Risk/Reward Vol. 141
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"To get water from a faucet/You got to turn it
And if you want my love/You got to earn it, earn it, earn it."--lyrics from "You've Got to Earn It" by the Temptations
"So what do I do/With this death wish I have?
With the cliff's edge so near?"---lyrics from "Cliff's Edge" by Patrick Swayze
"And there's history on the juke box/Where the spies and scoundrels dwell
It was the place to go in Bamako/Direction--Buffet Hotel"---lyrics from "Buffet Hotel" by Jimmy Buffett
We are in the midst of the third quarter earnings season. So far, over 60% of the companies reporting have failed to beat expected revenues (although, through cost cutting, 67% have beaten bottom line expectations). The stock market has reacted negatively to the news. The Dow Jones Industrial Average closed down 236 points for the week. If companies want investor's "love" (read, money), they are going to have to "earn it, earn it, earn it." by "turning on a faucet" of financial performance. That did not happen in Q3, and the guidance that companies are giving for Q4 does not portend for the better.
Of course, the reasons why any given company has not performed above expectations are unique, but one common theme is the deleterious impact of the Fiscal Cliff, that catastrophic year-end coincidence of the expiration of the Bush Tax Cuts and the impositon of across-the-board budget cuts that most economists agree will cause the U. S. economy to tail spin into a recession. Most of our leaders believe that allowing us to fall over the Cliff is bad policy, but one side insists that the remedy must be at the expense of entitlements and the other at the expense of tax cuts---neither side having left room for compromise. And all of this must be addressed by a lame duck Congress! Yikes! Despite protestations to the contrary, "with the cliff so near", it looks to me that a sizable number of our elected officials "have a death wish." This is a real and looming crisis, Dear Readers, one that prompted 80 CEO's representing a broad range of political views to petition this week that it be resolved ASAP! Indeed, the Fiscal Cliff is the reason that I am effectively out of the stock market at present.
My decision to liquidate was the topic of discussion this week with one of my subscribers, a devotee of Warren Buffett. Buffett, the nation's second wealthiest man and a person who is deemed so savvy in investing that he is called "The Oracle of Omaha" (or is that "of Obama"?), has long preached that one cannot time the market. Buy great, undervalued companies, croons he, hold their stock for years as the value unfolds and refrain from worrying about issues of the day (e.g. the Fiscal Cliff). But, query, what is the "history of this jukebox"? Is the Buffett Hotel really the "place to go"? If one had invested $50,000 in Berkshire Hathaway (Buffett's holding company) in January, 2000 it would be worth $130,000 today. But if one had invested $50,000 in Berkshire in December, 2007 (just before The Great Recession), it would be worth $46,000 today (with no dividends having been paid). Frankly, Warren, my horizon is not that long. I'm not saying you are a "scoundrel", but I needed (and got) a decent return on my investments over the past 5 years. And I would not have consumed an 8% loss even if served in Warren's Buffet. The Oracle may have the luxury of time---I do not--certainly not 5 years in the hole.
As the world spins toward the Fiscal Cliff, the lovely (and fiscally conservative) Barbara and I sleep soundly with our holdings mostly in cash. If suddenly the market turns and rockets upward with us on the sidelines
"Some people (will) claim that there's a woman to blame
But I know it (will be) my own damned fault"
Saturday, October 27, 2012
Saturday, October 20, 2012
October 20, 2012 The Other Side
Risk/Reward Vol. 140
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"If they don't win it's a shame
For it's one, two, three strikes you're out/ At the old ballgame"---lyrics from "Take Me Out to the Ballgame" by Norworth/VonTilzer
"Well variety is the spice of life
That's what the judge is gonna tell my wife"---lyrics from "Variety Is The Spice of Life" by the Doors (after Jim Morrison's death)
"Swimming upstream, swimming upstream
Fightin' every inch of the way for a poor boy's dream"---lyrics from "Swimming Upstream" by Ricky Van Shelton
As I predicted in the previous edition, the stock market was on a roller coaster this week--up on good earnings reports early in the week and then tumbling on Friday with disappointments from Google, McDonald's and others. The Dow Industrials gained a meager 15 points this week.
"It's a shame", but one of my favorite sectors, agency mortgage real estate investment trusts (mReits), has experienced a great deal of volatility recently. Even stalwarts such as NLY and AGNC have been buffeted in the action. Through a bidding process, mReits purchase government guaranteed mortgages from Fannie Mae and Freddie Mac, profiting from the spread between the rate of return on the mortgage and the cost of shorter term borrowing. This has been very profitable for the past few years as mReit's cost of funds has dropped quicker than mortgage rates. However, three negative factors have contributed to upsetting this sector in the past two weeks. Strike One: the Federal Reserve's most recent round of quantitative easing (QE3) has introduced a new competitor into the mReit market which has driven mortgage rates/returns down: the Federal Reserve itself. That's right, the Fed is bidding on and purchasing more than $40billion of mortgages each month. Yikes! Strike Two: this unprecedented availability of lower interest rates has resulted in a wave of refinancing with higher yielding mortgages being repaid and replaced by lower yielding ones. Strike Three: these early repayments have reduced the book value of each mReit, and one should resist paying more than book value for any of these entities even though their yields are attractive above book value. The run on mReits in the past few weeks caused NLY to authorize a share buy back which has served to stabilize the price. Despite the disruption in the sector, however, mReits are not "out" of my list of favorites---they are still in my "ballgame." That said, I sold most of my mReit positions before heading to France and before the volatility began, but I will reinvest once the Fiscal Cliff is resolved.
Even though I have been taking profits and raising cash over the past few weeks in advance of the election and the Fiscal Cliff, I really like my pre-liqidation portfolio, and you can "tell my wife" that I will reconstruct it in time. "Variety" or I should say diversity being "the spice of life", my holdings were comprised in equal measure of Reits (mReits, commercial mortgage reits, conventional reits, etc. ), finance/insurance (bank preferreds, insurance preferreds, business development companies, etc. ) and oil/natural gas (major oil, small e&d companies, pipeline and storage mlp's, etc.) with lesser percentages in utilities, natural resources and health care. These sectors pay handsome dividends averaging over 7%. Noticeably absent are tech, industrials and retail which simply do not provide enough dividend income to suit my desires.
In the oil and natural gas space, I continue to love Linn Energy (LINE). This "upstream" company (upstream=exploration and development or e&d, midstream=pipelines and storage, downstream=refining and distribution) continues to do "swimmingly" well having appreciated 15% this year while still paying 7+%. What I like most is its hedging activity which guarantees a decent return for years to come. Last week, LINE, a limited partnership, issued a new security LNCO which trades as a common stock and thus is appropriate for investment by retirement vehicles. I highly recommend that you take a look at this. LINE has fulfilled this "poor boy's dreams" and LNCO can do the same for anyone's 401k, IRA or similar account.
As stated above, I am liquidating my holdings in an orderly fashion in advance of the Fiscal Cliff. This is earlier than I had planned but our trip to France provided a convenient starting point. I don't see the election providing a market stimulus no matter who wins. It is what happens in the days immediately following the election that will count. Stories out of D.C this week indicate that President Obama is not inclined to compromise on any of his proposals which means the Bush Tax Cuts will end---and that will not be good for the stock market. Stocks may become much cheaper in the weeks ahead, and I want plenty of cash available to take advantage of the dip. I don't see any scenario between now and year end in which stocks will escalate significantly. I am willing to forego one quarter's worth of dividends to avoid the pain. Let the elections take place, and let the Fiscal Cliff come or otherwise be resolved. Then and only then can we, like the Doors, "break on through to the other side."
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"If they don't win it's a shame
For it's one, two, three strikes you're out/ At the old ballgame"---lyrics from "Take Me Out to the Ballgame" by Norworth/VonTilzer
"Well variety is the spice of life
That's what the judge is gonna tell my wife"---lyrics from "Variety Is The Spice of Life" by the Doors (after Jim Morrison's death)
"Swimming upstream, swimming upstream
Fightin' every inch of the way for a poor boy's dream"---lyrics from "Swimming Upstream" by Ricky Van Shelton
As I predicted in the previous edition, the stock market was on a roller coaster this week--up on good earnings reports early in the week and then tumbling on Friday with disappointments from Google, McDonald's and others. The Dow Industrials gained a meager 15 points this week.
"It's a shame", but one of my favorite sectors, agency mortgage real estate investment trusts (mReits), has experienced a great deal of volatility recently. Even stalwarts such as NLY and AGNC have been buffeted in the action. Through a bidding process, mReits purchase government guaranteed mortgages from Fannie Mae and Freddie Mac, profiting from the spread between the rate of return on the mortgage and the cost of shorter term borrowing. This has been very profitable for the past few years as mReit's cost of funds has dropped quicker than mortgage rates. However, three negative factors have contributed to upsetting this sector in the past two weeks. Strike One: the Federal Reserve's most recent round of quantitative easing (QE3) has introduced a new competitor into the mReit market which has driven mortgage rates/returns down: the Federal Reserve itself. That's right, the Fed is bidding on and purchasing more than $40billion of mortgages each month. Yikes! Strike Two: this unprecedented availability of lower interest rates has resulted in a wave of refinancing with higher yielding mortgages being repaid and replaced by lower yielding ones. Strike Three: these early repayments have reduced the book value of each mReit, and one should resist paying more than book value for any of these entities even though their yields are attractive above book value. The run on mReits in the past few weeks caused NLY to authorize a share buy back which has served to stabilize the price. Despite the disruption in the sector, however, mReits are not "out" of my list of favorites---they are still in my "ballgame." That said, I sold most of my mReit positions before heading to France and before the volatility began, but I will reinvest once the Fiscal Cliff is resolved.
Even though I have been taking profits and raising cash over the past few weeks in advance of the election and the Fiscal Cliff, I really like my pre-liqidation portfolio, and you can "tell my wife" that I will reconstruct it in time. "Variety" or I should say diversity being "the spice of life", my holdings were comprised in equal measure of Reits (mReits, commercial mortgage reits, conventional reits, etc. ), finance/insurance (bank preferreds, insurance preferreds, business development companies, etc. ) and oil/natural gas (major oil, small e&d companies, pipeline and storage mlp's, etc.) with lesser percentages in utilities, natural resources and health care. These sectors pay handsome dividends averaging over 7%. Noticeably absent are tech, industrials and retail which simply do not provide enough dividend income to suit my desires.
In the oil and natural gas space, I continue to love Linn Energy (LINE). This "upstream" company (upstream=exploration and development or e&d, midstream=pipelines and storage, downstream=refining and distribution) continues to do "swimmingly" well having appreciated 15% this year while still paying 7+%. What I like most is its hedging activity which guarantees a decent return for years to come. Last week, LINE, a limited partnership, issued a new security LNCO which trades as a common stock and thus is appropriate for investment by retirement vehicles. I highly recommend that you take a look at this. LINE has fulfilled this "poor boy's dreams" and LNCO can do the same for anyone's 401k, IRA or similar account.
As stated above, I am liquidating my holdings in an orderly fashion in advance of the Fiscal Cliff. This is earlier than I had planned but our trip to France provided a convenient starting point. I don't see the election providing a market stimulus no matter who wins. It is what happens in the days immediately following the election that will count. Stories out of D.C this week indicate that President Obama is not inclined to compromise on any of his proposals which means the Bush Tax Cuts will end---and that will not be good for the stock market. Stocks may become much cheaper in the weeks ahead, and I want plenty of cash available to take advantage of the dip. I don't see any scenario between now and year end in which stocks will escalate significantly. I am willing to forego one quarter's worth of dividends to avoid the pain. Let the elections take place, and let the Fiscal Cliff come or otherwise be resolved. Then and only then can we, like the Doors, "break on through to the other side."
Saturday, October 13, 2012
October 13, 2012 Wear Your Love Like Heaven
Risk/Reward Vol. 139
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"You've got to pick up every stitch/Beatniks are out to make it rich
Oh no, must be the season of the witch/Must be the season of the witch"---lyrics from "Season of the Witch" by Donovan
"Head under water and they tell me/To breathe easy for a while
The breathing's getting harder/Even I know this"---lyrics from "Love Song" by Sara Bareilles
"I'll tell you something/ That Jack, he is a banker and Jane she is a clerk
And both of them save their money/When they come home from work
Sweet Jane/Sweet Jane"---lyrics from "Sweet Jane" by Lou Reed
With third quarter earnings reports (and future guidance) beginning this week, we are in "the season of the witch"---or should I say the season of the which. Which will it be? A season in which earnings propel the market upward--- one in which investors can "pick up every stitch" and even "beatniks get rich?" Or one in which lower earnings drag the market down? I look for a few weeks of roller coaster performance with individual stock fundamentals holding sway. That said, the commentators believe we are in for disappointment. This week was disappointing for sure, with the Dow Jones Industrial Average falling 282 points. Accordingly, I have not redeployed the cash that I raised before leaving for Europe and have sold more in the interim.
