WASHINGTON, April 15, 2015 – That weeping and gnashing of teeth you hear in the background—accompanied by shattered pencils and smashed computer keyboards—is the sound of millions of frustrated American taxpayers rushing to finish their returns and mail them in (or file them electronically) before tonight’s annual midnight IRS filing deadline.
The Maven never worries about this. With K-1 forms from real estate investment trusts (REITs) and master limited partnerships (MLPs) dribbling in to Maven Central, sometimes as late as July, we generally can’t file until the fall. Instead, we’re looking at the market today and note that crude oil is bouncing up yet again after hitting its recent all-time low not too many trading days ago.
Cause and effect? Probably not. But what gives with those happily bouncing oil prices?
First off, oil has been gradually sneaking up again due to anecdotal reports that U.S. “overproduction” is leveling off. Sure, for the week ended April 10, the government’s Energy Information Administration reported that U.S. crude stockpiles grew by an estimated 1.3 million barrels for the week ending April 10, leaving inventories at 483.7 million barrels—the highest reported level since these records have been kept.
But gasoline stockpiles dropped by 2.1 million barrels at the same time, likely due to the lingering effects of the seasonal switchover in formulation. Plus, U.S. shale production reportedly fell in February by some 15,000 barrels per day as opposed to January, indicating that supplies are beginning to track closer to demand.
The positive effect of all this on oil prices is likely being aided and abetted by nervousness stemming from the violent, baffling conflict in Yemen—something that potentially endangers oil in that chaotic part of the world, not to mention whichever hapless Arabs happen to be in the firing line of Sunni or Shiite forces at any given time in the day.
Whatever the case, the price of U.S. crude (aka, West Texas Intermediate, or WTI) rose to $55.09 per barrel at 11:15 a.m. EDT, while current Brent (U.K) futures were priced at $59.57 per barrel in the same time period.
Meanwhile, earnings season numbers are picking up, with some help (finally) in the banking sector, with JP Morgan (Symbol: JPM) showing surprisingly good first quarter numbers yesterday, while beleaguered Bank of America (BAC) finally reported a nice increase in earnings this morning, declaring that its days of enduring big fines and penalties from the Feds are likely drawing to a close.
Now we’ve been hearing this from BAC before, for years it seems. But it is likely that the Feds, at least, have finally wrung the last pound of flesh (more or less) out of the Charlotte, North Carolina-based banking behemoth—that institution’s punishment for having effectively been forced by the government to take over the criminal enterprise otherwise known as Countrywide.
Other non-federal lawsuits can and will pop up for BAC, and a few are ongoing. But with the bulk of the mess cleaned up, BAC may once again be able to conduct some business and make some money, as hinted at by today’s positive year-over-year (YOY) quarterly numbers. Traders, of course, have sold BAC down a bit on the good news. But the stock may finally be approaching “investible” status once again, with the possibility of a future dividend increase as well.
As for the rest of the market right now, one guess is as good as another. Assuming the Federal Reserve is now on track to raise interest rates in September rather than earlier in June, bulls seem reasonably confident that they’ll be back in control for roughly another quarter, driving stock prices up in the process.
But let’s be cautious here. Now that tax day is here, once those forms are sent to the IRS and the final cursing and muttering ceases, many investors are likely to notice that next month is May—as in “sell in May” May—and may want to get a jump on things by dumping profitable positions as well as ones they don’t like.
This, added to the incredibly light volume of trading over the past week or so will put markets squarely in the hands of those nefarious high-frequency traders (HFTs) who will have fun hunting down stops and messing up smaller accounts at will.
In the meantime, we’ll finally enjoy taking in some positive numbers for a change, but with an eye toward adjusting some positions and, perhaps, starting to sell down some of the short-term profitable ones.
Today’s trading tips
We’re enjoying price increases in our fairly lonely oil-related positions this morning, namely multi-product refiner and MLP Calumet (CLMT) and the now fully consolidated midstream (pipeline) behemoth Kinder Morgan (KMI). We’re at least temporarily short the euro via the EUO ETF, and are back in the euro-hedged HEDJ ETF, which invests in a representative basket of European stocks but hedges them against the euro’s current erosion, which is perfect for investors over here who must invest in appreciating U.S. dollars.
There is, in fact, a good argument to be made that as a great deal of the rest of the world, including China, now seems bent on doing its own localized flavors of quantitative easing (QE), these foreign markets may very well ramp just as ours did a few years back, making stocks elsewhere a better deal in 2015.
Good ETFs to sample the trend are AAXJ (Asia-Australia-ex-Japan), HEDJ of course, plus various emerging markets ETFs like Schwab’s SCHE and SCHC (smaller stocks) that we prefer because of their low management fees and because we can trade them free of commish since we’re customers over there. Other brokerages like Fidelity offer similar products.
Individual stocks can be more treacherous in this environment. For that reason, we still favor term-preferred stocks as income producers, and, for now, two REITs we’ve been invested in for some time—subprime investment specialist Pennymac (PMT), and the well-managed and increasingly diversified Two Harbors (TWO).
We’re also looking to get in to RYU, aka the “Guggenheim S&P 500 Equal Weight Utilities” ETF at a little better price than the one we’re seeing right now. Different from most utility ETFs, this one also includes telecommunications stocks. Both groups have been out of favor for a quarter or two, after electric utilities made surprisingly big money for investors in 2014.
Our interest stems from the fact that the telecommunications stocks—the ETF holds big ones like AT&T (T), Verizon (VZ) and Centurylink (CTL)—like the utilities, pay fat dividends that are unlikely to get cut. This can provide some protection in an overall market downturn, as the ETF pays these dividends out.
On the other hand, all the Guggenheim Equal Weight products tend to be thinly traded, which can lead to considerable volatility, so one needs to be cautious moving in and out of them. They’re great products, at least insofar as we’re concerned. And the “equal weight” part means they’re less affected over time by these aggregate price moves than index-based products that are heavily weighted by one or two mega-cap companies like Apple (AAPL) or Google (GOOG).
The result is that you will generally get less hammered when averages are going down, but also may not experience as much exhilaration when prices are on the upswing.
* Cartoon by Branco, reprinted here by arrangement and permission via Comically Correct and AEA.