SPEAKING of NUMBERS and the MARKET
September 15, 2009
By Ritch Wigham
The other day I was talking to a client and he told me that the money market fund that was being suggested to him by another advisor (presumably a mutual fund person) was returning something like .2 or .3%. He said he worked it out and it would take something like 350 YEARS to double his money. BUT IT WAS SAFE!!! I was then talking to a good friend of long standing that also happens to be a broker, he tells me he got a report
from some fund company stating, that if you bought Canadian t-bills and rolled them at current rates that it would take 275 YEARS to double your money. Now I haven’t worked out the numbers myself but I do know that it is an egregiously long time to get any kind of return on your money. Why do I bring this up, you ask? The stock market.
Coming into September if you had listened to all the hype and crap out there you would have sold, been on the sidelines and be waiting for a correction that is not coming right now. Our statisticians and talking heads suggested and reported and slammed down everyone’s throat that September statistically is the worst month of the year! Sell my god you will buy it back cheaper in October. Wrong, wrong and wrong. I cannot predict the rest of the month from here, but my bet is that if there is this long awaited correction it isn’t yet and won’t happen this month. Why do I say this? Read paragraph one again please.
To everyone’s great surprise and the relief (can you hear the collective exhale) of the U.S. government. Bond auctions in the U.S. have had significantly higher coverage than one would have expected with the un-relenting supply of paper from the U.S. treasury.
Simply put “If you print it, we will buy it”. So far the coverage on 3 to 30 year bonds being auctioned every week has been exceptional. Two or even three times coverage for every issue. What this means is that the Federal Reserve doesn’t have to raise rates to attract the buyers needed to fund the U.S. budget deficit. The world is willing to fund these short falls with almost no return on its investment. Why???
1.Fear. Economic uncertainty. The U.S. is still the safe haven for the world.
2.The weak currency.
3.A bet on the U.S. recovery.(technically a currency bet)
4.A place to park money that is safe until you want to deploy it elsewhere
What all of this really means is that we haven’t gotten the huge flood of money into the stock market, that is out there, yet, but we get enough all of the time to keep the whole thing moving forward every time there seems to be enough weakness to offer a buying opportunity.
As I have said before and will re-iterate now.
“Markets like low interest rates and low bond returns. Money needs to make money or you loose over time and duration, and the only place to do this consistently is the stock or commodities markets.”
It would appear that the storehouse of funds is growing in U.S. treasuries. If it continues to be deployed quietly over time as it has been for the last number of months,
Any correction should be bought because, it will be, by the population still on the sidelines.
If it takes literally generations to make a return on your safe money, that money will find a way to make itself a higher return than inflation. Real estate, stocks, gold (commodities) pick your poison, but it will happen.
Yours,
Ritch
Mackie Research Capital Corporation (MRC) makes no representations whatsoever about any other website which you may access through this one. When you access a non-MRC website please understand that it is independent from MRC and that MRC has no control over the content on that website. The content, accuracy, opinions expressed, and other links provided by these resources are not investigated, verified, monitored, or endorsed by MRC.
The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of Mackie Research Capital (”MRC”). The information and opinions contained herein have been compiled and derived from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. Neither the author nor MRC accepts liability whatsoever for any loss arising from any use of this report or its contents. Information may be available to MRC which is not reflected herein. This report is not to be construed as an offer to sell or a solicitation for an offer to buy any securities. Member CIPF.
That could be a good idea!
July 22, 2009
This last week has been a “mental” mess. We started with the world on its way back to hell in the proverbial hand basket and ended it with definitive statements that the recession was over and all was back on track. Confused yet?
The first thing I would like to say is that either we all learn to dismiss the talking heads on T.V. or we are never going to be able to keep any kind of clear thought . I am now convinced that the reporting is generally and consistently more harmful than it is beneficial. I am not saying this from the view “If you don’t agree with me, you must be bad” I say this because I believe that the average person watching is enacted to make decisions that are not beneficial to their finances. If you had watched and then acted the first part of last week you would have sold all of your holdings, run for the hills, and contemplated stopping at Joes Gun’s & Gas to make sure you were well equipped to survive the next several years.
Within the next 48 hours you would have bought back all your stocks, paid more for the privilege and been told to go buy a new boat for the cottage, all was well! The reality of what happened last week was that a group of core companies released earnings results that were on track or better than our talking heads expected. Brilliant analyses, from brilliant people, who think they must “shock” to keep you watching. How about we try to report the news a little bit more and reduce the commentary a little bit more until at least after all the facts are out. I know our job is to try and “predict” the future so to speak, but my colleagues try and do this in a thoughtful manner and are taken to task very quickly if we don’t. It is becoming more clear to me that, that standard is not being met by the financial reportage that we are fed daily.
Moving forward, it has become clear to me that there is a growing stability developing in the markets. Individual stocks are still swinging more than they should, but the overall market seems to be less likely to over react to either individual good or bad news. This is what should happen at the end of a recession. “The worst is over but more bad news is inevitable.” What to do then?
WRITE CALLS!!!
In sideways to moderately increasing markets writing calls is the way to go. The premium bleeds out over time and still maintains a level of downside protection for those inevitable little short term surprises that our talking heads like to exaggerate. This also currently should give an extra level of comfort for those who are still trying to time their re-entry into the market. Buy the combination. When you buy the banks write the calls. When you buy the pharmaceuticals, write the calls. And especially when you buy your energy stocks, write the calls. Done properly this should add 8% or more to your returns over the next several months while we are finding out just how robust these markets really are and still offer a level of protection for your peace of mind. There are lots of opportunities out there right now for this.
Those goofy sun spots! At the moment and for the start of this year we have a much cooler and moister start to the growing season. “Perfect” growing conditions are being experienced in mush of the U.S. Corn Belt. Yields have been predicted to exceed generational numbers and final harvest results are maybe going to bring the second largest crop in American history. Don’t bet the farm just yet. If it stays cool early frost is the call, if it finally gets hot(currently being predicted by some models for August) it may stay that way and impact the crop because the root systems stayed shallow with all the early cool moist weather. Suffice it to say “the crop is not made yet”. It looks very good, but it is still very early. If you follow these things it looks like buying wheat and selling corn is probably a very good trade. This is no longer considered a spread trade for margin purposes by the CBOT(Chicago Board of Trade) but I still view it as one. Those who have known me for a very long time will know we have made out very well with trade in the past.
Final note; good crop or bad crop farmers in North America do not have the luxury of going another year without fertilizer. All this noise with Potash prices is just that “Noise”.
The reality of our world is that there are billions of people that continue to drain our growing soils. Only one thing fixes this, and that is fertilizer. Like it or not, it is cheaper for the Indian government and the Chinese farmer to fertilize than it is to import more grain because your population is going hungry. Remember that up to 50% of your yield can be attributed to fertilization.
Talk to you soon
Ritch
Mackie Research Capital Corporation (MRC) makes no representations whatsoever about any other website which you may access through this one. When you access a non-MRC website please understand that it is independent from MRC and that MRC has no control over the content on that website. The content, accuracy, opinions expressed, and other links provided by these resources are not investigated, verified, monitored, or endorsed by MRC.
The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of Mackie Research Capital (”MRC”). The information and opinions contained herein have been compiled and derived from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. Neither the author nor MRC accepts liability whatsoever for any loss arising from any use of this report or its contents. Information may be available to MRC which is not reflected herein. This report is not to be construed as an offer to sell or a solicitation for an offer to buy any securities. Member CIPF.