Friday, June 21, 2013

Thank Ben!

I recently wrote ( early June ) about hoping for a summer swoon in the markets to deploy some cash. Well, it seems the swoon has started. Ben Bernanke, the Chairman of the Federal Reserve, recently announced that the Fed, may start to taper their bond buying from the current $85 Billion/month. The market, in it's typical manic depressive fashion, has taken this as bad news. The markets have been hammered the last couple of weeks ( S&P 500 down 5.1% from recent highs ), as the Fed takes away the punch bowl ( a gusher of cash/liquidity) from the equity party. Stocks have done well the past 12 - 24 months, and have out-run the underlying economy. This pull-back is much needed to recalibrate people's expectations of future profits - corrections are healthy. All of this selling of bonds ( when bond prices fall, yields go up ) and stocks forced people to the safety of the USD. If you own U.S. equities, you will benefit, particularily if you are Canadian. The CAD is headed lower. You will also benefit if you own insurance companies that make more $$$ from higher bond yields. Manulife ( I own MFC), Industrial Alliance and Sunlife all touched 52 week highs, this week during the sell-off. It's a good place to hide. The bond market is telling us that the economy is getting better and rising rates are confirming that. It's a good time to add to existing holdings, that are still undervalued - or start new a position. Just don't buy all at once, buy slowly.

I have recently added to CHK@ $20 and started a new small position in a un-loved U.S. based mortgage insurer.



Thursday, June 6, 2013

Bye Bye Big Lots

I recently closed out my position in Big Lots (BIG) the U.S. based discount retailer at $33 and change. After 2 years of owning BIG, it's seems they can't find their mojo. Management issues, inventory back-ups and weak merchandising have all hurt BIG. I've decided to move on and continue to build cash, hoping for a summer swoon to add to other more favourable positions that I currently own. I was able to exit with a razor thin profit. That's our kind of mistake - when an idea doesn't work-out we want our money back. I don't like losing money. Retail is a tough business, when you're competing against the Costco's, Walmart's and Amazon's of the world. Just look at this:

Chart forBig Lots Inc. (BIG)

On another note - not related to retail.

If you didn't read my post in March on yield - click here

You may have noticed that interest rates ( not the short-term rates set by the Fed ) have been backing up ( going up - so bond prices have been going down ) over the past month and half. The U.S. 10 year bond has risen from 1.7% to 2.1%, which may not sound like much, but it's enough to make people skittish on the interest sensitive stocks like the pipelines, telco's and Reits. They have been selling off - they are STILL QUITE OVER VALUED. They are vulnerable to the downside if rates continue to go up. Here's a look at a few Canadian household names over the past few months. The sell-off in these names has already wiped out your divy for the year - caution - turbulence ahead:

Chart forBCE, Inc. (BCE)