Data based fear

I read this … and i think a bit too much fear building, but cannot be simply ignored.  https://seekingalpha.com/article/4092664-hot-potatoes-dutch-tulips

I have been leaning toward more and more cash based on my own analysis and convictions, and articles like this make it hard to remain balanced and objective.  Rational logic anchored in consistent and reliable data is needed, not more emotion (fear or greed).

Weekly Reads, Reviews and Comments – July 30, 2017

Commentary

I am fairly comfortable with my current holdings.  I have >15% cash in taxable, and plenty of dry powder in nontaxble accounts as well.  I will continue to look for opportunitistic profit taking in the Radar Position 2 companies, and writing covered calls for some others.  Over the next few weeks, i think the 10yr Treasury is the key indicator and it will be watched carefully … i read somewhere this weekend that 2.4% on 10yr is a critical point.  that is about the point where i am willing to take positions in the 7-10yr durations – investment grade muni and corp (not sure about treasuries).

For new positions or building existing ones, the favorites remain (pending logical entry points):  STAG, QTS, MSFT, SWKS, CSCO and APPL.  Of all these, MSFT is probably my favorite.  Shorts being considered though too early on all 3 right now:  THO, NFLX and NVDA.

Data Analysis is Important

Here is an interesting article from SA this morning … now the content itself is a bit hazy and incomplete, but there is a very good data insight that cannot be emphasized enough … maybe it could be called the importance of ‘mathmatical context’.  In our increasing use of headlines, tweets, and other ‘snackable’ information, context and understanding are secondary.  For investors, that surface understanding can cost us …

“Just as logically, there should be some “proportionality” to yield curve tightening. While today’s yield curve would require only an 85 basis increase in 3-month Treasuries to “flatten” the yield curve shown in Chart 1, an 85 basis point increase in today’s interest rate world would represent a near doubling of the cost of short term finance. The same increase prior to the 1991, 2000 and 2007-2009 recessions would have produced only a 10-20% rise in short rates. The relative “proportionality” in today’s near zero interest rate environment therefore, argues for much less of an increase in short rates and ergo – a much steeper and therefore “less flat” curve to signal the beginning of a possible economic reversal.”

https://seekingalpha.com/article/4091112-bill-gross-curveball

 

Weekly Reads, Reviews and Comments – July 23, 2017

Weekly Reads and Comments – July 16, 2017

Personal Portfolio Commentary

  • sold all of my WTR >$33.00 (sell target within Radar Position
  • added an incremental slice to T (intend to add more if price continues to drop >of 5.75% yield
    • cannot speculate on probability either way)
    • T becomes one of largest taxable holding
  • targets this coming week
    • CTWS liquidation
    • NWN liquidation
    • Select REIT out-of-money (OTM) call sales

Radar Position 2 Action: WTR removed

As my weekly update pointed out, i identified 3 companies in my radar #2 space that just did not hold sufficient potential growth rates or income streams.  They are on the selling block.  Today, WTR crossed $33.00 / sh, and i sold my remaining small position at > $33.  More cash in the taxable account where better opportunities are surfacing.

Sunday Reads & Comments – July 8, 2017

This week may be a bit longer than normal after a week off and too much gnashing of teeth over reallocation decisions.

Top Watch Items for this up-coming week (possible entry points)

  • ETF – EMB
  • REIT – STAG   (this selection is biased toward my narrative, rather than absolute value entry point – target @ $25)
  • IOT – still up in the air between (T, CSCO and SWKS) … if i had to bet on it today, i would select both CSCO and SWKS
  • Health – PFE (my position is 2/3 complete), though from a delta to target pricing perspective, OMI is better priced (just not convinced yet of OMI business promise)
  • Consumer – TJX and TSCO (but read below)

Recent falling knife catching exercises – a mini post-mortem

  • TSCO has been one of my recent disasters.  I bought it all the way down, basically starting at $58/sh.  I thought a floor was established $51.50, but when the price declined to $51, i sold 50% (the most expensive shares) taking a 12% loss.  Commentary:  i recently made two mistakes (VOD and CAH) selling too soon, so i held TSCO longer than i really wanted to.  My initial stop was pegged at $52, and i did not pull trigger.  My take-away is to have a more formal 3-phase dashboard when prices are pushing on sell limits — and hold myself accountable to taking the prescribed actions (not ‘hoping for a bounce’)
    • Yellow Alert = <-2% loss
    • Orange Alert = <-5% loss
    • Red Alert = <-7% loss
    • Action can be taken at any alert level, but a sell must be triggered at Red alert.

Possible trimming and cash building

  • WTR above $32.50 and ideally >$33.00
  • NWN above $62.00
  • CTWS above $57.50

Jeff Miller’s Weekly Indicators

This is an interesting graphic … not sure the value other than “hmmm…”

Sunday Reads & Comments – June 18, 2017

A bit short this week, as there’s too much going on beyond Wall St.

