WASHINGTON, October 16, 2012 – Well, we got another whale of a day yesterday, so perhaps Mr. Market will try to make it a trifecta today. The market at 9:55 a.m. EDT is looking anemic, but you can never tell where things are going during options expiration week which this is.
The Euro is sharply up against the dollar, which usually augurs a good day for stocks. And metals, including the precious one, are inching back up again after destroying our leveraged positions for days. We’d bailed as a result, but got back in a little tiny bit of the double-bullish long gold ETF, DGP, yesterday. We’ll see.
We also sold our positions in our beloved REITs which we hated to do. But we decided to take our rather nice capital gains in them before the market took them all back. Alas, we’re still stuck in an uncomfortable position in LifeLock (LOCK) we acquired in their recent IPO and which we need to hold for somewhat longer due to Schwab’s rules on IPOs. I.e., you can sell them or flip them at any time, but if you don’t hold them for a month, then no more IPOs for you for 90 days.
It’s an irritating rule, but the Maven deals with it, as, fair to say, he has more ability under this system than his customers ever did when he was a retail broker. (As a broker, the Maven was never allowed to get in on an IPO itself for obvious conflict-of-interest reasons.)
The Maven also dumped other stuff he didn’t want to dump, including his successful IPO holding of Hi-Crush Partners (HCLP) which did make him a most handsome profit in the neighborhood of 25%. Of course, LOCK is working hard to obliterate that, but that’s how it goes in the IPO world.
We did jump in and buy a small, speculative position in some Bank of America warrants, specifically, BAC/WS/A. (Depending on your brokerage, the symbols for these warrants can vary.) These are peculiar beasts. Expiring worthless in 2019, these vehicles give you the right to buy Bank of America stock (BAC) at $13.30 a share (more or less as the rule also factors in the value of a dividend which is nil at this point) anytime between now and 2019, assuming we get there and that the Mayan calendar is wrong.
The warrants are in the $3 range right now which gives you leverage without a margin account. I’ve traded these peculiar little beasts many times and in great quantity (for me) which is why they can give you more juice when the stock goes up as you hold more shares, er, warrants to buy the shares. The Maven has mostly made money on these, but he has gotten hosed on occasion. They’re quite volatile and can reward you—or punish you—smartly depending on how your luck is running.
If the warrants are weak today—a possibility after BAC reported flat quarterly earnings after the close yesterday—I’ll probably load up on some more. If not, I won’t chase them. They should be regarded as trading vehicles only. And a caveat: at least one savvy writer, Chris Moreno, has done a lot of math on these warrants and regards BAC stock itself as a better investment. Read his article in Seeking Alpha here if you’re a numbers geek. He makes a pretty good case for his thesis.
Other thing to remember, though, is that BAC may still have years of lawsuits to work through, courtesy of allowing the Feds to more or less force the bank to buy the extensive but also extensively toxic business of Countrywide. The only people who are getting rich on this massive fraud—for which no one has gone to jail, BTW—are the lawyers, we think. BAC unfairly gets blamed for all this toxicity, unfortunately, but there you have it.
The Feds essentially cram Countrywide down BAC’s throat. BAC’s president ultimately loses his job over this. And now the Feds and others are going after BAC, prosecuting them for junk they were forced to buy (including the Maven’s own home mortgage, believe it or not, which was presumably living in a “good” tranche of this stuff.)
But we digress. BAC A warrants (the Bs are BS) can be fun, but seriously, travel at your own risk. Financials have been looking half decent this week which is why we’ve chosen to play.
Another old fave we’re taking a look at is Cliffs Industries, CLF—the old Cleveland Cliffs. The Maven actually worked on one of the Great Lakes ore carrier boats owned by this iron miner back in the day. The company has since massively diversified into coal (bad idea in this administration) but still sells a significant amount of steam and metallurgical coal to China via the mines it now owns in Australia.
If the Chinese really do decide to go Bernanke and stimulate their economy (dubious according to the fairly prescient naysayer known as ZeroHedge), CLF—which is phenomenally volatile—could go on one of its periodic tears. The last time we rode one of these, we started getting on the CLF train when it had entombed itself in the high $20 per share range, and then traded away, jumping on and off the train until the stock was tickling $100, all within a year. Again, though, like BAC warrants, this is a really violent stock. It was up sharply yesterday and we’re not going to chase it, because the coal part of the company does make us nervous at the moment. But if it pulls back, we may give it a try.
What we’re driving at here is that you should be pretty cash-y at this point and simply jump in and out of potentially lucrative specs if you want to do a little scalping. “Investing” in this absurd market is pretty risky right now, so doing the moral equivalent of “renting” stocks for short periods of time is probably a better idea. We’re actually uncomfortable with this, preferring things like REITs and utilities with their high dividends and relative stability.
But that’s the watchword right now. Relative. If Iran gets cute, if the Syrians deploy mustard gas, or if we get another New England earthquake today (like the surprise one yesterday), or if Candy Crowley keeps her job after fibbing to help Obama out on Libya like she did in last night’s debate—or anything else, for that matter, the market will go against any position you or moi might take.
So these are some ideas to play with, anyway. Otherwise, creeping back in to utilities like FirstEnergy (FE) and American Electric Power (AEP)—Rust Belt utilities with uncommonly swell dividends—is a reasonably safe bet unless California should collapse into the Atlantic while Ohio is obliterated by Lake Erie. Stranger things have happened.
Have a good one.
Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate. He disposed of positions yesterday in DGP, IAU, ACQ, SLV, but re-acquired a small new position in DGP yesterday. He also acquired a small position in Bank of America Warrants/A series (BAC/WS/A) yesterday and may add to the position on weakness.
Positions mentioned above describe this author’s own investment decisions and should not be construed as either buy or sell recommendations. The current market is highly treacherous and all investors travel at their own risk, so caution should be exercised at all times.
Illustrations, charts, commentary, and analysis are only the author’s view of current or historical market activity and don’t constitute a recommendation to buy or sell any security or contract. Views, indications, and analysis aren’t necessarily predictive of any future market or government action. Rather they indicate the author’s opinion as to a range of possibilities that may occur going forward.
References to other reporters, analysts, pundits, or commentators are illustrative only and do not necessarily represent an endorsement of such individuals’ points of view. If specific investment vehicles are mentioned in any article under this column heading, the author will always fully disclose any active or contemplated investments in said vehicles.
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