Hate To Say We Told You So
For a change, the market did what it should have done. Early this morning we took a nice profit on a short term call for CHK Chesapeake Energy as it was up 27% after two days of trading. We bought into AMZN at three levels today 215, 214, and 211. This is not a falling knife, this is a decent value for a 235-300 a share stock. There strong command of the eBook market (leaving Border's and B&N in their bloody path) along with cloud computing efforts for enterprise makes them a power house along the lines of AAPL and GOOG. We will continue to add below the 220 mark as cash allows. We also picked up some September call options on PFE, but the icky market is putting some downward pressure on the value of the call options.
The market overall must have read our blog last night because it appears there was reall worry about a double dip recession as consumer spending was way off the mark. This in conjunction with the lousy GDP on Friday and the manufacturer survey yesterday has fund managers and retail investors (you and I) saying hey, let's take some profit and head to the beach.
At time like this we get questions and e-mails about what people are doing. One reader announced they had cashed out. That may end up being a brilliant move? We told them we are buying more gold, which we did last night and looking at this ugly softness as a time to add to core holdings. (We listed them last night but as a review AAPL, AMZN, CMG (Chipolte Grill), XOM, CVX, HON, PNC, SMTC, UN, UNP, WY, and ZION.) Please look up any of these with the FinViz link above.
Another person today asked about how to hold gold. That is a broad question to answer here, but the truth is there are advantages and disadvantages to all the different ways to hold gold. We have held gold on deposit and via the GLD ETN. You can buy coins or bars and keep the coins and bars on deposit or take possession of the coins.
Here are my reason for holding gold as we do at this moment. We hold about 17% of our portfolio in gold in the SPDR Gold Trust (the Trust) is an investment trust. The Trust holds gold and issues shares (Shares) (in minimum blocks of 100,000 Shares, also referred to as Baskets) in exchange for deposits of gold and distributes gold in connection with redemption of Baskets. The investment objective of the Trust is for the Shares to reflect the performance of the price of gold bullion. The shares are designed to provide investors with a way to invest in gold. The Shares represent units of fractional undivided beneficial interest in and ownership of the Trust. The sponsor of the Trust is World Gold Trust Services, LLC. BNY Mellon Asset Servicing, a division of The Bank of New York Mellon, is the trustee of the Trust. Gold is held by HSBC Bank USA, N.A. (the Custodian), on behalf of the Trust.
We like the ETN because it is so liquid. We can be in and out of the investment with a click of a button. We know we are paying about a7-12% premium for that privilege, but feel it is worth it. For example, if the Sally and Willy Numnutz in Washington DC had nailed the debt ceiling issue with a meaningful program and the entire world said, "Look the US has pulled its head out of its arm pit (GP rated version) and the 10 year note was the place to be safe again, you would have seen a 15-20% drop in Gold in minutes. Using stops or staring at the screen we could have pulled out at anytime. While those holding gold bars in their closets would not be as fortunate.
The advantages to gold bars is you are buying the commodity closes to its true value than any other form. Even coins command a premium because of all the pretty pictures and such. In times of crisis those premiums do not mount to much, it is the values of the commodity that matters. So to each their own, but do your homework.
We were also asked it is better to sell your stocks and pay off your home. Another similar question is should we take recently found cash and invest it or pay off the loan on our home. Now everybody's situation is different. Those questions should be answered by your attorney, financial planner, or tax person. Here was my answer to those questions after suggesting they get professional help.
If you are preparing for Armageddon and are deciding between paying off a house and investing in the market, Pay Off The House. Now, one person might say its better to keep the cheap loan they have when inflation is going crazy. The dollars you use to pay off the loan will be cheaper dollars. True, but if we are talking Armageddon inflation, ask yourself, "Self, will I still be employed?"
If inflation is the big bugaboo, you could also consider looking at some defensive ETFs like DBA and JJG that will track with the increases in grain and agricultural prices as inflation occurs. Make sure you know how ETFs work by comparison to mutual funds and commodity futures. Please feel free to use the Investopedia link on the top of this e-mail right column.
Now the carnage we saw today was orderly carnage and as we mentioned the market did what it was supposed to do. Our concern is we fell through a couple of strong support levels on expanding volume. We fell through 12,000 and 11,875 which were technical and emotional support levels. The next support level for the Dow is 11,790. Beyond that, it is hard to say where the next stop is. In the S&P, we just barley broke through the technical level of 1,258 to finish at 1,254. Again there is little technical support below that figure. The balance of the week could be interesting. The three big reports tomorrow are the ADP payroll report (probably not promising) the ISM non-manufacturing survey, and the factory order report. The bar is set pretty low on that one at a -1%. If we go below that, you could see another 2% down tomorrow. If you got cash, look for bargains. If you don't have conviction in your core picks, consider getting out of dodge.
Salve Lucrum
