Utilities: How Much Longer Can They Power Up [View article]
Hello raykrv6a,
Thanks for your comment and I think your approach here is very sound. And I agree that even with the recent rally that utilities will still hold up better than the overall market during any correction.
Utilities: How Much Longer Can They Power Up [View article]
Hello dancing diva,
Thanks as always for your comment. I appreciate it and I hope you are doing well. One of my favorite things about owning utilities (barring the ugly deregulation phase that occurred about a decade ago) is the exact point that you've raised here. While they typically lag in upward moving market, they also usually hold up much better in correcting markets.
Utilities: How Much Longer Can They Power Up [View article]
Hello jumpnjoey77,
Thanks for your comment. I appreciate it and am interested in learning more. If you're willing to disclose, what small and micro cap utilities are you currently focusing on right now. This is a theme that I've focused on periodically over the last several years and am currently in the process of revisiting it once again.
Thanks for your comment. And you are exactly right in your description of why I wrote this article. I am not favoring bonds over stocks, as I believe both have considerable risks. Instead, I am seeking to highlight the risks of blue chip stocks for those that may be entering for income reasons. But as long as they are in for the right reasons, it is a strategy that makes good sense in all market environments.
This is an outstanding comment. Thanks for sharing your thoughts and perspectives. Thanks first for raising the challenge about presenting alternative ideas. I actually wrote this article as a preamble to future articles that I intend to write to this very point. In fact, I submitted an article to SA focused specifically on the utilities sector earlier today for publication. And I may also follow up soon with an article on XOM, which I am now long as of today.
Your extension of the lifeboat scenario does a good job of detailing how I am positioning more broadly from an asset allocation perspective. I evacuated high yield and its related bond categories like senior loans several weeks ago, and am becoming more selective on munis and nominal bonds. I do continue to strongly favor IG long-term bonds and global TIPS, however, particularly as stocks appear toppy. And my most favored sector remains the precious metals space. I have been an owner in the space for many years, and while it has clearly been suppressed since the launch of Treasury purchases under QE3 in early January, the long-term fundamental thesis remains more in tact than ever following the blowout announcement from Japan last week. And as for cash, I am also operating with a 15-20% allocation at the moment in anticipation of a broader stock market pullback or at least to pick off individual names that get badly thumped following earnings announcements (for example, I recently added ORCL a few weeks ago as part of this strategy).
Thanks for your comment and for sharing your personal experiences with the markets over the last decade. I share your concerns about the volume of liquidity that is flowing through investment markets today, and this goes for bonds just as much as stocks. I am genuinely concerned that this will all end badly in the end, particularly once we reach the point where the liquidity is drained either voluntarily (challenging) or out of necessity (very painful). Either way, I think you are right to be exercising a degree of caution at this stage. It will be interesting to see how it all plays out.
Thanks for your comment and your point is well taken. I agree that for those investors able to endure the short-term price swings will benefit from owning these companies that have a demonstrated ability to increase dividends year after year. But many investors can become shaken and panic during extreme market episodes such as what we saw in late 2008 and early 2009. As a result, it is important for investors to be prepared for such a potential outcome when making these allocations. But to your point, if they can work past these risks, they should be rewarded for the reasons you mentioned barring an extreme market event where prices do not recover. Even in this case, as long as the dividends continue to increase and they are in for the long haul, as Robert Allan Schwartz astutely points out above, it will not matter as long as they do not realize the loss.
Thanks for your comment. Although I get the sense that you may have concluded that I am advocating owning bonds over stocks, I completely agree with the point that you're making here as I mentioned in my reply to you below. I would actually go so far to say that risks in the bond market are actually greater in many cases than they are in stocks right now. My bigger point in the article is to highlight that stocks should not be perceived by investors the same way that bonds have been viewed in a normal environment.
Thanks for your comment and I appreciate you raising these challenges, as I actually agree with your points.