When I do redeploy, "I know this": I will be reinvesting in the preferred shares of commercial mortgage real estate investment trusts ("cmReits") like NRFpA or B and RASpA or B. Over the next 5 years, $2 trillion of commercial real estate mortgages become due and of those, $1trillion are "under water"---that is the value of the real estate is worth less than the balance due on the mortgage. Banks will not renew these obligations, many of which they have had to write down. But commercial real estate owners can "breathe easy for a while" because into this financing void have ridden cmREITS, pools of money, the managers of which know how to underwrite sophisticated refinancings. And there are plenty of opportunities. Take a look at the number of new offerings listed on www.quantumonline.com .
Lastly, I bid farewell to one of the most astute investors that I have ever met, my mother in law, "Sweet Jane" Holt. Widowed at an early age, Jane re-entered the work force after a 20 year hiatus, serving as a member of the administrative staff at Park Tudor School for 17 years. During that time, Jane provided for her children and maintained a series of beautiful homes---all the while saving and investing, in homage to one the mantras of her generation: "don't ever be a financial burden to your children." In retirement, Jane travelled the world and during the last eight years of her life lived in a lovely apartment at Hoosier Village---all the while embodying another mantra of her generation: "never invade principal." I saw her portfolio for the first time yesterday and was impressed by its construction and diversity. I only wish she would have been more open with her investment philosophy, but modesty prevented her from doing so.
In the spring of 1968, Jane and Jim Holt (along with Betty and Jack Busch) chaperoned the North Central High School Junior Prom. The theme of the Prom was the title of a popular song at the time by Donovan, "Wear Your Love Like Heaven." Until this week, I thought this was the most insipid prom theme I had ever encountered. But yesterday, I read the lyrics. I now see the song as a musical picture, a picture of Jane Holt standing on the porch of her cottage in Linden Hills gazing westward at the sunset (the most beautiful in the world):
"Color in sky prussian blue/Scarlet fleece changes hue
Crimson ball sinks from view/Wear your love like heaven, wear your love like heaven."
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"You've got to pick up every stitch/Beatniks are out to make it rich
Oh no, must be the season of the witch/Must be the season of the witch"---lyrics from "Season of the Witch" by Donovan
"Head under water and they tell me/To breathe easy for a while
The breathing's getting harder/Even I know this"---lyrics from "Love Song" by Sara Bareilles
"I'll tell you something/ That Jack, he is a banker and Jane she is a clerk
And both of them save their money/When they come home from work
Sweet Jane/Sweet Jane"---lyrics from "Sweet Jane" by Lou Reed
With third quarter earnings reports (and future guidance) beginning this week, we are in "the season of the witch"---or should I say the season of the which. Which will it be? A season in which earnings propel the market upward--- one in which investors can "pick up every stitch" and even "beatniks get rich?" Or one in which lower earnings drag the market down? I look for a few weeks of roller coaster performance with individual stock fundamentals holding sway. That said, the commentators believe we are in for disappointment. This week was disappointing for sure, with the Dow Jones Industrial Average falling 282 points. Accordingly, I have not redeployed the cash that I raised before leaving for Europe and have sold more in the interim.
When I do redeploy, "I know this": I will be reinvesting in the preferred shares of commercial mortgage real estate investment trusts ("cmReits") like NRFpA or B and RASpA or B. Over the next 5 years, $2 trillion of commercial real estate mortgages become due and of those, $1trillion are "under water"---that is the value of the real estate is worth less than the balance due on the mortgage. Banks will not renew these obligations, many of which they have had to write down. But commercial real estate owners can "breathe easy for a while" because into this financing void have ridden cmREITS, pools of money, the managers of which know how to underwrite sophisticated refinancings. And there are plenty of opportunities. Take a look at the number of new offerings listed on www.quantumonline.com .
Lastly, I bid farewell to one of the most astute investors that I have ever met, my mother in law, "Sweet Jane" Holt. Widowed at an early age, Jane re-entered the work force after a 20 year hiatus, serving as a member of the administrative staff at Park Tudor School for 17 years. During that time, Jane provided for her children and maintained a series of beautiful homes---all the while saving and investing, in homage to one the mantras of her generation: "don't ever be a financial burden to your children." In retirement, Jane travelled the world and during the last eight years of her life lived in a lovely apartment at Hoosier Village---all the while embodying another mantra of her generation: "never invade principal." I saw her portfolio for the first time yesterday and was impressed by its construction and diversity. I only wish she would have been more open with her investment philosophy, but modesty prevented her from doing so.
In the spring of 1968, Jane and Jim Holt (along with Betty and Jack Busch) chaperoned the North Central High School Junior Prom. The theme of the Prom was the title of a popular song at the time by Donovan, "Wear Your Love Like Heaven." Until this week, I thought this was the most insipid prom theme I had ever encountered. But yesterday, I read the lyrics. I now see the song as a musical picture, a picture of Jane Holt standing on the porch of her cottage in Linden Hills gazing westward at the sunset (the most beautiful in the world):
"Color in sky prussian blue/Scarlet fleece changes hue
Crimson ball sinks from view/Wear your love like heaven, wear your love like heaven."
Saturday, September 29, 2012
September 29, 2012 High Anxiety
Risk/Reward Vol. 138
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"You know it seems the more we talk about it/It only makes it worse to live without it
But let's talk about it/Wouldn't it be nice."---lyrics from "Wouldn't It Be Nice" by the Beach Boys
"I'm half a world/Half the world away
I had too much to drink/I didn't think
And I didn't think of you."---lyrics from "Half a World Away" by REM
"High anxiety, whenever you are near/High anxiety, it's you that I fear
My heart's afraid to fly/It crashed before
But then you take my hand/And my heart starts to soar"---lyrics from "High Anxiety" by Mel Brooks
Next week, the First Lady and I depart for a sojourn in Nice. I will be thousands of miles and several time zones removed from my trading desk. But, it does not "make it worse to live without it." "Let's talk about it". Armed with a third generation Kindle that has international capabilities and with wifi in the apartment we have let, I can do my daily reading (IBD, WSJ and Financial Times) and access all of my stock accounts. On our day trips throughout the Riviera, I will carry my iPad which has international 3G coverage thus allowing me to trade at a cafe, on the beach or in a casino. With a daughter, son in law and grandson in London, we have made the trip across the Pond many times, and this array of technology has allowed me to buy and sell seamlessly. But, "wouldn't it be Nice" not to worry about the market ?
Yes. So this trip, "half a world away", I decided to halve my portfolio. "I don't want to think, and I want too much to drink." And this is how I did it---painlessly. Half (actually about 40%) of my tradable portfolio is in self directed retirement accounts (IRA's or a 401k). Income and capital gains in these accounts are not taxed until withdrawal, so they make excellent vehicles for holding high yielding securities that are not otherwise tax advantaged such as real estate investment trusts, oil trusts, exchange traded debt and various closed end funds (but not master limited partnerships). Having already reaped this quarter's dividends, I sold these holdings after Thursday's move upward, with no tax consequence. My only potential loss is an uptick in the market in the next ten days or so. When I return, I can repurchase any or all of them with nothing lost other than $7 in selling commissions and $7 in repurchasing commissions. I am looking forward to some carefree REM.
Frankly, I may have pruned my holdings even if I were staying Stateside. With last week's riots in Spain, with labor unrest at the Foxconn (Apple) plant in China, with the Dow heading lower in 5 of the last 6 trading days, with Israel and Iran no closer to ending a nuclear standoff and with threats from both sides of the aisle that Congress may actually stalemate us over the Fiscal Cliff , I have "High Anxiety". Although "my heart is still not afraid", this week I sensed more "fear" in the market---the kind that I sensed when it "crashed before." I certainly do not believe that the market "will soar"---at least not while I am gone. And I am not alone. One longtime reader and a person whose investing acumen I admire emailed me this week that he had exited.
Not counting my spouse-imposed 25% cash cushion, I am 60% invested. I am heeding advice from that noted philosopher, Mel Brooks who penned:
"Hope for the best/Expect the worse"---lyric from "The Twelve Chairs"
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"You know it seems the more we talk about it/It only makes it worse to live without it
But let's talk about it/Wouldn't it be nice."---lyrics from "Wouldn't It Be Nice" by the Beach Boys
"I'm half a world/Half the world away
I had too much to drink/I didn't think
And I didn't think of you."---lyrics from "Half a World Away" by REM
"High anxiety, whenever you are near/High anxiety, it's you that I fear
My heart's afraid to fly/It crashed before
But then you take my hand/And my heart starts to soar"---lyrics from "High Anxiety" by Mel Brooks
Next week, the First Lady and I depart for a sojourn in Nice. I will be thousands of miles and several time zones removed from my trading desk. But, it does not "make it worse to live without it." "Let's talk about it". Armed with a third generation Kindle that has international capabilities and with wifi in the apartment we have let, I can do my daily reading (IBD, WSJ and Financial Times) and access all of my stock accounts. On our day trips throughout the Riviera, I will carry my iPad which has international 3G coverage thus allowing me to trade at a cafe, on the beach or in a casino. With a daughter, son in law and grandson in London, we have made the trip across the Pond many times, and this array of technology has allowed me to buy and sell seamlessly. But, "wouldn't it be Nice" not to worry about the market ?
Yes. So this trip, "half a world away", I decided to halve my portfolio. "I don't want to think, and I want too much to drink." And this is how I did it---painlessly. Half (actually about 40%) of my tradable portfolio is in self directed retirement accounts (IRA's or a 401k). Income and capital gains in these accounts are not taxed until withdrawal, so they make excellent vehicles for holding high yielding securities that are not otherwise tax advantaged such as real estate investment trusts, oil trusts, exchange traded debt and various closed end funds (but not master limited partnerships). Having already reaped this quarter's dividends, I sold these holdings after Thursday's move upward, with no tax consequence. My only potential loss is an uptick in the market in the next ten days or so. When I return, I can repurchase any or all of them with nothing lost other than $7 in selling commissions and $7 in repurchasing commissions. I am looking forward to some carefree REM.
Frankly, I may have pruned my holdings even if I were staying Stateside. With last week's riots in Spain, with labor unrest at the Foxconn (Apple) plant in China, with the Dow heading lower in 5 of the last 6 trading days, with Israel and Iran no closer to ending a nuclear standoff and with threats from both sides of the aisle that Congress may actually stalemate us over the Fiscal Cliff , I have "High Anxiety". Although "my heart is still not afraid", this week I sensed more "fear" in the market---the kind that I sensed when it "crashed before." I certainly do not believe that the market "will soar"---at least not while I am gone. And I am not alone. One longtime reader and a person whose investing acumen I admire emailed me this week that he had exited.
Not counting my spouse-imposed 25% cash cushion, I am 60% invested. I am heeding advice from that noted philosopher, Mel Brooks who penned:
"Hope for the best/Expect the worse"---lyric from "The Twelve Chairs"
Saturday, September 22, 2012
September 22, 2012 Gangnam Style
Risk/Reward Vol. 137
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"We shall survive, let us take ourselves along/Where we fight our parents out in the streets
To find out who's right and who's wrong/B-B-B Benny and the Jets"---lyrics from "Benny and the Jets" by Elton John
"In New York, concrete jungle/ Where dreams are made of
There's nothing you can't do/Now you're in New York"---lyrics from "Empire State of Mind" by JayZ
"Bubbles, bubbles/I wish my name was Bubbles, Bubbles
I wish my friends were bubbles, bubbles/I go real far on bubbles, bubbles"---lyrics from "Bubbles" by Linkin Park
As I have detailed over the past few weeks, two of the three economic conditions necessary for a stable stock market appear to be developing: 1) a plan to address sovereign debt in the Eurozone and 2) a stimulus program in China. The third condition, a resolution of the impending U. S. Fiscal Cliff, likely will develop before year end, but its contours (left, right or more likely a postponed decision) will not be known until after our elections in November. My concerns now run to possible exogenous events that could disrupt the world economy---and number one on my worry list is "B-B-B Benny and his Jets". Prime Minister Benjamin Netanyahu has proclaimed that in order for Israel to "survive" it must deliver a debilitating blow to Iran's nuclear capability. Some wags are predicting a strike by Israeli "Jets" sometime before our elections, a move that would force President Obama's support so as not to alienate Jewish voters. Whether you believe such a strike is "right" or "wrong", one consequence could be a blocking of the 21 mile wide Strait of Hormuz through which passes each day 17million barrels of oil, 20% of the world's daily consumption. Disruption of that flow would wreak havoc on the world's economy and would cause stock markets to plummet. This is a real concern, but is not one that has caused me to exit--yet.
