Risk/Reward Vol. 127
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Very superstitious, writing's on the wall/Very superstitious ladder's about to fall
Thirteen month old baby broke the lookin' glass/Seven years of bad luck, the good things in your past"---lyrics from "Superstitious" by Stevie Wonder
"Deep rhythms captivate me/Hot rhythms stimulate me
Can't help but swing it boy/ Swing it brothers, swing"---lyrics from "Swing, Brother Swing" sung by Billie Holliday
"Mirror, mirror on the wall/Who's the baddest of them all
Don't lie to me/I'm a hot commodity"---lyrics from "Hot Commodity" by Trina
Holy Jason Voorhees! Casting "Superstition" aside, the Dow Jones Industrial Average rallied over 200 points on Friday to close even with last week. Obviously, the stock market doesn't suffer from triskaidekaphobia! I admit that I don't own a magic "lookin' glass", but I continue to "ladder" up my portfolio, believing that "good things are in the future--not the past".
As discussed last week, faced with overwhelming negativity, the world's economic and political leaders remain generally and genuinely concerned about a worldwide recession. There is a real sense of urgency to "Stimulate" economies and to "swing" them to an upward trajectory. I say, "Swing it brothers, swing!" For example, in Norway, the president interceded to stop a strike by oil rig workers so that the world's oil supply (Norway is a large exporter of oil---look at Statoil (STO)) would not be interrupted. With the news that China experienced its sixth consecutive quarter of slower economic growth, the ruling mandarins announced that foreign hedge funds would be able to operate in China and that several large industrial projects (including two new steel mills) would be launched. Nothing is more unstable than an idle Chinese population, and China's leaders know it. Alarmed by the closure of several Peugeot facilities, French President Hollande is launching an inquiry and expressing concern over the root problem---a lack of productivity. France's unit labor cost (a measure of productivity) fell 25% versus that of Germany in just the last decade.
Meanwhile, investors remain cautious as the "flight to safety" crowd drove the yield on the benchmark 10 year U.S. Treasury bond to a record auction low of 1.454%. Good luck retiring on that return, Boomers. Those that need a return on their investment need to look elsewhere---and that elsewhere necessarily includes the stock market,
In short, with everything skewing negative, I look for continued stimulus worldwide (the Fed's recent inaction notwithstanding)---and stimulus is good for the stock market. So here were my moves this week.
I remain a huge fan of oil and natural gas. It appears that the underlying commodity prices have stabilized, and the rising stock values reflect this fact. On the nat gas front, Thursday's edition of the Investor Business Daily reported that by next year, Flying J (my favorite truck stop!) will have refit 150 of its 450 facilities located nationwide to accommodate natural gas pumps. This means that eighteen wheelers will be able to go coast to coast on natural gas. UPS also announced the purchase of 48 nat gas powered trucks to handle its Las Vegas to Los Angeles run. I tell you, dear Readers, the nat gas revolution is freakin' (or should I say frackin') happenin'! I bought more AMLP and PGN and added NS on a dip.
On the oil front, the International Energy Agency reported Friday that worldwide oil demand will grow by 1million barrels/day in 2013 (to over 87million barrels/day!). The new demand is driven (no pun intended) mostly by emerging market countries. North Dakota and Alaska, the US's number 2 and 3 producers, pump only 1million barrels/day-- combined. Oil will remain in demand for a long time, and I will add to my COP. I am also hunting for another domestic oil play.
Oil is not the only "hot commodity" that I like. The US drought has driven grain prices skyward, and if China continues to stimulate its economy, look for metals to rebound. To cover the entire commodity space, I like the Nuveen Diversified Commodity Fund (CFD) a closed end fund that tracks the Gresham commodity futures model. Explaining that beast is beyond the scope of this publication, but if you like commodities I highly recommend you investigate it. What I find particularly attractive is its broad diversity (oil, grains, cotton, metals, cattle, etc.) and its consistent monthly dividend which yields an annual 8+% return. As noted above, I have no magic "mirror on the wall", but I do believe CFD is the "baddest of them all".
Some random observations:
- I made a ton on RBSpT earlier in the year and am again. It pays an 8.5% dividend currently, and its price is up 7% in just 10 days. I continue to buy.
- As I re-enter this time, I am more conscious of intra-sector diversity, and thus many of my early purchases are sector specific EFT's or CEF's such as RQI (reits), AMLP (master limited partnerships), JPC (preferred stock) etc.
And so it goes. Pervasive negativity has spurred universal concern---which (almost counterintuitively) has made me optimistic. If you have any observations, criticisms or you just think I'm crazy, please email me. After all, in the words of Stevie Wonder, "that's what friends are for."
Saturday, July 14, 2012
Saturday, July 7, 2012
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.
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.
Saturday, June 30, 2012
June 30, 2012 Mad Season
Risk/Reward Vol. 125
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"The object of the Rules of Order is to assist an assembly to accomplish in the best possible manner the work for which it was designed"---quote from the Preface to Robert's Rules of Order (1915)
"You'd better stop, stop, stop/Using me up
You'd better stop/Cause I've had enough"---lyrics from "Stop" by Matchbox 20
"God of freedom, all victorious/Give us Souls serene and strong
Strength to make the future glorious/Keep the echo of our song"---lyrics from "North Dakota Hymn" (state song)
As I am sure my writings betray, I am a fiscal conservative. I do not like the idea, let alone the specifics, of Obamacare. That said, I recognize that it was duly passed by Congress and signed into law by the President. It is bad legislation, but it IS legislation. And, if it is to be amended or repealed, it should be done by legislative act---not by judicial fiat. Therefore, I applaud Justice Roberts for exercising judicial restraint---restoring, if you will, an appropriate, "Robert's" rule of judicial order where justices explore every plausible legal theory to UPHOLD legislation, not to overturn it. After all, that is the proper role of the judiciary (in effect, "to assist an assembly to accomplish... the work for which it was designed"). The United States Supreme Court should not to be a foil in the political battles of the day. I have two further observations on the ruling. First, isn't it refreshing to know that at least one of the branches of government can keep a secret? And, second, no practicing lawyer who regularly argues motions, tries cases or takes appeals would ever have the temerity to predict a decision based upon questions from the bench.
As significant as the Obamacare ruling may have been, it did not move the market---not like the news from the Eurozone summit reported on Friday morning. FINALLY, Italy and Spain stood up to Germany, and proclaimed "Stop, Stop, Stop/ I've had enough" At the outset of this week's Euro summit, the leaders of those two battered countries announced that they would block any and every Eurozone initiative unless and until the mounting and immediate problems with their banks and sovereign debt were addressed. In return for begrudgingly acquiescing to direct capital infusions into those banks and sovereign debt purchases by the European Financial Stability Fund (and ultimately its successor, the yet to be formed European Stability Mechanism or ESM---both of which are heavily subsidized by Germany), Chancellor Merkel extracted a commitment that a strong centralized Eurozone banking authority would be established. In reality, however, Germany's bluff was called. As recent financial news stories have highlighted , the biggest loser if the Euro implodes would be Germany because a highly valued, independent deutsche mark would kill German exports--its economic lifeblood. Indeed Germany's heretofore intransigence has aroused sentiment that in lieu of expelling Greece, maybe Germany should be given "das boot", freeing the rest of the Eurozone to inflate its way to solvency. Mein Gott, that would throw a flame on the Matchbox! Well, whatever the reason, what happened late this week looks and feels like real progress toward a stable Euro. Oh, don't get me wrong, Europe's greatest problem--its fiscal mess (its members spend more than they receive in revenue)---still exists (P.S. same for the U.S.) However, stability of the Euro is all that I needed in advance of my re-entry into the stock market, and I think I got it.
Friday's good Euro news came the same day an article was published about the jobs boom in North Dakota, where unemployment is so low even immigrant labor is at a premium. All of this is due to an oil and gas exploration bonanza there resulting from fracking. Hopefully, this wonderful technology will provide us with energy independence some day--"freedom, all victorious"--from the OPEC cartel. Can you imagine how "serene and strong" our Souls will be then--"all victorious"? As I have written repeatedly, I love domestic gas and oil and, good to my word, my first foray back into the market was in US based energy: AMLP, an exchange traded fund holding a nice sampling of oil and gas pipeline master limited partnerships (mlp) but in a vehicle that makes it suitable for ownership in a deferred income account. I have owned stock in individual mlp's in the past through my personal (non retirement) account, but I am keeping my retirement account in cash pending some visibility on the tax aspects of the looming Fiscal Cliff (discussed at http://www.riskrewardblog.blogspot.com/ vol. 118 ). AMLP fits very nicely into my 401k account. I also bought the preferred stock of Magnum Hunter Resources (MHRpD, paying 9%), and some Conoco (COP). I also bought shares in JPC, a closed end fund holding the preferred shares of several banks and insurance companies which should be more stable in light of the Eurozone actions announced this week.
I left the stock market in mid May reaping a nice profit. Had I stayed put, I would be further ahead today for sure--- but not as well off as I would have been had I exited in April. Was I right? Was I wrong? Can one time the market? Who knows, but I sure slept well these past 6 weeks. I do believe something substantive and positive occurred in Europe on Friday, and I am really glad to be back in the game, albeit if only dipping my toe. The lack of progress in Europe will surely depress second quarter earnings which will begin to be reported in 10 days or so. But those reports should set up buying opportunities.
Like Matchbox 20 sings, it has been a "Mad Season"
"I feel stupid, but I know it won't last for long/And I been guessin', and I could have been guessin' wrong" (Or maybe not)
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"The object of the Rules of Order is to assist an assembly to accomplish in the best possible manner the work for which it was designed"---quote from the Preface to Robert's Rules of Order (1915)
"You'd better stop, stop, stop/Using me up
You'd better stop/Cause I've had enough"---lyrics from "Stop" by Matchbox 20
"God of freedom, all victorious/Give us Souls serene and strong
Strength to make the future glorious/Keep the echo of our song"---lyrics from "North Dakota Hymn" (state song)
As I am sure my writings betray, I am a fiscal conservative. I do not like the idea, let alone the specifics, of Obamacare. That said, I recognize that it was duly passed by Congress and signed into law by the President. It is bad legislation, but it IS legislation. And, if it is to be amended or repealed, it should be done by legislative act---not by judicial fiat. Therefore, I applaud Justice Roberts for exercising judicial restraint---restoring, if you will, an appropriate, "Robert's" rule of judicial order where justices explore every plausible legal theory to UPHOLD legislation, not to overturn it. After all, that is the proper role of the judiciary (in effect, "to assist an assembly to accomplish... the work for which it was designed"). The United States Supreme Court should not to be a foil in the political battles of the day. I have two further observations on the ruling. First, isn't it refreshing to know that at least one of the branches of government can keep a secret? And, second, no practicing lawyer who regularly argues motions, tries cases or takes appeals would ever have the temerity to predict a decision based upon questions from the bench.
As significant as the Obamacare ruling may have been, it did not move the market---not like the news from the Eurozone summit reported on Friday morning. FINALLY, Italy and Spain stood up to Germany, and proclaimed "Stop, Stop, Stop/ I've had enough" At the outset of this week's Euro summit, the leaders of those two battered countries announced that they would block any and every Eurozone initiative unless and until the mounting and immediate problems with their banks and sovereign debt were addressed. In return for begrudgingly acquiescing to direct capital infusions into those banks and sovereign debt purchases by the European Financial Stability Fund (and ultimately its successor, the yet to be formed European Stability Mechanism or ESM---both of which are heavily subsidized by Germany), Chancellor Merkel extracted a commitment that a strong centralized Eurozone banking authority would be established. In reality, however, Germany's bluff was called. As recent financial news stories have highlighted , the biggest loser if the Euro implodes would be Germany because a highly valued, independent deutsche mark would kill German exports--its economic lifeblood. Indeed Germany's heretofore intransigence has aroused sentiment that in lieu of expelling Greece, maybe Germany should be given "das boot", freeing the rest of the Eurozone to inflate its way to solvency. Mein Gott, that would throw a flame on the Matchbox! Well, whatever the reason, what happened late this week looks and feels like real progress toward a stable Euro. Oh, don't get me wrong, Europe's greatest problem--its fiscal mess (its members spend more than they receive in revenue)---still exists (P.S. same for the U.S.) However, stability of the Euro is all that I needed in advance of my re-entry into the stock market, and I think I got it.
Friday's good Euro news came the same day an article was published about the jobs boom in North Dakota, where unemployment is so low even immigrant labor is at a premium. All of this is due to an oil and gas exploration bonanza there resulting from fracking. Hopefully, this wonderful technology will provide us with energy independence some day--"freedom, all victorious"--from the OPEC cartel. Can you imagine how "serene and strong" our Souls will be then--"all victorious"? As I have written repeatedly, I love domestic gas and oil and, good to my word, my first foray back into the market was in US based energy: AMLP, an exchange traded fund holding a nice sampling of oil and gas pipeline master limited partnerships (mlp) but in a vehicle that makes it suitable for ownership in a deferred income account. I have owned stock in individual mlp's in the past through my personal (non retirement) account, but I am keeping my retirement account in cash pending some visibility on the tax aspects of the looming Fiscal Cliff (discussed at http://www.riskrewardblog.blogspot.com/ vol. 118 ). AMLP fits very nicely into my 401k account. I also bought the preferred stock of Magnum Hunter Resources (MHRpD, paying 9%), and some Conoco (COP). I also bought shares in JPC, a closed end fund holding the preferred shares of several banks and insurance companies which should be more stable in light of the Eurozone actions announced this week.
I left the stock market in mid May reaping a nice profit. Had I stayed put, I would be further ahead today for sure--- but not as well off as I would have been had I exited in April. Was I right? Was I wrong? Can one time the market? Who knows, but I sure slept well these past 6 weeks. I do believe something substantive and positive occurred in Europe on Friday, and I am really glad to be back in the game, albeit if only dipping my toe. The lack of progress in Europe will surely depress second quarter earnings which will begin to be reported in 10 days or so. But those reports should set up buying opportunities.
Like Matchbox 20 sings, it has been a "Mad Season"
"I feel stupid, but I know it won't last for long/And I been guessin', and I could have been guessin' wrong" (Or maybe not)
Sunday, June 24, 2012
June 23, 2012 A Sight for Sore Eyes
Risk/Reward Vol. 124
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"So why must it be/Chaos lives in everything
Trapped inside a dream/It all comes back to me---lyrics from "Chaos Lives in Everything" by Korn
"And they drive along the pipeline/They tango til they're sore
They take apart their nightmares/And leave them by the door"---lyrics from "Tango Til They're Sore" by Tom Waits
"Clickity clack, clickity clack
The money goes into my piggy bank"---"Piggy Bank" by 50 Cent
On a macro level, good news from the Greek election is blunted by a spike in Spanish interest rates; an announcement that 400bn Euros from the EFSF will be available to buy Eurozone sovereign debt is countered by a dissent from Angela Merkel; an extension of Operation Twist is dashed by a downgrade of fifteen major banks. On a micro level, earning guidance is lowered for PG, PM, Pepsi, Fed Ex, Bed Bath and Beyond and Darden. Yeah/boo; up/down---and then some more boo. "So why must it be?--Does "chaos live in everything?"
Yet, the most remarkable aspect of the stock market over the past several weeks is its continued strength and vitality. Really folks, day after day, uncertainty rules in Europe, banks get battered, commodities (including oil) drop and blue chips warn on earnings. Yet, the Dow is still up 300 points on the year. Even I am becoming a believer in American equities---frankly there simply is no where else one can go if one wishes any return at all. But where?
This week the spot price of oil fell below its futures price---in other words oil moved from backwardation into con"tango" which is a more normal condition. For more than a year, the fear of Lybian and Iranian supply disruption has caused the cost of spot oil (for current delivery) to exceed the price of oil for future delivery. The backwardation "nightmare" has been "left at the door" and a more normal "pipeline" appears to have arrived. I see the price of oil stabilizing somewhere at or above $70/bbl (WTI) and if it does I see myself buying the oil companies that I have highlighted previously.
And shockingly, "clickity clack", I may put "money into piggy bank" stocks. All of the majors absorbed a Moody's downgrade---and their prices ROSE indicating that the market had previously effected a discount. Indeed, the preferred shares of the majors (my favorite way to play banks) have remained remarkably stable while still paying handsome dividends. I will likely buy a few preferred issues of C, BAC and MS.
I am near re-entry. Checking my daily returns again will be like another Tom Waits song--"A Sight for Sore Eyes".
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"So why must it be/Chaos lives in everything
Trapped inside a dream/It all comes back to me---lyrics from "Chaos Lives in Everything" by Korn
"And they drive along the pipeline/They tango til they're sore
They take apart their nightmares/And leave them by the door"---lyrics from "Tango Til They're Sore" by Tom Waits
"Clickity clack, clickity clack
The money goes into my piggy bank"---"Piggy Bank" by 50 Cent
On a macro level, good news from the Greek election is blunted by a spike in Spanish interest rates; an announcement that 400bn Euros from the EFSF will be available to buy Eurozone sovereign debt is countered by a dissent from Angela Merkel; an extension of Operation Twist is dashed by a downgrade of fifteen major banks. On a micro level, earning guidance is lowered for PG, PM, Pepsi, Fed Ex, Bed Bath and Beyond and Darden. Yeah/boo; up/down---and then some more boo. "So why must it be?--Does "chaos live in everything?"
Yet, the most remarkable aspect of the stock market over the past several weeks is its continued strength and vitality. Really folks, day after day, uncertainty rules in Europe, banks get battered, commodities (including oil) drop and blue chips warn on earnings. Yet, the Dow is still up 300 points on the year. Even I am becoming a believer in American equities---frankly there simply is no where else one can go if one wishes any return at all. But where?
This week the spot price of oil fell below its futures price---in other words oil moved from backwardation into con"tango" which is a more normal condition. For more than a year, the fear of Lybian and Iranian supply disruption has caused the cost of spot oil (for current delivery) to exceed the price of oil for future delivery. The backwardation "nightmare" has been "left at the door" and a more normal "pipeline" appears to have arrived. I see the price of oil stabilizing somewhere at or above $70/bbl (WTI) and if it does I see myself buying the oil companies that I have highlighted previously.
And shockingly, "clickity clack", I may put "money into piggy bank" stocks. All of the majors absorbed a Moody's downgrade---and their prices ROSE indicating that the market had previously effected a discount. Indeed, the preferred shares of the majors (my favorite way to play banks) have remained remarkably stable while still paying handsome dividends. I will likely buy a few preferred issues of C, BAC and MS.