Thanks as always for your comments and your outstanding insights. I agree with your points completely here. The fact that the more defensive names have rallied so strongly from the start during this latest stimulus round with little leadership from the more economically sensitive cyclical sectors is both notable and troubling. The price chart on names like Caterpillar (CAT) say a lot. It looks very much like a mad dash for yield that is introducing increasing risks to these more defensive sectors. The fact that the yield to maturity on HYG is now at 5.00% and seeming heading lower is both incredible and worrisome in its own right, particularly given the increasing signs of global economic weakness and instability. It should be very interesting to see how this all plays out in the months ahead.
Thanks again and I look forward to reading your upcoming posts on SA.
Thanks for your comments. I agree with your points and the fact that both PG and JNJ are great names along with a number of other blue chips. But the potential costs is through the nature of these being stocks, recent history has shown that investors have the potential to see the principal value in these holdings decline by -30% to -50% or more in the matter of weeks or months. Losses of this magnitude, of course, represent a decade or more worth of dividend payments from owning these names. And while many investors may be comfortable with this fact under the notion that they will eventually recover this loss in principal value over time and will have the courage to hold their positions through such short-term volatility, others may become highly unsettled and panic, particularly those that were otherwise unaware that such an outcome could potentially happen.
But your point is very well taken. And we could just as easily see the same type of price correction outcome in the bond market, particularly in many high yield segments that are currently priced at a premium essentially equaling the coupon, which is why I am currently favoring high quality income stocks over higher yielding bond categories at present.
On a broader note, I think the investment philosophy you are following makes a ton of sense and is a great way to weather all types of market environments. And I have enjoyed reading your articles on SA. Your recent article focused on Non-GAAP measures is excellent and is an important topic for investors to be following.
Thanks for your comment and for the very interesting metaphor. It will be interesting to see how all of these lifeboats fare in the end. My hope is that all make it safely to shore at the dawn of a new secular bull market. Hopefully this comes sooner rather than later, but I believe the global economy and its markets need to be allowed to cleanse themselves first. In this regard, policy makers continue to head in the other direction.
Thanks for your comment and for raising a number of good points. Perhaps my article has misrepresented my current views and positioning. I'm not suggesting that investors should opt for bonds over high quality dividend stocks, as I see just as many reasons for concern if not more so in the bond market right now. In fact, while I am allocated to selected areas of the bond market, I also stand fully along side you with meaningful weightings to high quality dividend stocks. And although I do not currently own PG and JNJ, they are among my favorite names in the blue chip space for some of the reasons you've mentioned here.
Instead, my emphasis here is to highlight the distinctly different risk characteristics associated with investing in stocks versus bonds that has the potential to have a negative impact on the long-term financial plan in the event of a major market shock. In other words, it is important for those that are moving into blue chip stocks to fully understand the potential risks.
Thanks again for your comment and for providing me with the opportunity to clarify.
Thanks for your comment and I agree with you completely. I look at the price chart on some of my favorite defensive names as well as the XLU and feel a great deal of unease about the slope of these recent price increases. A solid stock market correction would be very healthy at this point, but I suspect the Fed will do everything it can to prevent it from actually happening. Someday we will return to a market that is left to its own devices. This will be a very good day.
Thanks as always for your comment and for sharing your wisdom. Another great metaphor as usual. And you and I are seeing things the exact same way. I am selectively considering a number of high quality stocks at the moment, but each with an eye to the possibility that a correction could be lurking on any given trading day that will take nearly everything in the stock market lower with it.
Thanks as always for your comment and insights. And I completely agree that the next 12-18 months are going to be extremely interesting to watch unfold. You are absolutely right that the Fed is having its way with the markets right now (which is extremely problematic from a free market capitalism perspective to have central banks so heavily influencing how capital is being allocated), but how much longer they can keep it up will be something to watch closely in the months ahead.
Utilities: How Much Longer Can They Power Up [View article]
Thanks for your comment and I think your approach here is very sound. And I agree that even with the recent rally that utilities will still hold up better than the overall market during any correction.
Thanks again.
Utilities: How Much Longer Can They Power Up [View article]
Thanks as always for your comment. I appreciate it and I hope you are doing well. One of my favorite things about owning utilities (barring the ugly deregulation phase that occurred about a decade ago) is the exact point that you've raised here. While they typically lag in upward moving market, they also usually hold up much better in correcting markets.
