October 11, 2015 Putin--On the Ritz

Risk/Reward Vol. 279

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

"Dressed up like a million dollar trooper

Trying hard to look like Gary Cooper
Perfect fits
Puttin’ on the Ritz"---lyrics from “Puttin’ on the Ritz” sung by Fred Astaire

“Tell me why
Is it so
That I never can say goodbye, no, no, no, no, now

Never can say goodbye”---“Never Can Say Goodbye” sung by the Jackson 5

“I'm scared, I'm scared, I'm scared
I'm scared, so scared
I'm scared, I'm scared, I'm scared”---lyrics from “Scared” sung by John Lennon

The price of oil rose 9% this week, a welcomed development for me. One reason for the rise was the continuing drop in domestic production. The US rig count stood at 795 at week’s end compared to 1930 this time last year. A second reason was the uncertainty stemming from Vladimir Putin’s ever growing presence in the Middle East. Last week, he brought his air force into the region. This week he launched a cruise missile attack on Syrian rebels, the same rebels that the US has been arming these past several months. The missiles were fired from a ship in the Caspian Sea and traveled 900 miles without detection, hugging the terrain through Iran and Iraq then into Syria. Just as easily, those missiles could have been used to disrupt shipping lanes out of Saudi Arabia. The man who Boone Pickens calls “the new sheriff in town” looms over the Mideast “dressed up like a million dollar trooper/Trying hard to look like Gary Cooper/Perfect fits/It’s Vladimir---Putin on the Ritz.”

My ability to find joy in the oil patch is because I abandoned it many months ago and returned to it only recently. The KMI and ETP that I purchased on September 30th are up 17% and 19% respectively. The VNRBP that I bought on Wednesday is up over 4%. That said, had I stayed in those stocks from my penultimate foray into the oil patch in the summer of 2014, I would still be down 20% on KMI, 25% on ETP and 29% on VNRBP. My adherence to an 8% loss limit saved me from that fate. Why people buy and hold in the face of such dramatic drops is beyond my comprehension. Somebody “tell me why/Is it so/That they never can say goodbye, no, no, no, no now/Never can say goodbye.”

Release of the minutes from the Federal Reserve’s meeting of September 16-17 lent support to those who believe no interest rate hike will occur this year. As I have written in the past, I believe that this is bad policy. But I have no influence on policy. My concern is the interest rate on the US Ten Year Treasury Bond off which many of my investments are priced. As an investor, I don’t care at what level the 10Year trades. I just want rate stability, something that alludes us as long as the Fed’s guessing game continues. The confidence I had that Chair Yellen would be a woman of her word and would raise rates at least once in 2015 has been eroded. The released minutes bespeak the following refrain: “I’m scared, I’m scared, I’m scared/I’m scared, so scared/I’m scared, I’m scared, I’m scared.” Scared of what, you ask, with unemployment at only 5% and inflation in check? Apparently scared of Mr. Market or Mr. Draghi or Mr. Xi---who knows. Again, Janet, just do it.

And so we head into the final quarter of the year with little certainty as to the course of our monetary policy. I don’t know about you, but I am tired of the Fed’s “Mind Games.” With each Fed meeting, Fed speech and/or Fed minute release, it’s like “Starting Over.” “Imagine” a financial world where the whims of central bankers do not hold sway. In recognition of what would have been John Lennon's 75th birthday, we implore you, Federal Reserve, do (or don’t do) something---definitively. “Give (monetary policy) Peace a Chance.”