Monday, August 27, 2012

Betting Against QE3 Introduction at Jackson Hole

I have taken a dislike to all this QE 3 speculation and even discussion.  QE was introduced as an emergency measure at a time of crisis and deflation.  It ended at the end of June, 2010 and essentially was reintroduced in August 2010 after it quickly become apparent that "Recovery Summer" was not that at all.  This recurrent bond-buying program was dubbed QE 1.5 and segued seamlessly into what was called QE 2.  So, QE was basically one long program lasting slightly over 1.5 years taken to support economic activity in the wake of a contained depression, aka Great Recession.  Since then, even the stock market plunge last year and refusal of the government to rein in the deficit did not sway the Fed to resume QE. 

With economic stats decent and Europe potentially needing  Fed dollars as swaps, with the U.S. gov't having no difficulty financing the deficit, and with ongoing Op Twist, I think that a much worse economic state is required for QE to be announced at Jackson Hole or any time soon.

Not to mention that the Fed would prefer not to take drastic action until after the election.

Dr. B speaks at JH on Thursday.  My speculation is that gold/silver peak Tuesday or Wednesday.  BBG reported Friday that a weekly poll of commodities traders was at its greatest degree of gold-bullishness in nine months, which was a bad time to buy gold.  Harvey Organ reported his analysis of the COT for Ag/Au as being very bearish for Ag and somewhat bearish for Au.  Thus a bear move in the precious metals next week following higher recovery highs Monday and perhaps Tues-Wed into Wed AM makes sense to me. 

Thursday, August 23, 2012

Utilities Sell-Off and Precious Metals Surge Is Badly Timed for Deteriorating Macroeconomic Conditions

Based on the derisking POV expressed in my post on The Daily Capitalist yesterday, I have taken further profits in the accounts I manage in PSLV and PPLT, tho I think platinum heads higher based on newflow.

Overall, earnings estimates continue to climb for CF, more or less on a daily basis.  Short-term volatility notwithstanding, I think it can trade a lot higher given EPS projections to be over $20/share for the next several years.  AGU is cheap and so is DE.

However, I basically think the markets have it wrong right here.  They are busting silver up to 10+% above its 50 day sma, but assuming the global recession moves thru the U.S. (per ECRI), industrial uses of silver will decline and my long-held target price of $21 would then have a good shot at being met.  There remains a good deal of speculation in silver (and gold). 

The reason I write the above, even tho I think the physical metals are going much higher over time, is the unwarranted sell-off in the "safe" high-quality utilities.  One can now receive over 4% in WGL, with a low-ish dividend payout, and about 4% in ED.  Both companies serve the two most vital cities in the U.S. and in this inflationary age, appear to be better buy-and-holds for anything other than the most hair-shirt part of a portfolio (high-quality bonds)-- and that is so even if their tax rate rises.  Even as Japan was (financially speaking) "going Japanese", their 10-year bond did not go below the rate of current CPI inflation, as the U.S. 10-year did recently. 

Last year I concentrated thru August on gold, and starting in the spring added Treasurys.  This year the theme is to lock up an interest stream that has a good chance of being valued much more highly in future years in a ZIRP-forever (ZIRP4EVA per ZH) world.  And if "NIRP" (negative interest rate policy) comes to America, one could see extraordinarily low dividend yields on these equities.

Finally, though they are riskier, both T and VZ are "growthier" than the above utes and offer higher dividend payouts. 

All the above have RSI's near or below 20 tho the fundos have not changed.  So I'm finishing the move into these guys.

Of course, in a new Lehman moment, the prices of all these things will collapse; but I'm betting that their dividend streams won't.

Monday, August 20, 2012

Updating Old Coverage and Introducing a New Favorite Group of Stocks

With family having left, I wanted to update the topic of recent posts. 

AAPL:  I penned a bullish note pre-earnings.  Sales and earnings disappointed, but leaks of upcoming product intros have spurred a massive rally.  This has occurred on significant declines in current quarter and next fiscal year estimates from the analysts.  AAPL fans are not deterred.  40% yoy increase in earnings estimates are expected from a number of members of an AAPL-oriented forum in which I participate, whereas analysts are looking for perhaps half that yoy gain.  For the first time since I started blogging enthusiastically about AAPL in spring 2010 around $250/share,  except for the period of uncertainty regarding SJ's illness/impending demise, I think that AAPL is a good but not great stock going forward-- though it is a great company.  I'd like to see more fear and improving fundamentals to think it's a great stock prospectively, which are situations I see with several other companies that unlike AAPL are well off prior highs though along with Apple they have record sales and earnings.

I have handled the commodities situation well so far, as well.  I stood back from PPLT and PALL a couple of months ago when they just didn't act right.  However, platinum was already at the marginal cost of production for a number of mines.  Probably, similar for palladium, which is a thinner market.

