October 25, 2015 Whim

Reward Vol. 281

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

I was invited to a small, exclusive subscriber conference in Florida this week and therefore will not be publishing a regular edition.

Wow, what a run the bulls had at the end of the week! In response to an announcement from the European Central Bank that it is considering even more quantitative easing (including extending or increasing its $68billion monthly purchase of sovereign bonds), the Dow Jones Industrial Average skyrocketed 321 points on Thursday. The S&P 500 experienced a similar percentage rise. Friday saw another 150+ bump in the Dow on news that China’s Central Bank cut rates 50 basis points and reduced its bank reserve requirement. And so the easy money parade continues overseas and places pressure on the Federal Reserve to postpone any interest rate increase stateside. Since their nadir at the end of September, both major indices have rallied approximately 8% and now both are even for the year.

As good as the week was for the markets in general, the oil patch disappointed. Leading the way down was Kinder Morgan which sent shock waves by announcing that it was planning an unanticipated equity raise. Mr. Market hates surprises and even more when the surprise comes in a sector (oil in general and pipelines in particular) that has already been rocked. Kinder’s shocker hit other pipeline companies including ETP. Large oil companies also faltered as bench mark oil prices fell. Indeed, my week was rescued from this oil patch fiasco by some outsized gains by GM and several REIT’s.


This week serves as a reminder that at present Mr. Market is most influenced by the whims of a handful of central bankers. The lower the rates and the easier the money, the better Mr. Market likes it. But relying on whims is risky. By definition, whims can change inexplicably and without notice. The wise investor must remain vigilant and nimble.