WASHINGTON, May 25, 2016 – Just when things looked darkest on Wall Street, beleaguered bulls decided Tuesday that it was party time. Up went the averages, and impressively, too; and the rally continues Wednesday, with the Dow Jones Industrials up a nifty 140 points, give or take as of the noon hour. The broader based S&P 500 is up 13.35 and the tech-heavy NASDAQ is up around 30 with all three averages current up 0.6-0.75 percent.
Problem is, this action looks like yet another short squeeze, the result of overzealous bears quickly “overselling” the markets giving the bulls a chance to squeeze them, forcing them to close their short positions by buying shares back. Evidence for this is the low volume on these periodic rallies.
Additionally, it’s hard to figure out what bulls are super-enthusiastic about since the Fed continues to make noises about raising interest rates next month. Unless, of course, the markets are trying to tell us “not gonna happen” when it comes to that next interest rate increase. It’s just really hard to tell, as the Fed has gradually degenerated into a Babel of Blabbermouths with Fed officials out on the hustings every week, preaching their individual gospels as if they were running for election themselves in 2016.
Adding to today’s enthusiasm (and intensifying the short squeeze) is word that the Eurozone is doing yet another great debt deal for constantly beleaguered Greece. It’s hard to read too much into that, as nothing seems to be getting solved as far as the Greek economy is concerned.
That said, perhaps the Eurozone is belatedly beginning to realize that, as the inadvertent gateway for mass Syrian and Islamofascist terrorist immigration, Greece is bearing the brunt of the Eurozone’s feckless and perhaps fatal version of the Obama Administration’s open-door unlimited immigration non-policy here. That’s surely costing the Greeks a great deal of money for military and police deployment, maintenance, care and feeding of all those hordes of illegals, and, well, you name it.
The Eurozone—i.e., the overtaxed working stiffs in each country there—will be ponying up more money to help the Greeks deal with the mess that’s been caused by Europe’s brilliant elitists. It’s a familiar tune these days as the self-hating West continues its rapid decline and fall.
On other fronts, new housing in the U.S. looked healthier, sales wise, and oil prices ticked up a bit Tuesday and again today. That’s bad news for U.S. consumers, of course, but good news for anyone involved in or investing in the oil patch.
And who cares about consumers anyway. They haven’t increased their buying as a result of the still ongoing oil glut, which provided tremendous consumer savings at the pump. So the heck with them. Of course, it’s never occurred to the Federal government that the last 8 years of “stimulus” have only stimulated the bank accounts of corporate giants and the 1%-ers.
Taxpayers—the ones who bailed out the bigwigs—are deleveraging at a much slower pace, since they haven’t gotten any virtually interest free money like the elites, since they mostly don’t qualify for loans under the benevolent Dodd-Frank disaster. We’ll have more to say about this in a separate column.
We haven’t written a column this week until today’s simply because we’re having a hard time making heads or tails of this continually weird market action. But we did get busy with our portfolios Tuesday afternoon and again this morning, paring back our position in double-short S&P 500 ETF, SDS. We’ve taken a small loss on this move, but no matter. Such hedges are defensive in nature, and they held our portfolios roughly even during last week’s continuing nasty decline.
Our small position in Apple (symbol: AAPL) continues to look great, and we wish it were larger, but we’re not going to chase it. Company news continues to contradict the pessimists, and Warren Buffett’s big billion-dollar buy of AAPL shares, announced last week, has seemed to put a floor under this company’s undervalued stock.
Even better, as a major component of the Dow Jones Industrials (DJI), AAPL’s nice continuing rally is giving that flat-as-a-pancake average some needed lift, brightening up many an index portfolio in the process.
Our Allergan Preferred A shares (AGN/PRA—your symbol may vary) are back in the green, and we’re looking forward to our first fat dividend payoff later this month.
On the other hand, our rather large, recently re-accumulated position in Teekay Tankers (TNK) has been brutally hosed for the past week after it cut its dividend and reported only modestly disappointing profit figures last week. This, however, was the first quarter when the tanker company had to absorb the initial impact of its big Suezmax tanker buy. Plus, to give itself some flexibility, Teekay had already announced that this year’s and all subsequent dividends would vary by quarter to better reflect quarterly cash flow, so the dividend cut, from 12 cents to 9 cents should have been more or less expected.
Unfortunately for us, these numbers apparently inspired massive, machine-driven selling and short-selling, putting our position off some 14 percent at the bottom on huge volume: computerized mass-dumping at its finest. But today, even though it’s ex-dividend day, the stock has had a substantial jump of nearly 8 percent as of this writing.
With current pricing and the current 9-cent dividend, this grossly underpriced limited partnership stock is yielding over 11 percent. But if anyone out there is interested, they should regard the stock—as we do—as a high-beta (volatile) speculation. Currently trading at just $3.40 per share, TNK is rapidly approaching penny stock territory. It’s a real company with a pretty decent long-term track record, but the market is currently pricing it like a piece of junk.
We think this is an overreaction to a short-term bad patch, mainly on the part of its holding company (TK). So our line of thinking is along the lines of what motivated us to pick up a very large position in AGN/PRA. You rarely get a great deal in the market, as the bigwigs and their supercomputers have already beat you to it. But sometimes, if you find an outlier, it’s best (we think) to take a chance and snap it up, even if it seems dangerous at the time.
Last time we did this in a big way—buying battered bonds of decent (though not great) companies at a steep discount in March 2009—we profited massively. After a lousy 2015 and an even lousier January-February 2016, we need a couple of home runs to get our portfolios back to the playoffs. So that’s why we’ve temporarily raised our risk factor here. Fingers crossed.
If you want to play along in this vein, feel free to do so, but travel at your own risk. And make sure you have stocked a couple of quarts of Maalox in your medicine cabinet.