You don't have to be JayZ or Carrie Bradshaw to know "what the dreams of real New Yorkers are made of": finding a rent controlled/rent stabilized apartment in "the concrete jungle". Once located, tenants rarely leave. Consequently, underwriting mortgages on rent controlled buildings is a safe, if boring way for banks to earn interest. And the recognized leader in underwriting rent controlled building mortgages is New York Community Bank (NYB), the nation's 21st largest bank. Sixty eight percent of its loan portfolio is multifamily residential building mortgages, most of which are rent controlled. But, what makes NYB attractive to me is its 7.2% dividend. Moreover, it has appreciated 7.8% since I bought it on July 26th.
Speaking of real estate, is anyone else concerned that cheap mortgage credit is creating another real estate bubble? Oh, don't get me wrong. So far this "bubble is my friend", and I "have gone real far" toward financial independence on this "bubble". Dividends from those real estate investment trusts that prosper in a low interest rate environment have rewarded me handsomely. I especially like the preferred stock of those REITs, the dividends on which must be paid in full before the even higher yielding (and less consistent) common stock dividends can be distributed. I am so attracted to this "bubble" that I am overweight in this sector. Under traditional rules of diversification, I would be deemed foolish. I take solace in the fact that I am vigilant to a fault so that at the slightest hint that any portion of this sector is weakening I can exit. For example, I am currently watching closely the impact of the Federal Reserve' s recently announced mortgage buying program (QE3) on agency mortgage reits (AGNC, NLY, etc.) which could be adversely impacted by a plethora of refinancing. I do not recommend this overweighting for the less diligent.
Despite the negative tenor of this article, my portfolio (a list of which will be provided under cover of a separate email) just experienced a great week, performing far better than the market in general. Indeed, the stable to upward performance of the market since my re-entry in June has provided me a welcome "Psy" of relief from the turbulence that dominated the first several months of the year. At this rate (my portfolio averages 7.5+% in dividends), even in retirement I will be able to afford my "sexy lady" and to otherwise lead my life-- "Gangnam style."
Sunday, September 16, 2012
September 15, 2012 The Dreamers
Risk/Reward Vol. 136
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"On a day like today/We pass the time away
Writing love letters/ In the sand."---lyrics from "Love Letters in the Sand" sung by Pat Boone
"Kick your feet up/Swing your arms up too
Move your head both ways/Like you see me do
Then jump three feet to the swinging beat
Do the Freddie/Do the Freddie"---lyrics from "Do the Freddie" by Freddie and the Dreamers
"It's like thunder, lightning
The way you love me is frightening
I'd better knock, on wood, Baby"---lyrics from "Knock on Wood" sung by Eddie Floyd
With its high court affirming Germany's participation in the Eurozone bail out (at least so far) and Federal Reserve Chairman Ben Bernanke announcing an open ended, $40billion/month round of quantitative easing (QE3), the Dow Jones Industrial Average (DJIA) shot skyward, ending the week up 287 points. The DJIA closed on Friday at 13,593, its highest point since December, 2007. The events necessary to underpin a rising stock market are coming to pass with two more left to go: 1) further Chinese stimulus and 2) resolution of the U.S. Fiscal Cliff, both of which I have discussed extensively in previous editions. Look for announcements relating to the former after next month's Chinese Communist Party Congress. The latter will not be addressed until after our elections. If these two events happen, and no major disaster occurs (e.g. Israel strikes Iran), I look for a stable to upwardly moving stock market for the remainder of the year. As the Eurozone and the US compete in a contest to determine who can debase its currency more, staying in cash looks to be the riskiest of all investment strategies no matter how the Fiscal Cliff is resolved. Resolving the Fiscal Cliff is what matters--no matter who sits in the White House. In the interim and assuming a resolution is reached, dividend paying stocks should do well as yield hungry investors seek refuge from low interest bonds. Inflation hedges such as gold and commodities should shine as well.
From 2006 to 2009, I commuted each week to Eau Claire: from Milwaukee by car; from South Haven by airplane through Minneapolis. I often "passed the time away" by marvelling at the beauty of Wisconsin's rolling landscape, especially that between Mauston and Menomonie. Little did I realized that underneath those mounds lay "love letters" in the form of Northern White "sand". These monocrystals found just below the fertile top soil are the perfect proppant or medium for fracking, that newly exploited horizontal drilling process that, since 2008, has revolutionized oil and gas production the the United States. Indeed, in the past 3 years, the number of frac sand mines (approximately 90) has doubled in Wisconsin, the Saudi Arabia of Northern White. Few sand mining companies are available for investment, but last month HiCrush Partners (HCLP) offered partnership units in its Wyeville, Wisconsin operation to the public. I read the prospectus and was impressed by the likelihood that it will exceed its projected 7.8% dividend for many years to come. But, what prompted me to buy was the fact that Kayne Anderson Capital Advisors, the saviest of all of the oil and gas investment fund managers, purchased 15% of the units.
Speaking of fracking, the year to date performance of Indianapolis based, Calumet Specialty Products, LP (CLMT) ( founded by none other than my high school classmate, Fred Fehsenfeld) is reason to "kick your feet up, and to swing your arms up too". This refiner of specialty petroleum products (plastics, cosmetic bases, crayons, ski wax, jet fuel etc.) has taken advantage of inexpensive oil and natural gas liquids emanating from the fracking fields to improve its production and profits. The shares I bought last January would have appreciated 34% if I had not sold them (for a profit) in May, and have appreciated 14% since I repurchased them in July---all the while paying an 8%+ dividend. CLMT is a good reason "to jump three feet to the swinging beat." Thank you, Mr. Fehsenfeld! In your honor, I "Do the Freddie".
In the aftermath of the 2008-2009 financial crisis, commercial real estate (CRE) was in the dumpster. As a result, banks eschewed underwriting CRE mortgages as part of their own de-leveraging. Hearing opportunity "knock", several savvy investment funds formed commercial real estate mortgage investment trusts (mREITS) as quickly as "thunder" follows "lightning." The largest and one of the most successful of these post 2008 mREITS is Starwood Property Trust formed by Barry Sternlicht of Starwood Hotels fame. Recently, STWD has been underwriting commercial mortgages in Europe to great advantage which leads me to believe it will increase its already impressive 7.4% dividend.
This week, in addition to HCLP and STWD, I added more AAPL in advance of the iPhone 5 launch and more Vanguard Natural Resources (VNR) on a secondary offering dip. I also initiated a position in a newly issued preferred stock of Annaly Capital. In anticipation of a rise in commodity prices, I bought shares in a closed end fund, BCF, which holds positions in all of the major commodity players. Frankly, I am sorry that I sold my iron ore mining stocks (CLF, RIO and BHP) two weeks ago. Proof again that timing is everything.
The stock market has performed beyond expectations since my re-entry in June, especially this week thanks to the QE3 "sugar high". Although I remain cautious and ready to exit if necessary, I must admit that today, when I think of the stock market, I channel Freddie and the Dreamers who sang:
"I'm telling you now/I'm telling you right away
I'll be staying for many a day/I'm in love with you now."
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"On a day like today/We pass the time away
Writing love letters/ In the sand."---lyrics from "Love Letters in the Sand" sung by Pat Boone
"Kick your feet up/Swing your arms up too
Move your head both ways/Like you see me do
Then jump three feet to the swinging beat
Do the Freddie/Do the Freddie"---lyrics from "Do the Freddie" by Freddie and the Dreamers
"It's like thunder, lightning
The way you love me is frightening
I'd better knock, on wood, Baby"---lyrics from "Knock on Wood" sung by Eddie Floyd
With its high court affirming Germany's participation in the Eurozone bail out (at least so far) and Federal Reserve Chairman Ben Bernanke announcing an open ended, $40billion/month round of quantitative easing (QE3), the Dow Jones Industrial Average (DJIA) shot skyward, ending the week up 287 points. The DJIA closed on Friday at 13,593, its highest point since December, 2007. The events necessary to underpin a rising stock market are coming to pass with two more left to go: 1) further Chinese stimulus and 2) resolution of the U.S. Fiscal Cliff, both of which I have discussed extensively in previous editions. Look for announcements relating to the former after next month's Chinese Communist Party Congress. The latter will not be addressed until after our elections. If these two events happen, and no major disaster occurs (e.g. Israel strikes Iran), I look for a stable to upwardly moving stock market for the remainder of the year. As the Eurozone and the US compete in a contest to determine who can debase its currency more, staying in cash looks to be the riskiest of all investment strategies no matter how the Fiscal Cliff is resolved. Resolving the Fiscal Cliff is what matters--no matter who sits in the White House. In the interim and assuming a resolution is reached, dividend paying stocks should do well as yield hungry investors seek refuge from low interest bonds. Inflation hedges such as gold and commodities should shine as well.
From 2006 to 2009, I commuted each week to Eau Claire: from Milwaukee by car; from South Haven by airplane through Minneapolis. I often "passed the time away" by marvelling at the beauty of Wisconsin's rolling landscape, especially that between Mauston and Menomonie. Little did I realized that underneath those mounds lay "love letters" in the form of Northern White "sand". These monocrystals found just below the fertile top soil are the perfect proppant or medium for fracking, that newly exploited horizontal drilling process that, since 2008, has revolutionized oil and gas production the the United States. Indeed, in the past 3 years, the number of frac sand mines (approximately 90) has doubled in Wisconsin, the Saudi Arabia of Northern White. Few sand mining companies are available for investment, but last month HiCrush Partners (HCLP) offered partnership units in its Wyeville, Wisconsin operation to the public. I read the prospectus and was impressed by the likelihood that it will exceed its projected 7.8% dividend for many years to come. But, what prompted me to buy was the fact that Kayne Anderson Capital Advisors, the saviest of all of the oil and gas investment fund managers, purchased 15% of the units.
Speaking of fracking, the year to date performance of Indianapolis based, Calumet Specialty Products, LP (CLMT) ( founded by none other than my high school classmate, Fred Fehsenfeld) is reason to "kick your feet up, and to swing your arms up too". This refiner of specialty petroleum products (plastics, cosmetic bases, crayons, ski wax, jet fuel etc.) has taken advantage of inexpensive oil and natural gas liquids emanating from the fracking fields to improve its production and profits. The shares I bought last January would have appreciated 34% if I had not sold them (for a profit) in May, and have appreciated 14% since I repurchased them in July---all the while paying an 8%+ dividend. CLMT is a good reason "to jump three feet to the swinging beat." Thank you, Mr. Fehsenfeld! In your honor, I "Do the Freddie".
In the aftermath of the 2008-2009 financial crisis, commercial real estate (CRE) was in the dumpster. As a result, banks eschewed underwriting CRE mortgages as part of their own de-leveraging. Hearing opportunity "knock", several savvy investment funds formed commercial real estate mortgage investment trusts (mREITS) as quickly as "thunder" follows "lightning." The largest and one of the most successful of these post 2008 mREITS is Starwood Property Trust formed by Barry Sternlicht of Starwood Hotels fame. Recently, STWD has been underwriting commercial mortgages in Europe to great advantage which leads me to believe it will increase its already impressive 7.4% dividend.
This week, in addition to HCLP and STWD, I added more AAPL in advance of the iPhone 5 launch and more Vanguard Natural Resources (VNR) on a secondary offering dip. I also initiated a position in a newly issued preferred stock of Annaly Capital. In anticipation of a rise in commodity prices, I bought shares in a closed end fund, BCF, which holds positions in all of the major commodity players. Frankly, I am sorry that I sold my iron ore mining stocks (CLF, RIO and BHP) two weeks ago. Proof again that timing is everything.
The stock market has performed beyond expectations since my re-entry in June, especially this week thanks to the QE3 "sugar high". Although I remain cautious and ready to exit if necessary, I must admit that today, when I think of the stock market, I channel Freddie and the Dreamers who sang:
"I'm telling you now/I'm telling you right away
I'll be staying for many a day/I'm in love with you now."
