JT’s DAILY BLOG for December 2011 Beginning Monday, 12/05/2011
(In Descending Sequence by Date - All times Eastern Time)
Note: This Blog began on 12/05/2011 – That is the oldest date available
Final Posting Friday, 12/30/2011 4:25 PM
The trading year ended with a whimper, with the Dow Jones Industrial Average slightly up for the year, and the S&P 500 and NASDAQ averages slightly down for the year. A mild sell off today doomed the chances for the latter two averages to end the year ahead of where they began it.
As predicted, it was a lackluster session, with no economic releases scheduled, and no upgrades/downgrades reported.
Time to reflect on the year just ended and determine the best approach for the New Year. My strategy is simple – maintain a high (for me) cash position of around 30% and wait for a buying opportunity. If none comes after a couple of months, I will probably have to give a little on some maximum buy levels, and selectively start allocating some cash towards those stocks that haven’t gone up too much, all the while limiting new buys to the highest quality names.
See you next year.
1st Posting Friday, 12/30/2011 8:15 AM
Asian markets up for Japan, China, down for India. European markets up except for Britain. U.S. futures modestly positive. MarketWatch’s Brett Arends has produced an interesting article entitled “In 2012, something’s gotta give”.
Today should be another low-volume day, with few or no TICK spikes above +1000 or below -1000, i.e. a low-volatility day. Of course, that assumes no significant geo-political news developments.
Time to get a 2nd cup of coffee and continue the awakening process.
Final Posting Thursday, 12/29/2011 4:45 PM
The rally returned today, effectively making back yesterday’s decline. I sold my WMT, reducing my price to $59.99 in the final minute of trade to get sold. I decided that, in the immortal words of Chuck Prince, former CEO of Citigroup, “when the music’s playing, you’ve got to get up and dance.” Of course, Citigroup lost 95% of it’s market value under his watch, so perhaps taking heed of his words is not the smartest move. But my rationale, as noted a couple of days ago here, was that it was at a high that had not been reached since September 2008, the next dividend was three months away, and anyway, I wanted to “ring the cash register”, in the immortal words of Greg Capra of Pristine Capital.
One trading day left in 2011, then time to take a break.
1st Posting Thursday, 12/29/2011 9:25 AM
I just noticed all of this week’s postings are off a day. Corrected. Sorry, I must pay more attention.
Asian markets down, European markets up, U.S. futures moderately positive. The Italian bond auction of 10 year notes went OK, per MarketWatch, but the yield, near 7%, is too high to be sustainable long-term. Economic news releases today are Unemployment Claims, Chicago PMI, Pending Home Sales, Oil Inventories, and Natural Gas Inventories. The Unemployment Claims, just released, was uninspiring at 381K, above the 368K expected.
Minimal upgrades/downgrades today, none of import for my stocks of interest.
Seeking Alpha contributor Eric Parnell provides an interesting read today, “Silver Signals Danger Ahead”. It is featured prominently on the front page.
I may try again to sell my small Walmart (WMT) “orphan” position, if it gets up over $60 today.
Final Posting Wednesday, 12/28/2011 7:00 PM
The rally was suspended, at least for today. The recap I rely on every day is from Schaeffers Research (http://www.schaeffersresearch.com). According to the recap at this terrific website, per Jim Cunningham, the main reason for today’s pullback was, once again, European concerns. While the Italian short-term bond auction went ok, as noted, the ten-year Italian bond rate “increased to an unsustainable level”. That, plus a couple of other developments, served to shift the focus back to the European debt crisis, which is not a good thing when we have a rally going.
My thinking regarding WMT was to sell if the rally continued, but since it did not, I will wait for another day.
Only two more trading days left in 2011. The question on everone’s mind is, will the year finish in the red or in the black? As for me, “I ask not what course it may take, only that we get it over with.” With apologies to founding father Patrick Henry, until tomorrow:
1st Posting Wednesday, 12/28/2011 9:00 AM
Asian markets down, European markets up, U.S. futures moderately positive. No economic releases today. None of my stocks of interest were targeted in the day’s minimal upgrades/downgrades announced. Europe is relieved that an Italian bond auction went OK.
I have a small position in Walmart (WMT) which I might sell if it moves above $60.00. This position was acquired several months ago in the low fifties, and has become what I call an “orphan” holding. That is when I start out with a small position, planning to buy more upon further declines, but the stock then moves up substantially, such that it is unlikely that I will be able to add to the position anytime soon at a price I would be willing to pay. The decent but not huge dividend is also a factor. The yield today is only 2.44%, and 12/7/2011 was the last ex-dividend date, so it will be another three months before WMT pays again. Another factor is WMT is at a five year high. The last time it was close to $60.00 was in 2008. Stay tuned! I’ve talked myself into selling, let’s see what happens.
The hour approaches.
Final Posting Tuesday, 12/27/2011 8:00 PM
As expected, it was a very lackluster day in the market, capped by a middling, flat finish. Volume was only about half of normal. Another indication of how quiet the market was today were the TICK readings. The TICK did not break 1000 on either side, up or down, today.
The oil market, however, was anything but quiet, with Iran threatening to interfere with the flow of traffic through the Strait of Hormuz if the West tightens the embargo on Iranian oil. The benchmark intermediate crude price broke $100, ending the day at $101.02.