I am near re-entry. Checking my daily returns again will be like another Tom Waits song--"A Sight for Sore Eyes".
Saturday, June 16, 2012
June 16, 2012 Deutscheland Uber Alles
Risk/Reward Vol. 123
"Everyone's watchin' to see what you will do/Everyone's lookin' at you
Everybody's workin' for the weekend/Everybody's goin' off the deep end"---lyrics from "Workin' for the Weekend" by Loverboy
"Germany, Germany above everything
Above everything in the world"---lyrics from "Deutscheland uber Alles" once and now the German National Anthem
"Turn around, every now and then/I get a little bit lonely and you're never comin' round
Turn around, every now and then/I get a little bit tired of listening to the sound of my tears"---lyrics from "Total Eclipse of the Heart" by Bonnie Tyler
Congratulations to those that have remained in the stock market since mid-May! "Everyone was lookin' at you," and so far you have prospered. The Dow Jones Industrial Average finished the week up 213 points, well above where I exited a few weeks ago. The reasons for this upward movement are not mysterious despite the deluge of bad news and uncertainty (Spanish bank debt, Greek elections, lower copper prices, lower corn prices, lower demand for oil, etc.) In fact, the news is so bad, market participants are "watchin' to see what central bankers and politicians will do." Many investors have "gone off the deep end" (in my opinion) continuing to buy in the belief that the European Central Bank and the Federal Reserve will turn on the printing presses pumping more "liquidity" into Eurozone banks and re-instituting quantitative easing (QE3), both of which have traditionally resulted in stock prices rising. If the leftists prevail in Greece on Sunday, those printing presses better start "workin' this weekend".
But are rumors of ECB liquidity and/or QE3 valid reasons to re-enter the market? I don't think so. I dipped into and out of the market on such rumors during the 2011 Eurozone crisis (which lasted from August through mid-December's announcement of the LTRO, see www.riskrewardblog.blogspot.com Vol 98) and ended up losing money. This time I am staying on the sidelines until I see some sign that a longer term solution to the Eurozone sovereign debt crisis is in place.
And that may be some time in arriving. France under the leadership of newly elected President Hollande is aligning with Italy and Spain calling for the "mutualization" of Eurozone debt by replacing the sovereign debt of individual countries by Eurobonds backed by the full faith and credit of ALL Eurozone members. Understandably, this is a non starter for the Western world's only solvent economy, Germany, which heretofore has refused to put its balance sheet on the line for the likes of Greece, Ireland, Portugal or any other bankrupt Euro-flop. If and when Germany relents, it will be only after huge political and economic concessions are extracted which will make Germany the de jure as well as de facto ruler of all of Europe. OH, you think not! Remember dear Readers, this is a poker game that is more than two hundred fifty years old with domination at stake. Today, all of the aces and face cards are in the hands of a power hungry nation that last century started two world wars resulting in the death of over 75,000,000 people. The lyrics are "Germany, Germany above everything" not "Oh, come fellow Krauts let's help those lazy ass Greeks and French who retire before age 60." I see a vengeful Germany visiting a little more pain before any resolution is reached.
Once I do re-enter the stock market, I will first buy oil and natural gas. In addition to LINE, MHRpD, COP, I like Statoil (STO), the Norwegian exploration and development company that is finding oil in such diverse places as the Gulf of Mexico, Tanzania and the Bakken. And shockingly, I am looking for a "turn around" from Total, the integrated French oil company. Its stellar performance has been "totally eclipsed" by its association with France, the nation. But Total is truly a global enterprise that pays a handsome and safe dividend. I also like BlackRock Enhanced Dividend Fund (BDJ) a closed end fund comprised of 100 dividend paying stocks. It trades at a discount to its net asset value (read about this concept at www.cefconnect.com , an excellent resource), and pays a delicious 9+% dividend. Two other closed end funds worthy of consideration are Cohen and Steers Quality Real Estate (RQI) and Nuveen Energy MLP (JMF). These likewise provide instant diversification within each sector and great yields.
For those that have prospered in the past month, I again congratulate you. However, give some thought to taking some profits. You don't want to be caught short like the 80's group Loverboy which lamented as follows in its hit "Turn Me Loose"
"Too much, too soon, you got it all so easily
Too much, too soon, now somebody got the squeeze on me".
"Everyone's watchin' to see what you will do/Everyone's lookin' at you
Everybody's workin' for the weekend/Everybody's goin' off the deep end"---lyrics from "Workin' for the Weekend" by Loverboy
"Germany, Germany above everything
Above everything in the world"---lyrics from "Deutscheland uber Alles" once and now the German National Anthem
"Turn around, every now and then/I get a little bit lonely and you're never comin' round
Turn around, every now and then/I get a little bit tired of listening to the sound of my tears"---lyrics from "Total Eclipse of the Heart" by Bonnie Tyler
Congratulations to those that have remained in the stock market since mid-May! "Everyone was lookin' at you," and so far you have prospered. The Dow Jones Industrial Average finished the week up 213 points, well above where I exited a few weeks ago. The reasons for this upward movement are not mysterious despite the deluge of bad news and uncertainty (Spanish bank debt, Greek elections, lower copper prices, lower corn prices, lower demand for oil, etc.) In fact, the news is so bad, market participants are "watchin' to see what central bankers and politicians will do." Many investors have "gone off the deep end" (in my opinion) continuing to buy in the belief that the European Central Bank and the Federal Reserve will turn on the printing presses pumping more "liquidity" into Eurozone banks and re-instituting quantitative easing (QE3), both of which have traditionally resulted in stock prices rising. If the leftists prevail in Greece on Sunday, those printing presses better start "workin' this weekend".
But are rumors of ECB liquidity and/or QE3 valid reasons to re-enter the market? I don't think so. I dipped into and out of the market on such rumors during the 2011 Eurozone crisis (which lasted from August through mid-December's announcement of the LTRO, see www.riskrewardblog.blogspot.com Vol 98) and ended up losing money. This time I am staying on the sidelines until I see some sign that a longer term solution to the Eurozone sovereign debt crisis is in place.
And that may be some time in arriving. France under the leadership of newly elected President Hollande is aligning with Italy and Spain calling for the "mutualization" of Eurozone debt by replacing the sovereign debt of individual countries by Eurobonds backed by the full faith and credit of ALL Eurozone members. Understandably, this is a non starter for the Western world's only solvent economy, Germany, which heretofore has refused to put its balance sheet on the line for the likes of Greece, Ireland, Portugal or any other bankrupt Euro-flop. If and when Germany relents, it will be only after huge political and economic concessions are extracted which will make Germany the de jure as well as de facto ruler of all of Europe. OH, you think not! Remember dear Readers, this is a poker game that is more than two hundred fifty years old with domination at stake. Today, all of the aces and face cards are in the hands of a power hungry nation that last century started two world wars resulting in the death of over 75,000,000 people. The lyrics are "Germany, Germany above everything" not "Oh, come fellow Krauts let's help those lazy ass Greeks and French who retire before age 60." I see a vengeful Germany visiting a little more pain before any resolution is reached.
Once I do re-enter the stock market, I will first buy oil and natural gas. In addition to LINE, MHRpD, COP, I like Statoil (STO), the Norwegian exploration and development company that is finding oil in such diverse places as the Gulf of Mexico, Tanzania and the Bakken. And shockingly, I am looking for a "turn around" from Total, the integrated French oil company. Its stellar performance has been "totally eclipsed" by its association with France, the nation. But Total is truly a global enterprise that pays a handsome and safe dividend. I also like BlackRock Enhanced Dividend Fund (BDJ) a closed end fund comprised of 100 dividend paying stocks. It trades at a discount to its net asset value (read about this concept at www.cefconnect.com , an excellent resource), and pays a delicious 9+% dividend. Two other closed end funds worthy of consideration are Cohen and Steers Quality Real Estate (RQI) and Nuveen Energy MLP (JMF). These likewise provide instant diversification within each sector and great yields.
For those that have prospered in the past month, I again congratulate you. However, give some thought to taking some profits. You don't want to be caught short like the 80's group Loverboy which lamented as follows in its hit "Turn Me Loose"
"Too much, too soon, you got it all so easily
Too much, too soon, now somebody got the squeeze on me".
Saturday, June 9, 2012
June 9, 2012 All Out of Love
Risk/Reward Vol. 122
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Hope springs eternal through your eyes
Draws me closer to your side
And keeps me there where I belong"---lyrics from "Hope Springs Eternal" by Air Supply
"Oh, when them cotton bolls get rotten/You can't pick very much cotton
In them old cotton fields back home"---lyrics from "Cotton Field" by Huddie Ledbetter
"I'm just an old chunk of coal
But I'm gonna be a diamond some day"---lyrics from "Chunk of Coal" by Johnny Cash
The stock market is an unpredictable place these days. Despite signs everywhere that a double dip into world wide recession is a real possibility, "hope springs eternal" as evidenced by this week's move upward. On Wednesday, the Dow Jones average spiked 287 points on the rumor of a breakthrough in the game of brinksmanship being played in the Eurozone between Germany and everyone else, and the hint by Fed Vice Chair Janet Yellen that, domestically, a new round of quantitative easing (either a further cut in already rock bottom rates or a continuation of Operation Twist---the replacing of short term with long term notes) may be in the offing. Many more market participants were drawn "closer to the positive side" on Thursday morning with the announcement by the Chinese central bank that for the first time since 2008 it was cutting interest rates in order to spur economic growth which has declined from 10.4% (annualized) in Q1 2010 to 8.1% in Q1 2012. That news was moderated later in the day by comments from Fed Chair Ben Bernanke indicating that further quantitative easing may not be in the cards. On Friday, the average moved steadily upward on the hunch that Spain will formally request assistance for its banks on Saturday. The Dow closed the week up 436 points---its best performance of the year. Go figure!
I view all of this as a repeat of what we saw last August: the stock market rising (or falling) on comments, rumors and hunches attributed to government officials and central bankers. Discussions of market fundamentals (like the profits and growth prospects of individual companies) have been relegated to the sidelines---which is "where I belong"--in cash. I simply have no faith that any bureaucrat in Europe (facing a monstrous sovereign debt and banking crisis) or here (facing the Fiscal Cliff discussed in Vol. 118 www.riskrewardblog.blogspot.com) will act before significantly more upheaval is experienced. I hope I am wrong.
I continue to search for positive signals to re-enter the stock market if and when the Eurozone and Fiscal Cliff situations are addressed. I am finding little so far. Two traditionally early indicators of economic growth, copper and cotton, are not faring well. Copper prices were down 12% in May. And, the cotton market is "rotten"; down 60% in the last 6 months and down 20% in May alone. You simply can't justify "pickin' very much cotton" at those levels.
Oh, and as for coal, about which I wrote last week---Fuggedaboutit! Stockpiles at China's largest coal importing seaport are near capacity. And domestically, it was reported this week that the percentage of electricity generated by "chunks of coal" has fallen to 34% which ties it with natural gas (33%), a progressively cheaper (thanks to fracking) and significantly cleaner source of energy. Indeed, the use of natural gas as a source of power generation (which now appears as a more likely source of "diamonds" than coal) has increased 40% in one year. This new information, however, does whet my appetite even more for Linn Energy (LINE) which has the following attractive characteristics: it is involved primarily in the domestic US market (oil and natural gas); it is well capitalized and opportunistic in its acquisitions; its natural gas production is hedged (price guaranteed) at attractive rates through 2017 and its oil production is hedged through much of 2016; it yields nearly 8%; it is currently attractively priced due to a perceived glut of natural gas; and lastly (but significantly) its stated corporate objective is "stability and growth of distributions for the long term benefit of unit holders" (that would be me!).
So in sum, I am not tempted to re-enter the stock market (except for LINE), even with this week's stellar performance. The signs, overall, simply do not look positive. If I remain idle for a while---so be it. Frankly, my current attitude toward the market is best articulated by noted 80's hair group Air Supply---"I'm all out of love."
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Hope springs eternal through your eyes
Draws me closer to your side
And keeps me there where I belong"---lyrics from "Hope Springs Eternal" by Air Supply
"Oh, when them cotton bolls get rotten/You can't pick very much cotton
In them old cotton fields back home"---lyrics from "Cotton Field" by Huddie Ledbetter
"I'm just an old chunk of coal
But I'm gonna be a diamond some day"---lyrics from "Chunk of Coal" by Johnny Cash
The stock market is an unpredictable place these days. Despite signs everywhere that a double dip into world wide recession is a real possibility, "hope springs eternal" as evidenced by this week's move upward. On Wednesday, the Dow Jones average spiked 287 points on the rumor of a breakthrough in the game of brinksmanship being played in the Eurozone between Germany and everyone else, and the hint by Fed Vice Chair Janet Yellen that, domestically, a new round of quantitative easing (either a further cut in already rock bottom rates or a continuation of Operation Twist---the replacing of short term with long term notes) may be in the offing. Many more market participants were drawn "closer to the positive side" on Thursday morning with the announcement by the Chinese central bank that for the first time since 2008 it was cutting interest rates in order to spur economic growth which has declined from 10.4% (annualized) in Q1 2010 to 8.1% in Q1 2012. That news was moderated later in the day by comments from Fed Chair Ben Bernanke indicating that further quantitative easing may not be in the cards. On Friday, the average moved steadily upward on the hunch that Spain will formally request assistance for its banks on Saturday. The Dow closed the week up 436 points---its best performance of the year. Go figure!
I view all of this as a repeat of what we saw last August: the stock market rising (or falling) on comments, rumors and hunches attributed to government officials and central bankers. Discussions of market fundamentals (like the profits and growth prospects of individual companies) have been relegated to the sidelines---which is "where I belong"--in cash. I simply have no faith that any bureaucrat in Europe (facing a monstrous sovereign debt and banking crisis) or here (facing the Fiscal Cliff discussed in Vol. 118 www.riskrewardblog.blogspot.com) will act before significantly more upheaval is experienced. I hope I am wrong.
I continue to search for positive signals to re-enter the stock market if and when the Eurozone and Fiscal Cliff situations are addressed. I am finding little so far. Two traditionally early indicators of economic growth, copper and cotton, are not faring well. Copper prices were down 12% in May. And, the cotton market is "rotten"; down 60% in the last 6 months and down 20% in May alone. You simply can't justify "pickin' very much cotton" at those levels.
Oh, and as for coal, about which I wrote last week---Fuggedaboutit! Stockpiles at China's largest coal importing seaport are near capacity. And domestically, it was reported this week that the percentage of electricity generated by "chunks of coal" has fallen to 34% which ties it with natural gas (33%), a progressively cheaper (thanks to fracking) and significantly cleaner source of energy. Indeed, the use of natural gas as a source of power generation (which now appears as a more likely source of "diamonds" than coal) has increased 40% in one year. This new information, however, does whet my appetite even more for Linn Energy (LINE) which has the following attractive characteristics: it is involved primarily in the domestic US market (oil and natural gas); it is well capitalized and opportunistic in its acquisitions; its natural gas production is hedged (price guaranteed) at attractive rates through 2017 and its oil production is hedged through much of 2016; it yields nearly 8%; it is currently attractively priced due to a perceived glut of natural gas; and lastly (but significantly) its stated corporate objective is "stability and growth of distributions for the long term benefit of unit holders" (that would be me!).
So in sum, I am not tempted to re-enter the stock market (except for LINE), even with this week's stellar performance. The signs, overall, simply do not look positive. If I remain idle for a while---so be it. Frankly, my current attitude toward the market is best articulated by noted 80's hair group Air Supply---"I'm all out of love."
Saturday, June 2, 2012
June 2, 2012 Evil Woman
Risk/Reward Vol. 121
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Your European son is gone/You'd better say so long
Your clown's bid you goodbye"---lyrics from "European Son" by The Velvet Underground
"Hello, How are you?
Have you been alright/Through all those lonely nights
That's what I'd say/I'd tell you everything
If you'd pick up that telephone, yeah"---lyrics from "Telephone Line" by Electric Light Orchestra
"Spark and it's like gasoline/I start pumping like a machine
My heart only runs on supreme/So hot, give me your gasoline, yeah"---lyrics from "Gasoline" by Britney Spears
"I loaded sixteen tons of number nine coal
And the straw boss said "Well a-bless my soul"---lyrics from "Sixteen Tons" by Tennessee Ernie Ford
To no one's surprise, Greece has been a head fake all along. The problem is much larger. Indeed, all of the Eurozone, led by Spain, is on the brink of imploding due to the weight of bloated sovereign debt, an undercapitalized, incestuous banking system and the flight of funds out of euros and into the safe havens of dollars and pounds. In response, Eurozone leaders only bicker and dither as their prodigal "European son"--the euro-- marches toward oblivion. Bidding that "clown goodbye" is not beyond the realm of possibility. As a result of this Eurozone mess and a slowing economy in China, May ended as the worst month in the market since 2010. And with a lousy jobs report on Friday, June is starting even worse. All the stock market gains of 2012 have now been erased. Whew! Am I glad to be in cash!
Last week, one reader commented that my reports are becoming a broken record of Euro-bashing and bad news. He expressed interest in learning what I intend to buy once the market stabilizes. Fair enough.
First, I am staying in the US. Even if a Euro fix is instituted, it will take a long time to implement. Second, unlike last winter's re-entry, I will likely shy away from financials. There is just too much uncertainty in that arena and frankly, JPMorgan's recent blunder has shaken my confidence in even the best of that breed.
As always, I will look to dividend payers with steady cash flow. Telecoms fit this bill nicely, providing a safe source of income "through the lonely nights" that may lie ahead. So, I intend to "pick up (some) telephone" stocks. AT&T (T) and Verizon (VZ) have remained market darlings recently, and thus their yields are not attractive to me. On the other hand, legacy land line companies like Century Link (CTL), Windstream (WIN) and Frontier Communications (FTR) have fallen with the market in general. As a consequence, they carry outsized dividends and present excellent buying opportunities. My research leads me to prefer CTL and FTR over WIN. I will open positions once the stock market starts responding to traditional investment criteria (e.g. individual company profitability) as opposed to Eurozone headlines.
