Wait and See

This morning feels quite “wait and see” in the markets. We are in the middle of nowhere – stocks haven’t fallen enough to be a screaming bargain and if world GDP slowed down another 2-3%, they would probably be considered expensive. Precious metals traders got excited last week as for the first time in a long time, markets equated severe weakness in the economy with expected money printing and therefore depreciating paper currencies and appreciating metal currencies (ie gold and silver). But today, that market is taking a rest – maybe not so sure they will print?

US government bonds are trading very strongly, though today they are resting too – who wants to be long such a low-yielding asset? And who wants to short US bonds when Europe could collapse at any moment? Of course foreign bonds are volatile too – for their own reasons.

On a micro fundamental scale, how many companies are trading cheaply with management aggressively buying back stock and paying good dividends? Not many – as some cheap companies, only 3 years from almost going out of business in the financial crisis, take on more debt to “diworseify” (Peter Lynch’s term for “diversify, or making corporate acquisitions). One company we own for fundamental reasons, just failed in a buyout attempt, of a company that, get this, produces a product that they implied was in falling demand worldwide – whereas their similar but not the same product, was seeing increased demand. If your product is in demand, and the other company’s product has slowing demand, why are you buying them??!! So as has been the case forever, bad management decisions are killing investments at the micro level. (note: I had 2 companies we owned for fundamental reasons – due to management, that might become zero)

I have continued on the theme of income + gold for protection. I think we might find some decent ideas in preferred stocks, convertible securities, and solid dividend payers in the large cap arena. Though I don’t currently own these companies, and they certainly aren’t immune to a global slowdown, companies like Cisco, Microsoft and Intel have tons of cash in the bank and are buying back stock and paying decent dividends. I am interested in following them for a trade opportunity. Earning 3-7%  in yields isn’t bad in a 0% world – though these instruments will bounce around, buying income on dips, as we seem to have twice a year now, could make sense. whether it makes sense for you, you’ll have to decide. Coupling income with lower risk asymmetric trades might offer a decent annual return.

Bottom line – we don’t often have times when there is this much global uncertainty. In wartime, it’s obvious what’s going on. Depressions, though terrible, are obvious too. But in a world where at any moment, an entire continent’s financial system could implode (implode) or where one of the fastest growing economies with 1B+ people is slowing down dramatically (China) affecting its suppliers too (Brazil , Australia etc) and where everyone just buys dollars when everything goes bad, and at ANY moment, central banks could unleash tsunamis of paper money into the system, investors and traders have to be on their toes.

Day traders are having a field day by the way – they love this stuff. They make their half or 1 percent a day and just smile. Breakout traders get ground, and anyone looking for a trend (except in treasuries) is thrown back. They now look for trends in stuff that retail traders can’t trade  -to eliminate the noise. So you as a small investor have to take all this in – and be careful out there.

At the time of this writing, I or my clients owned the following securities mentioned in this column: GLD, PHYS, PFF