While “saber-rattling” is nothing new in this volatile region, there is always the risk that events could get out of control.
I’m pleased to report that I had a new article published on Seeking Alpha (SA) today, outlining the ups and downs of twenty dividend stocks (all of which I own or have owned) over the past five years. Select “SA Articles” from the home page for a link to the article.
Until the AM cometh;
1st Posting Tuesday, 12/27/2011 9:00 AM
Asian, European markets mixed, U.S. futures down slightly. Bank of America (BAC), Sears (SHLD), and Research In Motion (RIMM) are all in the news this morning, and not in a good way. BAC may need to sell more assets to raise capital, SHLD will close stores and take related charges, and the RIMM saga continues. This week should be a slow week, with minimal economic data on tap, and many players away for the holidays. The latest Case-Shiller home price index will be released at 9:00 AM, and a read on Consumer Confidence will come out at 10:00 AM.
Only a couple of stocks received upgrades/downgrades today so far, none of which I care about.
If you find yourself being overly optimistic and you feel the need to be cautioned, Paul B. Farrell’s latest article on MarketWatch, “2012: Stocks up 10% - or Doomsday scenario?” has just what you need. Note: keep your anti-depressant meds handy before diving into the article.
Dull day or not, I’ll be “on station”, looking for any opportunities that might arise.
Final Posting Friday, 12/23/2011 5:30 PM
As predicted, the rally continued to the Christmas break. MarketWatch has a big headline, “S&P back in black for 2011”. That’s great, but it sure isn’t in the black by much. But after the August and October sell offs, I guess we’ll take it.
I succumbed to temptation and sold some “excess inventory” of Molson-Coors (TAP) at $44.05, just one penny shy of the day’s high. I guess that makes me an “A” trader according to noted trading guru and author Dr. Alexander Elder, at least for today. I had only had these shares for a couple of months, picking them up at $38.90, too good a deal to pass up, even though I had (and still have) a full position of TAP. That’s all part of my dividend stock strategy, to take advantage of market fluctuations when opportunities arise. If the rally ends suddenly, I will have the satisfaction of knowing I took advantage of it while it lasted.
Merry Christmas, I’ll be back here bright and early on Tuesday, December 27. (Markets are closed on Monday, December 26.)
1st Posting Friday, 12/23/2011 9:20 AM
Asian and European markets up, U.S. futures up. It looks like we will make to Christmas with the rally intact. No upgrades/downgrades on any of my stocks, or for that matter, on hardly any stocks.
I may sell a call on some shares today. I’ll have to look over my inventory to see if I have any good candidates. I hate to waste this rally, especially considering there are so many dire predictions for 2012. The extent of fear out there may be part of the problem, the problem being there are no compelling buys available. The best, panic-induced market declines that present great buying opportunities don’t come when everyone (or at least a high percent) is expecting a decline.
Final Posting Thursday, 12/22/2011 9:00 PM
The “Santa Claus Rally” continues. All of the major indexes finished in the green. Closing at 1254, the S&P 500 is now about half-way between the 2011 high, reached in May (1370), and the 2011 low (1074) reached in October.
The economic reports indicated that the U.S. recovery, modest though it is, continues. The only news on any of my stocks really wasn’t news, which was that AT&T has given up on the T-Mobile acquisition in the face of regulatory opposition. This has been “known” by the market for weeks, today was confirmation.
1st Posting Thursday, 12/22/2011 9:00 AM
Asian markets up in Japan, China, down in India. European markets trading up, U.S. futures positive. A fairly large batch of economic releases are on tap today, not least of which is the weekly unemployment report, just released at 8:30, which was OK, causing the futures to bump up a little. None of my stocks had any upgrades or downgrades.
An interesting read on Seeking Alpha (SA) from contributor James Koztohryz, “100% Cash: The Only Way To Play This Market”, provides an excellent summary of the current global macro environment. I’m not going to 100% cash, but I do agree that now is a good time to raise cash, taking advantage of the apparent “Santa Claus Rally” that is occurring. (My cash level right now is 30%.) A number of articles I have read recently are not optimistic about 2012, to put it mildly. Another interesting SA article provides an interesting perspective on yesterday’s housing data revisions for 2007 through 2011 from the National Association of Realtors (NAR). The contributor writes under the pseudonym “The Inflation Trader “, and the article is “Nominating A New Villain”. Only one guess allowed for who the “new villain” is.
Final Posting Wednesday, 12/21/2011 7:15 PM
I’m getting this post out more or less on schedule today, unlike yesterday. Stocks finished up modestly on all the major averages except the NASDAQ, which finished down modestly, driven by Oracle’s downbeat guidance. It was a ho-hum day for myself, as far as making any changes.
Another interesting read from MarketWatch is available on their website’s front page, by author Thomas Kee, who outlines in his article why he expects “Single-Digit PE’s in 2012”.
Closing up shop for today, I’ll be back in the AM.
1st Posting Wednesday, 12/21/2011 8:30 AM
Asian markets up, European markets trading down, U.S. futures dip into the red, after having been up early. Economic releases on tap are minimal, Existing Home Sales at 10:00 AM, and the weekly release of Oil Inventories at 10:30 AM. No upgrades/downgrades today so far on any of my stocks.
