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Fear & Greed Trader
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INDEPENDENT Financial Advisor / Professional Investor- with over 30 years of navigating the Stock market's "fear and greed" cycles that challenge the average investor. Investment strategies that combine Theory, Practice and Experience to produce Portfolios focused on achieving positive... More
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  • Market Update 12/20 - "It's All About The Economy " 13 comments
    Dec 18, 2013 4:22 PM | about stocks: CXO, PXD, WLL, CSCO, CAM, CTRP, CVX

    I'll start off with just two of the trends that are in place today, and for me they are "difference makers"

    1.Americans' debt burdens are as low as they've been in a generation.

    2.The federal budget deficit has fallen off a cliff."

    These are huge events. The easing of the twin headwinds of private sector de-leveraging and public sector austerity will bolster the improved outlook here in the U.S. Many emerging economies will also likely enjoy stronger growth in 2014, pulled along by export-led growth to the United States, Europe and China. That said, the global growth rebound is likely to continue its slow improvement in '14.

    The trend continues, Federal outlays have declined by 1.4% month over month in November and have been flat for nearly five years, Federal tax receipts have surged by 2.8% month over month, and personal income and corporate profits have risen dramatically. I have stated this before but its worth mentioning again. The federal deficit has narrowed to less than 4.0% of GDP, and the CBO is estimating it will narrow to 3.3% in 2014. My statements during this entire year have carried the message that the stock market does not care about the absolute of "good or bad," but merely if things are getting "better or worse." Well, things have improved and continue to get better.

    Look at the headlines that have been written lately "Capital leaders Agree to a Deal on the Budget," (New York Times, 12/11/13); "Wall Street Exhales as Volcker Rule Seen Sparing Market-Making" (Bloomberg, 12/11/13); the "WTO Seals Deal for First Time in 18 Years to Ease Trade Tensions" (Bloomberg, 12/7/13) ... These are important items that haven't received the attention they deserve simply because the majority have their eyes and ears on the FED.. It's speculation on my part BUT maybe just maybe we will in fact see a "grand bargain" come out of DC. simply because the Obama administration is afraid of the negative effects of Obamacare on the mid-term elections.

    And just look at the recent dividend increases announced lately, (NYSE:BA) 50% increase ,(NYSE:MMM) 35% increase, (NYSE:GE) 15% increase,(NYSE:CVS) 22% Increase. These announcements were made in just the last 2 Weeks ! Examples of how corporate balance sheets are in great shape. All of this in the midst of the naysayers moaning about how the earnings "quality" isn't there .. Ridiculous !

    Now, one can see why the market has done so well and in my view will likely continue the upward trend again in 2014. Maybe not at the same rate as '13 (~25%) , but if earnings arrive at anywhere close to what the bottom-up, operating earnings estimates for 2014 that are being suggested ($120) with the same multiple as today, well, we have the making of a nice year ahead.. All of that , and now add a bit of history on our side.. from JPMorgan,Factset Research:

    Many are highlighting the fact that this bull market is "old" and tired . I already spoke to this in my commentary here as it may not be as old as everyone thinks: http://seekingalpha.com/instablog/706857-fear-greedtrader/2445241-the-markets-where-we-are-my-first-look-at-2014-part-i

    So, how does this bull market fare vs. other secular bull markets ? Their take --5yr old bulls turn into stronger 6 yr olds ..

    (click to enlarge)

    Then we have this fact - when markets are up 20-30% in a year they continue to be positive 75% of the time with an average gain of 8.1%:

    (click to enlarge)

    These are nice to know facts, but of course they do represent "history" and there is no guarantee that 2014 will follow. However, unless we get an unexpected jolt from somewhere, or a total turn in market "psychology", I believe as stated earlier , the equity market will be higher in '14 as the secular bull market that is currently in place prances on..

    Where is the money going to come from to fuel this potential next leg up..? Sure there has been a lot of Bond fund outflows already as they are on track to have another -$20B outflow in December, making for an almost -$260B outflow over the past eight months. However, given that over 1.3 TRILLION poured into bond funds over the past five years, there's much much more to go, particularly if bond yields continue to rise. We are just at the beginning of this trend, which will take a long time to unwind completely.

