WASHINGTON, July 20, 2015 – After a sloppy, negative opening trade Monday morning, Wall Street’s major averages have turned positive as of the noon hour, with the DJI currently up 38.18, the S&P 500 up a moderate 3.9 and the tech-happy NASDAQ up a decent 13.42, still trending up after getting a big boost last week from Google’s (Symbol: GOOG) blowout quarterly report.
Google’s earnings beat, coming after several recent lackluster quarters, kicked its corporate value up $65 billion in last week’s fierce trading of the stock. For now, at least, Fed interest rate fears and the halted—or merely postponed—Grexit frenzy have quieted down, drawing the bulls back into the land of irrational exuberance. Or at least the bulls who aren’t out luxuriating in their Hamptons mansions or somewhere on a yacht in the French Riviera.
Forget about Europe, fuel prices, the death of coal, the horror of lower oil prices, the government deficits that only grow and never shrink. Happy days are here again.
But for every yin, there’s a yang. Current market bears like Wells Capital Management chief investment strategist Jim Paulson are souring on the market, having gotten bearish early on. Paulson had predicted a “sideways” stock market in 2015, which thus far has indeed come to pass. After all, stocks’ recent rally mode has merely taken them from red ink mode to a slight tinge of black ink during 2015’s first seven months. That indicates this year’s action has been mostly an affair of back and fill.
The Maven predicted this as well, not particularly out of an overwhelming pessimism, but simply out of an acknowledgement that if the Fed really did increase interest rates this year by however small an amount, the move would at least temporarily spook markets and give them a negative bias. The almost-Grexit last week added to worry mode before markets calmed when the worst did not happen.
However, Paulson and others—including the Maven—don’t think Grexit worries are over quite yet. And in reality, the fun may have only just begun in the Eurozone, although we’ll wait and see.
The other big gloom-and-doomer out there is the oft-quoted permabear and gold bug Peter Schiff. Financial websites ZeroHedge and CNBC seem to consider Schiff the absolute go-to guy for predictably rotten news, with emphasis on the root-word “predictable.” Schiff is always talking his book, particularly his shorts, and it’s gotten beyond tiresome over the last several years.
Almost permanently wrong, permabears—like permabulls—will ultimately be right. Some day. But what happens in between. Their game, particularly if they can regularly grab face time on cable TV, is to frighten investors out of stocks where they’ve already gone substantially short. This in turn, drive their shorted stocks down further.
Problem is, the permabears never tell you when they close out their short positions by buying the shares to collect the downside profit they’ve made. They simply drop the discussion of Stock X and start attacking Stock Y, the new stock they’ve just massively shorted. The game is transparent, but TV’s financial talking heads let these clowns talk up their books nonetheless, doing a disservice to the average viewer-investor while making any number of wealthy, lousy touts blissfully happy.
Today’s trading tips
We’re still inclined to go light on the tipping here, simply because 2015 has been so back-and-fill treacherous for the average trader or investor.
We reiterate our main small bank investing ideas, namely First Niagara (FNFG), New York Community Bankshares (NYCB), KeyCorp (KEY) and maybe Huntington (HBAN). Zions (ZION) looks like it’s trying to get back in the buying range after a nice pop, so we may make a play with this one, though not yet.
Perhaps foolishly, we may add this week to our much reduced REIT positions, favoring Two Harbors (TWO), which we already own; Pennymac (PMT), ditto; and New Residential (NRZ), which we don’t yet own but which may not go down significantly from here.
All three REITS boast nifty yields, and all three are “special,” in the sense that they’ve developed lucrative side businesses—like property management and mortgage originations—that should help fortify them against the Fed’s intent to gradually jack up interest rates. That’s usually short-term death for REITs. But their lucrative side-businesses make them better able to withstand a negative interest rate environment than REITs that contain mortgages only.
We are still burning our fingers by holding on to AMLP, the high-yielding MLP that follows the Alerian index of MLP companies. We’re down sharply in this one on the year, but the yield seems secure so we continually hold on for some income. In a related move, we have also continued to hold Calumet, an MLP/refiner with another swell dividend that continues to benefit from low raw crude prices that help it increase its margins for refined products.
We were underinvested in tech and biotech, alas, and missed a good ride on that train last week. If these areas correct back a bit, we might get interested in the already grossly overpriced biotech ETF—IBB—and the Internet company ETF available under the symbol FDN.