Jeff Reeves has a timely article on Marketwatch entitled “Dividend Darlings Will Burn You”. The gist of the article is to avoid stocks and sectors that have become too popular, and thus have been bid up to “frothy” levels. He mentions utilities and tobacco stocks, and I would add MLPs to that list as well. In my essays on my investing strategy (see Approach), I stress that, other than buying a stock headed towards the “dust bin”, “paying too much” is the biggest threat to returns a dividend investor has to contend with. The key to avoid doing this is to establish maximum prices to pay, then have the “P A T I E N C E” to hold off on buying until attractive prices become available.
I don’t expect much today in the way of opportunities to be seized, but you never know. As the sports cliché goes, “that’s why they play the game”.
Final Posting Tuesday, 12/20/2011 9:10 PM
Well, we finally had a big rally. I took advantage of it to sell a June 2012 call against my PFE shares, at a strike of $22.00. I settled for a sale price of $.98. I lowered my price two cents when it looked like I might miss it again, like Friday. Of course, as soon as I did that PFE went on a little mini-run, and I could have gotten my original price of $1.00. But I ‘m OK with that. I don’t believe in being too stubborn about a limit price and losing out on a trade over two cents.
1st Posting Tuesday, 12/20/2011 8:30 AM
Asian markets finished mixed, European markets slightly up except for Britain, U.S. futures indicating a fairly strong open to the upside. Economic news on tap at 8:30 consists of counts on Housing Starts and Building Permits. I don’t expect much here, but I also don’t expect the numbers to have much impact. When I think of the housing market, I think of the old Cream (60’s group) standard, “Born Under a Bad Sign”, with the lyrics “I’ve been down since I began to crawl, if it wasn’t for bad luck, I wouldn’t have no luck at all”. Mark Hubert has a new thought-provoking article on Marketwatch that is worth a read, comparing today’s widespread 2012 “doom and gloom” outlook to the fears’ prevalent in 1999 regarding “Y2K”. Like Mark, I am not a big believer in the “Mayan Calendar, doomsday is coming” view, although I have to admit there sure are a lot of problems out there that could erupt at any time.
If we do in fact have an upside open, and Pfizer (PFE) participates, I will try again to sell a call against my shares.
Final Posting Monday, 12/19/2011 7:10 PM
The early positives gave way to negatives, as the market declined throughout the afternoon to close down on all the major averages. I tried to sell the June 2012 call against my Pfizer (PFE) shares, at a strike of $22.00, for $1.00 even. I came within a couple of pennies of getting it a time or two early, then fell further and further away as the market decline gained steam. I had said I wanted $23.00 or $24.00, but after seeing what was available, I decided to lower my expectations a bit, although evidently not low enough. Oh, well, there’s always tomorrow.
2nd Posting Monday, 12/19/2011 8:25AM
I’m just browsing around & reading an article here and there, trying to get in the mood to watch the market. A couple of interesting reads are on the front page of Seeking Alpha (SA). Contributor James A. Kostohryz has a thought-provoking article on the Tim Tebow phenomenon and possible implications for the U.S. social mood. Less upbeat, Graham Summers presents a convincing case for the potential for deflation and economic distress in 2012. Of course, if you really want to “get down”, you can read Paul B. Farrell’s latest Marketwatch column on our coming “Decade from Hell”. No one compares with Paul when it comes to truly depressing commentary.
Of course, the big news of the day is the passing of North Korean dictator Kim Jong II. My reaction was “Ding Dong, the Jong is Dead”, or something along those lines, but apparently not so in Asia, where all markets finished down. It just confirms that the markets hate uncertainty more than they hate miserable predictability. More positively, European markets are trading up, at least so far, and U.S. futures are positive.
No upgrades/downgrades so far on any of my stocks. If Pfizer should happen to trade up, I will try to sell a call against my shares, with a $22.00 or even a $23.00 strike. (See posts from last Thursday and Friday, plus my latest article on SA if you haven’t been following this latest JT investment saga.
Happy Monday, time to get ready.
Initial Posting of the Week Sunday, 12/18/2011 9:45 PM
Looking at the economic releases scheduled for the week ahead, every day will see releases related to the health (or lack thereof) of the housing market. It is hard to fathom that the numbers will engender optimism. It could be a long week.
I am pleased to report that a new article of mine has been published on Seeking Alpha today. It details my experience with the Pfizer (PFE) call, which I detailed here on Thursday and Friday of last week. Go to the SA Articles page for a link.
I had a long drive today, 600 miles, from NorthEast Oklahoma to Austin, Texas, so I’m calling it a day. I’ll be back here in the AM.
Final Posting Friday, 12/16/2011 9:10 PM
Sorry this is so late, I had some errands to run after the market close, before the bank and Post Office closed. Remember, it is Christmas time. Bah, humbug!
It was an exciting Options Expiration Friday, as expected. The market gods eased up on me a bit as the day wore on. The end results were not as good as they could have been, but based on the way it looked at the open, I was happy to get the results I ended up with. Recall that I really needed a down day to win big, a flat day to come out OK, and an up day, significantly up, would have really smarted, considering I passed up decent exit opportunities earlier in the week. Here’s the results:
Bought back the PFE 21.00 call about 3:00 PM for .10 (that’s 10 cents) with PFE at about 21.08. I originally sold the call at 1.00, so this was pretty good. I would, of course, have preferred for the option to expire worthless, but by 3:00 PM it was clear I needed to buy back the option to have any assurance that I would not be assigned.