As soon as I read about the tragedy at the Lonmin mine in South Africa, with dozens of people shot dead by police for protesting, I bought the early surge up in PPLT from lower levels than where it had been when last I blogged on it.  I also bought PALL, which trades with PPLT.  These stocks (commodities) are "acting well".  I speculate that even in a "sluggish" global economy, these industrial (and ornamental) metals are going to rise over time.  In the short run, Johnson Matthey put out a report around March of this year suggesting that platinum would like sell around $1600 this fall, and palladium would be around $715 (per ounce prices).  They know the market super-well and have had a good track record on price projections so far as I have seen.  These are thus both "value" metals and I think they can be bought here despite the recent price surge.

Of my current favorite stocks, one is old, two are new.  Old is Con Ed (ED), which after hitting an all-time high took a tumble correlated with the sell-off in T-bonds and the NAZ surge.  Relative strength collapsed to 14 from a period of time at above 80.  Yet the fundos are fine operationally, earnings are rising.  Unbelievably for this boring company, Value Line's computer gives it above average price potential (rank 2) and a technical ranking also of 2.  I have been getting Value Line for decades.  If Con Ed has ever been a #2 for timeliness of stock price movement, I can't remember it.

Remember, ED is a bond substitute in my book.  I continue to foresee it trading to a 3% dividend yield, even in a scenario in which the 10-year T-bond rate rises to 2.5%.  I have no idea when this might occur.  (I thus see little need for most investors to hold bonds.) 

New entrants, and my current momentum favorites, are AGU and CF.  These fertilizer companies have P/E's below 10, strong financial strength, and rising earnings estimates.  CF has the best stock chart around.  AGU looks strong, as well.  AGU has the advantage here of having a catalyst.  Jana, a hedge fund, is an activist shareholder with a 5% stake.  They want AGU broken up, as it has a large global farm retail division.  I like ag over consumer electronics here.  One has shortages, the other is moving to saturation in parts of the world that don't require low prices to buy the product.

Getting back to electronics, the other strategic (not necessarily tactical) fave I have are the telecoms that are "doing well".  These include T, VZ and BCE.  These can be yield stocks when the market again starts to worry about growth, but they participate in the growth of data usage, etc. etc. from the spreading use of mobile devices.  All are rising out of bases on the stock charts, offer over 4% dividends which are expected to rise, and (importantly) have gently accelerating earnings growth already reported.  These stocks could all trade much higher simply as bond substitutes, as well.

The stock market, in fits and starts, overvalued by numerous metrics as it is, has thus begun to make the (usually slow) turn to being less overvalued than bonds.  This turn is just beginning, but it is clearly established for the stronger blue chips. 

Monday, August 13, 2012

Dangerous Markets

In my last post, a while ago pre-vacation, I talked up AAPL's virtues.  Events proved this correct, in a funy way.  AAPL disappointed on sales and earnings, yet the stock is close to its all-time high.  IMO, AAPL is at best a weak hold now on a trading basis.  The fanbois are loving it that a new iPhone will be out soon.  LOL, that's a surprise?

If one compares the platinum ETF, PPLT, with the SPY for as long as PPLT has been in existence, and goes back to the platinum futures markets for prior history, one will see a close correlation between the two.  This has diverged over the past year or so.  Platinum, and even more so palladium, are priced on the margin largely because they are used in the real economy.  The ETFs are secondary in importance; they are not "money" a la gold and perhaps silver.  If the central banks were inflating everything so much, or about to, said inflation would include these very rare and essential metals.  I thus take them as proverbial canaries.  I "think" that stocks have been carried aloft on a similar mode as bonds.  If I saw real strength in copper, platinum, palladium prices etc., I would suppose that bonds were all wet and go with the growth stuff.  But I don't see that.  In fact, the last few months that the Billion Prices Project covers (up to June 30) shows no inflation.  (Note they do not cover services.)

The VIX was down today on a down day for stock prices.  This joins the metals in non-confirming the action.  Meanwhile, fundos matter.  The European recession, misnamed a debt crisis, continues on.  The sedative of the Olympics is over.  For some time I have been analogizing what's been going in in Europe the past few years to what was going on in the US beginning in about 2006.  Europe 2012 continues to have similarities to the US 2008 that trouble me. 

There have been a few times in my investing career in which I had an atypical sense that I was smarter than the markets or the pundits and actually was right (i.e. lucky).  In the 1990s, this sense was that the insanity would continue on until it didn't.  I was lucky to stay with the trend until 2000 and get very much out of stocks that year, to get back in in the spring of 2003.  In the summer of 2007, I got out of stocks and into cash and bonds around Dow 13000, and when it went to 14300+, I was untroubled.  A year later, it had been halved.

I have a similar feeling now about things.  As was the case in the US through August 2008, the markets were trading as if things were normal.  But they manifestly were not.  While the authorities were on the case, they were not gods, and they did the best they could.  But troubles are troubles, and Europe has troubles; and the US economy has continued to trail expectations.  The president's plans for the country to double exports in a five year span is not on track, as the ROW is not cooperating. 

The VIX is 14.  It is 1/3 below its 200 day sma.  14 on the VIX is support (resistance for stocks) for the past 5 years.  Either the economic news is about to turn sunny, or the VIX is overbought.  Right now, I continue to like ED and WGL over AAPL and the growth stuff.