One Wild and Crazy Week
By: Tim McPartland,
Fortunately it isn’t too often that we get weeks that are as wild and crazy as last week—not that any of it made sense, but we have learned to view every move this market makes with extreme skepticism. Fed statements have gotten to be such as joke – so now we make “considerable time” into “patient” and we rally strongly–and this is investing in 2014. We have learned to live with the ridiculous–what choice do we have other than to look and laugh.
The silly markets gave us a reasonable boost in the 2014 Model–now standing at a 9.59% gain YTD–we were prepared to end the year with a gain of around 8%-and maybe we still will as there is nothing we can predict that is apt to be right.
Last week in a continued move to ‘position’ the model correctly we sold Pennant Park (a BDC)(ticker:PNNT) and Cedar Realty Trust preferred (ticker:CDR-B) and moved the proceeds to cash, bringing our cash position to 10.62%. Tomorrow we will purchase a position in TravelCenters of America 8% senior notes (ticker:TANO) which began trading on Friday and is just under par. We continue our slow move to repositioning in shorter durations (at least shorter than ‘perpetual’). Issues like TANO at 8% provide a good risk/reward compared to almost all the junkier perpetual preferred stocks. While we have maintained all through 2014 that interest rates were likely to not move higher in 2015 (or at least until the very end of 2015) it is not too early to move to shorter durations if reasonable debt issues can be bought.
Also tomorrow we are selling (finally) 30% of our short position on the S&P500. We have noted before that seldom have we ever had a hedge that worked to our advantage, but we apparently don’t learn easily as we try to employ them every year. This failed hedge has cost the portfolio 1/2%.
We have been watching all of the oil issues very closely–as everyone has, during the last number of weeks and we marvel at the folks that are trying to catch these falling knives. They were not smart enough to get out at the top, but now they think they are smart enough to get in at the bottom. Maybe by luck some will make some money–or by bad luck they will simply lose more money. We have to believe that while the markets overreacted to the downside on the e&p’s and MLP’s as well as their preferreds to ignore a 40% potential coming revenue loss is foolish. Some ‘experts’ say that U.S. production will continue to rise through 2015 which if correct will bring further turmoil to markets–and bankruptcies. Our personal view is that production will fall sooner than expected as well declines are rapid and large and rigs are already being stacked in some markets. If we are correct we will begin to get a better flavor for the fallout in a month or two and can make more rational and less speculative moves in investing. For now we remain on the sideline for oil and gas issues.