Saturday, September 8, 2012
September 8, 2011 Right to Party
Risk/Reward Vol. 135
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Singin' songs loud on the way to the game/Wishin' all the things could still be the same
Chinese home runs over the backstop/Kakua on the ball and soda pop"---lyrics from "Mudfootball" by Jack Johnson
"Overture, curtains, lights/This is it the night of nights
No more rehearsing/And nursing a part"---lyrics from "This Is It", the Bugs Bunny Overture
"A transition is occurring/And I am not blind
As the pendulum swings/A new age we enter"---lyrics from "Update" by the Beastie Boys
"Overture, please". On Thursday, Mario Draghi, the president of the European Central Bank (ECB), stole the show by announcing (finally!!!) that the ECB was prepared, on its own, to buy sovereign debt from troubled nations (read, Spain and Italy) under its inherent authority to preserve the Euro. No need to seek permission from Germany; no handwringing with the French. So long as each country abides by fiscal promises to be made to the International Monetary Fund and the European Commission, the ECB will buy unlimited amounts of such bonds. In the words of Mr. Draghi, the ECB is now the official "backstop" against a monetary collapse of the Eurozone. Immediately, the stock markets were "singin' loud on the way" to a huge day. By the close on Thursday, the Dow Jones Industrial Average reached a point it had not seen since December, 2007! Buyers believed "all things could still be the same" as back then--before the Lehman Brothers meltdown. Let's all hope that the ECB's commitment is not a "Chinese home run" (slang for a foul ball hit over the backstop).
The ECB's bond buying commitiment is one of the three legs necessary to support a healthy stock market and about which I have been writing since June. One of the others, a massive Chinese stimulus package, likely will not be forthcoming before the Communist Party Congress scheduled for mid October ( A $150billion infrastructure program was announced yesterday, however) As for the third leg, resolution of the U.S. Fiscal Cliff, nothing will occur until after our November elections. One word of caution is warranted in the interim. If the stock markets continue to shine, the Federal Reserve may hold back next week on an anticipated quantitative easing (QE) program despite the disappointing jobs numbers issued yesterday. If Fed Chair Bernanke does not pull the QE trigger, the stock market could be negatively impacted, but not enough to warrant an exit. Let's hope for some more QE and pray that some extragenous event (e.g. Israel bombing Iran or the German Supreme Court declaring the ECB bailout unconstitutional) does not disrupt this great run.
Following on a theme I addressed last week, the information available on the Web is truly amazing. I often access the homepage of a company the stock of which I am contemplating purchasing, click on the "Investor Relations" tab and look for "Presentations". These powerpoint or pdf card decks are as illuminating as an "overture, the opening of curtains or the shining of lights". Oh, management has clearly "rehearsed and nursed" these slides, but they are extremely informative, nevertheless.
I took advantage of dips in the prices of MHRpD, NS, EEP and TAC occasioned by secondary offerings to buy more of each this week. So, John, how does one know about these secondary offerings in time to take advantage of the dips. Easy. I list all of my stocks in the "Portfolio" section of SeekingAlpha.com and have "Updates" sent to my email account automatically. Thus, when "a transition is occurring, I am not blind." I buy "as the pendulum swings" to a favorable price.
One reader emailed me this week asking how my taxman keeps his sanity. Good question. Before anyone embarks on an aggressive program like I have adopted, one must identify a competent tax person who is familiar with master limited partnerships, real estate investment trusts, oil trusts and business development companies. Ironically, I received my 2011 tax returns this week (I always get an extension). They were 1/2" thick! Yes, Dear Readers, we need to simplify the tax code. Oh, and as for the cost---about the same as our anniversary dinner at Charley Trotter's. Well worth it on both accounts.
It was a great week to be invested, with the Dow Jones Industrial Average ending up 216 points. Standing firm in these uncertain times tries one's resolve, but so far, it has been worth it. Remember what the Beastie Boys preach:
"You have to fight for your right to party."
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Singin' songs loud on the way to the game/Wishin' all the things could still be the same
Chinese home runs over the backstop/Kakua on the ball and soda pop"---lyrics from "Mudfootball" by Jack Johnson
"Overture, curtains, lights/This is it the night of nights
No more rehearsing/And nursing a part"---lyrics from "This Is It", the Bugs Bunny Overture
"A transition is occurring/And I am not blind
As the pendulum swings/A new age we enter"---lyrics from "Update" by the Beastie Boys
"Overture, please". On Thursday, Mario Draghi, the president of the European Central Bank (ECB), stole the show by announcing (finally!!!) that the ECB was prepared, on its own, to buy sovereign debt from troubled nations (read, Spain and Italy) under its inherent authority to preserve the Euro. No need to seek permission from Germany; no handwringing with the French. So long as each country abides by fiscal promises to be made to the International Monetary Fund and the European Commission, the ECB will buy unlimited amounts of such bonds. In the words of Mr. Draghi, the ECB is now the official "backstop" against a monetary collapse of the Eurozone. Immediately, the stock markets were "singin' loud on the way" to a huge day. By the close on Thursday, the Dow Jones Industrial Average reached a point it had not seen since December, 2007! Buyers believed "all things could still be the same" as back then--before the Lehman Brothers meltdown. Let's all hope that the ECB's commitment is not a "Chinese home run" (slang for a foul ball hit over the backstop).
The ECB's bond buying commitiment is one of the three legs necessary to support a healthy stock market and about which I have been writing since June. One of the others, a massive Chinese stimulus package, likely will not be forthcoming before the Communist Party Congress scheduled for mid October ( A $150billion infrastructure program was announced yesterday, however) As for the third leg, resolution of the U.S. Fiscal Cliff, nothing will occur until after our November elections. One word of caution is warranted in the interim. If the stock markets continue to shine, the Federal Reserve may hold back next week on an anticipated quantitative easing (QE) program despite the disappointing jobs numbers issued yesterday. If Fed Chair Bernanke does not pull the QE trigger, the stock market could be negatively impacted, but not enough to warrant an exit. Let's hope for some more QE and pray that some extragenous event (e.g. Israel bombing Iran or the German Supreme Court declaring the ECB bailout unconstitutional) does not disrupt this great run.
Following on a theme I addressed last week, the information available on the Web is truly amazing. I often access the homepage of a company the stock of which I am contemplating purchasing, click on the "Investor Relations" tab and look for "Presentations". These powerpoint or pdf card decks are as illuminating as an "overture, the opening of curtains or the shining of lights". Oh, management has clearly "rehearsed and nursed" these slides, but they are extremely informative, nevertheless.
I took advantage of dips in the prices of MHRpD, NS, EEP and TAC occasioned by secondary offerings to buy more of each this week. So, John, how does one know about these secondary offerings in time to take advantage of the dips. Easy. I list all of my stocks in the "Portfolio" section of SeekingAlpha.com and have "Updates" sent to my email account automatically. Thus, when "a transition is occurring, I am not blind." I buy "as the pendulum swings" to a favorable price.
One reader emailed me this week asking how my taxman keeps his sanity. Good question. Before anyone embarks on an aggressive program like I have adopted, one must identify a competent tax person who is familiar with master limited partnerships, real estate investment trusts, oil trusts and business development companies. Ironically, I received my 2011 tax returns this week (I always get an extension). They were 1/2" thick! Yes, Dear Readers, we need to simplify the tax code. Oh, and as for the cost---about the same as our anniversary dinner at Charley Trotter's. Well worth it on both accounts.
It was a great week to be invested, with the Dow Jones Industrial Average ending up 216 points. Standing firm in these uncertain times tries one's resolve, but so far, it has been worth it. Remember what the Beastie Boys preach:
"You have to fight for your right to party."
Saturday, September 1, 2012
September 1, 2011 Dylan
Risk/Reward Vol. 134
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"But you tell me/Over and over and over again, my friend
That you don't believe/We're on the eve of destruction"---lyrics from "Eve of Destruction" by Barry McGuire
"Some speak of the future/My love she speaks softly
She knows that there's no success like failure/And that failure's no success at all"---lyrics from "Love Minus Zero" by Bob Dylan
"Insight to what's going on/Information keeps us strong
What you don't know can hurt you bad/Take it from me you'll be walkin' around sad"---lyrics from "The Knowledge" sung by Janet Jackson
Faced with the Fiscal Cliff, the Eurozone debt crisis and the slowdown in China, several pundits, wags and commentators "believe/We're on the eve of destruction." But as I have written "over and over and over again, my friend", I believe salvation is available through a Fiscal Cliff compromise, further loosening of monetary policy here (quantitative easing) and in Europe (bond buying) and an infrastructure spending spree in China. So, when Fed Chairman Ben Bernanke, in a much anticipated speech at Jackson Hole, WY on Friday, did not commit firmly that quantitative easing was near, I thought the bottom would fall out of the stock market. I was wrong---it did not. The Dow Jones Industrial Average gained 90 points on Friday and closed the week down 66 points.
Well, as long as I am confessing error, I might as well acknowledge another miscalculation---iron ore. Just two weeks ago, I was touting Cliffs Natural Resources (CLF) and BHPBilliton (BHP). It was my conclusion that both had bottomed and would not fall further because of their healthy dividends. Boy, was I wrong, as both continued to plummet. But, as Bob Dylan wrote "there's no success like failure." What the hell does that mean, anyway? What does any Dylan lyric mean? I choose to believe that it means that we should learn from our failures. I learned--or should I say, relearned-- that I cannot and thus should not guess a bottom. Catch stars on the rise, not on the descent. I have no doubt that both of these stocks will rebound, just not now. I jumped too soon, and as Dylan says "failure's no success at all." What?
Well, as long as I am stuck in basketball analogies, let's talk about stock picking in general. Clearly, practice in picking stocks, like practice at the free throw line improves one's odds. But, practice does not make perfect in either pursuit. The average NBA player makes 75% of his free throws, and I bet that the average professional stock picker's odds aren't any better. Mine certainly are not, and I really work at it. That is why the first rule of stock picking is knowing when to sell a loser. My loss limit is 8%. In addition, to lock in profits, I adjust my 8% trigger upward if a stock appreciates significantly. In a world of $7 transaction costs, one need not absorb big losses---or forfeit big gains.
Ain't the information age wonderful! "Insight to what's going on" is literally at your fingertips via the internet. In the investing world, "what you don't know can hurt you bad", but with access to the web there is no excuse to "be walkin' around sad". The quality and the quantity of analysis on just one website, www.seekingalpha.com , is simply astounding, and there are several more sites of similar ilk. I peruse SeekingAlpha nightly, especially the tab entitled "Dividends and Income". It is the source of many of my investing ideas, and a reference I consult before every purchase.
In today's reality of depressed interest rates, achieving a decent return is hard work indeed. I long for the days of buy and hold, but alas I believe them to be gone--at least for now. Today, one simply can not afford to sit still. As Dylan wrote so many years ago,
"If your time to you is worth savin'/Then you better start swimmin'
Or you'll sink like a stone/For the times they are a changin'. "
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"But you tell me/Over and over and over again, my friend
That you don't believe/We're on the eve of destruction"---lyrics from "Eve of Destruction" by Barry McGuire
"Some speak of the future/My love she speaks softly
She knows that there's no success like failure/And that failure's no success at all"---lyrics from "Love Minus Zero" by Bob Dylan
"Insight to what's going on/Information keeps us strong
What you don't know can hurt you bad/Take it from me you'll be walkin' around sad"---lyrics from "The Knowledge" sung by Janet Jackson
Faced with the Fiscal Cliff, the Eurozone debt crisis and the slowdown in China, several pundits, wags and commentators "believe/We're on the eve of destruction." But as I have written "over and over and over again, my friend", I believe salvation is available through a Fiscal Cliff compromise, further loosening of monetary policy here (quantitative easing) and in Europe (bond buying) and an infrastructure spending spree in China. So, when Fed Chairman Ben Bernanke, in a much anticipated speech at Jackson Hole, WY on Friday, did not commit firmly that quantitative easing was near, I thought the bottom would fall out of the stock market. I was wrong---it did not. The Dow Jones Industrial Average gained 90 points on Friday and closed the week down 66 points.
Well, as long as I am confessing error, I might as well acknowledge another miscalculation---iron ore. Just two weeks ago, I was touting Cliffs Natural Resources (CLF) and BHPBilliton (BHP). It was my conclusion that both had bottomed and would not fall further because of their healthy dividends. Boy, was I wrong, as both continued to plummet. But, as Bob Dylan wrote "there's no success like failure." What the hell does that mean, anyway? What does any Dylan lyric mean? I choose to believe that it means that we should learn from our failures. I learned--or should I say, relearned-- that I cannot and thus should not guess a bottom. Catch stars on the rise, not on the descent. I have no doubt that both of these stocks will rebound, just not now. I jumped too soon, and as Dylan says "failure's no success at all." What?
