Monday, October 28, 2013

Also,

IWM
Small caps have also seen PE expansion.  The level for the Russell 2000 is at 27+.  While the numbers can get a lot higher with these stocks, it is a trouble sign.

T, VZ, S
I really like T versus VZ.  If I were a pairs trader, I would buy T and short VZ.  But, I love this space long term.  It is an area of true growth (wireless) and these two are the best in town.  Maybe S can make some inroads.  It may be worth a spec buy.  I don't see much downside but upside may be a long time from now.  I am adding to my position in T and MAY sell some of my VZ, but probably not.

MRK
I like this company.  They are having some trouble with patent roll offs, but I still think it is well run and will be a part of an expanding health care market.


 
I updated my portfolio page.

In summary, I am increasingly concerned with valuations and revenues.  I have no doubt that companies can continue to squeeze efficiency, but I do think there will be bouts of concern in the market and so there will be volatility.  We are priced, not for perfection, but not too far from that, I fear.

The PE expansion has been dramatic and I suspect we don't have much to add from that source.  So, it will have to come from earnings.


KMB
I missed the boat selling KMB too early as it led the consumer pack with PE expansion.  Since September 5, the PE went from 16.2 to 18.5.

CLX, LO
As with KMI, the PE expansion has been significant.  I have taken them off of Buy on Dip and just left them at hold.  I could easily be swayed to sell these.

COP is at it's high and while I am a bit nervous, there really is no reason to sell.  The PE stands at 12.4 which is a bump from 11.7 in September, but not alarming.

CLMT
I think everyone is waiting for the shoe to drop on this one.  The dividend is about to be paid.  I suspect it will drop from the current level.  The question is, since everyone expects it, will the stock goes up once we see the "bogeyman".  We just don't know how much the drop is going to be and so there is fear.  I don't have a big position here, but I may exit nonetheless as the volatility can be high.  There has been some positive legal developments and that may provide some upside potential.


Thursday, October 24, 2013

T
ATT posted good results and is suffering a bit today.  It has lagged VZ over the last 1-5 years, but it still delivers solid results and pays an excellent dividend (5.2%).  I am adding to my position today around 34.60



Tuesday, October 22, 2013

HYG,

High yield bonds have had a great run.  Normally, the low yields would give me pause.  One thing to consider, though is that HYG, for example, has seen it's duration come down from the 9 year area (not sure of the exact number) down to 4 years.

That is short enough that it offers a bit of protection in case yields spike up again.  I would still rather own preferred stocks yielding over 6% but, the high yield market is offering a reasonable alternative.

The key counter to this, is that default rates have been at lifetime lows (below 2%, I believe).  So, in a sense, the high yield market is priced for perfection, and that should always make us a bit worried.

In my portfolio, high yield is present but fairly small.


When bad news is good news, it is definitely a strong market.  A weak employment number, once a cause for concern, now gets the market going up.  Investing truly is a strange activity.

I'm not buying it.  This is overdone and I am going to sell here and wait for some sort of pullback.  I am back down to about 10% equity exposure.



Thursday, October 17, 2013

KMI
This is a strong buy for me and the fact that it is getting hit is an opportunity to buy it a bit cheaper.  The company delivered good earnings (if a bit lower than expectations) and VERY strong revenue growth.  Any company that is finding a way to grow revenues is a big hit with me.


OK, well we got that out of the way, no, sort of, maybe...

The truth is the discussion is just postponed until the beginning of the year.  Perhaps that will give them time to actually negotiate and come up with a pro-growth solution that also doesn't include the country being held up at "bond" point.

Speaking of bonds, I think it is pretty safe to say that tapering discussion are going to be put on hold, officially.  What I find interesting, and perhaps telling, is that bonds have not recovered ANY of the ground lost when the tapering talk started.  I find it hard to believe everyone expected it to go on forever, so given that it was going to stop, it was just a matter of timing.  Should there really be a 1% move in the 10 year area because the tapering is starting a bit earlier than expected?

Given that it has not recovered, perhaps there is something else going on.  Is the market trying to price in increased growth prospects? Risk of inflation?  Well the inflation can be seen comparing the TIPS pricing to the regular bonds.  The "breakeven" inflation rate as it is called is around 2.3% (3.7% 30 yr bonds-1.4% for TIPS) which is not much different than the 2.2% in May before the taper talks.  Also it is still low by historical 3% standards.  Growth prospects may be better, but we still have not seen it come through in the numbers.

Perhaps the real culprit is a change in the risk profile of the US.  If market participants expect more volatility in US rates, then more return is required.  In addition, there is the problem of potential loss in credibility (reserve currency status).  Probably there is some mix between these factors.  But, the fact that bonds have not rallied means that barring some crisis in other parts of the world, there is limited upside in bond prices and the risk is to the downside.

That said, it still makes sense to me to find what are compelling opportunities in preferred stocks and corporate bonds.  With 10 yr government at 2.7 and corporates around 3.8 (LQD) for just a bit longer, I think there can be more reward going out a bit on the risk spectrum, given that I think corporate profits will continue to be strong, if not growing slowly.

There is probably not a lot of benefit gained by adding yield by moving duration out, though.  Given the overall risk for bond yields to the upside (prices lower) that I just highlighted, it probably makes more sense staying under 10 years.

