WASHINGTON, May 30, 2013 — Averages are modestly up this morning on Wall Street as the market feebly attempts to recover from this week’s carnage. Things have been worse than they’ve looked, under the hood at least, as all sectors have experienced fairly ruthless selling. Part of this, of course, is due to portfolio squaring for the end of May. But the rest is likely due to iffy fundamentals; the absolute conviction (right or wrong) that interest rates will start to soar, like, yesterday; and the simple fact that, at least until last week, the market has been grossly overbought.
Utility stocks and REITs were the first to take it on the chin during the recent selloff as investors and hedge funds initially decided to position for capital gains rather than settling for the mere 5-15 percent they were getting in dividends from yield-heavy stocks. Oil and gas MLPs took it on the chin next, and are still getting hammered, pretty much, today. And yet, utilities led an early advance on Wall Street Thursday, according to AP at least, after Berkshire Hathaway’s MidAmerican Energy agreed to buy NV Energy, a Nevada-based electric and natural gas company, for $5.6 billion.
Actually, many utilities are beginning to look good again, at least yield-wise. NV Energy surged $4.40, or 22 percent, to $23.67, leading a broad advance in utility companies. Northeast Utilities rose $1.11, or 2.7 percent, $42.82. Wisconsin Energy climbed 99 cents, or 2.4 percent, to $41.86.
Also, the action in Smithfield Foods (SFD) was pretty good, too, if you happened to own it. The old Wall Street adage is that bulls make money, bears make money, and pigs get slaughtered. In this case, looks like the pigs are making some money, too, and we’ll talk more about this below.
But the rest of the market looks really tired. “I don’t think that stocks are going to trade higher than where they are right now,” said Scott Wren, a senior equity strategist at Wells Fargo Advisors. “We’ve pretty much seen the gains for the year.” Scott may very well be right.
That said, stocks advanced today despite some lackluster reports on the economy. We could be ready for a short term oversold bounce, but that’s all we think this will be. And the gradual dribble of facts and reports would seem to corroborate this. For example, the number of Americans seeking unemployment aid rose last week, a sign layoffs have increased, the Labor Department said Thursday. Claims for unemployment aid rose 10,000 last week to 354,000.
Of course, these figures never mention the permanently unemployed and the under-employed, which we estimate would actually double the reported unemployment rate and—surprise—prove a far more accurate barometer of the fact we’re still in Great Depression II, all political happy talk aside. The bankers are happy, the mega-industrialists (like Warren Buffett) are happy, and the politicians in their hip pockets are collectively happy just as long as no one in the state-run media don’t bolt ranks and start reporting real news again. Nothing to see here, folks, just move along.
In keeping with this motif, here’s a surprise. The initial estimate of first-quarter economic growth was revised slightly lower. The economy expanded by 2.4 percent in the first three months of the year, slightly less the 2.5 percent rate originally estimated, the government reported. Of course it’s likely that this “slightly less” rate inspired the “slightly higher” unemployment aid number we just mentioned.
It’s likely, when all these “normalized” stats are reported in one chunk, that Federal and commercial sources for the data are actually writing for the pros who can read between the numeric lines and piece together a story from all the reports. The average Joe never thinks to match unemployment stats, for example, with growth stats, which would actually help parse a portion of the actual truth as opposed to the Party Line.
To bad they don’t teach this stuff in school. Actually, it’s too bad they don’t seem to teach anything in school these days, but that’s for another column on another day.
—AP contributed to this report
Today’s stock market picks and pans:
As with yesterday, no picks today, just pans.
The only more or less good thing to report is news of the sale of veteran Virginia meat packer and vertical meat conglomerate Smithfield Foods (SFD), owner of Armour, Gwaltney, Ekrich, Healthy Ones, and other well known brands. SFD experienced roughly a 35 percent jump in share price when the company reported it has struck an agreement to sell itself to Shuanghui International, a Chinese equivalent looking to secure more stable supplies of pork.
According to Wikipedia, Shuanghui is the first Chinese meat processing company passing ISO9001 standards. That would be good news, and a promising sign that this company isn’t feeding tasty melamine pellets to its livestock.
There will be the usual regulatory hurdles of course, including questions from Congress, we hope, as to when China will really open its markets for U.S. takeovers of Chinese companies. But that will only happen when the wily Chicoms decide it will be to their advantage.
BTW, it’s likely too late to mess with a trade on SFD, unless another offer seems about to surface, so we’d advise investors not to chase this stock.
Aside from this, a bit of action we weren’t involved in ourselves, we have pretty much dumped our entire portfolio in all accounts as of this morning. The only holdings we still retain are a few long-time (since 2008) bond positions, the tattered remnants of our ill-timed purchase of MLP Calumet (CLMT)—a good refiner in a sector that continues to get clobbered—and a few hundred shares in IPOs we acquired about a month ago when the offers on the table were really good.
We’re still way ahead on our IPOs, and we’re hoping they don’t get clobbered before we get a chance to sell them early next month, after our brokerage firm’s rule on holding IPOs for at least 30 days has run its course.
We also reluctantly sold our position in newly created Ambac (AMBC) shares which have been teetering a bit since they resurfaced in the market as a consolation prize for those like the Maven who’d been holding flat (non-interest paying) debentures (bonds) since that company declared bankruptcy in 2010.
We’ll likely get back in at some point, however. For some reason, it’s still largely a secret that companies successfully emerging from bankruptcy can be extraordinarily lucrative investments over time. Individual investors confuse the outcomes of corporate bankruptcy with those evident in personal bankruptcy.
In personal bankruptcy, you generally are hosed, credit-wise, for upwards of seven years depending on circumstances. Typically, this makes it tough to get new credit cards (if you even want them), some car loans, and worst of all, new home loans—although everybody seems to be having trouble with those lately except Warren Buffett and members of Congress.
But companies that emerge from bankruptcy have a very different aura, at least to the professionals. Their new balance sheets are pristine. Debts, union contracts, legacy benefits, etc., are modified or wiped entirely clean. And the formerly bankrupt company is likely in better shape, at least upon emergence, than the average A-rated or better American corporation that’s never seen the insides of bankruptcy court.
For that reason, with a half-decent management and in a half-decent corporate sector, a newly emerged company can build a decent new business without being haunted by its past. Ambac is in what may once again be a lucrative business area—bond and mortgage insurance, primarily—and it’s no longer troubled by the horrendous burdens it was saddled with when everything collapsed in 2008.
No guarantees, of course. But a decent bet, with at least some analysts figuring that the stock, now roughly $24 and change per share, can go to at least $31 in the future.
But likely that won’t be today. The entire market stinks right now, largely because of the QE-POMO (quantitative easing-Permanent Open Market Operations) stuffing of cash into the channel and the fear that it may go away sooner rather than later. So we have really gone to cash right now, save for the stocks we just mentioned and a few bonds.
And there we will stay, in spite of the high possibility of a snapback rally at any moment. Summers on Wall Street tend to be lazy and nasty. We’ve hung around too long on many occasions. Maybe, as some pundits say, “this time, it’s different.” But we’ll take a pass on that hopeful lie this time around.
On the other hand, if we see a ridiculous bargain, we’ll be the first to let you know.
Have a good one, and keep a good cash stash for the next Wall Street mega-markdown.
Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate.
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.
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