Assuming that the price of oil stays at or above $70/bbl (which justifies domestic production) and the price of natural gas continues to move upward from its recent low of $2/mmBTU, I will invest in oil and gas which have taken a beating in recent days. I believe that once the market stabilizes, this sector will "spark like gasoline and start pumping profits like a machine." I like Conoco (COP) since its recent disposition of several non-core assets. It has an excellent balance sheet and pays a good dividend. I also like the high yielding preferred stock of Magnum Hunter (MHRpD) which is a small but aggressive company involved in both oil and gas exploration in the most promising areas in the US. I like Linn Energy (LINE) in the natural gas exploration space, and I like Energy Transport Partners (ETP) in the natural gas and oil transport and storage space. All of these stocks are currently oversold and present excellent opportunities in a more stable environment.
Last, I am intrigued by the most battered of all sectors---coal. Although the abundance of natural gas (thanks to fracking) has made it the electrical power generating fuel of choice, coal still generates 40% of all electricity in this country and is used extensively throughout the world for this purpose. Companies that produce it will be with us for years to come, and some pay very handsome returns. I am a fan of Alliance Resource Partners (ARLP).
And so I end where I began---with Europe, the fate of which will determine the time of my re-entry. Lest we forget, Europe is named after Europa, a Phoenician princess abducted by the Greek god Zeus. Let us all hope she does not morph into another Electric Light Orchestra lyric----(An) "Evil Woman".
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Your European son is gone/You'd better say so long
Your clown's bid you goodbye"---lyrics from "European Son" by The Velvet Underground
"Hello, How are you?
Have you been alright/Through all those lonely nights
That's what I'd say/I'd tell you everything
If you'd pick up that telephone, yeah"---lyrics from "Telephone Line" by Electric Light Orchestra
"Spark and it's like gasoline/I start pumping like a machine
My heart only runs on supreme/So hot, give me your gasoline, yeah"---lyrics from "Gasoline" by Britney Spears
"I loaded sixteen tons of number nine coal
And the straw boss said "Well a-bless my soul"---lyrics from "Sixteen Tons" by Tennessee Ernie Ford
To no one's surprise, Greece has been a head fake all along. The problem is much larger. Indeed, all of the Eurozone, led by Spain, is on the brink of imploding due to the weight of bloated sovereign debt, an undercapitalized, incestuous banking system and the flight of funds out of euros and into the safe havens of dollars and pounds. In response, Eurozone leaders only bicker and dither as their prodigal "European son"--the euro-- marches toward oblivion. Bidding that "clown goodbye" is not beyond the realm of possibility. As a result of this Eurozone mess and a slowing economy in China, May ended as the worst month in the market since 2010. And with a lousy jobs report on Friday, June is starting even worse. All the stock market gains of 2012 have now been erased. Whew! Am I glad to be in cash!
Last week, one reader commented that my reports are becoming a broken record of Euro-bashing and bad news. He expressed interest in learning what I intend to buy once the market stabilizes. Fair enough.
First, I am staying in the US. Even if a Euro fix is instituted, it will take a long time to implement. Second, unlike last winter's re-entry, I will likely shy away from financials. There is just too much uncertainty in that arena and frankly, JPMorgan's recent blunder has shaken my confidence in even the best of that breed.
As always, I will look to dividend payers with steady cash flow. Telecoms fit this bill nicely, providing a safe source of income "through the lonely nights" that may lie ahead. So, I intend to "pick up (some) telephone" stocks. AT&T (T) and Verizon (VZ) have remained market darlings recently, and thus their yields are not attractive to me. On the other hand, legacy land line companies like Century Link (CTL), Windstream (WIN) and Frontier Communications (FTR) have fallen with the market in general. As a consequence, they carry outsized dividends and present excellent buying opportunities. My research leads me to prefer CTL and FTR over WIN. I will open positions once the stock market starts responding to traditional investment criteria (e.g. individual company profitability) as opposed to Eurozone headlines.
Assuming that the price of oil stays at or above $70/bbl (which justifies domestic production) and the price of natural gas continues to move upward from its recent low of $2/mmBTU, I will invest in oil and gas which have taken a beating in recent days. I believe that once the market stabilizes, this sector will "spark like gasoline and start pumping profits like a machine." I like Conoco (COP) since its recent disposition of several non-core assets. It has an excellent balance sheet and pays a good dividend. I also like the high yielding preferred stock of Magnum Hunter (MHRpD) which is a small but aggressive company involved in both oil and gas exploration in the most promising areas in the US. I like Linn Energy (LINE) in the natural gas exploration space, and I like Energy Transport Partners (ETP) in the natural gas and oil transport and storage space. All of these stocks are currently oversold and present excellent opportunities in a more stable environment.
Last, I am intrigued by the most battered of all sectors---coal. Although the abundance of natural gas (thanks to fracking) has made it the electrical power generating fuel of choice, coal still generates 40% of all electricity in this country and is used extensively throughout the world for this purpose. Companies that produce it will be with us for years to come, and some pay very handsome returns. I am a fan of Alliance Resource Partners (ARLP).
And so I end where I began---with Europe, the fate of which will determine the time of my re-entry. Lest we forget, Europe is named after Europa, a Phoenician princess abducted by the Greek god Zeus. Let us all hope she does not morph into another Electric Light Orchestra lyric----(An) "Evil Woman".
Saturday, May 26, 2012
May 26, 2012 A Fine (Copper) Kettle of Fish
Risk/Reward Vol. 120
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Keep on talking to me baby/I'm hanging on your every word
Keep those drinks a coming/Maybe we'll both get what we deserve"---lyrics from "Lookin' for a Good Time" by Lady Antebellum
"I could've been a Princess/You'd be a King
Could've had a castle/And worn a ring
But no/You let me go/And stole my star"---lyrics from "Princess of China" by Coldplay (featuring Rihanna)
"Get a copper kettle, get a copper coil
Fill it with new corn mash and never more you'll toil"---lyrics from "Copper Kettle" by Bob Dylan
If one only compared the closing numbers of the Dow Jones Industrial Index last Friday to this Friday, one would conclude it was a good week with the Dow rising 84 points. But was it? Take Wednesday, for example. Dragged down by worries about a possible Greek exit ("Grexit") from the Eurozone, the Dow was down 190 points mid day only to rally late in the afternoon to close down a mere 6 points on the RUMOR that some breakthrough on the Greek crisis had been reached in a pre-dinner meeting between French President Hollande and Italian Premier Monti. What kind of market is this? Not one in which I want to participate. Fundamentals be damned---this market "hangs on every word" from any number of European heads of state who "keep on talking" about various fixes to the Eurozone debt crisis in general and a Grexit in particular. Surprisingly, the stock market "keeps drinking" the Kool-Aid dispensed by those heads of state, none of whom mean a hill of beans except Frau Merkel who has remained remarkably quiet.
Participating in a market that keeps the "drinks a coming" will result in getting "what we deserve". It may be good; it may be bad; but for sure it is unpredictable. I, for one, will remain on the sidelines at least until some clarity on the future of Greece is reached which will not be before the next round of elections on June 17--and maybe not then. The simple fact is that no one--and I mean no one-- knows the collateral effect that a Grexit or a worse, a Spanish bond default will have on world markets. Perhaps all of the liquidity pumped into Eurozone banks over the past 6 months via the LTRO (see www.riskrewardblog.blogspot.com vols. 95, 98 and 107) will be a sufficient buffer. Or perhaps, it will result in another Lehman Brothers-like meltdown. I am not willing to chance the latter.
The fact that I am on the sidelines does not mean that I am idle. Indeed, my studies are more intense when in a cash position than when fully invested; with an eagle eye on how and when an entry point will appear. Currently, my eye is on China which clearly has been the "King and Princess" of worldwide economic expansion for the past several years. Unfortunately, the building of "castles" and apartments and other housing units which has driven much of China's internal growth has come to a grinding halt. Steel production is a a standstill, and copper (the bellwether of all economic expansion) is overflowing warehouses and being stacked in parking lots. China's "star" may be falling. Let's hope not because the world wide implications would be devastating. Think of the impact of a declining China on capital goods manufacturers (CAT, CMI, JOY), on consumables (YUM, MCD, SBUX, COH), on oil (RDS, TOT, STAT), on Australia and on all of South America which are the sources of so many raw materials. YIKES! Below are some statistics from www.riskrewardblog.blogspot.com Vol. 74:
China has 1.3 billion people, 20% of the world's population; China is the largest manufacturer in the world; China is the world's largest exporter; China is the world's largest automobile manufacturer; China consumes the following percentages of the WORLD'S commodities: 53% of cement, 48% of iron ore, 47% of coal, 45% of lead, 40% of copper, 36% of nickel, 10% of oil.
If and when China does restart, however, you will see it first in mining--particularly copper miners (BHP, RIO, FCX), each of which is trading at 2009 levels. When the time is right, buy these miners and ride them up. It will be like "filling up with new corn mash---never more will you toil".
I am not a pessimist, but I embrace reality. Today's reality is that the Eurozone crisis, which currently dominates the stock market, is one that can be fixed by Germany putting its full faith and credit behind the issuance of Eurobonds---an event which likely will occur sooner or later. And as soon as it occurs, the crisis will abate. Unfortunately, the Eurozone crisis is masking a more serious and longer term reality--a slowdown in China. Let's hope the Kings, Princes and Princesses of China are wise enough to kick start renewed expansion. Otherwise, as Dylan says, you can take the current "reality and cast it to the wind/And it ain't never gonna be the same again."
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Keep on talking to me baby/I'm hanging on your every word
Keep those drinks a coming/Maybe we'll both get what we deserve"---lyrics from "Lookin' for a Good Time" by Lady Antebellum
"I could've been a Princess/You'd be a King
Could've had a castle/And worn a ring
But no/You let me go/And stole my star"---lyrics from "Princess of China" by Coldplay (featuring Rihanna)
"Get a copper kettle, get a copper coil
Fill it with new corn mash and never more you'll toil"---lyrics from "Copper Kettle" by Bob Dylan
If one only compared the closing numbers of the Dow Jones Industrial Index last Friday to this Friday, one would conclude it was a good week with the Dow rising 84 points. But was it? Take Wednesday, for example. Dragged down by worries about a possible Greek exit ("Grexit") from the Eurozone, the Dow was down 190 points mid day only to rally late in the afternoon to close down a mere 6 points on the RUMOR that some breakthrough on the Greek crisis had been reached in a pre-dinner meeting between French President Hollande and Italian Premier Monti. What kind of market is this? Not one in which I want to participate. Fundamentals be damned---this market "hangs on every word" from any number of European heads of state who "keep on talking" about various fixes to the Eurozone debt crisis in general and a Grexit in particular. Surprisingly, the stock market "keeps drinking" the Kool-Aid dispensed by those heads of state, none of whom mean a hill of beans except Frau Merkel who has remained remarkably quiet.
Participating in a market that keeps the "drinks a coming" will result in getting "what we deserve". It may be good; it may be bad; but for sure it is unpredictable. I, for one, will remain on the sidelines at least until some clarity on the future of Greece is reached which will not be before the next round of elections on June 17--and maybe not then. The simple fact is that no one--and I mean no one-- knows the collateral effect that a Grexit or a worse, a Spanish bond default will have on world markets. Perhaps all of the liquidity pumped into Eurozone banks over the past 6 months via the LTRO (see www.riskrewardblog.blogspot.com vols. 95, 98 and 107) will be a sufficient buffer. Or perhaps, it will result in another Lehman Brothers-like meltdown. I am not willing to chance the latter.
The fact that I am on the sidelines does not mean that I am idle. Indeed, my studies are more intense when in a cash position than when fully invested; with an eagle eye on how and when an entry point will appear. Currently, my eye is on China which clearly has been the "King and Princess" of worldwide economic expansion for the past several years. Unfortunately, the building of "castles" and apartments and other housing units which has driven much of China's internal growth has come to a grinding halt. Steel production is a a standstill, and copper (the bellwether of all economic expansion) is overflowing warehouses and being stacked in parking lots. China's "star" may be falling. Let's hope not because the world wide implications would be devastating. Think of the impact of a declining China on capital goods manufacturers (CAT, CMI, JOY), on consumables (YUM, MCD, SBUX, COH), on oil (RDS, TOT, STAT), on Australia and on all of South America which are the sources of so many raw materials. YIKES! Below are some statistics from www.riskrewardblog.blogspot.com Vol. 74:
China has 1.3 billion people, 20% of the world's population; China is the largest manufacturer in the world; China is the world's largest exporter; China is the world's largest automobile manufacturer; China consumes the following percentages of the WORLD'S commodities: 53% of cement, 48% of iron ore, 47% of coal, 45% of lead, 40% of copper, 36% of nickel, 10% of oil.
If and when China does restart, however, you will see it first in mining--particularly copper miners (BHP, RIO, FCX), each of which is trading at 2009 levels. When the time is right, buy these miners and ride them up. It will be like "filling up with new corn mash---never more will you toil".
I am not a pessimist, but I embrace reality. Today's reality is that the Eurozone crisis, which currently dominates the stock market, is one that can be fixed by Germany putting its full faith and credit behind the issuance of Eurobonds---an event which likely will occur sooner or later. And as soon as it occurs, the crisis will abate. Unfortunately, the Eurozone crisis is masking a more serious and longer term reality--a slowdown in China. Let's hope the Kings, Princes and Princesses of China are wise enough to kick start renewed expansion. Otherwise, as Dylan says, you can take the current "reality and cast it to the wind/And it ain't never gonna be the same again."
Saturday, May 19, 2012
May 19, 2012 My Name Is Johnny Cash
Risk/Reward Vol. 119
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"I don't want no aggravation/When my train has left the station
If you're there or not/I may not know"---lyrics from "Let the Train Blow the Whistle" by Johnny Cash
"I fell into a burning ring of fire/I went down, down, down
And the flames went higher/ And it burned, burned, burned
The ring of fire, the ring of fire"---lyrics from "Ring of Fire" by Johnny Cash
"I was told to grease his palm/To walk from school without fear of harm
He knocked me down and took my dollar from me/And he lay these pearls of wisdom on me
He say, business is business, nothing is free"---lyrics from "Business is Business" by Johnny Cash
If you can not tell from the lyrics above, this Johnny is in Cash. "I don't want no (more) aggravation". So I loaded my profits (albeit less than those of a month ago) on the train, "left the station" and headed to Liquid City. "I don't know if you were there or not", but I've been blowing the exit "whistle" for some time.
The reason is simple. I did not want my year-to-date gains to "fall into a ring" of Euro crisis "fire". I refused to watch them go "down, down, down"; or to "burn, burn, burn" as the "flames of (sovereign debt) went higher." As the week unfolded, the stock market posted losses each day, the flight to safety continued (the 10 year US Treasury is at record high prices and record low yields) and a Greek exit from the Eurozone became more likely. The signal was clear----exit.
There may be other reasons for this mess, but one stands above all. For the third year in a row, "Grease" has its "palm" out---demanding another hand out from other Eurozone nations while refusing to curb its profligate spending on government jobs and retirement benefits (sound familiar?) Will the rest of Europe acquiesce and kick the problem down the road for another few months like it has for the past three years? Or will this be it---will "business be business"? Either way, at some time--and soon---something has to give, because "nothing is free." And whenever and however it comes, the "knock down" will not be pretty. The collateral effects of a Greek exit (followed perhaps by one from Portugal and a Spanish meltdown) are a huge unknown. And the stock market hates unknowns.
So, I am on the sidelines. In times past, I would be lamenting this development--but, no more. If I am going to a savvy investor, I must learn to prosper from these events. As of today, I have made a decent profit this year---and I still have most of it. I believe that staying in the market into the foreseeable future would erode those profits and likely would result in a loss. Just like last year, I see the Dow falling into a trading range 10-15% below today's close until clarity on the future of the Euro appears---which may be just in time for the uncertainty of our November election and the Fiscal Cliff discussed last week. No good news is coming from China, and South America (most notably Brazil) is experiencing negative growth.
So, let the decline continue. I will look for an opportune time to re-enter--slowly at first. Undoubtedly, I will make some false starts, but at some juncture (like last December see www.riskrewardblog.blogspot.com Vols. 99 and 100), I will know the time is right, and I will deploy substantial capital to good ends. Patience, study and discipline.
If "I Walk the Line", prosperity will be mine.
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"I don't want no aggravation/When my train has left the station
If you're there or not/I may not know"---lyrics from "Let the Train Blow the Whistle" by Johnny Cash
"I fell into a burning ring of fire/I went down, down, down
And the flames went higher/ And it burned, burned, burned
The ring of fire, the ring of fire"---lyrics from "Ring of Fire" by Johnny Cash
"I was told to grease his palm/To walk from school without fear of harm
He knocked me down and took my dollar from me/And he lay these pearls of wisdom on me
He say, business is business, nothing is free"---lyrics from "Business is Business" by Johnny Cash
If you can not tell from the lyrics above, this Johnny is in Cash. "I don't want no (more) aggravation". So I loaded my profits (albeit less than those of a month ago) on the train, "left the station" and headed to Liquid City. "I don't know if you were there or not", but I've been blowing the exit "whistle" for some time.
The reason is simple. I did not want my year-to-date gains to "fall into a ring" of Euro crisis "fire". I refused to watch them go "down, down, down"; or to "burn, burn, burn" as the "flames of (sovereign debt) went higher." As the week unfolded, the stock market posted losses each day, the flight to safety continued (the 10 year US Treasury is at record high prices and record low yields) and a Greek exit from the Eurozone became more likely. The signal was clear----exit.
There may be other reasons for this mess, but one stands above all. For the third year in a row, "Grease" has its "palm" out---demanding another hand out from other Eurozone nations while refusing to curb its profligate spending on government jobs and retirement benefits (sound familiar?) Will the rest of Europe acquiesce and kick the problem down the road for another few months like it has for the past three years? Or will this be it---will "business be business"? Either way, at some time--and soon---something has to give, because "nothing is free." And whenever and however it comes, the "knock down" will not be pretty. The collateral effects of a Greek exit (followed perhaps by one from Portugal and a Spanish meltdown) are a huge unknown. And the stock market hates unknowns.
So, I am on the sidelines. In times past, I would be lamenting this development--but, no more. If I am going to a savvy investor, I must learn to prosper from these events. As of today, I have made a decent profit this year---and I still have most of it. I believe that staying in the market into the foreseeable future would erode those profits and likely would result in a loss. Just like last year, I see the Dow falling into a trading range 10-15% below today's close until clarity on the future of the Euro appears---which may be just in time for the uncertainty of our November election and the Fiscal Cliff discussed last week. No good news is coming from China, and South America (most notably Brazil) is experiencing negative growth.
So, let the decline continue. I will look for an opportune time to re-enter--slowly at first. Undoubtedly, I will make some false starts, but at some juncture (like last December see www.riskrewardblog.blogspot.com
If "I Walk the Line", prosperity will be mine.
