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The Simple Accountant  

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  • For All The Shouting, This Is Still A Normal Correction [View article]
    Yes, you've got it. The mark-down of corporate bonds to me represents an opportunity to buy quality "on sale." We've been sitting on some cash in the income portfolio that we would like to put to work, but didn't like the prices recently.
    May 21, 2012. 04:23 PM | Likes Like |Link to Comment
  • For All The Shouting, This Is Still A Normal Correction [View article]
    Thanks for your comment. To elaborate, what I expect is a quick bounce, followed by another bout of selling. In other words, more downside, but not straight down. I don't think the market is completely washed out. We'll see what actually happens.
    May 20, 2012. 11:13 AM | 2 Likes Like |Link to Comment
  • Market Pessimism Is Overdone [View article]
    My suspicion is that Germany will protest loudly, and then capitulate. Fellow Seeking Alpha author John Mauldin - a much greater authority than myself - thinks they already have. See his article here:

    In any case, the German economy is export driven and has benefited greatly from the currency union. Leaving the common currency would likely bring a massive appreciation of the new Deutsche mark, and depreciation of the euro (franc, lira, etc?). Not good for German industrial firms. Look at the run up in the Swiss Franc last year, which led the SNB to effectively peg it to the euro, and think bigger - much bigger.

    So, a devaluation is not an entirely bad thing. It would benefit industrial firms at the expense of savers (where have we seen that theme before?). Hence the political need to protest loudly, to at least show some sympathy for those who are about to be financially repressed. But in the end, it's a choice between devaluation and chaos. My guess is that the Germans, unlike my fellow Greeks, will not choose chaos.
    May 14, 2012. 01:51 PM | Likes Like |Link to Comment
  • Market Pessimism Is Overdone [View article]
    Good question buyitcheap. Here I will put my accountant hat back on. It's almost inconceivable that any firm with a material currency exposure in AR (or AP) would not be hedging it. They are in the business of selling stuff, not in speculating on the currency market, so the hedge is just a cost of doing business and standard operating procedure.

    It's guys like Enron who forget what business they are in, and turn their firm into a giant hedge fund, that get in trouble. The big pharma guys are more conservative than that, but you should be able to find the specific details on any particular firm in their SEC filings.
    May 14, 2012. 12:05 PM | Likes Like |Link to Comment
  • Market Pessimism Is Overdone [View article]
    Very good debate going on here. Seems we have a preponderance of bears in the comments. I suspected the title and tone of the article might provoke some vigorous rebuttal. Let me make a couple of quick comments of my own:

    On the matter of Europe, there has been no doubt in my mind that there would be a Greek default and re-issue of the Drachma. As a Greek expat, I still have family and personal affairs ongoing there and am quite aware of the seriousness of the situation. On my now dormant Wordpress blog I was writing over a year ago that Greece could not possibly remain in the currency union. As a U.S. based investor, I don't think it will matter much.

    Spain does matter, and this is where the line in the sand will be drawn. As stated in my recent articles, look for the ECB to issue an ongoing flood of liquidity which will depress the euro and boost the dollar. Ultimately we are likely to see the euro at par or below. Think about what that implies for your portfolios and prepare for it.

    As for the current market environment, I have repeatedly stressed to investors that they should be selective, and that holding broad equity indexes is a recipe for mediocre results - or worse. Just as all politics is local, all investing is personal. If your portfolio is getting hammered, it's a bear market, if your portfolio is holding up nicely, it's a minor correction. We are doing just fine, thank you, with core holdings like PFE, MSFT, XLP, HYG. What we won't do is hang on when the market turns against us.

    Again, thanks for the comments and perspective, and good luck to everyone!
    May 14, 2012. 09:04 AM | Likes Like |Link to Comment
  • Market Outlook: Time To Consider Playing Defense [View article]
    It is surprising to see someone have that view after reading this series of articles.
    Apr 23, 2012. 12:11 PM | Likes Like |Link to Comment
  • Markets Are At Key Levels [View article]
    Good comments Blue. The situation in Europe is the one thing that most disturbs me. Long term it's difficult to see a good outcome, but in the short term the ECB has unleashed a flood of liquidity and Euribor is at multiyear lows, so I'm not sure there is a crisis on the near horizon. We still have to tread carefully, whether trading or investing.
    Apr 15, 2012. 09:50 PM | Likes Like |Link to Comment
  • Markets Are At Key Levels [View article]
    Thank you for your comment. Your point about volume is a good one. I have struggled a bit with this and still am unsure what to make of it. The intermediate top is certainly a possibility. The rally does look a little long in the tooth, but I still like the fundamentals. We'll see what happens
    Apr 15, 2012. 09:35 PM | Likes Like |Link to Comment
  • Change Is In The Wind [View article]
    Thank you for your comments

    To Change, my focus has been on the Dollar since the start of my series of articles, and it remains a central part of the macro analysis. Some interesting things are happening in the global economy, and the Dollar is a key component.

