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May 17, 2014 – Weekend Market Comment

May 17, 2014 – The broader stock market sold off Thursday as a result of hedge fund manager David Tepper's comments during the SALT Conference in Las Vegas. He said Wednesday he was not bearish on stocks but was more cautious last year. He likes tech stocks such as Google and and has lowered his equities stake to 60% from 100% in 2013. David Tepper, who made the most money of any hedge fund manager in 2013 at $3.5 billion, believes investors better approach the market with more caution now. "I'm not saying go short, I'm just saying don't be too fricking long right now," the head of Appaloosa Management told a few thousand of his colleagues Wednesday at SkyBridge Capital's SALT 2014 conference in Las Vegas. Among his concerns are a deflationary environment, weaker-than-expected U.S. growth and a European Central Bank (ECB) that badly needs to ease monetary policy. The selloff was very broad on Thursday and hit pretty much every sector. But there never seemed to be a lot of "panic," with the CBOE VIX staying relatively calm given its incredibly low level at the start of the session. The bond market seems afraid of deflation, noting that Treasury yields fell again on Thursday.

The thing is that volatility is rising, but investors are not buying protection -- well not yet. The VIX is near the low end of it's cycle and the broad market (Russell 2000)  is off 10% that tells you either there is a lot of confidence that buyers are about to come in, or that the normal summer sell of is coming. What do you think after looking at the graph below? Yeah me too.

This is yet another sign of what is being to be known as the ”Mehhh market” if you don’t have a teenager you may not no the term as the new “what-ever” that the 90’s kids used in other words, a bland mixture of apathy almost bordering on disdain. So here we are again saying, the markets are up more than 35% in 2013 and trees don’t grow to the sky and so we are entering a period of consolidation. I warned you a few weeks ago that about the 15th of May was options expiration and things would sell off about then. Now we are down about 10% on the broad market this year but only about 1% for the S&P 500 big stocks. The problem is its May and no one is excited trading in the summer but on the other hand there is this big problem of no place to hide since bond yields stink. Also their really is no major calamity to spook investors and well ya throw up your hands and say Mehhh! The wisdom so far is park it in the big equities and hope there is no panic to get out.

So the market is not dropping – Mr Tepper say don’t go short. Cash is a position and I along with Mr. Tepper have some in cash but that still begs the question what other possibilities are out there? For those of you who know me I would suggest some big dividend earners like Canadian pipelines and banks. Yes there are some stocks with better dividend returns but usually with more risk and this is not a time for making a killing this is a time not to get killed. 

One place to look for yield is intentional monopolies like Brazil's power company Companhia Energetica that trades on the new York exchange under the symbol CIG. This $7 stock has a $0.80 dividend giving it a yield of 5%.

Canadian Banks are always bullet proof, here is my favorite Bank of Nova Scotia. Yields just shy of 4%.

Power Financial is a long time stalwart in the Canadian financial industry, also yielding just over 4%.

Canadian railroads are some of the top performing equities this month, here is CP

If you want to stay with US equities look at firms with strong cash flow and few competitors like Iron Mountain symbol IRM on the NYSE

Advertising Juggernaut Progressive Insurance is building a brand as strong as Citi Group and cleaning up in the US auto insurance market. 

I have been waiting forever for the market to see the upside of Rackspace and finally it did this week as better than expected earnings surprised. 

So it is May why fight it, I am taking out the sailboat and trying to save my tan from my winter in Belize. Have some fun with the market... but don't hang your butt out too far.  :)