Great points. Thanks again.
Utilities: How Much Longer Can They Power Up [View article]
Thanks for your comment. I appreciate it and am interested in learning more. If you're willing to disclose, what small and micro cap utilities are you currently focusing on right now. This is a theme that I've focused on periodically over the last several years and am currently in the process of revisiting it once again.
Thanks again.
When Blue Chips Bleed Red [View article]
Thanks for your comment. And you are exactly right in your description of why I wrote this article. I am not favoring bonds over stocks, as I believe both have considerable risks. Instead, I am seeking to highlight the risks of blue chip stocks for those that may be entering for income reasons. But as long as they are in for the right reasons, it is a strategy that makes good sense in all market environments.
Thanks again for your comment. I appreciate it.
When Blue Chips Bleed Red [View article]
This is an outstanding comment. Thanks for sharing your thoughts and perspectives. Thanks first for raising the challenge about presenting alternative ideas. I actually wrote this article as a preamble to future articles that I intend to write to this very point. In fact, I submitted an article to SA focused specifically on the utilities sector earlier today for publication. And I may also follow up soon with an article on XOM, which I am now long as of today.
Your extension of the lifeboat scenario does a good job of detailing how I am positioning more broadly from an asset allocation perspective. I evacuated high yield and its related bond categories like senior loans several weeks ago, and am becoming more selective on munis and nominal bonds. I do continue to strongly favor IG long-term bonds and global TIPS, however, particularly as stocks appear toppy. And my most favored sector remains the precious metals space. I have been an owner in the space for many years, and while it has clearly been suppressed since the launch of Treasury purchases under QE3 in early January, the long-term fundamental thesis remains more in tact than ever following the blowout announcement from Japan last week. And as for cash, I am also operating with a 15-20% allocation at the moment in anticipation of a broader stock market pullback or at least to pick off individual names that get badly thumped following earnings announcements (for example, I recently added ORCL a few weeks ago as part of this strategy).
Thanks again for your comment. I appreciate it.
When Blue Chips Bleed Red [View article]
Thanks for your comment and for sharing your personal experiences with the markets over the last decade. I share your concerns about the volume of liquidity that is flowing through investment markets today, and this goes for bonds just as much as stocks. I am genuinely concerned that this will all end badly in the end, particularly once we reach the point where the liquidity is drained either voluntarily (challenging) or out of necessity (very painful). Either way, I think you are right to be exercising a degree of caution at this stage. It will be interesting to see how it all plays out.
Thanks again.
When Blue Chips Bleed Red [View article]
Thanks for your comment and your point is well taken. I agree that for those investors able to endure the short-term price swings will benefit from owning these companies that have a demonstrated ability to increase dividends year after year. But many investors can become shaken and panic during extreme market episodes such as what we saw in late 2008 and early 2009. As a result, it is important for investors to be prepared for such a potential outcome when making these allocations. But to your point, if they can work past these risks, they should be rewarded for the reasons you mentioned barring an extreme market event where prices do not recover. Even in this case, as long as the dividends continue to increase and they are in for the long haul, as Robert Allan Schwartz astutely points out above, it will not matter as long as they do not realize the loss.
Thanks again.
When Blue Chips Bleed Red [View article]
Thanks for your comment. Although I get the sense that you may have concluded that I am advocating owning bonds over stocks, I completely agree with the point that you're making here as I mentioned in my reply to you below. I would actually go so far to say that risks in the bond market are actually greater in many cases than they are in stocks right now. My bigger point in the article is to highlight that stocks should not be perceived by investors the same way that bonds have been viewed in a normal environment.
Thanks for your comment and I appreciate you raising these challenges, as I actually agree with your points.