More later...

Wednesday, October 16, 2013

On request, I updated the Portfolio Page to be IPhone friendly.

Thanks for the feedback.

Sunday, October 13, 2013


New Page!!

I will revert to the regular posts, but I have added a new page with my portfolio.  I added this because it may be helpful to see the whole portfolio at once rather than my comments one position at a time.

I hope you find it useful.


As for the markets, we are still waiting for any sign of resolution in Washington.  The longer this drags out, the more likely we will have a sudden drop in the S&P 500.  It is a very risky proposition to time this market.  As I wrote previously, I was going to trade the range and so after having bought some of my hedge back around 1653, I re-sold it in the 1690's.

I expect volatility and I want to profit from it.  I will use these levels as guide points to "play around".

That said, over longer time periods, stocks are still reasonable to hold and I wouldn't get too cute trying to time this market.

Good luck.
 

Thursday, October 10, 2013

What do you think of the new look?  
Perhaps more helpful?


Commentary:

My commentary would go here...








Portfolio
Ticker
Description
Position
Size
Potential Action
CLX
LO
FCX
GE
T
VZ
CLMT
COP
KMI
JNJ
MRK
AAPL
INTC
QCOM
IWM
JTP
JPS
PFF
MHN
BKLN
VTA
VVR


S&P Future
Clorox
Lorillard
Freeport McMoRan
General Electric
ATT
Verizon
Calumet
Conoco Phillips
Kinder Morgan
Johnson  &Johnson
Merck
Apple
Intel
Qualcomm
small stock ETF
Preferred stock (leveraged)
Preferred stock
NY Muni fund (leveraged)
Bank Loans
Bank Loans (leveraged)
Bank Loans (leveraged)


Big cap
+C
+C
+C
+C
+C
+C
+S
+C
+C
+C
+C
+C
+C
+S
+C
+C
+C
+C
+C
+C
+C
+C


-S



S


S


S


B



B
S
S
B


B
B
B


B
S


B


Buy on Dip
Buy
Buy on Dip
Buy on Dip



Buy on Dip
Buy on Dip
Buy on Dip
Buy on Dip
Buy on Dip


Buy on Dip
Buy on Dip
Buy on Dip





Buy on Dip
Sell on Rally


Dip and Rally

Position Codes: +/- Long or short
C Core are key ideas that tend to be stable
S Are speculative and generally small (to keep risk low)
Size Codes: Big, Small and blank for average
Potential Action codes: B Buy -means buy right now
Dip Buy on dip means I am waiting for a pullback
S Sell over the short term
Rally Sell on a rally
Blank no action contemplated


Market trading on hope for a short term deal.  Emphasis on "short".  The more I think about the situation, the more I think the politicians are trying to act like celebrities - if they are not getting enough press, then start a commotion.  Make a public display and you are back!  It's hard to explain it any other way.  I understand that they feel they are trying to be fiscally prudent, I don't think it is right to hang up the works and hold the country hostage.  They are truly acting like children throwing themselves on the floor (parents out there will understand :).

The upshot though, is that I don't think this is over by any stretch.  I bought back some of my hedge and am up to about 25% equity exposure - still way under my benchmark (as usual).  I will probably be varying the exposure between 40% (on a big down move to say around 1575) and 10% at 1725.

I don't recommend this type of short term trading for most, I am just communicating what I am doing personally.  Stocks right now have an earnings yield (inverse of forward PE) of around 6.7%.  With 10yr Treasury at 2.6, that is a spread of over 4%.  Historically this is still a good level to buy stocks.  Hence, why I don't like the idea of short term timing for most people.  Long term, you should still be better off holding a significant stock position.

I also still think rates are going lower before they go higher and so I like fixed income positions.  That said, the market is providing such good opportunities in credit (high yield, high grade, muni, preferreds, loans) that one can build a portfolio of these ETF's and hedge out the bond risk and still earn over 3%!


MHN,
This is still a big position for me and will continue to be.  One thing to be aware of and perhaps another reason it has come down is that it has some exposure to Puerto Rico and the fiscal situation is pretty bad there.  Not Detroit, but pretty close.  I believe this to be priced in, but there may be some downside if they default.


Thursday, October 3, 2013

The longer the stalemate in Washington goes on, the more damage it is doing to the economy.  Top line growth will suffer as a consequence.

I am pessimistic and my equity exposure reflects this.  Currently at about 11%, I am looking for opportunities to pick up "blue chip" stocks (at least to me they are) as they come down with everything else.  An example is JNJ which is down close to 10% from it's highs and I think is good value, so I bought some.  Not super-cheap mind you, but cheap nonetheless.

Over time it has not paid well to be out of stocks, so I am looking for a sign to buy back my hedge.  Once the shenanigans in DC are past, stocks will rally, I believe.  But we have to play the waiting game.  It also is difficult to try to time the market - one is rarely able to "pick the bottom" as it were.  I think the best we can hope for is to buy into the down move progressively.

JPS and JTP and PFF continue to be some of my favorites.  These preferred stock based Closed End Funds trade with fantastic yield and in the case of the first two, offer substantial discounts to their NAV (net asset value).  To me, 8% yield is a fantastic result even if rates rise.