Saturday, May 12, 2012
May 12, 2012 Wild Thing
Volume 118
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"This diamond ring doesn't shine for me anymore
And this diamond ring doesn't mean what it meant before"---lyrics from "This Diamond Ring" by Gary Lewis and the Playboys
"When the music stopped I returned to my seat/But there's no stopping a duck and his beat
So I got back up to try my luck/Why look, It's Disco, Disco Duck"---lyrics from "Disco Duck" by Rick Dees
"I can tell by the way you dress that you're so refined
And by the way you talk that you're just my kind"---lyrics from "With a Girl Like You" by The Troggs
After JPMorgan's (JPM) stunning announcement Thursday evening that it had suffered a $2billion trading loss, Jamie Dimon, JPM's CEO, "doesn't shine for me anymore." JPM placed an irresponsible bet (excuse me, ahem, hedge)---one which will likely be banned when the Volker Rule is implemented later this year--and lost, big time. To me resistance to the Volker Rule no longer "rings" true. Indeed, such conduct by an institution whose major debt, bank deposits, is insured by the FDIC is outrageous.
JPM's news, on top of continued uncertainty from Europe, slowing growth in China and a general malaise stateside resulted in the worst week in the stock market for 2012---the Dow dropping 219 points. And no, I was not tempted to buy JPM on "bad news" as discussed last week. Indeed, my recent bad news gambles (CHK and CHKpD) ended badly as I bailed on both--one at a loss and the other at a small gain that was not off- setting. Some day I will stop speculating.
Stateside uneasiness is due, in part, to the impending "Fiscal Cliff" about which Fed Chair Ben Bernanke reminded Congress in a meeting this week. Come year end 2012, a host of jolts to the US economy are scheduled to occur: 1) the end of the Bush Tax cuts; 2) the end of the payroll tax cuts; 3) the end of extended unemployment benefits; and 4) the automatic imposition of spending cuts brokered as part of the debt extension compromise last summer. The cumulative effect of these jolts is a negative $500 billion to the economy. This "cliff" is of much greater significance than the debt ceiling crisis that sent the stock market tumbling last August. And, not one of these issues---not one---will be addressed by Congress before November's election. Then, once the electioneering "music stops", hopefully, a lame, Disco Duck Congress will try its "luck" at finding a solution to all four of these issues before year end. Yeah--right! Are you willing to bet your retirement account and life's savings on that likelihood? So, Dear Readers, I, for one, will likely be selling everything sometime in the next few months. With no encouraging news in sight, it may be sooner than later.
Enough negativity! Thanks to a reminder from a fellow subscriber, I bought more Calumet Specialty Products master limited partnership units (CLMT) this week on a dip occasioned by a large secondary offering. CLMT, run by fellow NCHS '69 grad, Fred Fehsenfeld, is one of my top performing stocks this year. This "refinery" of specialty petroleum products is "just my kind" of stock. It pays a 9 % dividend and has appreciated 11% this year.
In closing, this year's market, so far, reminds me of another song by The Troggs---"Wild Thing". It "moves me"---likely to the nearest exit.
Saturday, May 5, 2012
May 5, 2012 Scotland on the Rise
Risk/Reward Vol. 117
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Out in the choppy waters the sharks swim and play
You're all washed up when Poseidon has his day"---lyrics "Fleet of Hope" by Indigo Girls
"Didn't you know/I was waiting on you
Waiting on a dream/That'll never come true
When you decide to break the rules
'Cause I just heard some real bad news"---lyrics "Bad News" by Kanye West
"You know you gotsa be the baddest
If you really goin' make me add this"---lyrics "Gotta Be the Baddest" by Chamillionaire
"Those days are past now
And in the past they must remain
But we can still rise now"---lyrics "Flower of Scotland" (the de facto Scottish National Anthem)
Talk about "choppy waters"! The Dow Jones Industrial Average rose 66 points Tuesday on an encouraging report from purchasing managers only to fall at week's end on a mixed jobs report and the fear of this weekend's elections in Europe. The Dow was down 190 points for the week, but still finished above 13,000. Friends, in this market we are surely swimming with the sharks. So if you don't want to "be washed up (or out)", "play" like one yourself--- be stealthy, nimble and opportunistic.
Contrarians don't wait for "dreams to come true". They "break the rules": buying on bad news and selling on good news. And recently, the natural gas market and related stocks have been nothing but bad news. In mid April, nat gas fell below $2/mmBTU (See Vol. 104 at www.riskrewardblog.blogspot.com ). In response, all of the big players including Encana and Exxon cut production. However, we may have reached nat gas's nadir as electric utilities have made nat gas the generating fuel of choice, and nat gas futures have climbed above $2.30/mmBTU. If not now, soon may be a good time to re-enter some nat gas plays like SDT, ERF and PWE---although I have not as yet.
If you are tempted to buy the "baddest" of the bad, then you may wish "to add this" to your speculative plays: Chesapeake Energy. Once the darling of the nat gas world, Chesapeake's CEO, Aubrey McClendon is under attack for seemingly self dealing, allegations that have caused various Chesapeake securities to plummet. They now trade well below the consensus value of Chesapeake's assets. I bought some CHKpD preferred which in my hands pays over a 6% dividend and which has appreciated 9% since I bought it a week ago. I also bought CHK on Wednesday, and have a 2% gain. But remember, buying CHK securities is not investing---it is gambling.
Once the "Flower" of its homeland, the Royal Bank of Scotland took a beating during the 2008-2009 financial crisis and only survived after a huge emergency loan and the purchase of 82% of its common stock by the UK government. Having operated under strict scrutiny but also having improved its capital structure, RBS may "now be rising". At its quarterly earnings call this week, RBS announced it was repaying the emergency loan in its entirety and was reinstating quarterly dividends on a variety of its preferred shares. I hope some of you purchased RBSpT back in March. (see Vol. 110). If you did, you have seen an 11% gain on a stock that, at the March price, pays over 10% in dividends. I say it is still not too late to buy dividend paying RBS preferreds (caution---some RBS preferred issues still are not paying dividends; go to its website for more information). I, for one, bought more RBSpT this week. Even at its current price of $20.30, RBSpT pays nearly a 9% dividend and likely will continue to appreciate in principal another 10%. Moreover, I don't see RBS's owner, the UK government, pulling the plug on that dividend as long as it maintains control of the bank.
I am still 40% in cash, and I like my dividend paying portfolio. But with Europe's economic outlook uncertain (pay attention to elections in France and Greece this weekend) and a Fiscal Cliff facing the U. S. at year's end (to be discussed in future edition), I am only a few clicks away from a clean sweep into 100% cash. Remember: if you want to be a Chamillionaire, don't let them "catch you ridin' dirty"!
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Out in the choppy waters the sharks swim and play
You're all washed up when Poseidon has his day"---lyrics "Fleet of Hope" by Indigo Girls
"Didn't you know/I was waiting on you
Waiting on a dream/That'll never come true
When you decide to break the rules
'Cause I just heard some real bad news"---lyrics "Bad News" by Kanye West
"You know you gotsa be the baddest
If you really goin' make me add this"---lyrics "Gotta Be the Baddest" by Chamillionaire
"Those days are past now
And in the past they must remain
But we can still rise now"---lyrics "Flower of Scotland" (the de facto Scottish National Anthem)
Talk about "choppy waters"! The Dow Jones Industrial Average rose 66 points Tuesday on an encouraging report from purchasing managers only to fall at week's end on a mixed jobs report and the fear of this weekend's elections in Europe. The Dow was down 190 points for the week, but still finished above 13,000. Friends, in this market we are surely swimming with the sharks. So if you don't want to "be washed up (or out)", "play" like one yourself--- be stealthy, nimble and opportunistic.
Contrarians don't wait for "dreams to come true". They "break the rules": buying on bad news and selling on good news. And recently, the natural gas market and related stocks have been nothing but bad news. In mid April, nat gas fell below $2/mmBTU (See Vol. 104 at www.riskrewardblog.blogspot.com ). In response, all of the big players including Encana and Exxon cut production. However, we may have reached nat gas's nadir as electric utilities have made nat gas the generating fuel of choice, and nat gas futures have climbed above $2.30/mmBTU. If not now, soon may be a good time to re-enter some nat gas plays like SDT, ERF and PWE---although I have not as yet.
If you are tempted to buy the "baddest" of the bad, then you may wish "to add this" to your speculative plays: Chesapeake Energy. Once the darling of the nat gas world, Chesapeake's CEO, Aubrey McClendon is under attack for seemingly self dealing, allegations that have caused various Chesapeake securities to plummet. They now trade well below the consensus value of Chesapeake's assets. I bought some CHKpD preferred which in my hands pays over a 6% dividend and which has appreciated 9% since I bought it a week ago. I also bought CHK on Wednesday, and have a 2% gain. But remember, buying CHK securities is not investing---it is gambling.
Once the "Flower" of its homeland, the Royal Bank of Scotland took a beating during the 2008-2009 financial crisis and only survived after a huge emergency loan and the purchase of 82% of its common stock by the UK government. Having operated under strict scrutiny but also having improved its capital structure, RBS may "now be rising". At its quarterly earnings call this week, RBS announced it was repaying the emergency loan in its entirety and was reinstating quarterly dividends on a variety of its preferred shares. I hope some of you purchased RBSpT back in March. (see Vol. 110). If you did, you have seen an 11% gain on a stock that, at the March price, pays over 10% in dividends. I say it is still not too late to buy dividend paying RBS preferreds (caution---some RBS preferred issues still are not paying dividends; go to its website for more information). I, for one, bought more RBSpT this week. Even at its current price of $20.30, RBSpT pays nearly a 9% dividend and likely will continue to appreciate in principal another 10%. Moreover, I don't see RBS's owner, the UK government, pulling the plug on that dividend as long as it maintains control of the bank.
I am still 40% in cash, and I like my dividend paying portfolio. But with Europe's economic outlook uncertain (pay attention to elections in France and Greece this weekend) and a Fiscal Cliff facing the U. S. at year's end (to be discussed in future edition), I am only a few clicks away from a clean sweep into 100% cash. Remember: if you want to be a Chamillionaire, don't let them "catch you ridin' dirty"!
Saturday, April 28, 2012
April 28, 2012 Hollandaise
Risk/Reward Vol. 116
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"I've been praying all the week through/At home, at work and on the bus
I've been praying I can keep you/And earn enough for us."---lyrics from "Earn Enough for Us" by XTC
"I was always labelled the black sheep of the family/What a bad seed I grow up to be
But if you look at us now/You'll see the apple didn't fall far from the tree"---lyrics from "The Apple" by Eminem
"Frenchmen eat a lot of bouillabaisse there/Dutchmen eat a sauce called Hollandaise there
Smorgasbord in Swedish is the winner/In America, its TV dinner."---lyrics from "Hungarian Goulash No. 5" by Allan Sherman
Despite news from Europe that both Spain and the UK are officially back in recession, the Dow Industrial Average closed 200 points higher this week on the strength of better than expected earnings as reported by U.S. corporations. Indeed, as of mid week, over 80% of the companies reporting had exceeded their estimates. "All week through" corporations "earn(ed) enough" to answer investor "prayers".
Leading the way was Apple which recently had been viewed as a "bad seed". Its stock price had fallen 13% over the past two weeks---"far from the tree." But after reporting blockbuster earnings Tuesday at the market's close, Apple rose $49 or 8.9% on Wednesday and finished the week at $603. That said, I submit that Apple is still treated as a "black sheep" by the stock market--- by any comparative metric---price/earnings ratio/PEG rate/ growth rate---you name it. As great as its numbers are, its stock came no where near $632 which is the price point where I sold on April 10th. That is why I treat AAPL as a trading stock, not as an investment. And, unless and until Apple management is more attentive to shareholder value (e.g. how about distributing more of the $110billion of cash it holds!!), I will continue to do so.
So what gives with Holland(e) (these) daise? On Monday, the Dutch prime minister lost the confidence of his coalition cabinet which rejected the austerity measures to which he pledged Holland last fall. This followed on the heals of the French primary last Sunday where M. Hollande led the voting on a vow to re-evaluate France's commitment to austerity, a commitment made by M.Sarkozy. To add to this "bouillabaisse" of malaise, Italy's prime minister is also walking away from austerity as a means of addressing the Eurozone's sovereign debt crisis. Yikes! With each new election, it is increasingly likely that the Merkel-Sarkozy approach to the Eurozone sovereign debt crisis (austerity) will be replaced by more deficit borrowing. How that gets effected remains a mystery especially if Germany resists. In short, the "smorgasbord" of bad news from the "goulash" that is the Eurozone is far from over.
So what does this mean to me? Well, I remain over 40% in cash and wholly intolerant of any losing position. My array of preferred stock/exchange traded debt positions held steady during Monday's dip, and rose modestly throughout the week, all the while accruing dividends/interest at an average 7+% annual yield. This week, I bought two new real estate investment trust preferred issues (DLRpF and LSEpB) and added more tobacco (RAI) on a dip (no pun intended) . For the most part, I remain "risk off" (out of cyclical stocks) because I wonder what the stock market will do once the spate of stellar U.S. earnings reports abates. Pray tell, what will counter the downdraft of bad news from Europe--Spain in particular? Let's hope the stock market's reaction to Granada is more favorable than that of Allan Sherman ("Hello Muddah, Hello Fadduh/Here I am at Camp Granada/ Camp is very entertaining/ And they say we'll have some fun once it stops raining.")
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"I've been praying all the week through/At home, at work and on the bus
I've been praying I can keep you/And earn enough for us."---lyrics from "Earn Enough for Us" by XTC
"I was always labelled the black sheep of the family/What a bad seed I grow up to be
But if you look at us now/You'll see the apple didn't fall far from the tree"---lyrics from "The Apple" by Eminem
"Frenchmen eat a lot of bouillabaisse there/Dutchmen eat a sauce called Hollandaise there
Smorgasbord in Swedish is the winner/In America, its TV dinner."---lyrics from "Hungarian Goulash No. 5" by Allan Sherman
Despite news from Europe that both Spain and the UK are officially back in recession, the Dow Industrial Average closed 200 points higher this week on the strength of better than expected earnings as reported by U.S. corporations. Indeed, as of mid week, over 80% of the companies reporting had exceeded their estimates. "All week through" corporations "earn(ed) enough" to answer investor "prayers".
Leading the way was Apple which recently had been viewed as a "bad seed". Its stock price had fallen 13% over the past two weeks---"far from the tree." But after reporting blockbuster earnings Tuesday at the market's close, Apple rose $49 or 8.9% on Wednesday and finished the week at $603. That said, I submit that Apple is still treated as a "black sheep" by the stock market--- by any comparative metric---price/earnings ratio/PEG rate/ growth rate---you name it. As great as its numbers are, its stock came no where near $632 which is the price point where I sold on April 10th. That is why I treat AAPL as a trading stock, not as an investment. And, unless and until Apple management is more attentive to shareholder value (e.g. how about distributing more of the $110billion of cash it holds!!), I will continue to do so.
So what gives with Holland(e) (these) daise? On Monday, the Dutch prime minister lost the confidence of his coalition cabinet which rejected the austerity measures to which he pledged Holland last fall. This followed on the heals of the French primary last Sunday where M. Hollande led the voting on a vow to re-evaluate France's commitment to austerity, a commitment made by M.Sarkozy. To add to this "bouillabaisse" of malaise, Italy's prime minister is also walking away from austerity as a means of addressing the Eurozone's sovereign debt crisis. Yikes! With each new election, it is increasingly likely that the Merkel-Sarkozy approach to the Eurozone sovereign debt crisis (austerity) will be replaced by more deficit borrowing. How that gets effected remains a mystery especially if Germany resists. In short, the "smorgasbord" of bad news from the "goulash" that is the Eurozone is far from over.
So what does this mean to me? Well, I remain over 40% in cash and wholly intolerant of any losing position. My array of preferred stock/exchange traded debt positions held steady during Monday's dip, and rose modestly throughout the week, all the while accruing dividends/interest at an average 7+% annual yield. This week, I bought two new real estate investment trust preferred issues (DLRpF and LSEpB) and added more tobacco (RAI) on a dip (no pun intended) . For the most part, I remain "risk off" (out of cyclical stocks) because I wonder what the stock market will do once the spate of stellar U.S. earnings reports abates. Pray tell, what will counter the downdraft of bad news from Europe--Spain in particular? Let's hope the stock market's reaction to Granada is more favorable than that of Allan Sherman ("Hello Muddah, Hello Fadduh/Here I am at Camp Granada/ Camp is very entertaining/ And they say we'll have some fun once it stops raining.")
Saturday, April 21, 2012
April 21, 2012 Don't Cry for Me
Risk/Reward Vol 115
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"I may take a holiday in Spain/Leave my wings behind me
Flush my worries down the drain/And fly away to somewhere new."---lyrics from "Holiday in Spain" by the Counting Crows
"You won't believe me/All you will see is a girl you once knew
Although she's dressed to the nines/At sixes and sevens with you
Don't cry for me Argentina"---lyrics from "Evita" by Andrew Lloyd Webber
"Opportunity, opportunity/This is your big opportunity
They shop around/Follow you without a sound"---lyrics from "Opportunity" by Elvis Costello
The Dow finished higher this week on the strength of good corporate earnings reports here in the U.S. and despite headwinds from Europe---particularly Spain. You won't "flush your worries down the drain" there these days! Indeed, a renewed concern over Spanish sovereign debt, the same kind of concern that plagued the stock market last fall (see Vol. 96 www.riskrewardblog.blogspot.com ) promises more choppiness in the coming weeks, and in my humble opinion portends more negative than positive action. We may be "leaving the wings" of this very good market behind. Here's why.
Last fall's roller coaster trading range was broken (and the stock market allowed to rise on good U.S. earnings reports) only when the European Central Bank (ECB) initiated the Long Term Refinancing Operation ( the "LTRO" as discussed at Vols. 98 and 107), in effect lending 1trillion Euros to European banks at 1% which in turn the banks used to purchase the sovereign debt of struggling countries such as Spain and Italy. Unfortunately, the Spanish banks already have exhausted the LTRO proceeds and without their participation in the auction of Spanish government bonds, the prices will plummet, and the yields will rise (sounds like the Picasso auction, doesn't it) such that the Spanish government will run out of money. Massive austerity measures and/or default loom ahead absent further European intervention. And default of the sovereign debt of a country the size of Spain would send the financial markets worldwide into a tailspin. The ECB has stated that due to inflation concerns, it likely will not embark on a third round of LTRO. To add more madness to the mix, France holds round one of its presidential elections this weekend with M. Sarkozy trailing his socialist opponent M. Hollande. Should M. Hollande ultimately prevail, the Merkel-Sarkozy partnership that has steered Europe recently will end---inaugarating a very uncertain future. And stock markets abhor uncertainty.