    Ok, I know its repetitive but that's the way I envision it, but before we get there i would like to see a healthy correction.. A drop to get the "bears" giving me their "I told you so song". The bears will get suckered in again to their beliefs and the "other shoe" will drop for them .. The question is when,, My latest indicators are suggesting that it may be near , but they have flashed this info before.. And the bullish reaction to the Fed today may have just reversed all of those for the near term. The caution was predicated on the fact that recently I noticed that a lot of stocks reached new highs only to close lower than the week before , and that is indicative of short term topping.. Making a top is a process and we may be in that phase now. I maintain that it won't be a "major" top and it should be viewed as an intermediate top in an overall LT trend. I will now add that a close on the S & P above 1812 , should set the stage for another leg higher .

    The fed announcement and the initial reaction with the S & P up 29 points today indicates that many market participants have come to grips that tapering isn't tightening.. I wonder what the folks that have preached that's "it's all about the Fed" will offer now as an argument. It is the first step in proving what many including myself have been saying all along , "it's all about the economy" .. Don't be " fed obsessed "

    I am trimming extended 'winners'. Harvesting some cash as I believe that being flexible will be the key as it is so difficult to call the day to day , week to week movements of the markets. However, I am using the backdrop of the secular bull trend as a guide to add selective issues when they enter into a buy zone.. Of the names I mentioned last week, (NYSE:PXD),(NYSE:CXO),(NYSE:WLL),(NYSE:CAM),(NYSE:CRM),(NASDAQ:CTRP),CVX) are all in that range as I may start to scale into those names .. I added (NASDAQ:CSCO) today , its my favorite play on the "Dogs of the Dow" theory for 2014. (PE 11, FCF% yield 10% Div Yield 3.3% )

    And the sector I have highlighted recently (the financials) rallied hard on the Fed news.. Add on dips as they are winners in '14.

    Best of luck to all !!

    Disclosure: I am long CXO, PXD, WLL, CSCO, CAM, CTRP, CVX.

    Additional disclosure: I am long numerous equity positions, all can be seen here in this blog

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Comments (13)
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  • Land of Milk and Honey
    , contributor
    Comments (4387) | Send Message
     
    Thanks Fear. I agree the economy is finally showing signs of life. I'm sure it will sputter, as it's first getting started. May even dip down itself a bit (not just the market). But this looks good. Aside from a geopolitical incident changing the world landscape... and even if one does... the economy looks like the patient is alive and finally showing outward direct signs.

     

    The juxtaposition is the dips. Things are generally overvalued by everything I read and in upper edge of the channel chart-wise.

     

    Thanks for laying everything out. And making it easier to hear my own voice that doesn't think the world is coming to an end (at least not soon) or that the Fed doesn't mean what it communicates.

     

    Now I have to dig into valuations. Wish I had more time right now... I could probably just buy what you and BSF list, and be fine without further thought :). ... but I want to also make sure I get an allocation appropriate for me.

     

    Close to 1812 at close, so another leg up? Tomorrow will tell that story I suppose.
    18 Dec 2013, 08:39 PM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (5362) | Send Message
     
    Author’s reply » Lomah,
    thanks for the comment , actually i was premature with the 1812 statement , as we did in fact close above the old high on the S & P .. As you mentioned the next few days may determine if we do indeed take that next leg higher.. We have the seasonality issue at our backs as this is usually a favorable time of the year for the bulls.
    Many stocks are at the upper end of thier channels , so thatts why i dont chase.. the oils i mentioned are not (many have corrected 15-20% from the highs they hit earlier ) and may be poised for a nice rebound into the early part of next year.
    Good Luck
    19 Dec 2013, 08:41 AM Reply Like
  • BlueSkyForever
    , contributor
    Comments (1759) | Send Message
     
    LOMAH, don't just buy what I bought. On my profile, I list everything, but some of those stocks have gotten a little frothy, like (TSCO) & (SBUX), (MCK). There are lots of stocks with low PE ratios & at good valuations, tho. (IBM), (MCD) and plenty of others - (BAC) etc. are beaten up. I look for bargains, and then buy in over time. (PTY) has a good interest rate & I believe it will go higher as taper anxiety decreases next year. (PCN) is also good.

     

    Like F & G, I see the economy doing better every month. 2014 will likely be a good year. Maybe not as great as 2013, but still good. There will be companies out there that will outperform, just have to go looking for them. I'll keep posting on IT's blog if I find any more.

     

    Or buy ETFs, mutual funds. Look how well User is doing in the portfolio challenge, all he did is buy that one fund. Lol, why bother doing research when that's all it takes? Krusty & Coins are doing very well.

