WASHINGTON, April 9, 2015 – This week’s trading action, as exemplified by Thursday’s market action, is looking more and more like what veteran Wall Streeters would call a “sideways correction.” That is, instead of completely tanking on one or two violent down days in a row—or even a week or two of mostly negative action—markets instead are sliding down, little by little, flipping and flopping from day to day in the process.
It’s a slow grind that finds dedicated and disciplined investors irritated and frustrated, because neither getting into long positions or just going short ever seems to produce any results at all. Which explains our headline, snipped from Porgy’s famously devil-may-care song from the Gershwins’ “Porgy and Bess”: “I got plenty o’ nothin’, and nothin’s plenty for me….”
Porgy, of course, having (apparently) got his gal, felt he’d achieved a key objective in life. The Maven, on the other hand, along with most serious investors these days, is getting frustrated with a directionless market that no amount of brilliance can crack.
We small investors all “got plenty o’ nothin’—meaning we lack decent returns (or any returns at all) on investment (ROI), and it’s beginning to seem as if all our brainbusting activity is for naught. For at the end of the day, we look at our lack of returns and see that we still got plenty o’ nothin’.
Positives this week include Royal Dutch Shell’s in-the-works takeover of a major British firm involved in liquid or liquefied natural gas (LNG), something that’s warming up here in the U.S. as well; and more potential action in the pharma space, namely multiplatform drug manufacturer Mylan’s (MYL) proposal to devour and digest major generic drug manufacturer Perrigo (PRGO). As of this writing, Perrigo has yet to respond to the offer, and both companies may now be in play.
This is the sort of thing that excites traders and trading. But you have to get there before the announcement to really get the hit. That’s why the folks with the (illegal) inside information make most of the moolah on this kind of action, not you and the Maven.
And so it is that the market trades on this headline and that, with the occasional takeover and/or merger excitement that the big boys can get into just to keep the small fry interested—sort of like getting a straight line of cherries on a one-armed bandit somewhere in Vegas.
Aside from this kind of stuff, it’s back and forth, back and forth, over and over. And if you get involved, you’re likely to end up with plenty o’ nothin.’ Or at least only the amount you started playing with, minus commissions, of course. The Street is simply no longer the kind of place where high seriousness is eventually rewarded. Instead, the spoils belong to the (illegally trading) insiders, the front-running HFTs, and maybe a few hundred manic day-traders who have a hot hand on any given day and who play this market like an experienced 10-year old video game veteran.
It’s all very frustrating. If you’re getting suspicious that the Maven is just venting these days, you are, alas, probably not far off the mark.
Today’s trading tips
Same old, same old. Try not to get too involved here, or you’ll probably end up hating yourself. One or two real estate investment trusts (REITs)—particularly the stalwart Two Harbors (TWO)—are hanging in there with great yields and not too much apparent danger, at least until Fed interest rate hawks start winning the argument again.
Our beloved Calumet (CLMT), which took a brief free-fall earlier this week, seems to be back on track again, one of the rare attractive master limited partnerships (MLPs) that should survive the oil patch’s frequent near-death experiences without too much difficulty.
And finally, there are always those select term-preferred stocks whose high yield is appealing and whose relatively short duration removes most, but not all, of the interest rate risk involved in holding these investments.
Most preferred stocks are “perpetual,” meaning that, like the underlying common stock, these preferreds are unlikely to get called (redeemed at par value, usually $25 per share) in our lifetime. But term preferreds have an official termination or redemption date, with the added possibility that they could get redeemed early as well.
What this means is that, even if the Fed jacks up interest rates by a hypothetical 5 percent next week, thus killing off bonds and preferred stocks (which pay a fixed dividend just like bonds pay a fixed interest rate), an issue that, say, matures in 2017 will still give you back your $25 investment even if that Fed interest rate move took your preferred stock down to $18 a share when it hit the wires, or their equivalent in the cloud.
Complicated? Not really, although we may devote a future column to explaining in a bit more detail just how this stuff works.
In the meantime, unless you have a pile of mad money and love to gamble until it’s gone, the above listed ideas are probably the least likely to get you killed as U.S. financial markets continue with their frustrating meandering in search of fiscal truth. It’s no fun, but someone’s gotta do it, or we’ll all end up with plenty o’ nothin.’