Well, as long as I am stuck in basketball analogies, let's talk about stock picking in general. Clearly, practice in picking stocks, like practice at the free throw line improves one's odds. But, practice does not make perfect in either pursuit. The average NBA player makes 75% of his free throws, and I bet that the average professional stock picker's odds aren't any better. Mine certainly are not, and I really work at it. That is why the first rule of stock picking is knowing when to sell a loser. My loss limit is 8%. In addition, to lock in profits, I adjust my 8% trigger upward if a stock appreciates significantly. In a world of $7 transaction costs, one need not absorb big losses---or forfeit big gains.
Ain't the information age wonderful! "Insight to what's going on" is literally at your fingertips via the internet. In the investing world, "what you don't know can hurt you bad", but with access to the web there is no excuse to "be walkin' around sad". The quality and the quantity of analysis on just one website, www.seekingalpha.com , is simply astounding, and there are several more sites of similar ilk. I peruse SeekingAlpha nightly, especially the tab entitled "Dividends and Income". It is the source of many of my investing ideas, and a reference I consult before every purchase.
In today's reality of depressed interest rates, achieving a decent return is hard work indeed. I long for the days of buy and hold, but alas I believe them to be gone--at least for now. Today, one simply can not afford to sit still. As Dylan wrote so many years ago,
"If your time to you is worth savin'/Then you better start swimmin'
Or you'll sink like a stone/For the times they are a changin'. "
Saturday, August 25, 2012
August 25, 2012 Bright Eyes
Risk/Reward Vol. 133
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Turn around, every now and then I get a little bit nervous/That the best of all the years have gone by
Turn around Bright Eyes/Every now and then I fall apart."---lyrics from "Total Eclipse of the Sun" by Jim Steinman/Bonnie Tyler
"You think I'm your fool/Well you may just be right
Cause minute by minute by minute/ I keep holding on"---lyrics from "Minute by Minute" sung by the Doobie Brothers
"Let's get down to business/I don't got no time to play around
What is this, must be a circus in town/Let's shut down on these clowns"---lyrics from "Business" by Eminem
After six weeks of upward movement, the Dow Jones Industrial Average (DJIA) did a "turn around," ending the week down 118 points. Was this just a hot market catching its breath, something that happens "every now and then?" Or, should we be "a little bit nervous/That the best of all the years have gone by?" Will the market recover or will it "fall apart?" Let's take a look, Bright Eyes.
The week started well and by Tuesday mid morning the DJIA was coasting above its four year closing high. At first, for technical reasons, there was a pullback and then "minute by minute by minute" the bad news began to roll. Federal Reserve member, James Bullard, stated on CNBC that quantitative easing may not be so imminent. Then, the Congressional Budget Office revised its report on the impact of the Fiscal Cliff (expiration of the Bush tax cuts, sequestration of appropriations and end of extended unemployment benefits all scheduled to occur on January 1, 2013) concluding that absent legislative action the Cliff will result in a recession in 2013. HSBC reported that the slowdown in China was worse than had been reported. Iron ore, a bellwether of industrial output, fell to a four year low. All the while, uncertainty continued to reign in the still vacationing Eurozone. By the closing bell on Thursday, the DJIA stood at 13,057, some 269 points below its Tuesday mid day high. On Friday, a relief rally spurred by a letter from Chair Bernanke to Congress that Fed action is available if necessary added 100 points to the DJIA.
Through it all, even though "you may think me a fool (and you may just be right)", I "kept holding on". I continue to believe that recession remains the number one concern of world economic and political leaders and that eventually various forms of stimulus (quantitative easing and a resolution of the Fiscal Cliff by the US, sovereign bond purchases by the European Central Bank and infrastructure investment by China) will be instituted. We simply have not reached the requisite level of desperation yet. That said, I remain disciplined. When RIO approached my 8% loss limit, I sold it, unhesitatingly. And I will go to 100% cash if and when I conclude that any element of the above described stimulus is not forthcoming. We need all three major economies to act in order to avert a world wide recession.
In the meantime, I remain in search of yield. As reported earlier, one of my favorite high yield sectors is "business" development companies ("BDC's"). These are pools of money that finance the sale or restructuring of privately held, middle market companies through senior loans, mezzanine financing and equity investments. BDC's have been very active over the past few years as commercial banks have shied away from financing middle market transactions. The king of this sector is Ares Capital (ARCC) which just last week launched a secondary offering of its stock. These events are always good buying opportunities, but if you want to take advantage of them you "can't clown around". I didn't "play around" but "got down to business" and grabbed some shares at a very attractive price. I also loaded up on FGB, a closed end fund comprised of the shares of several high quality BDC's, the price of which became attractive after it went ex-dividend this week.
Also, for those in hunt of yield in the oil and gas exploration and development space, take a look at Vanguard Natural Resources (VNR), a smaller version of Linn Energy which like LINE employs a smart hedging strategy, but, even better than LINE, pays an 8+% annual dividend on a monthly basis.
I bought some AAPL stock on a pullback on Tuesday. By any measure, Apple is a very cheap stock even at my entry point of $657. I rode AAPL from $427 to $636 earlier this year. We will see what Friday's patent verdict and the upcoming debut of the I-phone 5 bring.
No doubt about it, this was an anxious week. And I am very mindful of Bonnie Tyler's advice about "Heartaches". Don't let them hit you "when it's too late"; don't let them "hit you when you're down". If I am wrong about the stimulus, I will exit. Such an exit will undoubtedly cause me heartache, but it will be assuaged by some profits, I assure you.
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Turn around, every now and then I get a little bit nervous/That the best of all the years have gone by
Turn around Bright Eyes/Every now and then I fall apart."---lyrics from "Total Eclipse of the Sun" by Jim Steinman/Bonnie Tyler
"You think I'm your fool/Well you may just be right
Cause minute by minute by minute/ I keep holding on"---lyrics from "Minute by Minute" sung by the Doobie Brothers
"Let's get down to business/I don't got no time to play around
What is this, must be a circus in town/Let's shut down on these clowns"---lyrics from "Business" by Eminem
After six weeks of upward movement, the Dow Jones Industrial Average (DJIA) did a "turn around," ending the week down 118 points. Was this just a hot market catching its breath, something that happens "every now and then?" Or, should we be "a little bit nervous/That the best of all the years have gone by?" Will the market recover or will it "fall apart?" Let's take a look, Bright Eyes.
The week started well and by Tuesday mid morning the DJIA was coasting above its four year closing high. At first, for technical reasons, there was a pullback and then "minute by minute by minute" the bad news began to roll. Federal Reserve member, James Bullard, stated on CNBC that quantitative easing may not be so imminent. Then, the Congressional Budget Office revised its report on the impact of the Fiscal Cliff (expiration of the Bush tax cuts, sequestration of appropriations and end of extended unemployment benefits all scheduled to occur on January 1, 2013) concluding that absent legislative action the Cliff will result in a recession in 2013. HSBC reported that the slowdown in China was worse than had been reported. Iron ore, a bellwether of industrial output, fell to a four year low. All the while, uncertainty continued to reign in the still vacationing Eurozone. By the closing bell on Thursday, the DJIA stood at 13,057, some 269 points below its Tuesday mid day high. On Friday, a relief rally spurred by a letter from Chair Bernanke to Congress that Fed action is available if necessary added 100 points to the DJIA.
Through it all, even though "you may think me a fool (and you may just be right)", I "kept holding on". I continue to believe that recession remains the number one concern of world economic and political leaders and that eventually various forms of stimulus (quantitative easing and a resolution of the Fiscal Cliff by the US, sovereign bond purchases by the European Central Bank and infrastructure investment by China) will be instituted. We simply have not reached the requisite level of desperation yet. That said, I remain disciplined. When RIO approached my 8% loss limit, I sold it, unhesitatingly. And I will go to 100% cash if and when I conclude that any element of the above described stimulus is not forthcoming. We need all three major economies to act in order to avert a world wide recession.
In the meantime, I remain in search of yield. As reported earlier, one of my favorite high yield sectors is "business" development companies ("BDC's"). These are pools of money that finance the sale or restructuring of privately held, middle market companies through senior loans, mezzanine financing and equity investments. BDC's have been very active over the past few years as commercial banks have shied away from financing middle market transactions. The king of this sector is Ares Capital (ARCC) which just last week launched a secondary offering of its stock. These events are always good buying opportunities, but if you want to take advantage of them you "can't clown around". I didn't "play around" but "got down to business" and grabbed some shares at a very attractive price. I also loaded up on FGB, a closed end fund comprised of the shares of several high quality BDC's, the price of which became attractive after it went ex-dividend this week.
Also, for those in hunt of yield in the oil and gas exploration and development space, take a look at Vanguard Natural Resources (VNR), a smaller version of Linn Energy which like LINE employs a smart hedging strategy, but, even better than LINE, pays an 8+% annual dividend on a monthly basis.
I bought some AAPL stock on a pullback on Tuesday. By any measure, Apple is a very cheap stock even at my entry point of $657. I rode AAPL from $427 to $636 earlier this year. We will see what Friday's patent verdict and the upcoming debut of the I-phone 5 bring.
No doubt about it, this was an anxious week. And I am very mindful of Bonnie Tyler's advice about "Heartaches". Don't let them hit you "when it's too late"; don't let them "hit you when you're down". If I am wrong about the stimulus, I will exit. Such an exit will undoubtedly cause me heartache, but it will be assuaged by some profits, I assure you.
Saturday, August 18, 2012
August 18, 2012 Leverage
Risk/Reward Vol. 132
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"All quiet on the Western Front, nobody saw/A youth asleep in the foreign soil, planted by the war
Feel the pulse of human blood pouring forth/See the stems of Europe bend under force."---lyrics from "All Quiet on the Western Front" sung by Elton John
"My interest level is dropping/My interest level is dropping
I've heard all I want to/I don't want to hear anymore."---lyrics from "No Compassion" by the Talking Heads
"Betty's been down in the iron mine/Bringing home energy
Yeah, I'm goin' steady with Iron Ore Betty/And she's goin' steady with me."---lyrics from "Iron Ore Betty" by John Prine
With all of the Eurozone and most of Wall Street on holiday for the month of August (note how low the volume has been recently), "all is quiet on the Western Front". The Dow Jones Industrial Average stayed within a confined range all week and ended up 68 points. As a holder of high yielding securities, I very much like the tranquility. Indeed, I would have the stock market stay frozen where it is, indefinitely, while I collect my 7+% in dividends and interest. But, no one will be "asleep in the foreign soil" come September. Necessarily, the "stems of Europe will bend under the force" of sovereign debt. How they bend will dictate my future course of action.
Although the downward progression of the yield on 10 year Treasury notes has halted, it still rests at near historic lows---below 2%. The result is that every yield priced off that benchmark, most notably corporate bonds, is likewise at or near historic lows. As of Friday, the average yield on a 10 year, A-rated corporate bond was 2.73%---not nearly enough to support this old boy should he choose to retire. I need 6-7% to support my profligate ways. "I've heard all I want to" about the "interest level dropping". "I don't want to hear anymore". But what can one do?
As I have written previously, one must seek investments that take advantage of low interest rates---those that use leverage.
My favorite leverage plays are closed end funds. As I have explained in earlier editions, closed end funds invest in the securities of other companies much like their better known and better understood cousins mutual funds and exchange traded funds. Like these other two, closed end funds invest in securities in a manner consistent with their published guidelines (e.g. some invest in oil companies, others in preferred stocks, still others in corporate bonds, etc. ). What distinguishes closed end funds is that they do not redeem shares. One's ability to buy into or sell out of a closed end fund is wholly dependent on other shareholders' willingness to buy or sell shares. Thus, a key factor for me in choosing a closed end fund is the volume of trades per day or liquidity. Thankfully, most are sufficiently liquid that I can enter or exit on a heartbeat--just like any other stock. Another very important distinction between closed end funds and their cousins is that closed end funds can incur debt: that is, borrow money to buy stocks. Thus in times of low interest rates (like now), closed end funds can use leverage (here, the difference between the cost of borrowing and the return on the stock purchased) to enhance shareholder returns. I have used them to good advantage in achieving diversity and steady returns in preferred stocks (JPC), senior debt (JFR), real estate (RQI), commodity futures (CFD) and corporate debt (BPP). If you are interested, learn more at www.cefconnect.com .
