Sunday, February 14, 2016

Weekly Recap

Been a real busy week so posting has been light. The market took everyone for a wild ride though that's for sure. I'll recap some economic news.

The Japanese decided to resort to short term interest rates. Surprisingly the Yen strengthened against many currencies especially the US dollar. In all reality there were many positions closed as the weak Yen has been a profitable trade for awhile. Also the Yen serves as a safe haven. I think a lot of global cash is heading there as it flees the mess in Europe and debt laden emerging markets. Even the Fed has talked about negative interest rates behind closed doors as it included the scenario into its latest stress test scenario.  So while the move is counter intuitive to economic theory we need to keep an eye on global capital movements.  If people are willing to lend to Japan and take a loss, they must really think another central bank will deliver them a bigger loss.

Government bonds which I monitor have reached levels not seen in quite awhile. I'm not sure who else besides banks is willing to lend the government money for 30 years at less than 2.5%, but clearly there are takers. I think many of these people will be left holding the bag. Remember bubbles in bonds do happen, and its entirely possible we have reached the limits of government borrowing.  It's a false economic theory that you can just keep raising taxes to cover the shortfall.  Eventually people just stop working as there is no incentive, or they take their assets and themselves to more tax friendly areas. 2016 is shaping up to be an extremely interesting year and government debt will surely have its place. As history has shown time will tell and I believe we are getting closer to that time with government. But if governments start defaulting then banks will go down with them. I'd stay away from bank names right now and I have none in the portfolio.

Gold had a strong move up the last couple weeks. Although I think this is more short covering than anything right now.  Silver hasn't kept pace which is noteworthy. Remember gold is the hedge against fear and government. It has nothing to do with inflation or increases in money supply. Clearly the concerns have been heightened by some players. GLD had monster volume this week so big money was making moves. We should all take note and keep an eye on the development.

Our portfolio had a few reports this week.  I'll mention WhiteWave, Cognizant, and HCP briefly.

WWAV reported what I thought were good results. Growth has been slowing a bit, but is still showing solid growth when compared to other food companies.  Obviously investors are not willing to pay up for the same multiple of the company as they were before. I always thought anything under $40 would be a great price for this company. Once again I should have been more patient than I was in October. I might consider making another buy of WWAV, but I really want to stick to dividend payers right now as the markets get more volatile.

Which brings us to HCP. I added the stock at the end of January for a solid dividend and what I thought would be more stability. Especially considering the dividend was raised the day after I made the add(although it was a meager 1.8%). Well once again just waiting would have been better. The stock did not get walloped from concerns over the dividend, but because of large write downs in the value of real estate portfolio holdings. The majority of the issues are with ManorCare operations which took a $1.3 billion dollar write down. This is one of the best managed REIT's out there and I still have faith in management long term. In reality this is a great price for the company. I might make one more add as I have no doubt the payout will remain stable, but investors should be ready for a dividend pause at this point next year. I'm not expecting a payout reduction yet it could very well happen if things deteriorate in the economy more rapidly than we anticipate.

Cognizant reported earnings that I thought were great. The company reported 2015 EPS of $3.07 which beat their own guidance. Also the company guided 2016 at 3.32-3.44. I think those numbers will be beat as they company has a history of being conservative. At the high end of the range the company is going at an attractive price for the type of growth they are experiencing. Yet as the trend has shown I should have been more patient in my buys. Even in the mid 60's the company was going for a good price. Now it's an even better price. It will be really difficult for me to pass up adding here. I'm going to think long and hard about all three next week before making an add in any.

This remains a good time for traders, and trying times for long term investors. Yet we must remember this is when we buy good companies at better prices. Take a look at MKC. It's been rising all week.  I wish I could gather a group of investors to buy the whole company with me. That's how a real solid company acts under these conditions.

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