February 21, 2016 Ahab

Risk/Reward Vol. 296

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

“Let me tell you about Ahab the Arab
The sheik of the burning sand
He had emeralds and rubies just drippin' off 'a him
And a ring on every finger of his hand”---lyrics from “Ahab the Arab” sung by Ray Stevens

“You're losing interest in me and it's showing
It is no big thing but it's growing
The pain of heartbreak I've just started knowing
Well, it is no big thing but it's growing”---lyrics from “It Ain’t No Big Thing” sung by Elvis Presley

“There's a fire starting in my heart
Reaching a fever pitch
And it's bringing me out the dark”---lyrics from “Rolling In The Deep” sung by Adele

This week, once again, the stock market was correlated to oil. This week, however, stock prices were less impacted by the hour to hour price fluctuation in the price of oil than by the release of oil related news. And the news was encouraging, a fact which caused the two major indices to enjoy their best week of the year. Early in the week, word came from a meeting in Doha that “Ahab the Arab, the sheik of the burning sand/He of emeralds and rubies and a ring on every finger of his hand“ (in the persons of the oil ministers of Saudi Arabia, Kuwait and Qatar along with Russia) was prepared to limit production to January’s level if Iran and Iraq would likewise agree. No word was forthcoming from Iraq, but the Iranian oil minister hinted that he was in favor of production limits. Next came word that savvy investor David Tepper had made a large investment in ETP, an oil and gas pipeline owner. Then came news that the oracle himself, Warren Buffett had invested in Kinder Morgan (KMI), another pipeline owner. These investments signaled to many that the smart money had determined that oil was approaching a bottom. Oil did spike above $32/bbl midweek before falling on Friday. That fall was not precipitous, however, and oil stocks retained much of Wednesday’s healthy gains.

Further contributing to Mr. Market’s good week was news gleaned from the Federal Reserve’s January meeting minutes which were released on Wednesday. In the minutes, Fed members aired their concerns that the likelihood of inflation hitting the desired 2% target was fading. The release of the minutes was followed by a statement from heretofore Fed interest rate hawk, James Bullard, that the economy was too weak to support another rate hike anytime soon. This statement pleased Mr. Market, at least in the short run. However, for those, such as yours truly, who desire rate normalization even at the cost of short term pain, the Fed minutes and Bullard's words were disappointing. When if ever will we be able to achieve a decent return on a safe investment? Maybe not for years. It is hard to fathom now, but in 2007 one could achieve a 5.4% annual return on an FDIC insured 12 month CD. That instrument pays 1.1% today. This “loss of interest” may be “no big thing” to Wall Street mavens, but it gives me and others seeking a decent safe return the "pain of heart ache.” I suggest that the inability of Mr. and Mrs. Saver to garner any return on their deposits is a major contributing factor to their obvious distrust of and displeasure with anyone associated with the Establishment.

As loyal readers know, I am a huge fan of David Tepper (see Vols. 59 and 170 riskrewardblog.blogspot.com ). His purchase of ETP “started a fire in my heart that reached such a fever pitch that it brought me out of the dark” at least in regard oil and pipelines. I opened new positions in ETP, RDS/B, and BP this week. And if James Bullard has become a rate hike dove, then I see no reason to hold back on buying heretofore oversold interest rate sensitive stocks. So I opened new positions in REIT’s VTR and OHI, preferred stock closed end fund DFP, equity play GAB, hedge fund BX and municipal bond closed end funds MQT and VGM. That said, I am not “Rolling In Too Deep." More than 2/3rds of what I manage is still in cash. But, the signposts that I watch signaled that it was time to make a move.

Like Elvis, I invest with a healthy dose of “Suspicion.” Indeed maintaining a “Suspicious Mind”, well “That’s All Right, Mama.” My purchases this week, notwithstanding I have not “Surrender”(ed) to irrational exuberance. I know Mr. Market can “Be Cruel” even to a “heart that’s true.” If the market reverses, my loss limit rules will keep me from ever spending a night in “Heartbreak Hotel.” If things get “All Shook Up”, I will enter sell orders and cash will be “Returned to Sender.”