Another way to achieve a decent return is to buy stocks that are currently out of favor. And nothing is more out of favor than "iron mining". As reported a few weeks ago, I bought Cliffs Natural Resources (CLF) after its disappointing quarterly report. It has rebounded somewhat, but more importantly it is paying me a "goin' steady" 6+% dividend while I wait for "Iron Ore Betty" (read; steel production) to rebound. In the same vein (no pun intended), this week I bought BHP Billiton (BHP), the world's largest iron miner, due to its excellent cash flow and its announced dedication to maintaining (and someday growing) its dividend (currently paying at 3.2%). Also out of favor are commercial mortgages. Commercial mortgages under various names ( cmbs, cre, cdo, etc.) were demonized in the wake of the 2008 real estate downturn when their holders (primarily banks) were required to "mark them to market" (write them down). Billions of dollars of these are coming due this year, and banks are looking to other institutions such as mortgage reits to take them out via refinancing. If properly underwritten, these securities can provide an excellent return. I like the preferred stock of Winthrop Realty Trust (WTR) and NorthStar Realty (NRFpA and NRFpB) in this space.
I close with a bit of trivia. Between 1979 and 1989, Jerry Harrison of the Talking Heads was our neighbor in Shorewood, WI. I only hope that the lyrics from their hit "Once in a Lifetime" do not prove prophetic in regard my current investing gambit.
"Into the blue again, after the money is gone.
Same as it ever was, same as it ever was".
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"All quiet on the Western Front, nobody saw/A youth asleep in the foreign soil, planted by the war
Feel the pulse of human blood pouring forth/See the stems of Europe bend under force."---lyrics from "All Quiet on the Western Front" sung by Elton John
"My interest level is dropping/My interest level is dropping
I've heard all I want to/I don't want to hear anymore."---lyrics from "No Compassion" by the Talking Heads
"Betty's been down in the iron mine/Bringing home energy
Yeah, I'm goin' steady with Iron Ore Betty/And she's goin' steady with me."---lyrics from "Iron Ore Betty" by John Prine
With all of the Eurozone and most of Wall Street on holiday for the month of August (note how low the volume has been recently), "all is quiet on the Western Front". The Dow Jones Industrial Average stayed within a confined range all week and ended up 68 points. As a holder of high yielding securities, I very much like the tranquility. Indeed, I would have the stock market stay frozen where it is, indefinitely, while I collect my 7+% in dividends and interest. But, no one will be "asleep in the foreign soil" come September. Necessarily, the "stems of Europe will bend under the force" of sovereign debt. How they bend will dictate my future course of action.
Although the downward progression of the yield on 10 year Treasury notes has halted, it still rests at near historic lows---below 2%. The result is that every yield priced off that benchmark, most notably corporate bonds, is likewise at or near historic lows. As of Friday, the average yield on a 10 year, A-rated corporate bond was 2.73%---not nearly enough to support this old boy should he choose to retire. I need 6-7% to support my profligate ways. "I've heard all I want to" about the "interest level dropping". "I don't want to hear anymore". But what can one do?
As I have written previously, one must seek investments that take advantage of low interest rates---those that use leverage.
My favorite leverage plays are closed end funds. As I have explained in earlier editions, closed end funds invest in the securities of other companies much like their better known and better understood cousins mutual funds and exchange traded funds. Like these other two, closed end funds invest in securities in a manner consistent with their published guidelines (e.g. some invest in oil companies, others in preferred stocks, still others in corporate bonds, etc. ). What distinguishes closed end funds is that they do not redeem shares. One's ability to buy into or sell out of a closed end fund is wholly dependent on other shareholders' willingness to buy or sell shares. Thus, a key factor for me in choosing a closed end fund is the volume of trades per day or liquidity. Thankfully, most are sufficiently liquid that I can enter or exit on a heartbeat--just like any other stock. Another very important distinction between closed end funds and their cousins is that closed end funds can incur debt: that is, borrow money to buy stocks. Thus in times of low interest rates (like now), closed end funds can use leverage (here, the difference between the cost of borrowing and the return on the stock purchased) to enhance shareholder returns. I have used them to good advantage in achieving diversity and steady returns in preferred stocks (JPC), senior debt (JFR), real estate (RQI), commodity futures (CFD) and corporate debt (BPP). If you are interested, learn more at www.cefconnect.com .
Another way to achieve a decent return is to buy stocks that are currently out of favor. And nothing is more out of favor than "iron mining". As reported a few weeks ago, I bought Cliffs Natural Resources (CLF) after its disappointing quarterly report. It has rebounded somewhat, but more importantly it is paying me a "goin' steady" 6+% dividend while I wait for "Iron Ore Betty" (read; steel production) to rebound. In the same vein (no pun intended), this week I bought BHP Billiton (BHP), the world's largest iron miner, due to its excellent cash flow and its announced dedication to maintaining (and someday growing) its dividend (currently paying at 3.2%). Also out of favor are commercial mortgages. Commercial mortgages under various names ( cmbs, cre, cdo, etc.) were demonized in the wake of the 2008 real estate downturn when their holders (primarily banks) were required to "mark them to market" (write them down). Billions of dollars of these are coming due this year, and banks are looking to other institutions such as mortgage reits to take them out via refinancing. If properly underwritten, these securities can provide an excellent return. I like the preferred stock of Winthrop Realty Trust (WTR) and NorthStar Realty (NRFpA and NRFpB) in this space.
I close with a bit of trivia. Between 1979 and 1989, Jerry Harrison of the Talking Heads was our neighbor in Shorewood, WI. I only hope that the lyrics from their hit "Once in a Lifetime" do not prove prophetic in regard my current investing gambit.
"Into the blue again, after the money is gone.
Same as it ever was, same as it ever was".
Saturday, August 11, 2012
August 11, 2012 Before and After
Risk/Reward Vol. 131
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"The sun's gonna shine in my backdoor someday
Just you wait and see, just you wait and see."---lyrics from "Wait and See" by Canned Heat
"His future's bright, my future's dim/And all the dreams we shared you share with him
See the difference between old and new/Before and after losing you."---lyrics from "Before and After" by Chad and Jeremy
"Bad news is come to town/He's walkin' three feet off the ground
He's ordering another round."---lyrics from "Bad News" by Neil Young
With no pronouncements from the world's central banks expected or received this week, the stock market putzed along "waiting." It seems all are hoping "to see" some "sunshine in the backdoor someday"---sunshine in the form of further stimulus from the US, China and the Eurozone. Market stability reigned with the Dow closing at 13208, up 112 points for the week. The S&P closed above the magical 1400 level. Refreshingly, stock fundamentals (not exogenous events) dictated price gains and losses.
As I discussed last week, I like to buy dividend paying stocks soon "after" they report disappointing news. Optimally, I like buying after I read the transcript of the earnings conference call (which usually occurs simultaneously with the earnings report and can be found at www.SeekingAlpha.com). The more detailed information there affords me a level of confidence; provided, of course. that the reasons for the disappointment are explained to my satisfaction. I used this technique this week to buy more ETP and AGNC on post earnings dips (although I had to double down on AGNC the second day after the report in order to effect an immediately profitable trade). Sometimes, not often, I gamble. I buy stocks "before" earnings are reported on a hunch that the earnings will exceed expectations. I shouldn't, I know---but sometimes I just can't resist. I did so a few weeks ago, buying Frontier Communications (FTR) in advance of its earnings announcement. This produced a homerun as FTR blew away expectations. I have enjoyed a 22% appreciation in just two weeks (not counting a whopping 9+% dividend!). So, I decided to employ the same technique to add to my holdings in Windstream (WIN) one of FTR's competitors in the telephone landline space; all the while hoping that I would "share the same dream". OUCH! The stock fell like a rock on the day WIN reported disappointing earnings. "Dim"wit! If only I had listened to Chad and Jeremy--be a buyer (or a boyfriend for that matter) AFTER heartbreaking news, and your "future will be bright." I don't mind owning WIN with its 10+% dividend. I just wish I had bought after the earnings report and not before.
On Thursday, China reported that its factory production had dropped to a three year low, and on Friday China reported disappointing export numbers. Ironically (but predictably), this "bad news" was favorably received by the markets, spurring speculation that now China must surely "order another round" of stimulus, like the $600billion infrastructure improvement binge it initiated in response to the worldwide recession in 2008-2009. That exercise superheated China's economy, causing significant inflation (especially in real estate); so I don't expect stimulation at that level. But, I do expect some significant spending---and that is good news for commodity/mining, industrial and oil stocks.
So far, my thesis has worked. I have profited (WIN notwithstanding) from my belief that the world's major economies will do whatever is necessary to avert another recession. Obviously, other market participants concur. I remain chary, however. I am not like Canned Heat. I don't believe that we are living in a time or place "where the water tastes like wine" or where you "can jump in the water and stay drunk all the time." (from "Going Up The Country"). Someday, this stimulus induced market buzz will end, and I may have to exit---yet again.
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"The sun's gonna shine in my backdoor someday
Just you wait and see, just you wait and see."---lyrics from "Wait and See" by Canned Heat
"His future's bright, my future's dim/And all the dreams we shared you share with him
See the difference between old and new/Before and after losing you."---lyrics from "Before and After" by Chad and Jeremy
"Bad news is come to town/He's walkin' three feet off the ground
He's ordering another round."---lyrics from "Bad News" by Neil Young
With no pronouncements from the world's central banks expected or received this week, the stock market putzed along "waiting." It seems all are hoping "to see" some "sunshine in the backdoor someday"---sunshine in the form of further stimulus from the US, China and the Eurozone. Market stability reigned with the Dow closing at 13208, up 112 points for the week. The S&P closed above the magical 1400 level. Refreshingly, stock fundamentals (not exogenous events) dictated price gains and losses.
As I discussed last week, I like to buy dividend paying stocks soon "after" they report disappointing news. Optimally, I like buying after I read the transcript of the earnings conference call (which usually occurs simultaneously with the earnings report and can be found at www.SeekingAlpha.com). The more detailed information there affords me a level of confidence; provided, of course. that the reasons for the disappointment are explained to my satisfaction. I used this technique this week to buy more ETP and AGNC on post earnings dips (although I had to double down on AGNC the second day after the report in order to effect an immediately profitable trade). Sometimes, not often, I gamble. I buy stocks "before" earnings are reported on a hunch that the earnings will exceed expectations. I shouldn't, I know---but sometimes I just can't resist. I did so a few weeks ago, buying Frontier Communications (FTR) in advance of its earnings announcement. This produced a homerun as FTR blew away expectations. I have enjoyed a 22% appreciation in just two weeks (not counting a whopping 9+% dividend!). So, I decided to employ the same technique to add to my holdings in Windstream (WIN) one of FTR's competitors in the telephone landline space; all the while hoping that I would "share the same dream". OUCH! The stock fell like a rock on the day WIN reported disappointing earnings. "Dim"wit! If only I had listened to Chad and Jeremy--be a buyer (or a boyfriend for that matter) AFTER heartbreaking news, and your "future will be bright." I don't mind owning WIN with its 10+% dividend. I just wish I had bought after the earnings report and not before.
On Thursday, China reported that its factory production had dropped to a three year low, and on Friday China reported disappointing export numbers. Ironically (but predictably), this "bad news" was favorably received by the markets, spurring speculation that now China must surely "order another round" of stimulus, like the $600billion infrastructure improvement binge it initiated in response to the worldwide recession in 2008-2009. That exercise superheated China's economy, causing significant inflation (especially in real estate); so I don't expect stimulation at that level. But, I do expect some significant spending---and that is good news for commodity/mining, industrial and oil stocks.
So far, my thesis has worked. I have profited (WIN notwithstanding) from my belief that the world's major economies will do whatever is necessary to avert another recession. Obviously, other market participants concur. I remain chary, however. I am not like Canned Heat. I don't believe that we are living in a time or place "where the water tastes like wine" or where you "can jump in the water and stay drunk all the time." (from "Going Up The Country"). Someday, this stimulus induced market buzz will end, and I may have to exit---yet again.