Bought back the INTC 23.00 call around the same time for .44 (that’s 44 cents) with INTC at about 23.47. I knew I was in trouble on this one, recall (if you have been following me) that I sold some excess shares of INTC on December 5th at 25.15, as detailed in my Seeking Alpha (SA) Instablog article, “Anatomy of a Sale of a Good Stock”. You can use the SA Articles selection to get there quickly. I originally sold the call for .95, so even after commissions I at least came out on the plus side, although nothing to write home about.
So at this point I still have my stocks and I made money on both options, a pretty decent result considering both positions were in trouble during recent days.
I immediately turned around and sold a new option on INTC, with an April 2012 expiration and a strike of 24.00, for 1.21. That would be an effective sale price of 25.21, before commissions, if I were to be assigned. Of course, I don’t think it will get there, but if it does, I will retire from the field on INTC with a nice gain over my average cost of shares of exactly 20.02, which I’m prepared to accept.
As for PFE, the options market makers aren’t as bullish as they are on INTC, the best quotes on a June 2012 call with a strike of 22.00 I could find were about .90 to .92. I usually require at least 1.00 to take the trade, but I entered an order to sell at .95, which at least had a chance, if PFE should happen to rally into the close. It was no go, PFE closed right at 21.03. It was a good thing I exited the December call, else I would be sweating out “pin risk” all weekend. Watch for my next article coming up on SA where I will be detailing the PFE option trades and discussing “pin risk” and the serious exposure options traders have to expiration Friday after-hours trading if their stock closed very close to the option strike.
I am going to declare victory and sign off.
Until next week,
Initial Posting Friday, 12/16/2011 9:10 AM
Asian markets mostly up except for Sensex (India), Europe trading higher, U.S. futures solidly positive. It appears the market gods are going to punish me today for my insolence, in that I was thinking it might be a down day and that I would be able to exit my calls profitably. But as the saying goes, “it ain’t over until it’s over”. I won’t throw in the towel until late in the day. Markets often open up with a lot of enthusiasm, then sell off as enthusiasm wanes. Plus, with bad news possible out of Europe at any time, there could be some selling later on as the more nimble players decide they don’t want to be long into the weekend.
No upgrades/downgrades today on any of my stocks, so far at least. The only economic release today has already come out, CPI/Core CPI, which came in generally in-line, thus not impacting the futures much, if at all.
Good, bad, or ugly, I will dutifully report the outcomes on the two covered calls I have expiring after today, meaning I have to take action today if I don’t like the results I’ll get by doing nothing, which at this point is looking like assignments will be the default results I’ll get if I ignore the reality.
The open approaches!
Final Posting Thursday, 12/15/2011 5:30 PM
The U.S. markets closed up modestly today, although off the highs, and volume was on the light side. Tomorrow could be impacted by a couple of negative after-the-close earnings reports released by Adobe Systems (ADBE) and Research In Motion (RIMM). ADBE was trading down over 4% in the after-hours trade, while RIMM was down over 6%. As an income investor, these particular stocks and their gyrations don’t interest me much, except for one thing: negative headline earnings news could have a spillover effect on tomorrow’s trade, and tomorrow is the third Friday of the month, otherwise known as Options Expiration Friday. A market decline usually only interests me if it causes stocks I am interested in buying to come into my buy range. But a decline on Option Expiration Friday is of interest if I have options expiring. (Recall from my Approach that part of my income strategy is to sell covered calls against stocks that I own.) I have two option positions (covered calls) expiring tomorrow, Intel (INTC) at 23.00, and Pfizer (PFE) at 21.00. Needless to say, I will be watching the market closely tomorrow. My rule is I will buy back on expiration Friday if I really don’t want to give up the shares (true in both cases) and I can get out (buy back the option) and still make a net profit on the option trade (which I will be able to do if the stock is trading close to the strike price). Following this rule, I will probably buy back the options tomorrow unless the stocks go down such that I don’t think the buy back is necessary, in which case the options will expire worthless. If there should be a huge rally with both stocks trading up substantially, I will buy back INTC and possibly take a small loss on the option (breaking my rule, I admit), but I will recoup by immediately selling a new option with an expiration a few months later, at a higher strike. In the case of PFE, I will probably let the stock go, it is higher than it’s been for some time, and I will have a nice gain on the shares. So the stage is set. Follow these stocks tomorrow and decide what you think I should do, and then compare that to what I actually do, which I will announce on this blog when the results are in.
Initial Posting Thursday, 12/15/2011 9:10 AM
Asian stocks down, European stocks trading up, U.S. futures positive for a change. There is a lot of economic data coming out today, and the initial releases, while only in-line with expectations, have nonetheless resulted in the futures turning up, portending a positive open. None of my stocks received any upgrades/downgrades so far today.
I’m pleased to report that my new submission to Seeking Alpha has been accepted. The article discusses some ins and outs of investing in foreign stocks. I am a little disappointed that somehow a table in the article got messed up a little during the publishing process, but I don’t believe it detracts from the message of the article. To get connected to it quickly, go to the SA Articles section, where you will find a link to the article.
Time to go get a cup of coffee and get ready for the open.