     

    (NDLS) went down to $36. It may do well next year, as more people spend money eating out. (MCD) is so beat up, it has to do better. (IBM) is another one that I think will come back strong in 2014. (KKD) recently went down a lot, but it's still growing & the stock is on the upswing. I like (OHI) and other REITs might come back strong next year.

     

    I'm so glad that every dip, I was buying over the last year. It's lucky for me that this year went well, as I sold every mutual fund, bond, municipal bond and bought stocks….a huge transformation. Should have done it a couple of years ago, but it's never too late. So far, it's been good. I'm constantly reading here on SA & researching. Sold (F) a few weeks back when I read that the company would not do so well in the next quarter. Glad I did. I prefer buying companies that are solid business that pay a dividend. Just got into (MMM), (XOM) and (COST) during the recent dip. (UTX) dipped a little & I added to my existing position. (CMI) had a big pullback - now it's back up. By owning so many stocks, across sectors, the risk is spread out. I've got the time to check them all daily. Others may find it too much work, if they have a full time job. I'm invested for the long haul. Planning on retiring on the dividend income, in about 10 years.

     

    F&G, thank you for being a steady voice while many were lost in their gloom & doom. I bought (V) awhile back when you recommended it, wow is it doing great! I had watched it since last spring, thinking about jumping in & finally did when you wrote about it.
    18 Dec 2013, 10:23 PM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (5362) | Send Message
     
    Author’s reply » BSF,

     

    Thanks for the commentary , you too have been a voice of reason with a sensible approach to investing ,, (V) has been a nice surprise , i didn't see that coming so quickly , its stretched in price , but if u have a LT view , they are a good bet ....

     

    One that u have that i missed is (CMI) , i luv that company and just never pulled the trigger.. it will do just great as the world economy improves ..

     

    Good Luck to you
    19 Dec 2013, 08:45 AM Reply Like
  • Land of Milk and Honey
    , contributor
    Comments (4387) | Send Message
     
    BSF,

     

    Don't worry, I'm not going to just randomly buy stuff because someone else did. I'll do my diligence, and make sure I understand it enough to judge over time. ETFs did well because the marketed bulled. I did reasonably well with them for years. I've been using them to get in, while figuring out timing of individual stocks. Time is a big factor. I'm usually good at this type of detailed work, but it's been a distracting year, to say the least...

     

    Thanks for the list -- plus I have a few that went down that looked intriguing. So when I find something interesting... I'll pass it along. Too bad I didn't buy into (OTIV) when I posted about it as looking hot, up 85%. Any thoughts on (RAD) continuing to climb? It's been looking like a solid mover for a long time.
    18 Dec 2013, 10:48 PM Reply Like
  • User 7415181
    , contributor
    Comments (757) | Send Message
     
    @BSF,

     

    "Or buy ETFs, mutual funds. Look how well User is doing in the portfolio challenge, all he did is buy that one fund. Lol, why bother doing research when that's all it takes?"

     

    Well, the research is kind of fun! I think you agree if you have that many stocks. Question is how long will I enjoy that type of research if hopefully my work schedule changes in short order.

     

    If F&G is right and it's another pretty good year, my strategy for the challenge/401k will do well. If some black swan pops up, I think I can protect most of the principal (been watching 24 re-runs this week, so I'm a bit more paranoid than normal). A flat year - well, that fund has a yield even if not great.

     

    But I still spend a couple of hours each month writing/researching out a cef or preferred to buy. In a couple of years, I'm going to have evaluate the returns on both strategies and figure out if that time was worth while or if the kiss approach was better.
    19 Dec 2013, 12:02 PM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (5362) | Send Message
     
    Author’s reply » User ,

     

    I agree, the "challenge" does show the benefits of just staying the course with one fund ..

     

    I like to pick individual names that i can write calls against .. as it adds to my overall return,,

     

    Either way, one has to do what is comfortable for them ..

     

    Best to you
    19 Dec 2013, 12:29 PM Reply Like
  • User 7415181
    , contributor
    Comments (757) | Send Message
     
    And I would be remiss if I didn't say that I enjoy your articles and please to keep your thoughts coming, but I think I've made that point a few or more times!