In short, unless and until there is a commitment for pan-European intervention on Spanish (and perhaps Italian) sovereign debt, I see the market being dominated by a "risk off " bias. As a consequence, I am avoiding cyclical stocks (those dependent on a growing economy such as steel, copper and manufacturing) and hunkering down with my preferred stocks and exchange traded debt---both of which pay great dividends but trade flat (at or near $25) absent exogenous events. I still have exposure to the preferred stocks of some European financials (DUA, IDG, NWpC, RBSpT, AEK, AEF, BCSpD, etc.) which pay handsome yields, but for which, my tolerance for loss is nearly zero. They will fall like rocks if a Spanish default approaches.
Oh, and speaking of market negatives, how about the decision by Argentine President Cristina Fernandez Kirchner this week to nationalize Argentina's largest oil company, YPF. The effect is to render worthless the common stock of that company, a large percentage of which is owned by Spanish oil giant Repsol. Such dictatorial conduct is remindful of "a girl we once knew"---Evita herself. However, when a populist leader (e.g. Hugo Chavez, Evo Morales, etc.) nationalizes a business (read, taking it over without paying a dime), it makes investment in emerging markets, in general, and in South America, in particular, significantly riskier. Investments that once were "nines" now look like "sixes and sevens". I cry for you, Argentina.
The above negative news notwithstanding, "big opportunities are around"---some currently available, some just around the corner. As to current opportunities, many more preferred stock and exchange traded debt offerings were made available this week to yield hungry investors like yours truly. I bought newly issued MFO (REIT exchange traded debt) and AHLpB (insurance preferred), paying 8 and 7.25% respectively. As to future opportunities, did you notice that the EPA published fracking regulations that don't go into effect until 2015 and even then, are no more restrictive than what responsible companies are already doing? According to the Wall Street Journal, this development was as surprising as would be George W. Bush receiving the Nobel Peace Prize. Perhaps President Obama now recognizes that cheap fossil fuels are a political asset. No matter, it moves the U.S. ever closer to a future of energy independence.
In closing, I remain cautious; 45% in cash. Any confirmed downward movement in a stock that I hold results in a sale. This week, my favorite, TNH, headed downward, and I sold it to lock in a 45% gain (down from 60%). With apologies to Andrew Lloyd Webber, the first quarter was an amazing, technicolor dreamcoat. I don't want to wake up one day like Joseph, at the bottom of some stock-drop gully, stripped of my profits.
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"I may take a holiday in Spain/Leave my wings behind me
Flush my worries down the drain/And fly away to somewhere new."---lyrics from "Holiday in Spain" by the Counting Crows
"You won't believe me/All you will see is a girl you once knew
Although she's dressed to the nines/At sixes and sevens with you
Don't cry for me Argentina"---lyrics from "Evita" by Andrew Lloyd Webber
"Opportunity, opportunity/This is your big opportunity
They shop around/Follow you without a sound"---lyrics from "Opportunity" by Elvis Costello
The Dow finished higher this week on the strength of good corporate earnings reports here in the U.S. and despite headwinds from Europe---particularly Spain. You won't "flush your worries down the drain" there these days! Indeed, a renewed concern over Spanish sovereign debt, the same kind of concern that plagued the stock market last fall (see Vol. 96 www.riskrewardblog.blogspot.com ) promises more choppiness in the coming weeks, and in my humble opinion portends more negative than positive action. We may be "leaving the wings" of this very good market behind. Here's why.
Last fall's roller coaster trading range was broken (and the stock market allowed to rise on good U.S. earnings reports) only when the European Central Bank (ECB) initiated the Long Term Refinancing Operation ( the "LTRO" as discussed at Vols. 98 and 107), in effect lending 1trillion Euros to European banks at 1% which in turn the banks used to purchase the sovereign debt of struggling countries such as Spain and Italy. Unfortunately, the Spanish banks already have exhausted the LTRO proceeds and without their participation in the auction of Spanish government bonds, the prices will plummet, and the yields will rise (sounds like the Picasso auction, doesn't it) such that the Spanish government will run out of money. Massive austerity measures and/or default loom ahead absent further European intervention. And default of the sovereign debt of a country the size of Spain would send the financial markets worldwide into a tailspin. The ECB has stated that due to inflation concerns, it likely will not embark on a third round of LTRO. To add more madness to the mix, France holds round one of its presidential elections this weekend with M. Sarkozy trailing his socialist opponent M. Hollande. Should M. Hollande ultimately prevail, the Merkel-Sarkozy partnership that has steered Europe recently will end---inaugarating a very uncertain future. And stock markets abhor uncertainty.
In short, unless and until there is a commitment for pan-European intervention on Spanish (and perhaps Italian) sovereign debt, I see the market being dominated by a "risk off " bias. As a consequence, I am avoiding cyclical stocks (those dependent on a growing economy such as steel, copper and manufacturing) and hunkering down with my preferred stocks and exchange traded debt---both of which pay great dividends but trade flat (at or near $25) absent exogenous events. I still have exposure to the preferred stocks of some European financials (DUA, IDG, NWpC, RBSpT, AEK, AEF, BCSpD, etc.) which pay handsome yields, but for which, my tolerance for loss is nearly zero. They will fall like rocks if a Spanish default approaches.
Oh, and speaking of market negatives, how about the decision by Argentine President Cristina Fernandez Kirchner this week to nationalize Argentina's largest oil company, YPF. The effect is to render worthless the common stock of that company, a large percentage of which is owned by Spanish oil giant Repsol. Such dictatorial conduct is remindful of "a girl we once knew"---Evita herself. However, when a populist leader (e.g. Hugo Chavez, Evo Morales, etc.) nationalizes a business (read, taking it over without paying a dime), it makes investment in emerging markets, in general, and in South America, in particular, significantly riskier. Investments that once were "nines" now look like "sixes and sevens". I cry for you, Argentina.
The above negative news notwithstanding, "big opportunities are around"---some currently available, some just around the corner. As to current opportunities, many more preferred stock and exchange traded debt offerings were made available this week to yield hungry investors like yours truly. I bought newly issued MFO (REIT exchange traded debt) and AHLpB (insurance preferred), paying 8 and 7.25% respectively. As to future opportunities, did you notice that the EPA published fracking regulations that don't go into effect until 2015 and even then, are no more restrictive than what responsible companies are already doing? According to the Wall Street Journal, this development was as surprising as would be George W. Bush receiving the Nobel Peace Prize. Perhaps President Obama now recognizes that cheap fossil fuels are a political asset. No matter, it moves the U.S. ever closer to a future of energy independence.
In closing, I remain cautious; 45% in cash. Any confirmed downward movement in a stock that I hold results in a sale. This week, my favorite, TNH, headed downward, and I sold it to lock in a 45% gain (down from 60%). With apologies to Andrew Lloyd Webber, the first quarter was an amazing, technicolor dreamcoat. I don't want to wake up one day like Joseph, at the bottom of some stock-drop gully, stripped of my profits.
Friday, April 13, 2012
April 14, 2012 Deja Vu
Risk/Reward Vol. 114
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Did you hear them talkin' 'bout it on the radio/Did you try to read the writin' on the wall
Did that voice inside you say/I've heard it all before
It's like deja vu all over again"---lyrics from "Deja Vu (All Over Again) by John Fogerty
"My kid's gonna grow up/Gonna grow up to be a fool
'Cause they ain't got no more room/No more room for him at school"---lyrics from "Why I Sing the Blues" by B.B. King
"Though April showers may come your way/They bring the flowers that bloom in May
So if it's raining have no regrets/Because if its raining rain, you know, its raining violets"---lyrics "April Showers" by Al Jolson
On Monday, the Dow Jones Industrial Average dropped 131 points, a hangover from the disappointing jobs report of the previous Friday. On Tuesday, it fell 214 points more on growing concern about European sovereign debt--especially from Spain. On Wednesday, the market rebounded 90 points on good earnings from Alcoa, the first Dow component to report quarterly results. On Thursday, the market leaped 181 points following a hint of QE3 from Federal Reserve Vice Chair Janet Yellen (see last week's discussion of the Fed's impact on the stock market), a good Italian bond auction and expectations of a good earnings season. On Friday, the Dow dropped 137 points on news of a slowdown in the growth of China's economy and a spike in Spanish debt yields. The Dow fell more than 1% for the second week in a row.
Does it seem that you "have heard it all before. It's like deja vu all over again"---a repeat of the yeah/boo roller coaster market of last fall: rising on positive domestic news and falling on worries from Europe and/or China? Geez, I hope not. But, just in case, I am prepared. I continue to pare consistent losers (this week EXC), even those that have not come close to my 8% loss limit. Moreover, with Europe queezy again, I reduced my exposure to it, taking double digit profits by halving my positions in IDG and NWpC. I still have exposure to European financials, and will watch them like a hawk. I like their dividends, but will not sacrifice the profit I have garnered on them.
On Wednesday, natural gas fell below $2/mmBTU (or cu. ft.) for the first time since 2002 and currently trades at 1/2 last year's level and $10 below the 2008 prevailing price. On Tuesday, it was reported that at winter's end, the amount of natural gas in storage was 2.5trillion cu. ft. which, due to the mild winter, was 1trillion cu. ft. more than normal. With natural gas being produced at elevated levels due to the miracle of fracking, it is estimated that the total U. S. storage capacity (4.4trillion cu. ft.) will be filled by early October---well in advance of the heating season. Unlike B.B. King's son, I am "schooled" and ain't no fool--there "ain't no more room!" This fact will depress the entire natural gas industry--from production to pipelines to storage. I surveyed my holdings on Wednesday and sold (still at a profit) any position that was more than 50% reliant upon natural gas for its revenues. This included ETP, BPW, SDT, CHKR and LINE (even though LINE has an excellent hedge in place). The whole sector stinks right now--and I am passing (on) gas.
But, don't confuse oil with gas. I still like domestic oil plays including CLMT, PER, NS JMF and MHRpD. I also like companies that USE natural gas. Indeed, my best performer year to date (over 60% profit) is TNH, a producer of ammonia fertilizer used in corn production. The increase in corn planting and the drop in the cost of its primary feedstock (natural gas) have resulted in a leap in anticipated profits and a spike in its stock price.
With the Q1 earnings season having begun this past week, I am sitting at 45% cash, well above my 25% position of just a few weeks ago. This week, I raised cash on Wednesday and Thursday by paring losses and taking profits on growth (non or low paying dividend) stocks. I even sold half of my AAPL to lock in a nearly 50% gain, something I could do with tax impunity because I held it in my 401 (k) where most of my "trading" stocks reside. Frankly, with the "risk on/risk off" teeter-totter back in vogue, the old adage "sell in May and go away" has some appeal--with April "showering" us in "viole(n)t" fits and starts. I very much want to keep my big dividend payers. They held their value all week, and even on Friday my loss was very modest considering the blood bath. But a wholesale exit with a 5% YTD gain plus paid and accrued dividends, which is what I would achieve if I liquidated today, is not out of the question. We will see what happens. Will U.S. earnings and guidance be strong enough to overcome renewed fears from Europe and uneven news from China? Who knows? But, I am positioned well, nimble and ready to move---either way.
I am mailing this edition on Friday because I am about to board a flight to London to see Barb, Lizzy, Matt, Paddy and of course Arthur. I will be back on Monday--- a Pan Galactic Three Day Pass a la Kilgore Trout.
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Did you hear them talkin' 'bout it on the radio/Did you try to read the writin' on the wall
Did that voice inside you say/I've heard it all before
It's like deja vu all over again"---lyrics from "Deja Vu (All Over Again) by John Fogerty
"My kid's gonna grow up/Gonna grow up to be a fool
'Cause they ain't got no more room/No more room for him at school"---lyrics from "Why I Sing the Blues" by B.B. King
"Though April showers may come your way/They bring the flowers that bloom in May
So if it's raining have no regrets/Because if its raining rain, you know, its raining violets"---lyrics "April Showers" by Al Jolson
On Monday, the Dow Jones Industrial Average dropped 131 points, a hangover from the disappointing jobs report of the previous Friday. On Tuesday, it fell 214 points more on growing concern about European sovereign debt--especially from Spain. On Wednesday, the market rebounded 90 points on good earnings from Alcoa, the first Dow component to report quarterly results. On Thursday, the market leaped 181 points following a hint of QE3 from Federal Reserve Vice Chair Janet Yellen (see last week's discussion of the Fed's impact on the stock market), a good Italian bond auction and expectations of a good earnings season. On Friday, the Dow dropped 137 points on news of a slowdown in the growth of China's economy and a spike in Spanish debt yields. The Dow fell more than 1% for the second week in a row.
Does it seem that you "have heard it all before. It's like deja vu all over again"---a repeat of the yeah/boo roller coaster market of last fall: rising on positive domestic news and falling on worries from Europe and/or China? Geez, I hope not. But, just in case, I am prepared. I continue to pare consistent losers (this week EXC), even those that have not come close to my 8% loss limit. Moreover, with Europe queezy again, I reduced my exposure to it, taking double digit profits by halving my positions in IDG and NWpC. I still have exposure to European financials, and will watch them like a hawk. I like their dividends, but will not sacrifice the profit I have garnered on them.
On Wednesday, natural gas fell below $2/mmBTU (or cu. ft.) for the first time since 2002 and currently trades at 1/2 last year's level and $10 below the 2008 prevailing price. On Tuesday, it was reported that at winter's end, the amount of natural gas in storage was 2.5trillion cu. ft. which, due to the mild winter, was 1trillion cu. ft. more than normal. With natural gas being produced at elevated levels due to the miracle of fracking, it is estimated that the total U. S. storage capacity (4.4trillion cu. ft.) will be filled by early October---well in advance of the heating season. Unlike B.B. King's son, I am "schooled" and ain't no fool--there "ain't no more room!" This fact will depress the entire natural gas industry--from production to pipelines to storage. I surveyed my holdings on Wednesday and sold (still at a profit) any position that was more than 50% reliant upon natural gas for its revenues. This included ETP, BPW, SDT, CHKR and LINE (even though LINE has an excellent hedge in place). The whole sector stinks right now--and I am passing (on) gas.
But, don't confuse oil with gas. I still like domestic oil plays including CLMT, PER, NS JMF and MHRpD. I also like companies that USE natural gas. Indeed, my best performer year to date (over 60% profit) is TNH, a producer of ammonia fertilizer used in corn production. The increase in corn planting and the drop in the cost of its primary feedstock (natural gas) have resulted in a leap in anticipated profits and a spike in its stock price.
With the Q1 earnings season having begun this past week, I am sitting at 45% cash, well above my 25% position of just a few weeks ago. This week, I raised cash on Wednesday and Thursday by paring losses and taking profits on growth (non or low paying dividend) stocks. I even sold half of my AAPL to lock in a nearly 50% gain, something I could do with tax impunity because I held it in my 401 (k) where most of my "trading" stocks reside. Frankly, with the "risk on/risk off" teeter-totter back in vogue, the old adage "sell in May and go away" has some appeal--with April "showering" us in "viole(n)t" fits and starts. I very much want to keep my big dividend payers. They held their value all week, and even on Friday my loss was very modest considering the blood bath. But a wholesale exit with a 5% YTD gain plus paid and accrued dividends, which is what I would achieve if I liquidated today, is not out of the question. We will see what happens. Will U.S. earnings and guidance be strong enough to overcome renewed fears from Europe and uneven news from China? Who knows? But, I am positioned well, nimble and ready to move---either way.
I am mailing this edition on Friday because I am about to board a flight to London to see Barb, Lizzy, Matt, Paddy and of course Arthur. I will be back on Monday--- a Pan Galactic Three Day Pass a la Kilgore Trout.
Saturday, April 7, 2012
April 7, 2012 Picasso Auction
Risk/Reward Vol. 113
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN
"Picasso moon, shining bright/The universe is working fine tonight
Picasso moon, illuninate me"---lyrics "Picasso Moon" by the Grateful Dead
"We gettin' money, man/I'll show you how to turn profit
In the hood, they call me "Joey the Profit"
First you cop it, then you cook it, then you chop it"---lyrics "The Profit" by Fat Joe
"Buy! Buy!/ Says the sign in the shop
Why? Why? Says the junk in the yard"---lyrics "Junk" by Paul McCartney
"We're movin' on up/To the east side
To a deluxe apartment in the sky
We're movin on up/To the east side
We finally got a piece of the pie"---lyrics "Movin' On Up" (theme song from "The Jeffersons")
As highlighted last week, any signal on future "quantitative easing" from the Federal Reserve moves the stock market---big time. On Tuesday, the Fed released minutes of its March meeting which cast doubt on its desire to continue any "easing" past the June termination of "Operation Twist" (the buying of long term Treasuries). That news, in conjunction with concerns about Europe and a disappointing Spanish bond auction, sent the Dow into a triple digit tailspin on Wednesday and contributed to the worst week of 2012--and Friday's job report portends a lower open next Monday.
Although I touched on it last week, all investors need to understand why "quantitative easing" and other "easy money" Federal Reserve policies have such a huge impact on the stock market. Large institutional investors are no different than you and me---they need a decent return. Currently, they cannot get it from Treasuries even though that "safe haven" is where all of us would love to park a large chunk of our money. So, why are Treasury yields so low?
Perhaps the following analogy will "illuminate" you. Suppose Picasso were still alive and selling his art in monthly auctions. Due to his reputation, the auctions attract numerous buyers, but Picasso is unsatisfied by the prices he is receiving. He devises the "bright" idea of controlling his "universe" by planting a shill in the audience to bid up prices. Over the course of a year or so, the prices at auction go to "the moon", but the shill ends up with 61% of the art. The "sale" to the shill is illusory, of course, because no money changes hands. But the prices paid by other buyers are high. Now, what happens if and when Picasso pulls the shill out of the auction? The prices drop, of course, and perhaps precipitously.