Final Posting Wednesday, 12/14/2011 9:00 PM
I had to go run some errands, just now getting the final post out. Pretty much a down day. The market tried to come up a bit at midday, then settled back down to the lows of the day. The general consensus on the Europe situation, at least from what I have read, seems to be that not much was accomplished last week by the meeting of the leaders. It certainly is possible that the crisis could flare up at any time and cause a big sell-off. With that potential, I, like many others, am reluctant to buy, and instead I’m sitting pat, waiting for lower prices. Although it may fall under the heading of “be careful what you wish for”, I am waiting, although not necessarily wishing, for lower prices. If a couple of months go by and no sell-off happens and the level of drama subsides, I may have to consider raising some of my buy prices. But I’m prepared to give it a couple of months or three before I give in. So for now, I’m in the familiar position of the value investor, gnashing my teeth because everything is “too high”. One effect of 2008, 2009 is I, and many other value investors, got “spoiled” by the abundant bargains that existed back then.
Initial Posting Wednesday, 12/14/2011 9:20 AM
Asian, European markets down, the Euro is down, and there seems to be a plethora of new articles from the usual suspects (Weiss, Graham Summers, among others) predicting the economic collapse of the Eurozone and dire ripple effects for the US economy and markets. And they may well be right! If there is one thing I have learned in 10+ years of following the markets, anything is possible.
US futures are essentially flat to slightly negative. One of my recommended stocks, Altria (MO), was downgraded to Hold from Buy by Stifel Nicolaus, probably on valuation. MO is far above the level where I would be a buyer. One of my “legacy” stocks, Penn West (PWE), formerly a Canadian trust, now a corporation, had coverage initiated by Dahlman Rose with a Buy recommendation. “Legacy” stocks are stocks I still hold from the days when “I didn’t know what I didn’t know”, to use a phrase that unfortunately describes the reality perfectly. Of course, those days may not be over, and in fact may never be over. But I digress. Back to “legacy” stocks. These are stocks that I don’t recommend, but that are still paying and that I see no reason to sell. PWE has been paying faithfully for a long time, and in fact it hasn’t been a bad income stock to own. I will probably expand my stock lists from Tier1 and Tier2 to add a Tier3 list, which will be speculative stocks that aren’t half bad, just not up there with the JNJs and XOMs of the world. Cramer has addressed this topic, suggesting that even a conservative investor may need to allow himself/herself to speculate with a clearly-delineated, small percent of funds, to satisfy that urge. I agree heartily. I am a great admirer of Cramer, not so much for stock picks, but because of his knowledge, experience, and the excitement he generates on financial TV.
Time to start the trading day, or more likely in my case, the observing day.
Final Posting Tuesday, 12/13/2011 4:45 PM
Pretty much a lackluster day. The rally fizzled after the market digested the Fed’s comments, plus the latest rumor from across the pond is Germany is balking at bailouts once again.
I’m working on a new article for SA on foreign stocks (ADRs) and some of the unique risks they present, along with all the old risks all stocks present. The new risks are currency conversion risk and foreign tax withholding. I hope to get it accepted sometime in the next few days. Stay tuned.
Initial Posting Tuesday, 12/13/2011 9:25 AM
Asian markets mostly down a bit, European markets trading mostly up, US futures positive as we head towards the open. Economic reports coming out today are Retail Sales (released 8:30, a little less gain than predicted), Business Inventories at 10:00, and FOMC announcement at 2:15 PM. I almost overlooked that last one, I had forgotten a Fed meeting was going on. In times gone by, that would have been the most anticipated news of the day.
Moving on to my stocks, none received any upgrades/downgrades based on Etrade’s early round-up, the source I use for this. Interestingly, there were quite a few initiations of coverage today, more than usual. News on my stocks wasn’t much. DuPont (DD) up a little after the company updated guidance for 2012. Pfizer (PFE) lost about 15% of the market share for Lipitor in the first few days of the drug being available generically, according to a Market Current posting on Seeking Alpha. No surprise there. And finally, another Market Current posting stated that AT&T (T) was reviewing their options to see how they can make changes in their T-Mobile deal to get it past regulators. That one isn’t over yet.
The magical hour approaches, time to get ready!
Final Posting Monday, 12/12/2011 4:45 PM
As the futures predicted, it was a down day, although the averages rebounded a bit from the lows of the day as we headed toward the close. Surprisingly, the “fear gauges”, VIX and friends VXO, VXN, & QQV all closed lower on the day, with the VIX staying comfortably below 30, a level above which all concur indicates considerable stress. (Remember, up on the “fear gauges” equates to down on the stock market averages.)
INTC received a downgrade during the day today from Needham & Co, to Hold from Buy. No big news there, considering Intel’s announcement this morning.
No transactions to report. We will need several down days to get within my buy ranges for most of my stocks. That may occur soon, I’ll just have to wait and see. PCH, DLR, VLY, VTR, MCY, and MRK all go ex-dividend tomorrow, but I couldn’t see paying today’s prices when I believe better prices are coming.
2nd Posting Monday, 12/12/2011 9:25 AM
Asian stocks finished mostly flat, other than Japan, which gained. Europe is trading down, and US futures are pointing to a down open, as concerns over Europe and the Euro once again come to the fore. No surprise there.