     

    Perhaps staying the course no matter what strategy is used (assuming it's realistic) is the key?
    19 Dec 2013, 01:31 PM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (5362) | Send Message
     
    Author’s reply » User,

     

    thanks for the kind words,, Yes staying the course and having conviction to a strategy are keys. There is a fine line between conviction and being foolish.. Sometimes its EZ to fall into following a failed strategy too long--- say on a particular stock .. As they say, set your strategy and then set some ground rules and stick with them to avoid being "foolish" -- I try to remind myself of that constantly ..
    19 Dec 2013, 01:53 PM Reply Like
  • BlueSkyForever
    , contributor
    Comments (1759) | Send Message
     
    User, yes it is fun if you pick a good stock & the returns are great. I've had the best year ever in 2013…and hope the bull continues in 2014.

     

    Luckily i have the time to spend researching & watching the market every day. The portfolio challenge has been fascinating, all the different ways people are investing is something we can all learn from. In real life, my investment strategy is more like JohnBinTN.

     

    About 60 to 70 % of my stocks are blue chip, dividend stocks. I do like keeping some cash, about 10% most of the time in case a really good bargain shows up. The exciting part of investing for me has been the growth stocks. A few of my picks have been stinkers, too.

     

    We should keep the portfolio challenge going forever. There are some investments that take awhile before you see the benefit of owning them. This is especially true of DGI (dividend growth investment) stocks. Let's say you've been buying & re-investing dividends in one of David Fish's CCC stocks, for over 20 years. The results of that kind of investing are phenomenal. This is what Chowder, Dave Crosetti, Chuck Carnevale, Bob Wells etc. talk about here on SA.

     

    As a good example, check out (MCD) from 1985 to the present. Then throw in a few more great dividend stocks from the CCC list, and you will see what I'm talking about.

     

    (CSX) is one that fits this plan, along with plenty of others. (GE) (T) (MMM) (JNJ) ….so many to choose from. The key is to buy them when they are good value. Or just dollar cost average in, buying every month.

     

    My mantra is to buy in slowly, hold the company forever (**monitor, in case the company stops increasing the dividend, which is a great way to tell if the company is having problems) and then during your retirement years reap the rewards i.e. dividends.

     

    All the best of buys to everyone. Enjoy our holiday "down time" lol I'm watching the market every minute ; )
    26 Dec 2013, 11:42 AM Reply Like
  • BlueSkyForever
    , contributor
    Comments (1759) | Send Message
     
    F&G,
    You are one of the ones on SA that has helped me tremendously, I read all your articles! Thank you for taking the time to research & write them & for being a rock during this past year.

     

    We've seen so many times over the long haul, the market goes down, it corrects. It might even be Gawd awful for awhile. But *** it always *** comes back. Helps to invest in great companies, then stay the course. Have faith. Use those market corrections to buy more. Believe me, I had to convince my husband not to panic back in the bad days of 2008/2009. It helped that he knew my dad (the best investor I've ever known), and trusted me when I said "if we sell now, we really do lose. But if we just hang in there, keep buying & re-investing dividends, things will be all right." And they were. It took awhile, but really by 2010 we were back to the pre-correction level. And then it just kept getting better. If I could convince him to sell our house, leave NJ for a cheaper state to live in - we could actually retire today, in our mid 50's. But he still wants to work & we are helping our son invest in a business. We do take things pretty easy. My main job is to run the house, feed the dogs, and take care of the finances. So really, I'm working more than full time ; )

     

    May peace & happiness find you all this holiday season, and all thru the new year.
    26 Dec 2013, 11:55 AM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (5362) | Send Message
     
    Author’s reply » Blue,
    Thanks for the kind words,,

     

    I always enjoy your commentary and your approach to investing ,, ;)

     

    Happy Healthy Holiday Season to you and your family , Wishing Good fortune to you and yours in '14 ...
    26 Dec 2013, 12:22 PM Reply Like
  • BlueSkyForever
    , contributor
    Comments (1759) | Send Message
     
    LOMAH, I really enjoy our conversations. You are right, sometimes it's best to take it slow & be very careful with your investing choices.

     

    Someday I might even buy back into individual bonds, ETFs, and even mutual funds. That's what I used to invest in primarily, and over the years it worked ok.

     

    However it is fun to research & pick stocks too. I'm liking the DGI philosophy, mixing in some growth stocks & seeing the results. (PTY) has done very well for me, and it's a bond ETF fund. Pimco Total Opportunity, just announced a special dividend of $1.84 per share.

     

    Meanwhile I'll keep posting whatever looks good. Darn it, missed out on (TWTR). Wow is that going over the moon!

     

    Enjoy the holidays!
    26 Dec 2013, 12:04 PM Reply Like
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