Sunday Reads & Week Review – June 11, 2017

  • Jeff Miller (WTWA) pointed to this article suggesting that wholesale inventories were declining suggesting slowing economic growth and possible GDP impact.  Here’s a sample quote (bold is my add):
    • “The decline this month was in non-durables. Overally, I believe the rolling averages tell the real story – and they significantly declined this month. There is an obvious growth trendline in wholesale – but this was a bad month.  Inventory levels returned to recessionary levels.  To add to the confusion, year-over-year employment changes and sales growth do not match.”
  • The 10yr note crawled up a bit, S&P500 basically flat, but boy was there a bunch of noise in last week’s market activities.  So easy to get lost in the noise … (taken from WTWA)
  • Another pointer from this week’s WTWA – https://seekingalpha.com/article/4078993-value-valuation.  A solid opinion and teaching piece valuations.  I have my own thoughts on this topic, and slightly disagree with the author’s opinion about holding cash.  I hold cash often and if not, have targets to sell to raise cash; i am a vulture investor.  I try to take advantage of the inefficiencies in the market to purchase companies at a reasonable or discounted price.  Not having cash complicates my vulture behavior.
  • A good summary of GE valuations by Brian Gilmartin https://seekingalpha.com/article/4079472-ge-insider-buying-always-good-sign. GE is one of my top holdings (>5% of taxable account with cost basis of $17.50), and i continue to hold but uncomfortable exceeding my 5% with additional purchases until the sentiment starts to turn … per Brian’s review, it may be at the next earnings report, or trading activity breaking thru $27 or landing on $25.  For me, if it declines below $27 it will be hard to pass for a possible intermediate duration trade (12-18 months).
  • Portfolio changes this week included:
    • the removal of KR.  I made a mistake with the trade and let my emotional attachment to Fred Meyer and KR private brand products cloud my judgement.  The potential capital appreciation and dividend flow were not within my standard guardrails.  I sold with materially a break-even point – no loss, no tax penalty for my mistake.  Fail, fail fast, and learn …
    • the reduction of 75% of FPI due to management performance in my opinion – posted earlier.
    • the trimming of NWN to 50% of position.  The upper levels of valuation were reached, and as a Radar 2 stock, the position was reduced.  My purchase yield on NWN is 4.5% and there are equally interesting yields with greater capital potential (and less loss) than NWN.
    • the re-entry and increase in DSW.  I added to my daughter’s account and re-entered in my taxable at $16.40.  For my daughter’s account, i may sell the higher priced position for loss after 30-day wash.  For my account, a solid entry point before ex-div date, and a solid short or intermediate term trade for another ~5% gain.
  • What is the one company that i want to buy but the stock valuation is not yet right? …. MSFT.  I kick myself as i passed on purchase at $65 thinking that >%60 was better entry point.  MSFT is a missing element in my IOT narrative and i believe the better investment than the data center REITs, DLR or QTS.
  • Positions that could be added next week … PFE, but below $32.  I had opportunity Friday morning, but passed given all the thrash going on within the market and US / UK politics.  New positions on Friday make me nevous at times ….. less rational decision making i guess.
  • Later additions (after the first go in morning)

Sunday Reads – June 3, 2017

  • First of all … credit to Jeff Miller WTWA Sunday post
  • Blackrock posted an interesting update and here is a take-away i found interesting
    • “Bottom line: Trump trades have been dented, but we expect reflation trades – negative for government bonds, positive for cyclically geared assets – to resume in an environment of US growth slightly above trend, which we see at around 2%.”
    • On wage growth (bold is my add), “Wage growth stalling here would suggest a structural shift making this cycle truly distinct from all the others in the post-war period. We have a hard time seeing why this would be the case but see two potential factors. Poor productivity growth could offset the labour market’s recovery, keeping wage growth tepid. Technology’s displacement of workers may be having a broader impact.”
  • The refutation of bad data usage … looking at graphs without understanding the data is hazardous to your financial health.  this is good example http://disciplinedinvesting.blogspot.com/2017/05/the-unfortunate-rise-of-misleading.html
  • Jeff’s weekly scorecard (look at 10yr yield this week)
  • Farming report from Goldman Sachs … this fits into a couple of my narratives (IOT and land scarcity).   http://docdrop.org/static/drop-pdf/GSR_agriculture-N1sH6.pdf – this a thick report and requires more than a 1x read.

Sunday Reads May 28, 2017

  • a sizable group of indicators, and a short summary:  “The nowcast for the economy remains positive, as does the near term view, with both stocks and jobless claims leading the way.  The longer term forecast remains neutral to positive, shading a little closer to neutral based on the tightening yield curve, less robust growth in real money supply, and the miss in corporate profits.”  Source
  • Two things here (Factset):  a) Europe growing and b) positive forecasts coming out of S&P Q1 earnings.  One can rationalize pollitically and economically why growth is moving away from US.  Aggregate indicators like this can be misinterpreted and misused … i see these like tail / head winds that need to be considered when looking at specific companies.  The industry data sets are important, however.   Source
  • Jeff Miller’s posted weekly snapshot 
  • A great overview of BMO, my fourth largest stock holding with cost basis of $53.19 / 5.19% yield – https://seekingalpha.com/article/4077038-schedule-canadian-banks-part-1-6-bank-montreal 
  • Not sure i agree w/ this perspective on Convertibles, but was worth the internal dialogue.  Source – i looked at ETF, ICVT, for a quick reference:  low yield, low analyst ratings, and a steep positive price slope (where’s the value?).
  • A good fist-full of data – http://brooklyninvestor.blogspot.com/

Will come back w/ a post on last week’s catching falling knives.

Sunday reads & weekly commentary May 7, 2017

Sunday Reads & Weekly Commentary – 4-30-17

Commentary -> I did follow thru and removed a bit of INTC from taxable account and sold the remaning CAH.  I also took profits on the UMPQ trade position that i took – gross return was ~7% for a <30 day hold; this could be a repeating pattern between $16 and 18.  As much as i wanted to take a couple of new positions (expanding current ones too); the prices just did not hit my trigger target so i held off … of interest right now:  T, VZ, VNQ, O, FPI, and TSCO (on the latter, i have yet to convine myself that a) rural US will avoid further declines and b) TSCO can hold sales against the others, e.g., WMT, AMZN, HD …  i am also watching ETFs carrying China, India and other emerging markets.  I have yet to find the best way to invest there.

Watching ahead next week … mostly irrational moves and reactions to macro and political perceptions.  One observation is that since the US election, the market has reacted to perceived / anticipated events more than to fundamental facts.  I will stay focused on the facts, and react when others ignore them and create opportunities.