July 7, 2012 Daydeamin'

Risk/Reward Vol. 126

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

"Three coins in a fountain/Each one seeking happiness
Thrown by three hopeful lovers/Which one will the fountain bless?"---lyrics from "Three Coins in a Fountain" sung by Frank Sinatra

"C'mon people now/Smile on your brother
Ev'rybody get together/Try and love one another right now"---lyrics from "Let's Get Together" by the Youngbloods

"Hot time, summer in the city/Back of my neck getting dirty and gritty
Been down isn't it a pity/Doesn't seem to be a shadow in the city"---lyrics from "Summer in the City" by The Lovin' Spoonful

Although the Dow Jones Industrial Average ended 108 points down from last Friday (falling 124 points on yesterday's disappointing jobs number), I continued my steady (if slow) re-entry into the stock market. This week I bought some more natural gas plays (PNG, EEP, LINE and ETP), the preferred stock of a real estate investment trust (MFO) and of a bank (RBSpT), and some utility shares (EXC).

Why on earth would I continue to buy when the world's economic outlook is so bleak that three central banks threw "coins into the fountain--each one seeking happiness"? Like "three hopeful lovers", the Chinese central bank surprisingly dropped interest rates as did the European Central Bank, and the Bank of England announced a 75billion Pound "quantitative easing" (the purchase of British gilts).

Why invest indeed when Christine Lagarde, the president of the International Monetary Fund, announced that the world outlook was so negative the IMF was reducing its economic forecast? Am I crazy to buy when the global purchasing manager's index (PMI) registered 50.3, its lowest reading since 2009? Am I thinking some "fountain will bless" me?

Perhaps.

But, I am much more comfortable buying today than at any time in the past two months. And here is why. For the first time in a long while, all (I repeat ALL) world political, economic, and business leaders are on the same page. The concern is no longer WHETHER Germany will support Spain, or WHETHER the dollar is stronger than the euro or even WHETHER Apple is better than Google. The concern is universal albeit disconcerting: is the world on the verge of a global recession? And when all of the world's leaders share that same concern, massive stimulus (like this week's actions by the three central banks) can not be far behind. "C'mon people now, smile on your brother!" China would rather face inflation than stagnation, as would the United States-- especially in an election year. And Germany cannot have the outflow of its precious exports diminish. One can debate the long term efficacy of government stimuli, but such actions invariably have a positive impact on stock markets. Money can be made when world leaders act in concert and "try and love one another." I think money can be made "right now." And that, dear Readers, is why I continue to buy--- ever so cautiously and ever so selectively.

Speaking of WHETHER or should I say WEATHER, what "a hot time, this summer in the city!" Can you imagine the kilowatts being generated and the amount of natural gas being consumed to generate them? But to me, this "is not a pity" because I bought Exelon ( an unfairly disfavored electrical utility paying a 5.6% dividend) and the host of natural gas stocks listed above. I have said it before, but it bears repeating---natural gas is the future of this country. It is plentiful, cheap, domestically produced, immune from competition (I consider Canada "domestic"), and burns cleaner than coal. As long as we consume heat and electricity, this fossil fuel will be needed. Any well financed participant in the industry; be it a producer, pipeline or storage facility will do well especially considering how much in the "shadow"natural gas related shares have been recently. And as a bonus, most pay awesome dividends while you wait for the stock to appreciate.

I like that world leaders are desperate for economic growth. The corporate quarterly report season starts Monday afternoon with Alcoa reporting first. If second quarter earnings disappoint (which I believe they will), we will see more stimulus. In the words of the 'Spoonful, right now seems "custom made for a daydreamin' boy"---like me.