    To Shirley, the selling looks scary indeed, perhaps a little more scary than I had expected. My suspicion that there would be another leg up had to do with a couple of factors, one being that the leading stocks were holding up. Since the article was written, however, we've seen some of the leaders sell off on volume.

    The other factor was that going short at the start of April looked a little too obvious, and often when that happens, the market goes the other way. In this case it would take out the shorts, and then when the longs breathe a sigh of relief, come after them as well.

    This could be the start of a more substantial correction, and aside from stock action, inter-market analysis is also worrisome. We're seeing a stong safe haven rotation in the last few days: dollar, high grade bonds and gold up...equities, commodities and lower grade bonds down - in some cases sharply down. We'll see what comes of it; I wonder if Europe has an unpleasant surprise ready to emerge?
    Apr 11, 2012. 07:57 AM | Likes Like |Link to Comment
  • Looking Ahead To Q2: More Upside For U.S. Stocks Likely [View article]
    Thank you all for your comments and feedback. I am committed to continuing the weekly analysis in this space.
    Apr 3, 2012. 11:13 AM | Likes Like |Link to Comment
  • Looking Ahead To Q2: More Upside For U.S. Stocks Likely [View article]
    Hi Ronks,

    I can't speak to your particular situation, but will share my own practice. Our income portfolio is set up for elderly family members to generate current income to meet living expenses, so we're very cautious. These are retail accounts; we hold diversified bond funds and ETFs, not individual issues. This means I'm not monitoring credit on individual issuers, but am monitoring market data like interest rates and CDS rates. With most of the portfolio in corporate bonds, which are at multi-decade low yields, rising interest rates or a spike in default swaps are where our risk of loss would come from.

    Beyond that I have a simple rule for the funds: sell out of any position that falls more than the equivalent of one year's yield below cost, unless there is some good reason to hold. For example, let's say we have a bond fund we bought at $50 with 6% yield on cost. My stop loss rule would trigger at $50 / 1.06 = $47. Presently we're not close to getting pushed out of any open positions, because I try to buy them right, but in 2008 we went to 0% in corporate paper.

    Hopefully that helps; in general terms it's good to understand where the risk to your own holdings might come from, know what would cause you to make a move, and plan for what that move would be. A good advisor should be able to help if you need it.
    Apr 1, 2012. 05:35 PM | Likes Like |Link to Comment
  • Markets Break Through Key Levels [View article]
    Oh my, that was an egregious typing error, thanks for picking it up. The second paragraph should read "Industrials finished above 13K"
    Mar 18, 2012. 09:27 AM | Likes Like |Link to Comment
  • Chairman Says Nothing, Gold Collapses...and More Important Stuff [View instapost]
    Thanks for the clarification chaser; agree that this has importance beyond semantics. There is a line of thought that if the swaps get triggered there will be a ****storm to follow. Not sure myself, and there are smarter folks than me tracing out the consequences...but I would rather not find out one way or the other.
    Mar 1, 2012. 04:16 PM | Likes Like |Link to Comment
  • Energy Prices Are Beginning To Weigh On The Market [View article]
    That's a fair point, particularly as we have seen the market advance on low volume a few times since the 2008 crisis. To me it still seems like a foundational principle that volume helps to indicate the conviction in a move, for the market as a whole and particularly for individual stocks. It's just one part of the overall analysis and worth noting in my opinion.
    Feb 28, 2012. 02:54 PM | 1 Like Like |Link to Comment
  • The Bulls Are Pausing For A Breather [View article]
    Agreed. I have a simple sell discipline for the income portfolio: any decline in principal value below cost, that is equal to one year's yield on that holding, is a sell trigger. Rule #1 for the income port is conserve principal. These are funds retirees depend on to cover their living expenses, so we're not fooling around. Good luck to you
    Feb 14, 2012. 03:21 PM | 2 Likes Like |Link to Comment