This is exactly what is happening in the Treasury bond market. As reported last week in the Wall Street Journal (Google "Lawrence Goodman and Federal Reserve"), the Federal Reserve via "quantitative easing" (QE) purchased, through bid, a stunning 61% of all of the new debt issued by the Treasury in 2011, and similarly large percentages in other recent years. It did so by expanding its balance sheet (read; printing money) which has gone from $900billion to $2.9trillion in 3 1/2 years. QE's stated purposes have been to keep Treasury bond prices high (and yields low), concomitantly to drive investors out of Treasuries and into the stock market (and thereby attempting to spur economic growth and job creation) and to flood banks with liquidity. And, it has worked, at least in part. Look at the stock market's recovery since 2009 and the bloated, excess reserves held by money center banks ($1.5 trillion---which is $400billion more than all of the US currency currently in circulation!). But, just like the shill's purchases of Picasso's art, it has created a false market. When QE ends (and it will end sometime or the excess reserves held by banks will be invested into the real economy with a hugely inflationary impact) and the Fed stops bidding up Treasury bond prices, those prices will fall unless some exogenous event (Eurozone failure, tsunami or an Iranian war) causes a massive "flight to safety" by purchasers other than the Fed.
So, it makes sense, does it not, that when the Fed hints that it may exit Treasury auctions, the prospect of lower prices (and higher yields) in the Treasury bond market begins to look like a real, and very attractive possiblity to me---and to institutional investors. And conversely, the stock market, which has risen because no one can get a decent yield on Treasury bonds, begins to look inflated. Investors (yours truly included) want to get out ahead of a stock market "correction". Thus, like Fat Joe, having "copped" and "cooked" some nice gains, they begin to take profits in some positions (sold all my AEG this week for a 20% profit) and to "chop" even small loss positions (sold POM at a slight loss) thereby raising cash in anticipation of a drop in Treasury prices, a rise in Treasury yields and a drop in stock prices. Unless and until the Fed hints it may continue some accommodation, I plan to continue to take some profits and to raise cash, pruning my holdings down to good yielders (and probably keeping AAPL). That said, I have not yet invested in the VIX or repurchased a Treasury short position which I discussed last week.
Speaking of yields, have you noticed the 1/4 page ads run by BlackRock in the WSJournal and the Financial Times hyping investment in HYG, its flagship junk (excuse me, high yield) bond exchange traded fund? As discussed last week, the market is flooded with new junk bond issues as companies seek to take advantage of the prevailing low interest rates which in turn are priced off of the low yields on Treasury bonds (called the "yield spread"). Check out www.quantumonline.com , a convenient place to "shop" for junk . I bought MHNB and KFI which yield 8% and 7.5% respectively, 50 basis points lower than earlier issues (MHNA and KFH) but still worthy of investment. I don't see putting these babies out in the "yard" anytime soon.
One reader this week asked me what I think of real estate. After several years of depression, it clearly is beginning to turn around. In fact, it is "movin' on up" as a percentage of my holdings. You don't have to be George and Weezy Jefferson to "get a piece of the pie" these days. As noted last week , I like the preferred shares of real estate investment trusts, particularly those that also carry a hefty common dividend. Currently, I own RASpC, CLNYpA, AHTpD, DFTpB, GRTpG, HPTpD, LXPpD, PEBpB, SFI pE and I as well as AGNC, NLY, HCN, SLA and the closed end fund RQI---each of which has appreciated in principal and pays over 7% annually in dividends and all of which on average pay in excess of 8 %
In closing, I wish all of you a joyous holiday weekend. On a personal note, Barb and I received one of the greatest dividends of all this week--- the birth of our fourth grandchild, Arthur Lucien Jaworksi---a dividend made possible by our all-time smartest investment---The Busch Girls
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN
"Picasso moon, shining bright/The universe is working fine tonight
Picasso moon, illuninate me"---lyrics "Picasso Moon" by the Grateful Dead
"We gettin' money, man/I'll show you how to turn profit
In the hood, they call me "Joey the Profit"
First you cop it, then you cook it, then you chop it"---lyrics "The Profit" by Fat Joe
"Buy! Buy!/ Says the sign in the shop
Why? Why? Says the junk in the yard"---lyrics "Junk" by Paul McCartney
"We're movin' on up/To the east side
To a deluxe apartment in the sky
We're movin on up/To the east side
We finally got a piece of the pie"---lyrics "Movin' On Up" (theme song from "The Jeffersons")
As highlighted last week, any signal on future "quantitative easing" from the Federal Reserve moves the stock market---big time. On Tuesday, the Fed released minutes of its March meeting which cast doubt on its desire to continue any "easing" past the June termination of "Operation Twist" (the buying of long term Treasuries). That news, in conjunction with concerns about Europe and a disappointing Spanish bond auction, sent the Dow into a triple digit tailspin on Wednesday and contributed to the worst week of 2012--and Friday's job report portends a lower open next Monday.
Although I touched on it last week, all investors need to understand why "quantitative easing" and other "easy money" Federal Reserve policies have such a huge impact on the stock market. Large institutional investors are no different than you and me---they need a decent return. Currently, they cannot get it from Treasuries even though that "safe haven" is where all of us would love to park a large chunk of our money. So, why are Treasury yields so low?
Perhaps the following analogy will "illuminate" you. Suppose Picasso were still alive and selling his art in monthly auctions. Due to his reputation, the auctions attract numerous buyers, but Picasso is unsatisfied by the prices he is receiving. He devises the "bright" idea of controlling his "universe" by planting a shill in the audience to bid up prices. Over the course of a year or so, the prices at auction go to "the moon", but the shill ends up with 61% of the art. The "sale" to the shill is illusory, of course, because no money changes hands. But the prices paid by other buyers are high. Now, what happens if and when Picasso pulls the shill out of the auction? The prices drop, of course, and perhaps precipitously.
This is exactly what is happening in the Treasury bond market. As reported last week in the Wall Street Journal (Google "Lawrence Goodman and Federal Reserve"), the Federal Reserve via "quantitative easing" (QE) purchased, through bid, a stunning 61% of all of the new debt issued by the Treasury in 2011, and similarly large percentages in other recent years. It did so by expanding its balance sheet (read; printing money) which has gone from $900billion to $2.9trillion in 3 1/2 years. QE's stated purposes have been to keep Treasury bond prices high (and yields low), concomitantly to drive investors out of Treasuries and into the stock market (and thereby attempting to spur economic growth and job creation) and to flood banks with liquidity. And, it has worked, at least in part. Look at the stock market's recovery since 2009 and the bloated, excess reserves held by money center banks ($1.5 trillion---which is $400billion more than all of the US currency currently in circulation!). But, just like the shill's purchases of Picasso's art, it has created a false market. When QE ends (and it will end sometime or the excess reserves held by banks will be invested into the real economy with a hugely inflationary impact) and the Fed stops bidding up Treasury bond prices, those prices will fall unless some exogenous event (Eurozone failure, tsunami or an Iranian war) causes a massive "flight to safety" by purchasers other than the Fed.
So, it makes sense, does it not, that when the Fed hints that it may exit Treasury auctions, the prospect of lower prices (and higher yields) in the Treasury bond market begins to look like a real, and very attractive possiblity to me---and to institutional investors. And conversely, the stock market, which has risen because no one can get a decent yield on Treasury bonds, begins to look inflated. Investors (yours truly included) want to get out ahead of a stock market "correction". Thus, like Fat Joe, having "copped" and "cooked" some nice gains, they begin to take profits in some positions (sold all my AEG this week for a 20% profit) and to "chop" even small loss positions (sold POM at a slight loss) thereby raising cash in anticipation of a drop in Treasury prices, a rise in Treasury yields and a drop in stock prices. Unless and until the Fed hints it may continue some accommodation, I plan to continue to take some profits and to raise cash, pruning my holdings down to good yielders (and probably keeping AAPL). That said, I have not yet invested in the VIX or repurchased a Treasury short position which I discussed last week.
Speaking of yields, have you noticed the 1/4 page ads run by BlackRock in the WSJournal and the Financial Times hyping investment in HYG, its flagship junk (excuse me, high yield) bond exchange traded fund? As discussed last week, the market is flooded with new junk bond issues as companies seek to take advantage of the prevailing low interest rates which in turn are priced off of the low yields on Treasury bonds (called the "yield spread"). Check out www.quantumonline.com , a convenient place to "shop" for junk . I bought MHNB and KFI which yield 8% and 7.5% respectively, 50 basis points lower than earlier issues (MHNA and KFH) but still worthy of investment. I don't see putting these babies out in the "yard" anytime soon.
One reader this week asked me what I think of real estate. After several years of depression, it clearly is beginning to turn around. In fact, it is "movin' on up" as a percentage of my holdings. You don't have to be George and Weezy Jefferson to "get a piece of the pie" these days. As noted last week , I like the preferred shares of real estate investment trusts, particularly those that also carry a hefty common dividend. Currently, I own RASpC, CLNYpA, AHTpD, DFTpB, GRTpG, HPTpD, LXPpD, PEBpB, SFI pE and I as well as AGNC, NLY, HCN, SLA and the closed end fund RQI---each of which has appreciated in principal and pays over 7% annually in dividends and all of which on average pay in excess of 8 %
In closing, I wish all of you a joyous holiday weekend. On a personal note, Barb and I received one of the greatest dividends of all this week--- the birth of our fourth grandchild, Arthur Lucien Jaworksi---a dividend made possible by our all-time smartest investment---The Busch Girls
Saturday, March 31, 2012
March 31, 2013 Choppy Waters
Risk/Reward Vol. 112
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN
"Cause I'm hanging on every word you say
And even if you don't want to speak tonight, that's alright."---lyrics "Breathing" by Lifehouse
"He said-- Patches, I'm depending on you, son
To pull the family thru/My son, it's all left up to you"---lyrics "Patches" sung by Clarence Carter
"Fear tends to manifest itself much more quickly than greed. So, volatile markets tend to be on the
downside. In up markets, volatility tends to gradually decline."---Philip Roth
"Take it from me/It's a lesson to be learned
Even the good guys get burned/Take it from me
No strings attached/ Baby, you're the one for me"---"No Strings Attached" by N Sync
Receipt of this edition is proof that I did not win the lottery.
On Monday morning, Fed Chairman Ben Bernanke gave a speech wherein he warned that employment gains could not be sustained without economic growth which he feared could not be maintained without continuing or even expanding the current easy money policies of the Fed. "Hanging on every word", the stock market rose sharply, ending the day up 161 points. Like all stock market participants I was pleased--at least at first blush. But upon reflection, I wished that Uncle Ben would "not want to speak". News of more "easy money" means that the Fed will continue to overbid for Treasury securities and thus will continue to depress yields on Treasury securities (10 yr. at 2.15%, 30 yr. at 3.2%). This in turn will depress the yields on the securities priced off of Treasury securities such as bank c.d.'s, money market funds and investment grade corporate bonds. For anyone looking for a decent, safe return, the traditional refuge of these asset classes will remain unavailable for the foreseeable future.
That leaves the stock market (inclusive of mutual funds, etf's, reits, mlp's, preferred stock and exchange traded debt) as the only place where a decent return can be achieved, albeit with substantial risk. In effect, the stock market is the financial equivalent to "Patches". We are all "depending on it to pull the family thru/ It's all left up to you.". I don't like this fact. I would much prefer to park the lion's share of my money in Treasuries or c.d.'s ---but I can't afford returns of 1-2% , and I doubt that any of my readers can.
Speaking of the stock market, it ended the first quarter in record fashion, but the last few weeks have been--well, choppy. Even the rise on Monday did not result from "good" news, but rather, as noted above, from news that major asset classes will remain off-limits to those who want more than a paltry return. The market fell Tuesday through mid day Thursday on continued concerns over a slow down in China, a Eurozone recession and the price of oil. Frankly, fear, more than optimism (or greed) seems to have gripped the market recently, and as a consequence we should all expect more volatility.
So, what does an individual investor do? Well, I continue to prune positions that have more downside than upside potential (e.g. AT, Ally-pA, CQP, TBF and 1/2 of NLY) thereby raising cash. I take comfort in the preferred shares and exchange traded debt that I own. These securities are considerably less volatile than common stock, especially those that have the buffer of a hefty common dividend in front of them. (Remember, preferred shares and exchange traded debt are higher in the capital structure and thus MUST be paid before any common dividend is paid). For example, this week I bought below its redemption price (always important! ), the 8.5 % Series A preferred of Colony Financial (CLNYpA) which is a commercial mortgage real estate investment trust, the common stock of which pays an 8% dividend.. Moreover, since Colony was created after the 2008 financial crisis, it has the added benefit of having "no strings attached" to the overpricing of real estate assets of that era which "can burn good guys" even today.
But is that enough? Frankly, I sense that the smart money is planning an exit or at a minimum some substantial profit taking and significant re-allocation. I see choppy days ahead if the news from China and Europe is not more encouraging and if the price of oil/gasoline does not moderate. Thus, I am contemplating taking profits in some of my lower yielding financials ( e,g. AEG) and buying VXX, an exchange traded fund that gains when volatility measured by the VIX and VIX futures rises. The VIX (which is a rolling mix of 30 day options on the S & P 500 designed to reflect market volatility) has been remarkably calm this first quarter and sits at multi-year lows. My belief is that the fear of a Chinese slowdown, a Eurozone recession and a summer of high gas prices will translate into a rise in volatility. If so, VXX may be a place to be. If China does not ease its current monetary policy (a move expected Sunday evening), I may be a buyer.
If the news from China turns encouraging, I may swerve to the positive (and against the negative sentiment I currently feel) by buying commodities, especially copper. FCX is looking mighty attractive these days and carries a handsome 3.3% dividend. If China surprises to the upside, FCX could catapult upward.
In closing, I am cautiously opportunistic. As always, I remain flexible and nimble. I don't care to wake one day and realize N Sync's worst nightmare: that my first quarter profits are
GONE
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN
"Cause I'm hanging on every word you say
And even if you don't want to speak tonight, that's alright."---lyrics "Breathing" by Lifehouse
"He said-- Patches, I'm depending on you, son
To pull the family thru/My son, it's all left up to you"---lyrics "Patches" sung by Clarence Carter
"Fear tends to manifest itself much more quickly than greed. So, volatile markets tend to be on the
downside. In up markets, volatility tends to gradually decline."---Philip Roth
"Take it from me/It's a lesson to be learned
Even the good guys get burned/Take it from me
No strings attached/ Baby, you're the one for me"---"No Strings Attached" by N Sync
Receipt of this edition is proof that I did not win the lottery.
On Monday morning, Fed Chairman Ben Bernanke gave a speech wherein he warned that employment gains could not be sustained without economic growth which he feared could not be maintained without continuing or even expanding the current easy money policies of the Fed. "Hanging on every word", the stock market rose sharply, ending the day up 161 points. Like all stock market participants I was pleased--at least at first blush. But upon reflection, I wished that Uncle Ben would "not want to speak". News of more "easy money" means that the Fed will continue to overbid for Treasury securities and thus will continue to depress yields on Treasury securities (10 yr. at 2.15%, 30 yr. at 3.2%). This in turn will depress the yields on the securities priced off of Treasury securities such as bank c.d.'s, money market funds and investment grade corporate bonds. For anyone looking for a decent, safe return, the traditional refuge of these asset classes will remain unavailable for the foreseeable future.
That leaves the stock market (inclusive of mutual funds, etf's, reits, mlp's, preferred stock and exchange traded debt) as the only place where a decent return can be achieved, albeit with substantial risk. In effect, the stock market is the financial equivalent to "Patches". We are all "depending on it to pull the family thru/ It's all left up to you.". I don't like this fact. I would much prefer to park the lion's share of my money in Treasuries or c.d.'s ---but I can't afford returns of 1-2% , and I doubt that any of my readers can.
Speaking of the stock market, it ended the first quarter in record fashion, but the last few weeks have been--well, choppy. Even the rise on Monday did not result from "good" news, but rather, as noted above, from news that major asset classes will remain off-limits to those who want more than a paltry return. The market fell Tuesday through mid day Thursday on continued concerns over a slow down in China, a Eurozone recession and the price of oil. Frankly, fear, more than optimism (or greed) seems to have gripped the market recently, and as a consequence we should all expect more volatility.
So, what does an individual investor do? Well, I continue to prune positions that have more downside than upside potential (e.g. AT, Ally-pA, CQP, TBF and 1/2 of NLY) thereby raising cash. I take comfort in the preferred shares and exchange traded debt that I own. These securities are considerably less volatile than common stock, especially those that have the buffer of a hefty common dividend in front of them. (Remember, preferred shares and exchange traded debt are higher in the capital structure and thus MUST be paid before any common dividend is paid). For example, this week I bought below its redemption price (always important! ), the 8.5 % Series A preferred of Colony Financial (CLNYpA) which is a commercial mortgage real estate investment trust, the common stock of which pays an 8% dividend.. Moreover, since Colony was created after the 2008 financial crisis, it has the added benefit of having "no strings attached" to the overpricing of real estate assets of that era which "can burn good guys" even today.
But is that enough? Frankly, I sense that the smart money is planning an exit or at a minimum some substantial profit taking and significant re-allocation. I see choppy days ahead if the news from China and Europe is not more encouraging and if the price of oil/gasoline does not moderate. Thus, I am contemplating taking profits in some of my lower yielding financials ( e,g. AEG) and buying VXX, an exchange traded fund that gains when volatility measured by the VIX and VIX futures rises. The VIX (which is a rolling mix of 30 day options on the S & P 500 designed to reflect market volatility) has been remarkably calm this first quarter and sits at multi-year lows. My belief is that the fear of a Chinese slowdown, a Eurozone recession and a summer of high gas prices will translate into a rise in volatility. If so, VXX may be a place to be. If China does not ease its current monetary policy (a move expected Sunday evening), I may be a buyer.
If the news from China turns encouraging, I may swerve to the positive (and against the negative sentiment I currently feel) by buying commodities, especially copper. FCX is looking mighty attractive these days and carries a handsome 3.3% dividend. If China surprises to the upside, FCX could catapult upward.
