world's oil supply (Norway is a large exporter of oil---look at Statoil (STO)) would not be interrupted. With the news that China experienced its sixth consecutive quarter of slower economic growth, the ruling mandarins announced that foreign hedge funds would be able to operate in China and that several large industrial projects (including two new steel mills) would be launched. Nothing is more unstable than an idle Chinese population, and China's leaders know it. Alarmed by the closure of several Peugeot facilities, French President Hollande is launching an inquiry and expressing concern over the root problem---a lack of productivity. France's unit labor cost (a measure of productivity) fell 25% versus that of Germany in just the last decade.
Meanwhile, investors remain cautious as the "flight to safety" crowd drove the yield on the benchmark 10 year U.S. Treasury bond to a record auction low of 1.454%. Good luck retiring on that return, Boomers. Those that need a return on their investment need to look elsewhere---and that elsewhere necessarily includes the stock market,
In short, with everything skewing negative, I look for continued stimulus worldwide (the Fed's recent inaction notwithstanding)---and stimulus is good for the stock market. So here were my moves this week.
I remain a huge fan of oil and natural gas. It appears that the underlying commodity prices have stabilized, and the rising stock values reflect this fact. On the nat gas front, Thursday's edition of the Investor Business Daily reported that by next year, Flying J (my favorite truck stop!) will have refit 150 of its 450 facilities located nationwide to accommodate natural gas pumps. This means that eighteen wheelers will be able to go coast to coast on natural gas. UPS also announced the purchase of 48 nat gas powered trucks to handle its Las Vegas to Los Angeles run. I tell you, dear Readers, the nat gas revolution is freakin' (or should I say frackin') happenin'! I bought more AMLP and PGN and added NS on a dip.
On the oil front, the International Energy Agency reported Friday that worldwide oil demand will grow by 1million barrels/day in 2013 (to over 87million barrels/day!). The new demand is driven (no pun intended) mostly by emerging market countries. North Dakota and Alaska, the US's number 2 and 3 producers, pump only 1million barrels/day-- combined. Oil will remain in demand for a long time, and I will add to my COP. I am also hunting for another domestic oil play.
Oil is not the only "hot commodity" that I like. The US drought has driven grain prices skyward, and if China continues to stimulate its economy, look for metals to rebound. To cover the entire commodity space, I like the Nuveen Diversified Commodity Fund (CFD) a closed end fund that tracks the Gresham commodity futures model. Explaining that beast is beyond the scope of this publication, but if you like commodities I highly recommend you investigate it. What I find particularly attractive is its broad diversity (oil, grains, cotton, metals, cattle, etc.) and its consistent monthly dividend which yields an annual 8+% return. As noted above, I have no magic "mirror on the wall", but I do believe CFD is the "baddest of them all".
Some random observations:
- I made a ton on RBSpT earlier in the year and am again. It pays an 8.5% dividend currently, and its price is up 7% in just 10 days. I continue to buy.
- As I re-enter this time, I am more conscious of intra-sector diversity, and thus many of my early purchases are sector specific EFT's or CEF's such as RQI (reits), AMLP (master limited partnerships), JPC (preferred stock) etc.
And so it goes. Pervasive negativity has spurred universal concern---which (almost counterintuitively) has made me optimistic. If you have any observations, criticisms or you just think I'm crazy, please email me. After all, in the words of Stevie Wonder, "that's what friends are for."
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