WASHINGTON, February 24, 2017 – If you keep up with the financial news, or what passes for it these days, given the politicization of nearly everything, you’ll have noticed that traders and investors alike are pulling back from the ongoing Trump Rally to assess the total situation.
As is often the case, we’re dealing with a market paradox here, or perhaps even a series of paradoxes. The markets, for example, like everything they’re hearing from Trump. Yet at the same time, aside from his sometimes controversial (to liberals and globalists) executive orders, meant to cancel out Barack Obama’s never controversial (to liberals and globalists) executive orders, we’ve seen little out of Congress thus far, save for doctrinaire obstruction by Democrats in both houses in an attempt to stave off the installation of Trump’s complete cabinet team, indefinitely if possible.
Thus, little if anything concrete has actually been done to further the new president’s winning Election 2016 campaign promises: Namely, to build a beautiful wall, to “repeal and replace” Obamacare, and to “Make America Great Again” by giving Soros-backed environmentalist wackos the heave-ho, re-establishing American national pride, and getting American workers (as opposed to so-called “knowledge workers”) back to 40-hour per week full time employment. And, oh, yeah, tax cuts for all.
So, with that old John Thompson/Georgetown Hoyas four-corner offense back in play in DC, at least among the political classes, we’re stabilizing our portfolios by taking a few profits and holding on to most everything else, just as the market is telling us to do.
We’ve actually done precious little this week, trading-wise. We dumped our gold ETF (symbol: SGOL) for a decent profit, as we largely regard this one as a trading vehicle. Gold seemed to be eroding, with markets fearing a Federal Reserve interest rate increase in March, something that nearly always puts a severe dent in the price of gold, which loves rampant inflation when the metal can get it.
Unfortunately, almost overnight, sentiment shifted after our sale. Gold broke out of its trading range Thursday, and, well… you know, we could still be making money on SGOL. On the other hand, we’re not convinced this move will last.
In addition, on the third hand, we still hold our position in volatile, leveraged Canadian silver miner Silver Wheaton. It’s off again today, and we’re down in the position nearly 2 percent as we write this. But in addition to its value as a precious metal, silver also has plenty of industrial uses. So, while it tends to take along with gold in either direction, it also trades with aspects of so-called “base metals” whose mining companies (and stocks) tend to do well when industry gets a boost, which appears to be a primary aim of the new Trump Administration. So we’re holding here for now.
On other fronts, our REITS have thus far been doing very, very well. This is a paradox, as “everybody knows” that in rising interest rate environments, REITs take it in the ear as cheap money for loaning disappears from the table. Perhaps our success is due to the fact that, after the addition of ownership REITs (as opposed to pure mortgage REITs) as a new S&P category last fall, these ownership and/or hybrid REITs continue to do well since they’re no longer buried under the financial sector and essentially trade like the real estate companies they actually are.
We are currently holding (for a profit) our positions in New Residential (NRZ—m property ownership and mortgage servicing); Independence Realty (IRT—property ownership and monthly dividends to shareholders); Invitation Homes (INVH—a recent IPO that shows promise); and Omega Healthcare Investments (OHI—owners of health care and long-term care facilities). Three of these pay very high dividends, with IRT paying monthly as we indicated. INVH, having just been issued, has yet to pay out its initial dividend, but it promises to be decent, so we’ll wait and see.
For those not familiar with REITs, among other features, these stocks must—repeat must—pay out 90 percent of their earnings as shareholder dividends, meaning that if they are making money or have a good amount of positive cash flow, you can actually make a living by holding a portfolio of these puppies. Except when interest rates go up astronomically, in which case, those swell profits can vanish in a puff of smoke. But that’s the risk you take for outsized yields that lately can be in excess of 10 percent per annum, depending on the REIT that you hold.
So we continue to hold all the above. We’d buy even more, but that would unbalance our portfolio, so our rules say we can’t. But if we could, we’d get back into another one of our favorites, Two Harbors (TWO), also a hybrid REIT.
JP Morgan (JPM) is taking it on the ear today, as is Apple (AAPL). Both of them have been going straight up for quite some time, so they were likely due for a pullback. In the Obama Administration, we’d have already sold both of them and taken the profits. But thus far in Trump I, stocks that are on a winning streak tend to quickly resume that streak after getting corrected for a few days, so we’ll hold for now.
All bullish games come to an end eventually. But thus far, it looks like we have a way to go before that happens. So we continue to hold a portfolio that currently consists of an uncommon amount of winners, realizing, however, that these winners could quickly turn into losers in a New York minute if we don’t keep an eye on them.
Have a good weekend.