The big news for my stocks is INTC, which issued lower guidance this morning. It is going to open down nearly a buck, and it could break below 24.00 today. When you consider it was over 25.50 three trading days ago, it has dropped nearly 6%, but still has a ways to go to reach my maximum buy level of 20.00. Glad I sold a little last week over 25.00 (gloat! gloat!), taking advantage of the run-up. See my Instablog post on Seeking Alpha on the sale to get my rationale for selling. You can do a search by author (John D. Thomason) to get a link to the article, which is entitled “Anatomy of a Sale of a Good Stock”.
The bell has rung, time to pay attention!
Initial Posting of the Week Sunday, 12/11/2011 9:25PM ET
Trying to write this post while keeping one eye on the Broncos-Bears, a difficult task as the game moves into “Tebow Time”, ie, the 4th quarter. (If you are not a football fan, ask someone who is for an explanation of “Tebow Time”.) Japanese stocks are up, other Asian markets are mostly up as well, no earth-shaking geopolitical news at the moment.
Over the weekend I have conducted a review of all my Tier2 stocks, to see if I have any deletions from the list. I reviewed all ratings available from four different brokerages (Schwab, Etrade, TDAmeritrade, and Fidelity), posting to a spreadsheet. Plus, I read several analysts’ reports, and also drew upon other sources. At this time, I am not deleting any stocks from the list. The stocks on the Tier2 list definitely have more risk that the Tier1 stocks, but not enough to drop any at this time. Just keep in mind that adhering to the “maximum price to pay” as suggested is a key element in providing a “margin of safety” in acquiring these stocks (and Tier1 stocks as well). Also, keep in mind other risk limitation aspects of my methodology, such as acquiring incrementally, averaging down, limiting total position size, limiting sector exposure, and so on.
My article on “MLPs in IRAs” made it onto Seeking Alpha (SA), here is a link. Author Reel Ken has a couple of articles on the same topic (do a search by author on SA) which delve deeply into the tax issue regarding “Unrelated Business Taxable Income” (UBTI), deeper than most want to go if you consider all the comments the article aroused. (If this topic doesn’t interest you or you are not familiar with the issue, skip this section. The commentary to follow assumes a basic understanding of the subject.) I intend to do a follow-on article for SA on the topic later on, but to summarize where I believe this is at:
MLPs are perfectly legal to have in an IRA.
MLPs in their ongoing business activities can generate income known as UBTI, and if the summation of all UBTI from all MLPs in a single IRA exceeds $1000 in a tax year, the custodian (brokerage) is supposed to file a form (990-T) and pay the tax using funds from the customer’s IRA account. This is not a violation, nor is there a penalty, just some tax due, even though this is in an IRA.
The account holder must forward to the brokerage copies of all forms K-1 received from the MLPs he/she owns, so the prior task can be performed. This should be done even if the UBTI amounts are low or negative, since negative totals in one year can be used to offset positive UBTI in subsequent years.
There is certainly a possibility that a sale of an MLP in an IRA could caused substantially more UBTI to be generated than there would be if no sale had occurred, due to recapture and/or reclassification of income and related items (explaining what is meant here is beyond this post and this author, just take my word for it) that can occur upon a sale. If the MLP had been held for a long time and was a substantial position, the investor could have more than $1000 of UBTI, even if he had never approached that limit before. This is the key point of Reel Ken’s article that generated so much commentary. If this exposure actually exists, this could represent a “time bomb” in some investor’s IRA accounts (large accounts, high six figures or more, with substantial, long-term MLP holdings) that will cause them to have to pay some tax they hadn’t expected. Is this a disaster? No, but it will affect the return on the MLP investment. Reel Ken concedes (I think) that this hasn’t received a lot of IRS attention, but that it well could in the future.
For the small investor (under six figures, no more than two or three MLPs of 100 to 300 units), the risk of UBTI being over $1000 in a year is very remote, even if holdings are sold. As to why take any risk with this, I would point out that MLPs have represented some of the highest, safest yields available anywhere, and have experienced substantial appreciation also (which may not continue, as many MLPs are fully priced now, having been “discovered” by investors). I don’t believe small investors, who may only have funds available inside IRAs, should preclude themselves from this attractive asset class because they may run a remote risk of having their returns reduced by the UBTI tax issue. If an investor has a concern, he/she could, as a matter of practice, only hold a given MLP for no longer than a couple of years to avoid being “blindsided” by this issue later on.
There are other, unanswered questions to add more to the discussion, but this is enough for now.
Time to watch SNF. I’ll be back at it bright and early tomorrow morning.
Initial Posting Friday, 12/09/2011 9:25AM ET
After a down day yesterday, futures are slightly positive this morning. Asian stocks fell, while European stocks are trading higher. As usual, Europe is in the news. The headline on Marketwatch says the leaders agreed to “closer” fiscal ties, but no “full deal”. Seeking Alpha has some new articles on the topic that are interesting reads (no links needed, they are right there on the home page). Based on literally dozens of articles I’ve read, there seems to be two schools of thought: one that says Europe is doomed, time is running out, and when it blows it will be worse than 2008; and another which admits it is a negative factor, but does not believe it will bring in “Armageddon” for the US, and the worst case is it could tip us into a “mild” recession in 2012.
