Wall Street's Wall of Worry: The better stock market averages get, the more nervous investors get.
WASHINGTON, March 7, 2013 – We’re a bit late with our report today, but actually, that’s just fine. The Dow Jones Industrials, the S&P 500, and the NASDAQ continue to climb today, albeit at a slower pace, still apparently feeding off the fumes of positive news earlier in the week from China and elsewhere. Beleaguered Dow stocks Boeing (BA) and Bank of America (BAC) are providing at least some of the positive juice today, even though both of them are still grappling with seemingly insoluble internal issues.
But basically, the mantra today is “All is well, and QE is God.” God help us, though, if Italy keeps thrashing around or if North Korea’s Kim-of-the-Month deploys his Special Forces to kidnap Dennis Rodman. Or Shaquille O’Neal. (Check the link if you haven’t been following this one.)
And check this out: President Obama is being nice to the Republicans this week. That’s probably because he’s getting ready to trash them again, but who knows? With all this peace and love, the Maven’s proverbial “wall of worry”—that alleged Great Instigator of major market rallies—seems to be owned by him alone this week.
Trading today’s market
We took a flier last night on the IPO of Artisan Partners Management (APAM) and the secondary—the second one in six months—of KAR Auction Services (KAR). We often don’t report on these issues here simply because some of them show up at the last minute and we don’t have time enough to research them to come up with observations we’re comfortable sharing with our readers.
In other words, we don’t ever want to unintentionally mislead anyone in this column. And these two issues are a case in point, along with MGIC Investment Corp. (MTG), which we’ll address in a moment.
KAR, which is slowly being regurgitated by vulture capitalists who took it under some years back, is, to oversimplify, one of the nation’s biggest used-car auction houses. They’re the source for many of the cars you eventually see parked on used-car lots nationwide, serving as a key middleman for inventory in this market. The company actually has a lengthy history and, lately at least, has been making good money. Plus, there are occasional rumors that they’ll merge with someone else. These are all positive signs.
We made a nice profit in the previous KAR stock issue, so we figured we’d try again. As we mentioned, the company is real and makes money—and pays a decent dividend. It might also be a merger candidate. Plus, if you’ve been reading the financial news, car sales continue to pick up, big time.
That said, the issue is trading flat on the offer price this morning. The reason, likely, is that more shares have been dumped on the market, even though this was not dilutive (as the shares have been counted all along in earnings per share). But given that the entire issue was a liquidation of more vulture capitalist shares, no earnings accrete to KAR.
That’s not a big deal in the end. But “overhang” like this (there are still a lot more shares for the vultures to sell) can cap a stock for a while. On the other hand, after a slow start, we made money on KAR the last time so, unless markets really crash here, we should make at least a bit more this time, which is all we really ask.
APAM is another story, and a complicated one. Artisan Partners is a relatively unknown Milwaukee-based wealth management business that’s done well most of the time since its founding in the mid-1990s. It’s going public now, apparently, because a number of its older principals, who own non-publicly traded stock, want to start liquidating and perhaps retire to someplace warmer than the wintry home of Pabst Blue Ribbon beer.
Problem here is, if the Maven can read the complicated prospectus and outside analysis correctly, is that upon going public, this firm actually has a negative valuation, nearly always a red flag for investors. However, money management firms have been fairly popular investments lately. And, given APAM’s respectability and experience, and coupling that with the increasing demand for wealth management services by hordes of retiring and forcibly-retired Boomers, APAM’s business, along with that of similar firms, is almost bound to increase by an order of magnitude in coming years.
When the APAM IPO was priced up from its original indications last night, that was our tell, at least in the current market, to go ahead with the issue. And indeed, at least as of around noon today EST, that seems to have been a good call, with the stock up nearly $7 per share from its final offering price of $30. Wish we’d bought more, but it’s rarely a good idea to go all-in with this stuff, since you never really know even after doing your own due diligence.
The third issue available to us last night was MGIC (MTG), which was also priced up. But we decided to take a pass on this one. MTG is one of several mortgage insurers that hit a Titanic-sized iceberg back in 2007-2008 when mass quantities of securities they were insuring turned into vaporware, sticking them with bills they couldn’t pay. The history of all of them has been checkered, with each taking different paths, some lucking out and some not.
Radian (RDN), another mortgage insurer, issued more stock last week and took a nice trip upward after that issue. That company has been strengthening lately. But we missed the boat and didn’t get into that one. For that reason, MTG offered us a second chance. But we didn’t bite, even after it was priced up. The reason why is simple: MTG’s current mess remains a very big question mark whereas RDN’s seems to be on a long, slow road to resolution. This, of course, was a case where the up-pricing didn’t seem to make a difference in the stock’s reception.
Since we already have a small quantity of dead AMBAC bonds (they actually filed for bankruptcy), plus another small holding of as-yet non-endangered MBIA bonds, we figured we had enough money in this risk category to invest in something that looked a little strange to us. Like KAR, MTG is flat this morning, off a nickel from its $5.15 offer price. But, for us, at least, we have enough in the speculative and still-risky mortgage insurance sector, so we’ll move right along.
At this moment there’s not anything else compelling to talk about, so we’ll leave it here and return to these precincts tomorrow, still convinced that there has to be a correction hiding in here somewhere.
Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate.
Any 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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