Saturday, August 4, 2012
August 4, 2012 Anticipation
Risk/Reward Vol. 130
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Anticipation, anticipation is makin' me late
Is keepin' me waitin'"---lyrics from "Anticipation" by Carly Simon
"I count the spiders on the wall/I count the cobwebs in the hall
I count the candles on the shelf/When I'm alone, I count myself"---lyrics from "The Counting Song" by the Count (Sesame Street)
"I've lived long enough to have learned/The closer you get to the fire the more you get burned
But that won't happen to us/Because it's always been a matter of trust."---lyrics from "A Matter of Trust" by Billy Joel
In light of recent pronouncements from both the Federal Reserve and the European Central Bank (ECB) (see last week's quotes), the world's stock markets were "anticipating" action when each of those central banks had meetings this week: quantitative easing (QE3) by the Fed and sovereign debt purchases by the ECB. Neither occurred, with both "keepin' us waitin'" until their meetings in September before we see any such movement, if then. The markets' reactions were not surprising with the Dow Jones Industrial Average dropping 32 points on Wednesday following the Fed meeting and 97 points on Thursday following the ECB meeting. What WAS surprising was how shallow the drops were and how quickly the markets recovered on Friday with the Dow gaining 217 points ostensibly on a modest jobs report. I submit that the rebound was due more to the belief that the world's largest economies (especially China) and their central banks will do everything in their power--be it stimulus spending or monetary easing-- to avert a recession. It is this belief that provides me the impetus to continue to invest in stocks.
As the earnings season winds down, it has become apparent that the U. S. economy is weakening--or is it? Although more than half of the reporting companies have missed expected revenues and profits, one must remember that accounting is not synonymous with "counting". Indeed, accounting is more an art than a science. Admittedly, Count, a spider is a spider, but is a spider egg a spider or work in process? Is an unused cobweb an asset or has it outlived its useful life and thus should it be written down (not counted)? Why only count the candles on the shelf---how about the ones you just ordered or have deferred ordering? Frankly, when others are reporting disappointing numbers, sometimes it makes sense for a management team to use the cover of a generally bad quarter to report all of the skeletons in the closet. Whatever the reason, I like when dividend paying companies "disappoint" because invariably the market overreacts thus providing the opportunity to buy what Cramer calls an "accidental high yielder". (Remember, the lower the stock price the higher the yield.) I bought the following high yielders on disappointing news this week: CLF, TOT, TAC, MCY, HBC, EXC.
One hot sector so far this year has been and continues to be real estate investment "trusts" (REITs), especially those that invest in mortgages and other forms of real estate financing. The availability of cheap money thanks to historic low interest rates and the demand for residential rental property has caused a flurry of acquisitions and refinancings. Literally every week there are several new stock issuances as REITs continuously raise capital to fund these activities. Indeed, some commentators are warning that the sector is so hot, one could "get burned". As a consequence, I like buying the preferred stock of these entities as opposed to their common stock. Both pay excellent dividends, but the preferred dividend must be paid in full before any common stock dividend is paid. These are good companies, and every one of their investors believes that disaster "won't happen to us." But, I like the downside protection afforded by a preferred position, nevertheless. This week I bought NRFpB, ARIpA and IVRpA.
As stated repeatedly over the past few weeks, my thesis is simple: if all of the world's major economies and central banks are willing to borrow and spend (read, stimulus), to employ monetary easing and to do whatever else is necessary to avert a recession, then growth, albeit temporary, will occur. "I've lived long enough to have learned" that the long term impact will be rampant inflation, but that could take months, even years to unfold. In the interim, I want to participate, via dividends and modest appreciation, for as long as it lasts. I am not a pollyanna, but as Billy Joel sings "...the good ole days weren't always good, and tomorrow ain't as bad as it seems."
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Anticipation, anticipation is makin' me late
Is keepin' me waitin'"---lyrics from "Anticipation" by Carly Simon
"I count the spiders on the wall/I count the cobwebs in the hall
I count the candles on the shelf/When I'm alone, I count myself"---lyrics from "The Counting Song" by the Count (Sesame Street)
"I've lived long enough to have learned/The closer you get to the fire the more you get burned
But that won't happen to us/Because it's always been a matter of trust."---lyrics from "A Matter of Trust" by Billy Joel
In light of recent pronouncements from both the Federal Reserve and the European Central Bank (ECB) (see last week's quotes), the world's stock markets were "anticipating" action when each of those central banks had meetings this week: quantitative easing (QE3) by the Fed and sovereign debt purchases by the ECB. Neither occurred, with both "keepin' us waitin'" until their meetings in September before we see any such movement, if then. The markets' reactions were not surprising with the Dow Jones Industrial Average dropping 32 points on Wednesday following the Fed meeting and 97 points on Thursday following the ECB meeting. What WAS surprising was how shallow the drops were and how quickly the markets recovered on Friday with the Dow gaining 217 points ostensibly on a modest jobs report. I submit that the rebound was due more to the belief that the world's largest economies (especially China) and their central banks will do everything in their power--be it stimulus spending or monetary easing-- to avert a recession. It is this belief that provides me the impetus to continue to invest in stocks.
As the earnings season winds down, it has become apparent that the U. S. economy is weakening--or is it? Although more than half of the reporting companies have missed expected revenues and profits, one must remember that accounting is not synonymous with "counting". Indeed, accounting is more an art than a science. Admittedly, Count, a spider is a spider, but is a spider egg a spider or work in process? Is an unused cobweb an asset or has it outlived its useful life and thus should it be written down (not counted)? Why only count the candles on the shelf---how about the ones you just ordered or have deferred ordering? Frankly, when others are reporting disappointing numbers, sometimes it makes sense for a management team to use the cover of a generally bad quarter to report all of the skeletons in the closet. Whatever the reason, I like when dividend paying companies "disappoint" because invariably the market overreacts thus providing the opportunity to buy what Cramer calls an "accidental high yielder". (Remember, the lower the stock price the higher the yield.) I bought the following high yielders on disappointing news this week: CLF, TOT, TAC, MCY, HBC, EXC.
One hot sector so far this year has been and continues to be real estate investment "trusts" (REITs), especially those that invest in mortgages and other forms of real estate financing. The availability of cheap money thanks to historic low interest rates and the demand for residential rental property has caused a flurry of acquisitions and refinancings. Literally every week there are several new stock issuances as REITs continuously raise capital to fund these activities. Indeed, some commentators are warning that the sector is so hot, one could "get burned". As a consequence, I like buying the preferred stock of these entities as opposed to their common stock. Both pay excellent dividends, but the preferred dividend must be paid in full before any common stock dividend is paid. These are good companies, and every one of their investors believes that disaster "won't happen to us." But, I like the downside protection afforded by a preferred position, nevertheless. This week I bought NRFpB, ARIpA and IVRpA.
As stated repeatedly over the past few weeks, my thesis is simple: if all of the world's major economies and central banks are willing to borrow and spend (read, stimulus), to employ monetary easing and to do whatever else is necessary to avert a recession, then growth, albeit temporary, will occur. "I've lived long enough to have learned" that the long term impact will be rampant inflation, but that could take months, even years to unfold. In the interim, I want to participate, via dividends and modest appreciation, for as long as it lasts. I am not a pollyanna, but as Billy Joel sings "...the good ole days weren't always good, and tomorrow ain't as bad as it seems."
Saturday, July 28, 2012
July 28, 2012 Stimulation
Risk/Reward Vol..129
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. To the extent the size of sovereign premia (borrowing costs) hamper the functioning of the monetary policy transmission channels, this comes within our mandate"---quote of Mario Draghi, head of the European Central Bank 7/26/12
"We haven't really come to a specific choice at this point, but we are looking for ways to address the weakness in the economy should more action be needed to promote a sustained recovery in the labor market."---quote Benjamin Bernanke, chair of the Federal Reserve 7/18/12
"China's employment will become more complex and more severe. The task of promoting full employment will very heavy and we must make greater efforts to achieve it."---quote Wen Jiabao, Chinese Premier 7/18/12
This past week I met with subscribers at a golf outing in Indianapolis and over dinner in Minneapolis. At both functions, I was asked why I was so optimistic about the stock market--me, the guy who bailed completely in July, 2011 and again in mid-May, 2012. I directed them to Vol. 127 (www.riskrewardblog.blogspot.com) wherein I stated: "...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..."
This concern has been on display for the past two weeks, and never more so than in the past few days. On Monday and Tuesday of this week, the Dow Jones Industrial Average fell 100 points on each day on news that Spain's sovereign borrowing costs were exceeding 7%, a dangerous level which makes access to the public bond markets virtually impossible. On Wednesday, the Spanish finance minister was in Berlin meeting with his German counterpart who refrained from uttering his normal accusations. More importantly, on Thursday, Mario Draghi, the head of the ECB, made the above pronouncement---the most direct and unambiguous statement yet that the ECB would do anything and everything (presumably even purchasing bonds directly from sovereigns such a Spain) to preserve the Eurozone. The impact was immediate and enormous. The DJIA closed up 213 points on Thursday and 188 on Friday as support for the statement came from the ever contrary Chancellor Merkel.
On the home front, last week Ben Bernanke made the above quoted statement to Congress, signaling that the Fed, too, would soon be in the stimulus mode. Unfortunately, not even Uncle Ben can remedy the Fiscal Cliff (end of the Bush tax cuts, expiration of the extended unemployment benefits and imposition of across the board spending cuts) which occurs on December 31, 2012. This Cliff will have a significant, negative impact on the US economy. Only Congress and the President can fix it, and they will do nothing until after the election. Strange, is it not. Just like last July during the debt extension "chicken" game, the most irresponsible leaders are the Americans!
Not so the Chinese. Indeed, the statement from Premier Wen above has made me even more optimistic. Here is why:
1) Contrary to popular belief, China is a very unstable country. Indeed, in 2011, there were more than 150,000 (that's not a typo fans) significant civil disturbances in China. Recall, if you will, the revolt in the city of Wukan where the citizenry rioted and violently overthrew the local government which had corruptly sold community pastures to land speculators. The grand bargain in China is that peace will be maintained so long as everyone is employed. Thus the importance of the above statement.
2) It is extremely important that there be no major civil unrest this year. In October, the reins of the country will pass out of Premier Wen's hands. Transitions are always dicey in a totalitarian regime, but especially so in China (notice the recent arrest of the Mayor of Chunking's wife).
3) In 2008-9, when the Chinese export-based economy was threatened by the world wide recession, the central government embarked on a massive domestic stimulus program, promising improved housing and infrastructure. The result was a superheated economy and a real estate bubble which caused China to decelerate its rate of growth in 2011---a deceleration that has now gone too far. Remember, however, that it was this massive internal stimulus in 2009-2010 that drove a huge run in commodities (copper, iron ore, etc.). In 2010, China consumed 20% of the world's non-renewable energy, 23% of the world's agricultural production and 40% of all base metals. The 2009-10 Chinese stimulus also helped propel the profits of those US companies with a major presence in China (Caterpillar, McDonald's, Yum, GM, P&G, etc.)
4) Politically mandated to promote growth and sitting on a huge amount of foreign reserves, China is once again prepared to stimulate its economy. Indeed, on Friday of this week, the city of Changsha (7million) announced a $130billion stimulus plan which includes a new airport, road construction and improved housing.
With the ECB speaking with real resolve (let's hope Draghi can follow through), with Uncle Ben ready to pull the QE trigger and with China needing to keep its masses employed, I see a stable if not increasing stock market. During the market swoon early this week, I bought more COP, LINE, WIN, ETP, SDRL, BACpL, EXC, NYB, AFC and AHTpD. In the words of my favorite stock picker, BOOYAH!
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. To the extent the size of sovereign premia (borrowing costs) hamper the functioning of the monetary policy transmission channels, this comes within our mandate"---quote of Mario Draghi, head of the European Central Bank 7/26/12
"We haven't really come to a specific choice at this point, but we are looking for ways to address the weakness in the economy should more action be needed to promote a sustained recovery in the labor market."---quote Benjamin Bernanke, chair of the Federal Reserve 7/18/12
"China's employment will become more complex and more severe. The task of promoting full employment will very heavy and we must make greater efforts to achieve it."---quote Wen Jiabao, Chinese Premier 7/18/12
This past week I met with subscribers at a golf outing in Indianapolis and over dinner in Minneapolis. At both functions, I was asked why I was so optimistic about the stock market--me, the guy who bailed completely in July, 2011 and again in mid-May, 2012. I directed them to Vol. 127 (www.riskrewardblog.blogspot.com) wherein I stated: "...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..."
This concern has been on display for the past two weeks, and never more so than in the past few days. On Monday and Tuesday of this week, the Dow Jones Industrial Average fell 100 points on each day on news that Spain's sovereign borrowing costs were exceeding 7%, a dangerous level which makes access to the public bond markets virtually impossible. On Wednesday, the Spanish finance minister was in Berlin meeting with his German counterpart who refrained from uttering his normal accusations. More importantly, on Thursday, Mario Draghi, the head of the ECB, made the above pronouncement---the most direct and unambiguous statement yet that the ECB would do anything and everything (presumably even purchasing bonds directly from sovereigns such a Spain) to preserve the Eurozone. The impact was immediate and enormous. The DJIA closed up 213 points on Thursday and 188 on Friday as support for the statement came from the ever contrary Chancellor Merkel.