In closing, I am cautiously opportunistic. As always, I remain flexible and nimble. I don't care to wake one day and realize N Sync's worst nightmare: that my first quarter profits are
GONE
Saturday, March 24, 2012
March 24, 2011 Always and Forever
Risk/Reward Vol 111
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Leisure is the time for doing something useful. This leisure the diligent person will obtain, the lazy one never."--quote from Benjamin Franklin
"Stormy days we passed the time away/Sleepin' in some good warm place
Man came along and we gave him a little race/Was that a vigilante man?"--lyrics "Vigilante Man" by Woodie Guthrie
"Yes, I love technology/But not as much as you, you see
But I still love technology/Always and forever"--lyrics "Always and Forever" (The Wedding Song) by Kip Dynamite--Napoleon's brother
"What you gon' do with all that junk/All that junk inside your trunk?"--lyrics "My Humps" by the Black Eyed Peas
With the Dow Index experiencing its worst week of the year on news of an impending Eurozone recession, slowing growth in China and the ever increasing price of oil, one is left to ponder: Is there any asset worth owning that is safe? With the traditional safe haven of government securities either unsafe (municipals) or bearing too low of a yield (10yr. Treasuries paying 2.25%), the answer is decidedly NO. That said, the current state of flux presents great opportunities for profit for those that are diligent, vigilant and technologically adept. Allow me to elaborate.
Example 1--Diligence. Thursday evening while leisurely enjoying the American Idol results show, I reviewed my current holdings using a simple spread sheet available at www.seekingalpha.com and noticed that CHKR, PER and STD, three of my favorite oil and gas trusts, had fallen much more than the market in general. I accessed some recent stories available at SeekingAlpha and the current gossip available through Yahoo.Finance. I determined that the drop was the result of some profit taking, some repositoning into another oil play and general market malaise. I placed a pre market limit order through my on-line Scottrade account for more of each at a deep discount to the closing price. The next day, all three opened lower, but not low enough to meet my limit and then each jumped significantly. I did not prosper in the move, but I was well positioned. Yo, Ben, talk about "doing something useful" with leisure! The entire effort--from review through ordering (which I did the next morning before an early meeting)--took 5 minutes---literally. Diligence made easy by technology.
Example 2--Vigilance. Late last December, I bought the exchange traded debt of Sprint (JZK) below $18 on the news that Sprint's launch of the I-phone was helping it make a turnaround. I rode JZK up to nearly $23 at the close last Friday. While taking a break from a meeting Monday morning, I accessed my Scottrade account, noticed that JZK was falling precipitously, clicked on news stories, learned that a leading market analyst was questioning Spint's solvency, decided to sell, clicked the TRADE button and sold at above $21 (it fell much more throughout the day and week). I did all of this from my I-phone in less than 3 minutes. Vigilance made easy by technology.
Now I realize that I left the fringe many years ago and am now a full time resident of Lunatic-ville. But that doesn't mean you cannot learn a lesson or two from the insane--people like me and Kip, Napoleon Dynamite's brother. We both love technology--"always and forever". Even if you don't love technology, in today's world you need to embrace it just to get along--like embracing that aunt who had scratchy hair or smelled like cigarettes or wore too much perfume. Some things you just got to do. Get an I-phone and ask a six year old (or the E-Trade baby) how to download all the free apps you need to make life easy.
Despite pull backs endemic to the market in general, banks stocks continue to attract me. JPM is up nearly 10% since I bought it on March 13, 2012, and it carries a decent dividend. BAC's road to recovery will undoubtedly be rocky, but I see it as a big gainer over time.
With yields in many sectors continuning to fall, money has flooded into the "trunks" of junk bond exchange traded funds like JNK and HYG with the predictible result of lowering yields in this space. I like high yield bonds and senior loans but prefer to access them through closed end funds because of their use of leverage. Do your own research on these at www.cefconnect.com .
In closing, I urge you, again, to sharpen your technology skills--something the internet and the tools that access it (e.g. the I-phone) make easier each day. Remember what Kip's brother Napoleon Dynamite said:
"Girls only want boyfriends who have great skills--like nunchuku skills, bow hunting skills, and computer (hacking) skills."
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Leisure is the time for doing something useful. This leisure the diligent person will obtain, the lazy one never."--quote from Benjamin Franklin
"Stormy days we passed the time away/Sleepin' in some good warm place
Man came along and we gave him a little race/Was that a vigilante man?"--lyrics "Vigilante Man" by Woodie Guthrie
"Yes, I love technology/But not as much as you, you see
But I still love technology/Always and forever"--lyrics "Always and Forever" (The Wedding Song) by Kip Dynamite--Napoleon's brother
"What you gon' do with all that junk/All that junk inside your trunk?"--lyrics "My Humps" by the Black Eyed Peas
With the Dow Index experiencing its worst week of the year on news of an impending Eurozone recession, slowing growth in China and the ever increasing price of oil, one is left to ponder: Is there any asset worth owning that is safe? With the traditional safe haven of government securities either unsafe (municipals) or bearing too low of a yield (10yr. Treasuries paying 2.25%), the answer is decidedly NO. That said, the current state of flux presents great opportunities for profit for those that are diligent, vigilant and technologically adept. Allow me to elaborate.
Example 1--Diligence. Thursday evening while leisurely enjoying the American Idol results show, I reviewed my current holdings using a simple spread sheet available at www.seekingalpha.com and noticed that CHKR, PER and STD, three of my favorite oil and gas trusts, had fallen much more than the market in general. I accessed some recent stories available at SeekingAlpha and the current gossip available through Yahoo.Finance. I determined that the drop was the result of some profit taking, some repositoning into another oil play and general market malaise. I placed a pre market limit order through my on-line Scottrade account for more of each at a deep discount to the closing price. The next day, all three opened lower, but not low enough to meet my limit and then each jumped significantly. I did not prosper in the move, but I was well positioned. Yo, Ben, talk about "doing something useful" with leisure! The entire effort--from review through ordering (which I did the next morning before an early meeting)--took 5 minutes---literally. Diligence made easy by technology.
Example 2--Vigilance. Late last December, I bought the exchange traded debt of Sprint (JZK) below $18 on the news that Sprint's launch of the I-phone was helping it make a turnaround. I rode JZK up to nearly $23 at the close last Friday. While taking a break from a meeting Monday morning, I accessed my Scottrade account, noticed that JZK was falling precipitously, clicked on news stories, learned that a leading market analyst was questioning Spint's solvency, decided to sell, clicked the TRADE button and sold at above $21 (it fell much more throughout the day and week). I did all of this from my I-phone in less than 3 minutes. Vigilance made easy by technology.
Now I realize that I left the fringe many years ago and am now a full time resident of Lunatic-ville. But that doesn't mean you cannot learn a lesson or two from the insane--people like me and Kip, Napoleon Dynamite's brother. We both love technology--"always and forever". Even if you don't love technology, in today's world you need to embrace it just to get along--like embracing that aunt who had scratchy hair or smelled like cigarettes or wore too much perfume. Some things you just got to do. Get an I-phone and ask a six year old (or the E-Trade baby) how to download all the free apps you need to make life easy.
Despite pull backs endemic to the market in general, banks stocks continue to attract me. JPM is up nearly 10% since I bought it on March 13, 2012, and it carries a decent dividend. BAC's road to recovery will undoubtedly be rocky, but I see it as a big gainer over time.
With yields in many sectors continuning to fall, money has flooded into the "trunks" of junk bond exchange traded funds like JNK and HYG with the predictible result of lowering yields in this space. I like high yield bonds and senior loans but prefer to access them through closed end funds because of their use of leverage. Do your own research on these at www.cefconnect.com .
In closing, I urge you, again, to sharpen your technology skills--something the internet and the tools that access it (e.g. the I-phone) make easier each day. Remember what Kip's brother Napoleon Dynamite said:
"Girls only want boyfriends who have great skills--like nunchuku skills, bow hunting skills, and computer (hacking) skills."
March 17, 2011 Know When To Hold 'Em---
Risk/Reward Vol. 110
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Life's a mess, don't stress/Test
I'm givin', but be thankful that you're livin'/Blessed"---lyrics "Holla If You Hear Me" by 2Pac
"I'm leaving you tomorrow/Seems to me girl/You know I've done all I can
You see I've begged, stole and borrowed/Gal, that's why I'm easy/I'm easy like Sunday morning"---lyrics "Easy" by Lionel Ritchie
"I'm sure I'll enjoy your company, apple pie a la mode
You be turning me on with your modesty, apple pie a la mode"--lyrics "Apple Pie A La Mode" by Destiny's Child
"You got to know when to hold 'em/ Know when to fold 'em
Know when to walk away/Know when to run"---lyrics "The Gambler" by Kenny Rogers
On Monday, the Dow closed up a modest 37 points. On my ride home, I listened to Larry Kudlow's interview of noted bank analyst, Dick Bove who described his take on the Federal Reserve's "stress test" of the nation's 19 largest banks, the results of which were to be made public on Thursday. Bove predicted that most would pass the test which was designed by regulators to simulate a significant financial "mess" similar to that experienced in 2008. He further prognosticated that several banks would be allowed to raise their dividends. Feeling "blessed" to have heard the interview, I opened a position in JP Morgan Chase (JPM), the best of the money center banks, first thing Tuesday morning. At around 3pm EST Tuesday, JPM announced that it had just been informed by the Fed that it had passed the test. It further stated that it was increasing its dividend 20% and launching a massive stock buy back. Holy 2Pac, holla if you hear me! JPM shot up 7% immediately and forced many of the 15 other banks that passed the stress test to make similar announcements. The Dow spiked, finishing up 227 points --led for the first time in a long while by the banking sector. More importantly, the Dow catapulted into what appears to be a new trading plateau above 13,000.
This great news followed an encouraging announcement made earlier in the day by the Federal Reserve's Open Market Committee that in the Fed's opinion the economy and employment were both growing at a moderate pace, and that in its opinion, the global financial crisis (read, Eurozone sovereign debt situation) was under control. Market gurus interpreted these statements to mean that the Fed would not embark on a further round of quantitative "easing" any time soon and would not renew Operation Twist (selling short term and buying longer term Treasury bonds as discussed in Vol. 85 at www.riskrewardblog.blogspot.com ). In other words, having "begged, stole and borrowed" and indiscriminately printed money to upbid US Treasury bonds (and thus keeping interest rates artificially and historically low), the Fed may be leaving the bond market. Assuming this is true, assuming the stock market remains strong and assuming that no exogenous event causes a flight to safety, it's "easy, easy like Sunday morning" to predict that Treasury bond prices will fall.
So what does all of this mean to the individual investor?
First, if the stock market is actually gaining confidence in banks, further investment in that sector is warranted. As loyal readers know, I am overweight this sector (and very happily so). Nevertheless I sold some foundering GLD and bought Bank of America (BAC). This huge institution is trading at 45% of book value. Healthy banks generally trade at or above 100% of book value. Thus, if BAC is getting healthier, there is a lot of room left to run despite its recent hefty gains.
Second, if the Fed does slow the pace of quantitative easing, it will be time to start shorting U S Treasury securities.. I opened a position in TBF in anticipation of this occurring. If Treasuries drop in price to pre-August, 2011 levels (when the threat of a US default reached a boiling point and the Greek debt crisis re-emerged), TBF should gain 25%.
Third, taking the Fed at its word that the Eurozone crisis is under control, I bought RBSpT, one of the preferred stock issues of the Royal Bank of Scotland which suspended dividend payments for a minimum period of 2 years back in April, 2010. The market has begun to believe that these dividend payments will recommence, and RBSpT is up 40% so far this year. By my calculations, it has another 20% to go if dividend payments are re-instituted (not counting the 10% yield).
Talk about A La Mode, how 'bout dat Apple! As discussed in Vol. 103 last January, "I sure enjoy this company", but I have not "been turned on" by how "modestly" the market has priced, or should I say underpriced, the stock. Well, in the past two weeks, the market has viewed AAPL more favorably, in part as a response to the persistent rumor that it will declare a dividend and distribute some of the $100billion in cash that it holds. Whatever the reason, it is all a la mode to me, with AAPL appreciating 37% since my re-entry on January 17, 2012.
Thanks to those of you who wrote me last week. I received some great feedback. One theme that resonated was a lament on the total absence of any guidance on when to sell. Amen! Whether "buy and hold" was ever an acceptable approach, it certainly has not been for me during my 35 years of investing. From this man's viewpoint, "you got to know when to hold 'em; know when to fold 'em; know when to walk away; know when to run". Accordingly, I will spend time on this subject in the future. In the interim, do yourself a favor-- sell something this week--be it a big winner or any loser or a stock that just doesn't feel right (like Chimera after it fired its auditor this week). It doesn't matter, just do it. And when you are done, do it again. The more you do it, the easier it is. As I have discussed with Lady Barbara for the past few years, selling wisely is as important as buying wisely.
"And she believes in me"
On this topic, you should as well..
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Life's a mess, don't stress/Test
I'm givin', but be thankful that you're livin'/Blessed"---lyrics "Holla If You Hear Me" by 2Pac
"I'm leaving you tomorrow/Seems to me girl/You know I've done all I can
You see I've begged, stole and borrowed/Gal, that's why I'm easy/I'm easy like Sunday morning"---lyrics "Easy" by Lionel Ritchie
"I'm sure I'll enjoy your company, apple pie a la mode
You be turning me on with your modesty, apple pie a la mode"--lyrics "Apple Pie A La Mode" by Destiny's Child
"You got to know when to hold 'em/ Know when to fold 'em
Know when to walk away/Know when to run"---lyrics "The Gambler" by Kenny Rogers
On Monday, the Dow closed up a modest 37 points. On my ride home, I listened to Larry Kudlow's interview of noted bank analyst, Dick Bove who described his take on the Federal Reserve's "stress test" of the nation's 19 largest banks, the results of which were to be made public on Thursday. Bove predicted that most would pass the test which was designed by regulators to simulate a significant financial "mess" similar to that experienced in 2008. He further prognosticated that several banks would be allowed to raise their dividends. Feeling "blessed" to have heard the interview, I opened a position in JP Morgan Chase (JPM), the best of the money center banks, first thing Tuesday morning. At around 3pm EST Tuesday, JPM announced that it had just been informed by the Fed that it had passed the test. It further stated that it was increasing its dividend 20% and launching a massive stock buy back. Holy 2Pac, holla if you hear me! JPM shot up 7% immediately and forced many of the 15 other banks that passed the stress test to make similar announcements. The Dow spiked, finishing up 227 points --led for the first time in a long while by the banking sector. More importantly, the Dow catapulted into what appears to be a new trading plateau above 13,000.
This great news followed an encouraging announcement made earlier in the day by the Federal Reserve's Open Market Committee that in the Fed's opinion the economy and employment were both growing at a moderate pace, and that in its opinion, the global financial crisis (read, Eurozone sovereign debt situation) was under control. Market gurus interpreted these statements to mean that the Fed would not embark on a further round of quantitative "easing" any time soon and would not renew Operation Twist (selling short term and buying longer term Treasury bonds as discussed in Vol. 85 at www.riskrewardblog.blogspot.com ). In other words, having "begged, stole and borrowed" and indiscriminately printed money to upbid US Treasury bonds (and thus keeping interest rates artificially and historically low), the Fed may be leaving the bond market. Assuming this is true, assuming the stock market remains strong and assuming that no exogenous event causes a flight to safety, it's "easy, easy like Sunday morning" to predict that Treasury bond prices will fall.
So what does all of this mean to the individual investor?
First, if the stock market is actually gaining confidence in banks, further investment in that sector is warranted. As loyal readers know, I am overweight this sector (and very happily so). Nevertheless I sold some foundering GLD and bought Bank of America (BAC). This huge institution is trading at 45% of book value. Healthy banks generally trade at or above 100% of book value. Thus, if BAC is getting healthier, there is a lot of room left to run despite its recent hefty gains.
Second, if the Fed does slow the pace of quantitative easing, it will be time to start shorting U S Treasury securities.. I opened a position in TBF in anticipation of this occurring. If Treasuries drop in price to pre-August, 2011 levels (when the threat of a US default reached a boiling point and the Greek debt crisis re-emerged), TBF should gain 25%.
Third, taking the Fed at its word that the Eurozone crisis is under control, I bought RBSpT, one of the preferred stock issues of the Royal Bank of Scotland which suspended dividend payments for a minimum period of 2 years back in April, 2010. The market has begun to believe that these dividend payments will recommence, and RBSpT is up 40% so far this year. By my calculations, it has another 20% to go if dividend payments are re-instituted (not counting the 10% yield).
Talk about A La Mode, how 'bout dat Apple! As discussed in Vol. 103 last January, "I sure enjoy this company", but I have not "been turned on" by how "modestly" the market has priced, or should I say underpriced, the stock. Well, in the past two weeks, the market has viewed AAPL more favorably, in part as a response to the persistent rumor that it will declare a dividend and distribute some of the $100billion in cash that it holds. Whatever the reason, it is all a la mode to me, with AAPL appreciating 37% since my re-entry on January 17, 2012.
Thanks to those of you who wrote me last week. I received some great feedback. One theme that resonated was a lament on the total absence of any guidance on when to sell. Amen! Whether "buy and hold" was ever an acceptable approach, it certainly has not been for me during my 35 years of investing. From this man's viewpoint, "you got to know when to hold 'em; know when to fold 'em; know when to walk away; know when to run". Accordingly, I will spend time on this subject in the future. In the interim, do yourself a favor-- sell something this week--be it a big winner or any loser or a stock that just doesn't feel right (like Chimera after it fired its auditor this week). It doesn't matter, just do it. And when you are done, do it again. The more you do it, the easier it is. As I have discussed with Lady Barbara for the past few years, selling wisely is as important as buying wisely.
"And she believes in me"
On this topic, you should as well..
Saturday, March 10, 2012
March 10, 2012 As Good As It Gets
Risk/Reward Vol. 109
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"And when I get excited/My little China girl says
Oh baby, just shut your mouth/She says ...sh"---lyrics "China Girl" by David Bowie
Melvin Udall (Jack Nicholson)--"You're a disgrace to depression!"---quote from the movie "As Good As It Gets"
"My thinking is derailed/I'm tied up to the tracks
The train of consequences/There ain't no turnin' back"---lyrics "Train of Consequences" by Megadeath
"Downtown people on the corner watching the people play
And while the people watch them play/The players watch the people
On a Wall Street kind of day"---lyrics "Wall Street Kind of Day" by the Four Seasons
As loyal readers know, I believe that American stock markets, absent exogenous events (e.g. an Israeli air strike or a tsunami), are driven, up or down, by three factors: the U.S. economy (read, corporate earnings and job growth); stability in the Eurozone; and the rate of growth in China. See Vols. 70 and 74 available at www.riskrewardblog.blogspot.com . One needs no further proof than what happened on Tuesday. Having "gotten excited" by last month's excellent quarterly earnings reports and in the wake of the European Central Bank's (ECB) stabilizing Long Term Refinanciing Operation (the LTRO discussed last week), the Dow Jones Industrial Average was flirting with the 13,000 level only to experience a "mouth shutting" two hundred point drop on the news that "China Girl" was revising its forecasted growth rate down from 8.5% to 7.5% and further news that Chinese leaders saw no immediate need for any stimulus. Talk about "saying---sh!" Some decent domestic job news on Thursday and Friday caused a rebound, but the Dow closed 55 points down for the week.
