Risk/Reward Vol. 128
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION UPON INVESTING. RELY ON NOTHING STATED HEREIN.
"I'm sick and tired of repudiation/Where upon your orchestration
Leads to endless complication/And causes great consternation"---lyrics from "Stability" by Blondie
"Burning the ground, I break from the crowd/I'm on the hunt, I'm after you
I smell like I sound, I'm lost and I'm found/And I'm hungry like the wolf"---lyrics from "Hungry Like the Wolf" by Duran Duran
"If it takes a lot to keep it going/If it takes a lot to keep it real
Take some time for yourself/And learn to yield"---lyrics from "Yield" by The Indigo Girls
So far the earnings season has been a mixed bag; not great, but slightly better than expected; no huge surprises up or down. As a consequence, the stock market has been stable (the Dow was up 50 points for the week), with stock prices moving on individual fundamentals rather than en masse; "orchestrated" in response to some extragenous event (e.g. the Eurocrisis). Such "orchestration", known in the trade as correlation, "leads to endless complication", and "causes great consternation" to simple folk like me who just want a decent return on investment. Frankly, "I'm sick and tired" of correlation, and I love the recent spate of "Stability".
Since my June re-entry, I have noticed how "hungry" yield seekers have become. In times past, two of my favorite providers of yield have been preferred stocks and exchange traded debt both of which are reported each day at http://online.wsj.com/mdc/public/page/2_3024-Preferreds.html?mod=mdc_h_usshl#C . Open this site, and look at the far right column. Notice the incredible returns achieved so far this year. I captured much of those profits before my May exit, but these stocks have continued to appreciate-- some even above their redemption (call) price of $25. (Read about redemption prices at QuantumOnLine). Yield seekers clearly are "on the hunt." "Hungry like the wolf". Easy pickin's like the vast array of preferred shares of BankAmerica, Citigroup, JPMorgan, etc. have become too expensive for the risk adjusted return (although if you are not afraid of leverage, 8% can be achieved in this space via JPC, a closed end fund). This time around, I've had to "burn new ground" and "break from the crowd".
Yield hunters have also decimated other formerly fertile grounds. Safe, high dividend paying sectors such as wireless telcoms (VZ, T, VOD--although I bought all three at end of week dips), utilities (although EXC still presents some upward potential) and tobacco (RAI, MO) have become too expensive for the return. In order to achieve 6% or higher dividends, one must move up the risk ladder to companies like landline telcoms (WIN, FTR and CTL). Clearly, the expiration of the Bush tax cuts at year end which will result in dividends being taxed as high as 43.4% (currently 15%), has not yet dissuaded investors. Perhaps it's because so many stocks are held in tax deferred accounts (eg.401k's), or perhaps it's because there are no alternative yield providers.
My frustrations notwithstanding, I still seek yield. Believe me, "it takes a pile of dough to keep my lifestyle going". I will need a lot of passive income if I intend to "take some time for myself" in the future. I have had to "learn how (to find) yield" in places other than traditional haunts.
And I have. One can still find refuge in real estate investment trusts ("reits"), but only in the less traditonal, higher risk arenas such as agency reits (AGNC, ARR) and commercial mortgage reits (LSE, CLNY, RAS, SFI, NRF). In this space, I like the preferred issues of reits that pay high common dividends; for example CLNYpA, NRFpB and ARRpA. RQI is a closed end fund that holds many of these stocks, provides diversity and yields a decent return.
Oil and gas, especially oil trusts and master limited partnerships, remain attractive as well. I keep sayin' it, 'cause I belief it! Natural gas will be a big winner. It is clean and plentiful, dominates in the home heating sector and is the only real alternative to coal (for electrical power generation) and oil (for over the road vehicles). It is up nearly 50% since this spring ($2 to nearly $3/mmBTU), and you do not have to be a Whitewalker to know that "Winter is coming" (note the shout out to fellow "Game of Thrones" fans). Pick whatever pipeline company you prefer or buy AMLP, an etf that holds stock in all of them, but do get some exposure to the nat gas tranportation and storage sector. As for a vertically integrated play, I still like Linn Energy (LINE). Wall Street is not enamored with its recent acquisitions, but the Street's dislike simply provides a better buying opportunity.
Congratulations to those that had the foresight to buy the etf CORN which is up 30% this month as the drought continues.
Here is a list of my purchases this week: RBSpT, CFD, CTL, WIN, FTR, EXC, BACpL, AFC, NRFpB, ARRpA, JPC, JFR, PYG, RQI, AMLP, FGB, ARR, ELSpA, CLNYpA, MFO, T, VZ, VOD.
Like Le Petomane, I make no secret of my love of natural gas. I hope that my attraction proves more profitable than what Deborah Harry (Blondie) experienced:
"Once I had a love and it was a gas/Soon turned out had a heart of glass"
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