One of my stocks, DuPont (DD), in a press release cut their 2012 profit outlook, causing the shares to trade down 6% in the pre-market, to 43 + change. The stock would have to come down a lot more to reach my buy level of 35.00, so no action is called for right away. I do not currently own DD.
I’m still working on the “MLPs in IRAs” article, when (if) it ever gets accepted, I’ll post a link.
Initial Posting Thursday, 12/08/2011 1:25PM ET
I’m way behind today, just now putting out my first commentary of the day. Not that it matters now, but futures turned down just before the open. The economic data seems to be holding up fairly well, but of course the European situation overrides all. It appears the market is waking up to the fact that it isn’t going away .
One of my stocks, Senior Housing Properties (SNH) received a mild downgrade this morning, to Market Perform from Market Outperform, from JMP Securities, a San Francisco Investment Bank.
I’m still working on the “MLPs in IRAs” article with Seeking Alpha. They had some suggestions, which I responded to and resubmitted. In fact, I worked on that all morning, which is why this post is late.
Final Posting Wednesday, 12/07/2011 4:45 PM ET
Well, what do you know – I finally got filled on the February 2012 call on UN with a 35.00 strike, at the very end of the day today. At my lowest acceptable price of 1.00. What this means is I am committed to selling at 35.00, with no complaints. If I do get sold (i.e., assigned, I will be sure to buy UL instead of UN the next time I go back in to Unilever, to avoid the 15% withholding.
The only other news is I spent all day writing an article I intend to submit to Seeking Alpha (SA) on holding MLPs in an IRA. Unbelievably, just as I signed on to submit it, another author had submitted an article on the same topic. I felt like the guy that invented the light bulb a few days after Edison. After reviewing the (other) article, I came to the conclusion that my article offered a lot of information that his did not, and would be of interest to the SA community, so I submitted it anyway. Stay tuned. If my article is accepted, I will provide a link, which SA allows. If it does not get accepted, I’ll post the article in full on this website.
Initial Posting Wednesday, 12/07/2011 9:15AM ET
Futures basically flat. Economic releases scheduled for today are limited, the regular Wednesday oil inventories, and Consumer Credit at 3:00 PM. Asian markets were generally up, European markets ongoing but generally down. No significant news (that I noticed, anyway) on any of my stocks.
Continuing on with the topic of MLP NS from yesterday’s blog, as I suspected, I had to raise my bid to get filled. I started out trying to buy at 53.25 (which would have been successful if I had entered it before the open), and after a couple of hours, raised my bid to 53.55. I missed buying NS in August and October (Don’t be too hard on me, I was focusing on other stocks – not wasting my time), and I did not want to let this opportunity pass. Like any stock, it could go down more, so I only bought an incremental amount, leaving myself “room” to buy more. I have now acquired 50% of the shares (actually, units, in MLP-speak) I will allow myself to own. To recap, I ‘m back in on NS, purchasing 25% of my position on 11/17 @ 55.25, and another 25% on 12/6 @ 53.55.
2nd Posting Tuesday, 12/06/2011 10:25AM ET
I see that I missed a significant development on one of my stocks, Nustar Energy (NS), the MLP that was originally spawned out of Valero (VLO), the San Antonio refiner, which was originally spawned out of Coastal Corp (CGP – since acquired by El Paso (EP)) as part of the 1970’s LoVaca settlement. (A little bit of history for you.) Anyway, NS announced late yesterday a new 5.25 million unit offering priced at 53.45. Like all secondary issuances, the stock has dropped this morning to the new range. I only have a small starter position in NS, acquired at what I thought was a good price, 55.25. I see this as an opportunity to pick up more shares at a discount, so I have an order in. I thought it might drop a bit more, but as of now it is going up. I will likely have to increase my bid to get filled. I will adjust slightly my listed maximum buy price from 55 to 54. Other than that, I don’t plan on making any changes to NS, a Tier1 stock in my universe.
Initial Posting Tuesday, 12/06/2011 9:25AM ET
Futures basically flat. No significant economic releases scheduled, only a couple of retail sales releases, which don’t interest me much. Per Etrade’s initial accumulation of upgrades/downgrades, none of my stocks were mentioned. With the dearth of economic data today, it’s going to be “all Europe, all the time” in the news, I suspect. John Mauldin, my favorite source for macro-economic perspectives, has a new “Outside the Box” article on Europe, which I intend to read as soon as I get this initial blog posting out. If you haven’t yet signed up to his free email newsletter, I suggest you do so. Go to his website at www.frontlinethoughts.com to sign up.
Results of review of PCH (Potlatch): PCH definitely threw a curve ball yesterday, announcing a planned reduction in lumber harvesting and a 40% dividend cut. I always viewed PCH as a resource stock, and since the resource is renewable (lumber), almost a can’t lose situation. But the long-running housing depression has evidently taken enough of a toll on both demand and pricing that the company’s management and board determined this step was necessary. I don’t own it at this time. If the price should decline like it should after a cut of this magnitude, I might be a buyer. I still believe the long-term outlook is ok. But the darn stock hardly declined at all yesterday, although it is down nearly $2 from the 11/30/2011 close (the big rally day – remember?). Most research reports I reviewed last night (which of course pre-date the cut) were hold or neutral, although two stood out: a buy recommendation from The Street.Com dated 12/4/11 (I get this via my TD Ameritrade account - I bet they wish they could have that one back), and a Strong Sell from Ativo dated back in October (I get this via my Fidelity account.). Taking the view that this is a prudent step being taken by a prudent board and management, I’m keeping PCH on my list, but lowering my maximum buy price to 25.00 and my ideal buy price to 22.00. If bought at 25.00, the yield would be nearly 5%. I’m lowering my consider sell price to 35.00. The announced ex-dividend date is 12/13/2011. I would definitely approach this one with even more caution than usual.