So how does an individual investor react to this development? Here is what I did. Since 60% of all iron ore is consumed by China, I sold my stake in the Mesabi Iron Trust (MSB). I also deferred any further investment in China's favorite commodity supplier--Brazil. On a broader scale, with Thursday's uptick, I sold most of my losing positions (thankfully only a handful)--even those that had never approached my 8% loss limit. Unlike Melvin Udall, I'm not talking "depression" or even a recessionary dip, but absent better news from China, yours truly believes that at its current level, the stock market is about "as good as it gets". Selling my losers allows me the luxury of excess cash to be used to buy if and when drops like those last Tuesday occur. P.S. Cramer advised the same this week.
We are living in a world of unintended "consequences". The Federal Reserve has kept its discount rate (the rate it lends money to banks) at record lows, and the ECB via the LTRO has literally flooded Eurozone banks with 1trillion Euros worth of 1% loans, both with the express purpose of incenting banks here and abroad to, in turn, make low interest rate loans to their industrial customers thereby encouraging investment and more importantly spurring job growth. Unfortunately, "that thinking has been derailed" because, at the same time, bank regulators here and abroad by virtue of increased capital requirements and stricter lending standards have "tied banks to the tracks" causing them to hoard cash and to reduce, not grow, their lending activity. And, as Megadeath predicted "there ain't no turnin' back." For example, commercial banks at the insistence of regulators who deem them too risky, are selling entire portfolios of real estate loans just as the real estate market, particularly the commercial space, is beginning to turn around.
But, fear not, dear Readers, where there is a demand for capital, the ever "watchful people of Wall Street will play". Wall Street knows how to raise money, and the good "players" know how to price (measure) risk. If banks won't lend to companies, Wall Street will borrow on their behalf in the public markets via bonds and exchange traded funds or create other pools of money in the form of investment trusts or development companies which in turn can lend to industry. Activity in these areas is currently at a fever pitch precisely because banks are not lending, with new offerings literally every day. The low yields on investment grade bonds and the clumsy manner in which they trade make them unappealing to me. I prefer high yield bonds to which I gain exposure in a liquid and diversified way via exchange traded funds such as JNK or HYG. As discussed in previous editions, I also gain exposure through senior loan, closed end funds like JFR. On the business development side, I like ARCC, SLRC and the closed end fund FGB. As for real estate loan exposure, on the residential side, I like investment trusts that purchase mortgages guaranteed by the federal agencies, Fannie Mae and Freddie Mac; trusts such as NLY and AGNC (currently priced attractively due to a secondary offering). In the commercial mortgage space, look at the preferred shares of commercial mortgage real estate investment trusts like RAIT and NorthStar Realty, both of which have decent yields and are protected by hefty common dividends.
In closing, I solicit some responses--responses of any kind to my postings. Honestly folks, sometimes I feel like Wall-E, toiling away in complete solitude. When I do get responses, I find them very helpful--not only with investing ideas but with guidance on how to make future postings more relevant. Recognizing that the Four Seasons suffer from dissociative identity disorder, I request that you eschew their advice that "Silence Is Golden" and that instead you follow their admonition to "Talk like a Man"--at least to talk like this man. I look forward to your comments.
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"And when I get excited/My little China girl says
Oh baby, just shut your mouth/She says ...sh"---lyrics "China Girl" by David Bowie
Melvin Udall (Jack Nicholson)--"You're a disgrace to depression!"---quote from the movie "As Good As It Gets"
"My thinking is derailed/I'm tied up to the tracks
The train of consequences/There ain't no turnin' back"---lyrics "Train of Consequences" by Megadeath
"Downtown people on the corner watching the people play
And while the people watch them play/The players watch the people
On a Wall Street kind of day"---lyrics "Wall Street Kind of Day" by the Four Seasons
As loyal readers know, I believe that American stock markets, absent exogenous events (e.g. an Israeli air strike or a tsunami), are driven, up or down, by three factors: the U.S. economy (read, corporate earnings and job growth); stability in the Eurozone; and the rate of growth in China. See Vols. 70 and 74 available at www.riskrewardblog.blogspot.com . One needs no further proof than what happened on Tuesday. Having "gotten excited" by last month's excellent quarterly earnings reports and in the wake of the European Central Bank's (ECB) stabilizing Long Term Refinanciing Operation (the LTRO discussed last week), the Dow Jones Industrial Average was flirting with the 13,000 level only to experience a "mouth shutting" two hundred point drop on the news that "China Girl" was revising its forecasted growth rate down from 8.5% to 7.5% and further news that Chinese leaders saw no immediate need for any stimulus. Talk about "saying---sh!" Some decent domestic job news on Thursday and Friday caused a rebound, but the Dow closed 55 points down for the week.
So how does an individual investor react to this development? Here is what I did. Since 60% of all iron ore is consumed by China, I sold my stake in the Mesabi Iron Trust (MSB). I also deferred any further investment in China's favorite commodity supplier--Brazil. On a broader scale, with Thursday's uptick, I sold most of my losing positions (thankfully only a handful)--even those that had never approached my 8% loss limit. Unlike Melvin Udall, I'm not talking "depression" or even a recessionary dip, but absent better news from China, yours truly believes that at its current level, the stock market is about "as good as it gets". Selling my losers allows me the luxury of excess cash to be used to buy if and when drops like those last Tuesday occur. P.S. Cramer advised the same this week.
We are living in a world of unintended "consequences". The Federal Reserve has kept its discount rate (the rate it lends money to banks) at record lows, and the ECB via the LTRO has literally flooded Eurozone banks with 1trillion Euros worth of 1% loans, both with the express purpose of incenting banks here and abroad to, in turn, make low interest rate loans to their industrial customers thereby encouraging investment and more importantly spurring job growth. Unfortunately, "that thinking has been derailed" because, at the same time, bank regulators here and abroad by virtue of increased capital requirements and stricter lending standards have "tied banks to the tracks" causing them to hoard cash and to reduce, not grow, their lending activity. And, as Megadeath predicted "there ain't no turnin' back." For example, commercial banks at the insistence of regulators who deem them too risky, are selling entire portfolios of real estate loans just as the real estate market, particularly the commercial space, is beginning to turn around.
But, fear not, dear Readers, where there is a demand for capital, the ever "watchful people of Wall Street will play". Wall Street knows how to raise money, and the good "players" know how to price (measure) risk. If banks won't lend to companies, Wall Street will borrow on their behalf in the public markets via bonds and exchange traded funds or create other pools of money in the form of investment trusts or development companies which in turn can lend to industry. Activity in these areas is currently at a fever pitch precisely because banks are not lending, with new offerings literally every day. The low yields on investment grade bonds and the clumsy manner in which they trade make them unappealing to me. I prefer high yield bonds to which I gain exposure in a liquid and diversified way via exchange traded funds such as JNK or HYG. As discussed in previous editions, I also gain exposure through senior loan, closed end funds like JFR. On the business development side, I like ARCC, SLRC and the closed end fund FGB. As for real estate loan exposure, on the residential side, I like investment trusts that purchase mortgages guaranteed by the federal agencies, Fannie Mae and Freddie Mac; trusts such as NLY and AGNC (currently priced attractively due to a secondary offering). In the commercial mortgage space, look at the preferred shares of commercial mortgage real estate investment trusts like RAIT and NorthStar Realty, both of which have decent yields and are protected by hefty common dividends.
In closing, I solicit some responses--responses of any kind to my postings. Honestly folks, sometimes I feel like Wall-E, toiling away in complete solitude. When I do get responses, I find them very helpful--not only with investing ideas but with guidance on how to make future postings more relevant. Recognizing that the Four Seasons suffer from dissociative identity disorder, I request that you eschew their advice that "Silence Is Golden" and that instead you follow their admonition to "Talk like a Man"--at least to talk like this man. I look forward to your comments.
Saturday, March 3, 2012
March 3, 2011 Lessons From Ike
Risk/Reward Vol. 108
THIS IS NOT INVESTMENT OR TAX ADVICE. THIS IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"It's not money that is the root of all evil--it's the lack thereof."---quote from Reverend Ike
"Carry on my wayward son/There'll be peace when you are done."--lyrics "Carry On Wayward Son" by Kansas
"School's out for summer/School's out forever/School's been blown to pieces."--lyrics "School's Out" by Alice Cooper
"Why did he desert me/In my hour of need/I am truly am indeed/Alone again naturally"--lyrics "Alone Again (Naturally)" by Gilbert O'Sullivan
If you had any doubt previously, you know now that Mario Draghi, the president of the European Central Bank (ECB) (like his US counterpart Uncle Ben Bernanke) is from the Reverend Ike School of Economics. Talk about "avoiding evil", how about that second round of the Long Term Refinancing Operation (LTRO) which occurred last Wednesday (and which was discussed in last week's edition). Over 800 banks took advantage of 1% three year loans to borrow 529billion Euros ($713billion) from the ECB. That makes a total LTRO disbursement of 1trillion Euros ($1.3trillion) since mid December, 2011. With this massive infusion of liquidity, there now is "no lack of money" in Europe. To put it in perspective, in 2008-2009 the infamous TARP program infused what looks now like a paltry $432billion into US banks. Whether it is fiscally sound policy in the long run or merely a means to refinance Europe with inflated currency, the LTRO has been a godsend of Eurozone stability to US investors. If you doubt this fact, hearken back just three months ago by re-reading Vol. 96 posted on December 10, 2011 (www.riskrewardblog.blogspot.com ) when the DJIA was 10% lower than where it sits today.
The ECB's handout to these 800 "wayward sons" had its intended effect--quite immediately. The very next day, many of these banks used the new money to upbid the Spanish and Italian sovereign bond auctions which concomitantly sent their 10 year bond interest rates below 5%. (Remember, as discussed in Vol. 98 which is available at www.riskrewardblog.blogspot.com, 5% is a sustainable interest rate for these two at-risk economies.) The banks' decision to "carry (the bonds) on" their books makes sense. Buy a bond yielding 5% with money costing 1%, pledge it as collateral for the loan, and book 4% as profit. This is how the LTRO brought "peace" to the Eurozone "when it was done." And this is why my positions in Eurozone financial institutions like IDG and AEG are up 30% or more in two months.
Speaking of schools, I have done well in 2012 by investing in certain SLM (Sallie Mae) securities. As many of you know, Sallie Mae or the Student Loan Market Association was founded in 1972 as a government sponsored entity (like Freddie Mac or Fannie Mae) to originate, source and collect government guaranteed student loans. This virtually risk-free business model ended in 2010 when Congress withdrew SLM's guaranteed student loan origination franchise. The investing community thought this withdrawal would eventually cause the company's demise, but it has shown remarkable resilience. It cut overhead, and drawing upon its loan underwriting expertise, it launched several privately financed programs--all the while maintaining excellent cash flow from the run-off of its loan portfolio. I like two of its exchange traded debt issues: JSM which has appreciated 14% in 2012 and still pays nearly 7% in interest and SLMAP which has gone up 12.5% and still yields 7.7%. SLM is clearly not "out forever", not even "out for summer" and certainly not "blown to pieces".
With natural gas languishing at $2.46/mmBTU in the United States even after a substantial reduction in production (remember: in 2008 before fracking began in earnest, nat gas in the US traded as high as $12/mmBTU, much of it imported from Canada), anyone advocating investing in nat gas seemingly should be "deserted" and left "alone, naturally". But with the Iranian situation causing oil to spike; with President Obama hinting that he may support conversion of over the road vehicles to nat gas; with the news that many locally oriented fleets are converting to nat gas (80% of Waste Management's new truck purchases are to run on natural gas); with a run up in the stock of Westport Innovations (WPRT), the holder of many nat gas vehicle patents; with a planned nationwide build out of service stations underway by Clean Energies Fuel (CLNE); and with the certainty that this wonderfully mild winter in the US will not repeat, it is merely a matter of time before nat gas prices rise again. When that time arrives, I plan to invest in the convertible preferred stock of Chesapeake Energy (CHKpD).
For the present, I bought Cheniere Energy Partners (CQP) on the news this week that the world's largest money manager, BlackRock (with $3.65 TRILLION under management), invested $2billion into CQP's natural gas liquification facility at Sabine Pass, LA. With the glut of domestic nat gas, Cheniere is expanding its liquid natural gas (LNG) importing facility there (which was built pre-fracking) to add LNG exporting capacity. The math is elegantly simple: buy US domestic nat gas at $2-3/mmBTU, liquify it, ship it overseas and sell it for $16mmBTU in Japan or $13mmBTU in Europe (current prices). Even though CQP spiked on the news that a financial heavyweight like BlackRock was a believer in its vision and though the facility will not be operational until 2015, I pulled the trigger. All things remaining equal, I can afford to wait for a big pop because CQP pays a 7% dividend.
Although the market slipped ever so slightly this week, one has to be impressed by its relative stability in the face of a continuum of yeah/boo world news (Yikes! Iran). I am pleased with my moves this year, but much remains to be learned. This week's lesson comes from Draghi favorite Reverend Ike:
"The best thing you can do for the poor is not to be one of them.
THIS IS NOT INVESTMENT OR TAX ADVICE. THIS IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"It's not money that is the root of all evil--it's the lack thereof."---quote from Reverend Ike
"Carry on my wayward son/There'll be peace when you are done."--lyrics "Carry On Wayward Son" by Kansas
"School's out for summer/School's out forever/School's been blown to pieces."--lyrics "School's Out" by Alice Cooper
"Why did he desert me/In my hour of need/I am truly am indeed/Alone again naturally"--lyrics "Alone Again (Naturally)" by Gilbert O'Sullivan
If you had any doubt previously, you know now that Mario Draghi, the president of the European Central Bank (ECB) (like his US counterpart Uncle Ben Bernanke) is from the Reverend Ike School of Economics. Talk about "avoiding evil", how about that second round of the Long Term Refinancing Operation (LTRO) which occurred last Wednesday (and which was discussed in last week's edition). Over 800 banks took advantage of 1% three year loans to borrow 529billion Euros ($713billion) from the ECB. That makes a total LTRO disbursement of 1trillion Euros ($1.3trillion) since mid December, 2011. With this massive infusion of liquidity, there now is "no lack of money" in Europe. To put it in perspective, in 2008-2009 the infamous TARP program infused what looks now like a paltry $432billion into US banks. Whether it is fiscally sound policy in the long run or merely a means to refinance Europe with inflated currency, the LTRO has been a godsend of Eurozone stability to US investors. If you doubt this fact, hearken back just three months ago by re-reading Vol. 96 posted on December 10, 2011 (www.riskrewardblog.blogspot.com ) when the DJIA was 10% lower than where it sits today.
The ECB's handout to these 800 "wayward sons" had its intended effect--quite immediately. The very next day, many of these banks used the new money to upbid the Spanish and Italian sovereign bond auctions which concomitantly sent their 10 year bond interest rates below 5%. (Remember, as discussed in Vol. 98 which is available at www.riskrewardblog.blogspot.com, 5% is a sustainable interest rate for these two at-risk economies.) The banks' decision to "carry (the bonds) on" their books makes sense. Buy a bond yielding 5% with money costing 1%, pledge it as collateral for the loan, and book 4% as profit. This is how the LTRO brought "peace" to the Eurozone "when it was done." And this is why my positions in Eurozone financial institutions like IDG and AEG are up 30% or more in two months.
Speaking of schools, I have done well in 2012 by investing in certain SLM (Sallie Mae) securities. As many of you know, Sallie Mae or the Student Loan Market Association was founded in 1972 as a government sponsored entity (like Freddie Mac or Fannie Mae) to originate, source and collect government guaranteed student loans. This virtually risk-free business model ended in 2010 when Congress withdrew SLM's guaranteed student loan origination franchise. The investing community thought this withdrawal would eventually cause the company's demise, but it has shown remarkable resilience. It cut overhead, and drawing upon its loan underwriting expertise, it launched several privately financed programs--all the while maintaining excellent cash flow from the run-off of its loan portfolio. I like two of its exchange traded debt issues: JSM which has appreciated 14% in 2012 and still pays nearly 7% in interest and SLMAP which has gone up 12.5% and still yields 7.7%. SLM is clearly not "out forever", not even "out for summer" and certainly not "blown to pieces".
With natural gas languishing at $2.46/mmBTU in the United States even after a substantial reduction in production (remember: in 2008 before fracking began in earnest, nat gas in the US traded as high as $12/mmBTU, much of it imported from Canada), anyone advocating investing in nat gas seemingly should be "deserted" and left "alone, naturally". But with the Iranian situation causing oil to spike; with President Obama hinting that he may support conversion of over the road vehicles to nat gas; with the news that many locally oriented fleets are converting to nat gas (80% of Waste Management's new truck purchases are to run on natural gas); with a run up in the stock of Westport Innovations (WPRT), the holder of many nat gas vehicle patents; with a planned nationwide build out of service stations underway by Clean Energies Fuel (CLNE); and with the certainty that this wonderfully mild winter in the US will not repeat, it is merely a matter of time before nat gas prices rise again. When that time arrives, I plan to invest in the convertible preferred stock of Chesapeake Energy (CHKpD).
For the present, I bought Cheniere Energy Partners (CQP) on the news this week that the world's largest money manager, BlackRock (with $3.65 TRILLION under management), invested $2billion into CQP's natural gas liquification facility at Sabine Pass, LA. With the glut of domestic nat gas, Cheniere is expanding its liquid natural gas (LNG) importing facility there (which was built pre-fracking) to add LNG exporting capacity. The math is elegantly simple: buy US domestic nat gas at $2-3/mmBTU, liquify it, ship it overseas and sell it for $16mmBTU in Japan or $13mmBTU in Europe (current prices). Even though CQP spiked on the news that a financial heavyweight like BlackRock was a believer in its vision and though the facility will not be operational until 2015, I pulled the trigger. All things remaining equal, I can afford to wait for a big pop because CQP pays a 7% dividend.
Although the market slipped ever so slightly this week, one has to be impressed by its relative stability in the face of a continuum of yeah/boo world news (Yikes! Iran). I am pleased with my moves this year, but much remains to be learned. This week's lesson comes from Draghi favorite Reverend Ike:
"The best thing you can do for the poor is not to be one of them.
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