Thursday, June 21, 2012

Updates on Recent Posts, and a Mid-Year Resolution

Two days ago, I put out two posts here.  One needs little further comment beyond reiterating the title, which was "Metals Comments:  Silver and Others Breaking Down Again".  No change there.  Just to add that I think that oil works lower yet.  Do I hear $60/bbl (WTI).

The other was about Deere (DE), AAPL, and GARP investing.  Anyway, I went ahead that day and put in a 5% portfolio allocation to DE and more to HP (Helmerich and Payne), and more to AAPL.  When DE and HP had strong upside days yesterday in association with the VIX dropping to 17, I got nervous about this ultra-rapid drop in the VIX from 27 to 17 even as the macroeconomic data was getting worse and Spain was now clearly insolvent.  So I took a one-day, 3% profit in DE and dumped HP for a profit.  I love the company but hate commodities right now, as per the above-mentioned post.  Anyway, I also markedly decreased my longs in AAPL and took profits in about half of my bond-like stock plays, the utilities, beginning this morning and continuing through the downturn today.  Europe continues to remind me of the U.S. in 2008.  There is both a solvency and liquidity crisis there.  The global macroeconomic spillover is somewhat negative for the U.S., though decreased European demand for resources will help us with imported oil prices.  Probably more important is the liquidity issue.  Who knows, but I continue to fear a recurrence of 2011 or worse.

In the meantime, daily consumer spending per has collapsed to $68.  This is below the level at the same date last year and a full 27% below the level seen on-- are you ready-- October 27, 2008, a month after Lehman/AIG.  And, it is not adjusted for inflation. 

The times are out of joint. The plain vanilla Vanguard long-term muni bond fund VWLUX has had a total return the past year of about 14%.  The leveraged Nuveen muni bond fund NIO has had a total return of about 18%.  The zero coupon long Treasury has returned well over 50%.  Meanwhile, the SPY has returned about 4% with much greater volatility.  More relevant, I think, to economic conditions here in the U.S. is the Russell 2000.  Its ETF, the IWM, has had a negative twelve month total return of 4%.  All this interest rate decline is what in my view has been sustaining by stocks and the economy.  But said rate decline is played out, one would think. 

I have had a very good twelve months and a very good 2012.  It's feeling like a good time to do what I hate at a time of ZIRP and positive CPI, but I'm going to try to stick to my mid-year resolution and sit on this lead with a lot of cash in my trading accounts (self-directed IRAs).  Everything except AAPL that does not look overvalued acts badly, and things like T-bonds and AMZN that act well look overvalued.  Strange days... 


  1. Dude you need to chill. You're acting twitchy like someone who feels like they have to be doing something all the time. Now is the time to sit still. Stay on the sidelines while the inflation / deflation tug of war runs to the deflation side. Then come in and scoop up hard assets and fat dividend yields.

    For example, natural gas rig counts are dropping like Kardashian panties. Down to 1999 levels now while power companies are converting to gas from coal. Between that and falling oil prices there's going to be a nice opportunity eventually to gather up some oil&gas MLPs for your taxable account. I wouldn't jump in right now because I don't see enough pain yet in the industry but we'll get there.

    "When action grows unprofitable, gather information; when information grows unprofitable, sleep." Ursula Le Guin

    1. Funny line about the panties, JB! One of our favorite NG producer is BBG, but as you said looking for a little more pain...

      The EPA, is attempting to destroy the coal industry, one car load at a time...

  2. Apt quote from Le Guin, JB!

    Indeed, agreed, sitting in cash...

    But not happy about it due to unending QE or threats of such...

    1. I agree with, Dr X! Bank Bernank, is effectively driving the markets, which makes it a nightmare for investors...

      Ron Paul is right, the time has come to end the FR as we know it today...

  3. I feel the same way you do about how crazy things are so I have mostly cash and gold. Doing nothing is one of the hardest things to do.

    If Europe is any indication of how our politicians will behave, it looks like US politicians will continue to promise too much while taxes deliver too little so we will continue to borrow, which means higher debt limits for 2013, which means gold goes up.

    Meanwhile we have a massive counter-acting global deflation process running in the background. And the euro mess will probably drive money into the USD as the leper with the most fingers (was that Doug Casey's metaphor? I want to give proper attribution).

    I figure I'm covered either way until I can see a clear path. More worried about return *of* capital these days.

    The only individual stock I own right now is Olin, which makes ammo and pays a 4% dividend. I think guns and ammo are going to have a nice ride whether BO wins or not. The demographics are compelling when you look at who's buying and why. I rode Ruger up last year for a nice profit and sold recently in the 40s when it hit my trailing stop. I may take another look at it later as well as S&W. Ruger has no debt, the products are flying off the shelves and it pays a dividend at about the 10-year rate. The problem is that this is not an environment that rewards value investing.

    1. Correction. RGR *was* paying about the 10 year. Now it's paying more than the 30-year.

  4. We suspect even lower goo prices, particularly if the recession comes..$45 pb with a recession and $54 pb without...

    All bets are off after January 23, 2013...