When Blue Chips Bleed Red [View article]
Thanks as always for your comments and your outstanding insights. I agree with your points completely here. The fact that the more defensive names have rallied so strongly from the start during this latest stimulus round with little leadership from the more economically sensitive cyclical sectors is both notable and troubling. The price chart on names like Caterpillar (CAT) say a lot. It looks very much like a mad dash for yield that is introducing increasing risks to these more defensive sectors. The fact that the yield to maturity on HYG is now at 5.00% and seeming heading lower is both incredible and worrisome in its own right, particularly given the increasing signs of global economic weakness and instability. It should be very interesting to see how this all plays out in the months ahead.
Thanks again and I look forward to reading your upcoming posts on SA.
When Blue Chips Bleed Red [View article]
Thanks for your comments. I agree with your points and the fact that both PG and JNJ are great names along with a number of other blue chips. But the potential costs is through the nature of these being stocks, recent history has shown that investors have the potential to see the principal value in these holdings decline by -30% to -50% or more in the matter of weeks or months. Losses of this magnitude, of course, represent a decade or more worth of dividend payments from owning these names. And while many investors may be comfortable with this fact under the notion that they will eventually recover this loss in principal value over time and will have the courage to hold their positions through such short-term volatility, others may become highly unsettled and panic, particularly those that were otherwise unaware that such an outcome could potentially happen.
But your point is very well taken. And we could just as easily see the same type of price correction outcome in the bond market, particularly in many high yield segments that are currently priced at a premium essentially equaling the coupon, which is why I am currently favoring high quality income stocks over higher yielding bond categories at present.
On a broader note, I think the investment philosophy you are following makes a ton of sense and is a great way to weather all types of market environments. And I have enjoyed reading your articles on SA. Your recent article focused on Non-GAAP measures is excellent and is an important topic for investors to be following.
http://seekingalpha.co...
Great points Robert. Thanks again.
When Blue Chips Bleed Red [View article]
Thanks for your comment and for the very interesting metaphor. It will be interesting to see how all of these lifeboats fare in the end. My hope is that all make it safely to shore at the dawn of a new secular bull market. Hopefully this comes sooner rather than later, but I believe the global economy and its markets need to be allowed to cleanse themselves first. In this regard, policy makers continue to head in the other direction.
Thanks again.
When Blue Chips Bleed Red [View article]
Thanks for your comment and for raising a number of good points. Perhaps my article has misrepresented my current views and positioning. I'm not suggesting that investors should opt for bonds over high quality dividend stocks, as I see just as many reasons for concern if not more so in the bond market right now. In fact, while I am allocated to selected areas of the bond market, I also stand fully along side you with meaningful weightings to high quality dividend stocks. And although I do not currently own PG and JNJ, they are among my favorite names in the blue chip space for some of the reasons you've mentioned here.
Instead, my emphasis here is to highlight the distinctly different risk characteristics associated with investing in stocks versus bonds that has the potential to have a negative impact on the long-term financial plan in the event of a major market shock. In other words, it is important for those that are moving into blue chip stocks to fully understand the potential risks.
Thanks again for your comment and for providing me with the opportunity to clarify.
When Blue Chips Bleed Red [View article]
Thanks for your comment and I agree with you completely. I look at the price chart on some of my favorite defensive names as well as the XLU and feel a great deal of unease about the slope of these recent price increases. A solid stock market correction would be very healthy at this point, but I suspect the Fed will do everything it can to prevent it from actually happening. Someday we will return to a market that is left to its own devices. This will be a very good day.
Thanks again
When Blue Chips Bleed Red [View article]
Thanks as always for your comment and for sharing your wisdom. Another great metaphor as usual. And you and I are seeing things the exact same way. I am selectively considering a number of high quality stocks at the moment, but each with an eye to the possibility that a correction could be lurking on any given trading day that will take nearly everything in the stock market lower with it.
Excellent points as always. Thanks again.
When Blue Chips Bleed Red [View article]
Thanks as always for your comment and insights. And I completely agree that the next 12-18 months are going to be extremely interesting to watch unfold. You are absolutely right that the Fed is having its way with the markets right now (which is extremely problematic from a free market capitalism perspective to have central banks so heavily influencing how capital is being allocated), but how much longer they can keep it up will be something to watch closely in the months ahead.
Thanks again.