Final Posting Monday, 12/05/2011 6:15PM ET
The late-breaking news of threatened mass downgrades on 15 Eurozone nations by S&P definitely chilled the rally, although the major averages held onto decent gains. I just wouldn’t count on the rally continuing tomorrow.
At least INTC didn’t go up 20% after I sold. Of course, it still could – but if so, it’s OK, I still have what I consider a full position.
Tonight I will review several research reports on PCH and make a decision on changes to my listing – which could range anywhere from a drop to no change at all.
3rd Posting Monday, 12/05/2011 1:15PM ET
Fairly exciting Monday morning, which is usually the case. One of my stocks (PCH) just announced a dividend cut, to 31 cents/qtr from .51 cents/qtr. I knew there was a reason why PCH was on my “Tier2” list, not “Tier1”. While not good, I would recommend against over-reacting, the current yield is still over 4%. Of course, easy for me to say, since I don’t currently own it! Right now, if I owned it, I would hold. And if I didn’t own it, I would also hold up on buying. Even though the price is approaching my buy levels, and a December ex-dividend is near (12/13), I will probably be lowering my buy prices on this stock, in light of the cut. Consider it under review.
I made a sale this morning, taking advantage of the rally we have been seeing to sell 1/3 of my position in INTC at 25.15. My rationale for this move illustrates my strategy perfectly. If you visit my website, you will see that I consider INTC a “Tier1” stock, and as noted, I own it. I still own it, just 1/3 less than I owned at the open. Why would I sell when INTC is doing so well as a company, especially since on my “Tier1” list I specify I would only consider selling if it reached 28.00? My reasons are as follows:
I had 150% of my authorized position size. I purposely oversubscribed back in March 2011, when it dipped below 20, with the thought that it was a good buy at this price, was safe enough to justify owning more even though I already had a full position, and (like all stocks I consider), it paid a good dividend.
The sale price represented a 25% gain on the price paid. This is enough of a gain that I consider it worthwhile. I’m not saying “always sell when you have 25%”, but only that 25% is adequate, and a sale may be advisable, after considering all factors.
I would have to collect dividends for another five years to receive as much as I made on the sale.
It just paid a dividend. Another one won’t be coming along for another 3 months.
I hate to let a rally go to waste. Sometimes I just want to “ring the cash register”!
(I have to credit Greg Capra of Pristine Capital for that expression, from the book “Tools & Tactics for the Master Day Trader”, Velez & Capra.) It perfectly describes why I sell sometimes. I haven’t “cashed in” on anything so far this month, & I just wanted to “see some green” to post into my records.
Like all stock trades, only time will tell whether this was smart or dumb. If it turns out to be the latter, it won’t be the first time.
2nd Posting Monday, 12/05/2011 9:25AM ET
Running behind this AM. Initial review of upgrades/downgrades reveals one of my Tier2 stocks, BWP, received an upgrade to OutPerform from Morgan Keegan. Friday’s close for BWP was 26.46, not too far from my max buy price of 25, though far above my ideal buy level of 20. Next distribution won’t be until February, so no rush here. Note that BWP is a MLP – don’t even think about it (buying, that is) unless you know what the ramifications of owning an MLP are. Still, BWP’s yield is tempting, nearly 8%, even at 26.46. (Disclosure: I don’t own it now. I would be a buyer upon a decline below 25, especially if the next distribution ex-dividend date was only 2 or 3 weeks away.)
As usual, Europe is front-and-center in the news. Futures are up for no reason other than that Merkel & Sarkozy are talking, & Italy announced more austerity measures. This situation will possibly come to a peak on or after Friday, when yet another European summit will take place.
Time to pay attention, the opening bell approaches.
Initial Posting of the Week Sunday, 12/04/2011 1:50PM ET
Browsing through Seeking Alpha on Sunday afternoon. I want to mention a couple of recent articles I have found (on Seeking Alpha) to be of interest. First, Seeking Alpha (SA) contributor John Reese has provided an excellent article on O’Shaughnessy’s recently released update of his classic “What Works on Wall Street”. In times past, I have seen negative articles on O’Shaughnessy’s original book stating that it should have been entitled “What Works on Wall Street, or at least Worked Until I Wrote This Book”. I never agreed with these negative views, and always believed O’Shaughnessy’s analyses’ to be useful. When a poor decade for stocks occurs, as we have just experienced, no long-term strategy is going to deliver outsized results. Anyway, John’s summary as presented is excellent, and I intend to buy and read the book soon. Another SA article I liked was “5 Investment Mistakes” by SA contributor Tim McAleenan. Tim’s article discusses 5 caveats to stock investing per Phil Fisher (now deceased), author of “Common Stocks and Uncommon Profits”. A second article from Tim entitled “5 Tips From The Legendary Peter Lynch” is also good. (links omitted – articles are on current home page of Seeking Alpha – or if moved, you can search by author.)