On the home front, last week Ben Bernanke made the above quoted statement to Congress, signaling that the Fed, too, would soon be in the stimulus mode. Unfortunately, not even Uncle Ben can remedy the Fiscal Cliff (end of the Bush tax cuts, expiration of the extended unemployment benefits and imposition of across the board spending cuts) which occurs on December 31, 2012. This Cliff will have a significant, negative impact on the US economy. Only Congress and the President can fix it, and they will do nothing until after the election. Strange, is it not. Just like last July during the debt extension "chicken" game, the most irresponsible leaders are the Americans!
Not so the Chinese. Indeed, the statement from Premier Wen above has made me even more optimistic. Here is why:
1) Contrary to popular belief, China is a very unstable country. Indeed, in 2011, there were more than 150,000 (that's not a typo fans) significant civil disturbances in China. Recall, if you will, the revolt in the city of Wukan where the citizenry rioted and violently overthrew the local government which had corruptly sold community pastures to land speculators. The grand bargain in China is that peace will be maintained so long as everyone is employed. Thus the importance of the above statement.
2) It is extremely important that there be no major civil unrest this year. In October, the reins of the country will pass out of Premier Wen's hands. Transitions are always dicey in a totalitarian regime, but especially so in China (notice the recent arrest of the Mayor of Chunking's wife).
3) In 2008-9, when the Chinese export-based economy was threatened by the world wide recession, the central government embarked on a massive domestic stimulus program, promising improved housing and infrastructure. The result was a superheated economy and a real estate bubble which caused China to decelerate its rate of growth in 2011---a deceleration that has now gone too far. Remember, however, that it was this massive internal stimulus in 2009-2010 that drove a huge run in commodities (copper, iron ore, etc.). In 2010, China consumed 20% of the world's non-renewable energy, 23% of the world's agricultural production and 40% of all base metals. The 2009-10 Chinese stimulus also helped propel the profits of those US companies with a major presence in China (Caterpillar, McDonald's, Yum, GM, P&G, etc.)
4) Politically mandated to promote growth and sitting on a huge amount of foreign reserves, China is once again prepared to stimulate its economy. Indeed, on Friday of this week, the city of Changsha (7million) announced a $130billion stimulus plan which includes a new airport, road construction and improved housing.
With the ECB speaking with real resolve (let's hope Draghi can follow through), with Uncle Ben ready to pull the QE trigger and with China needing to keep its masses employed, I see a stable if not increasing stock market. During the market swoon early this week, I bought more COP, LINE, WIN, ETP, SDRL, BACpL, EXC, NYB, AFC and AHTpD. In the words of my favorite stock picker, BOOYAH!
Saturday, July 21, 2012
July 21, 2012 Hungry Like the Wolf
Risk/Reward Vol. 128
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION UPON INVESTING. RELY ON NOTHING STATED HEREIN.
"I'm sick and tired of repudiation/Where upon your orchestration
Leads to endless complication/And causes great consternation"---lyrics from "Stability" by Blondie
"Burning the ground, I break from the crowd/I'm on the hunt, I'm after you
I smell like I sound, I'm lost and I'm found/And I'm hungry like the wolf"---lyrics from "Hungry Like the Wolf" by Duran Duran
"If it takes a lot to keep it going/If it takes a lot to keep it real
Take some time for yourself/And learn to yield"---lyrics from "Yield" by The Indigo Girls
So far the earnings season has been a mixed bag; not great, but slightly better than expected; no huge surprises up or down. As a consequence, the stock market has been stable (the Dow was up 50 points for the week), with stock prices moving on individual fundamentals rather than en masse; "orchestrated" in response to some extragenous event (e.g. the Eurocrisis). Such "orchestration", known in the trade as correlation, "leads to endless complication", and "causes great consternation" to simple folk like me who just want a decent return on investment. Frankly, "I'm sick and tired" of correlation, and I love the recent spate of "Stability".
Since my June re-entry, I have noticed how "hungry" yield seekers have become. In times past, two of my favorite providers of yield have been preferred stocks and exchange traded debt both of which are reported each day at http://online.wsj.com/mdc/public/page/2_3024-Preferreds.html?mod=mdc_h_usshl#C . Open this site, and look at the far right column. Notice the incredible returns achieved so far this year. I captured much of those profits before my May exit, but these stocks have continued to appreciate-- some even above their redemption (call) price of $25. (Read about redemption prices at QuantumOnLine). Yield seekers clearly are "on the hunt." "Hungry like the wolf". Easy pickin's like the vast array of preferred shares of BankAmerica, Citigroup, JPMorgan, etc. have become too expensive for the risk adjusted return (although if you are not afraid of leverage, 8% can be achieved in this space via JPC, a closed end fund). This time around, I've had to "burn new ground" and "break from the crowd".
Yield hunters have also decimated other formerly fertile grounds. Safe, high dividend paying sectors such as wireless telcoms (VZ, T, VOD--although I bought all three at end of week dips), utilities (although EXC still presents some upward potential) and tobacco (RAI, MO) have become too expensive for the return. In order to achieve 6% or higher dividends, one must move up the risk ladder to companies like landline telcoms (WIN, FTR and CTL). Clearly, the expiration of the Bush tax cuts at year end which will result in dividends being taxed as high as 43.4% (currently 15%), has not yet dissuaded investors. Perhaps it's because so many stocks are held in tax deferred accounts (eg.401k's), or perhaps it's because there are no alternative yield providers.
My frustrations notwithstanding, I still seek yield. Believe me, "it takes a pile of dough to keep my lifestyle going". I will need a lot of passive income if I intend to "take some time for myself" in the future. I have had to "learn how (to find) yield" in places other than traditional haunts.
And I have. One can still find refuge in real estate investment trusts ("reits"), but only in the less traditonal, higher risk arenas such as agency reits (AGNC, ARR) and commercial mortgage reits (LSE, CLNY, RAS, SFI, NRF). In this space, I like the preferred issues of reits that pay high common dividends; for example CLNYpA, NRFpB and ARRpA. RQI is a closed end fund that holds many of these stocks, provides diversity and yields a decent return.
Oil and gas, especially oil trusts and master limited partnerships, remain attractive as well. I keep sayin' it, 'cause I belief it! Natural gas will be a big winner. It is clean and plentiful, dominates in the home heating sector and is the only real alternative to coal (for electrical power generation) and oil (for over the road vehicles). It is up nearly 50% since this spring ($2 to nearly $3/mmBTU), and you do not have to be a Whitewalker to know that "Winter is coming" (note the shout out to fellow "Game of Thrones" fans). Pick whatever pipeline company you prefer or buy AMLP, an etf that holds stock in all of them, but do get some exposure to the nat gas tranportation and storage sector. As for a vertically integrated play, I still like Linn Energy (LINE). Wall Street is not enamored with its recent acquisitions, but the Street's dislike simply provides a better buying opportunity.
Congratulations to those that had the foresight to buy the etf CORN which is up 30% this month as the drought continues.
Here is a list of my purchases this week: RBSpT, CFD, CTL, WIN, FTR, EXC, BACpL, AFC, NRFpB, ARRpA, JPC, JFR, PYG, RQI, AMLP, FGB, ARR, ELSpA, CLNYpA, MFO, T, VZ, VOD.
Like Le Petomane, I make no secret of my love of natural gas. I hope that my attraction proves more profitable than what Deborah Harry (Blondie) experienced:
"Once I had a love and it was a gas/Soon turned out had a heart of glass"
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION UPON INVESTING. RELY ON NOTHING STATED HEREIN.
"I'm sick and tired of repudiation/Where upon your orchestration
Leads to endless complication/And causes great consternation"---lyrics from "Stability" by Blondie
"Burning the ground, I break from the crowd/I'm on the hunt, I'm after you
I smell like I sound, I'm lost and I'm found/And I'm hungry like the wolf"---lyrics from "Hungry Like the Wolf" by Duran Duran
"If it takes a lot to keep it going/If it takes a lot to keep it real
Take some time for yourself/And learn to yield"---lyrics from "Yield" by The Indigo Girls
So far the earnings season has been a mixed bag; not great, but slightly better than expected; no huge surprises up or down. As a consequence, the stock market has been stable (the Dow was up 50 points for the week), with stock prices moving on individual fundamentals rather than en masse; "orchestrated" in response to some extragenous event (e.g. the Eurocrisis). Such "orchestration", known in the trade as correlation, "leads to endless complication", and "causes great consternation" to simple folk like me who just want a decent return on investment. Frankly, "I'm sick and tired" of correlation, and I love the recent spate of "Stability".
Since my June re-entry, I have noticed how "hungry" yield seekers have become. In times past, two of my favorite providers of yield have been preferred stocks and exchange traded debt both of which are reported each day at http://online.wsj.com/mdc/public/page/2_3024-Preferreds.html?mod=mdc_h_usshl#C . Open this site, and look at the far right column. Notice the incredible returns achieved so far this year. I captured much of those profits before my May exit, but these stocks have continued to appreciate-- some even above their redemption (call) price of $25. (Read about redemption prices at QuantumOnLine). Yield seekers clearly are "on the hunt." "Hungry like the wolf". Easy pickin's like the vast array of preferred shares of BankAmerica, Citigroup, JPMorgan, etc. have become too expensive for the risk adjusted return (although if you are not afraid of leverage, 8% can be achieved in this space via JPC, a closed end fund). This time around, I've had to "burn new ground" and "break from the crowd".
Yield hunters have also decimated other formerly fertile grounds. Safe, high dividend paying sectors such as wireless telcoms (VZ, T, VOD--although I bought all three at end of week dips), utilities (although EXC still presents some upward potential) and tobacco (RAI, MO) have become too expensive for the return. In order to achieve 6% or higher dividends, one must move up the risk ladder to companies like landline telcoms (WIN, FTR and CTL). Clearly, the expiration of the Bush tax cuts at year end which will result in dividends being taxed as high as 43.4% (currently 15%), has not yet dissuaded investors. Perhaps it's because so many stocks are held in tax deferred accounts (eg.401k's), or perhaps it's because there are no alternative yield providers.
My frustrations notwithstanding, I still seek yield. Believe me, "it takes a pile of dough to keep my lifestyle going". I will need a lot of passive income if I intend to "take some time for myself" in the future. I have had to "learn how (to find) yield" in places other than traditional haunts.
And I have. One can still find refuge in real estate investment trusts ("reits"), but only in the less traditonal, higher risk arenas such as agency reits (AGNC, ARR) and commercial mortgage reits (LSE, CLNY, RAS, SFI, NRF). In this space, I like the preferred issues of reits that pay high common dividends; for example CLNYpA, NRFpB and ARRpA. RQI is a closed end fund that holds many of these stocks, provides diversity and yields a decent return.
Oil and gas, especially oil trusts and master limited partnerships, remain attractive as well. I keep sayin' it, 'cause I belief it! Natural gas will be a big winner. It is clean and plentiful, dominates in the home heating sector and is the only real alternative to coal (for electrical power generation) and oil (for over the road vehicles). It is up nearly 50% since this spring ($2 to nearly $3/mmBTU), and you do not have to be a Whitewalker to know that "Winter is coming" (note the shout out to fellow "Game of Thrones" fans). Pick whatever pipeline company you prefer or buy AMLP, an etf that holds stock in all of them, but do get some exposure to the nat gas tranportation and storage sector. As for a vertically integrated play, I still like Linn Energy (LINE). Wall Street is not enamored with its recent acquisitions, but the Street's dislike simply provides a better buying opportunity.
Congratulations to those that had the foresight to buy the etf CORN which is up 30% this month as the drought continues.
Here is a list of my purchases this week: RBSpT, CFD, CTL, WIN, FTR, EXC, BACpL, AFC, NRFpB, ARRpA, JPC, JFR, PYG, RQI, AMLP, FGB, ARR, ELSpA, CLNYpA, MFO, T, VZ, VOD.
Like Le Petomane, I make no secret of my love of natural gas. I hope that my attraction proves more profitable than what Deborah Harry (Blondie) experienced:
"Once I had a love and it was a gas/Soon turned out had a heart of glass"
Saturday, July 14, 2012
July 14, 2012 The Looking Glass
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."
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 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".
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