Wild Markets Could Continue
By: Tim McPartland,
After last weeks dips and reversals we can look forward (or not) to a potentially wild week again. This is a week to be driven by economic factors more than geopolitical risks if we have the situation correctly read at this point in time.
At this moment we don’t believe geopolitical factors are in play this week. The Gaza situation has not been a market factor to date and there is no reason to believe that it will be right now. The northern Iraq ISIS action also may be a non factor in the markets–in fact as we see it now with the limited bombing occurring appearing to stymie ISIS it might be almost ignored by Wall Street. The wild card in the Iraq situation is whether ISIS somehow can overrun Irbil (or Erbil) where as many as 2,000 Americans are located–obviously this would create a cathostrophe for the U.S.–we trust this won’t be allowed to happen. The Russian/Ukraine situation may be quiet this week–although the consequences of sanctions will continue to roll through the European economies, but those consequences won’t yet become apparent.
The main domestic item we think will be a driver of the markets this week are retail sales number. We have 4 seperate releases on sales–2 on Tuesday (Goldman and the Redbook) and 1 on Wednesday (Retail Sales from the census bureau) and 1 on Friday (e-commerce retail sales). Our best guess (what the hell — we can all guess since the economists do it daily) is these numbers will be soft–or at least softer than expectations. These numbers in addition to the vast amounts of money chasing yield will serve to hold the 10 year treasury down to 2.5% or below–and again we see no real reason that the yield on U.S debt should rise. The junk economies of Europe are garnering rates below the U.S. and no doubt as bad as governement deficits are in the U.S. we are stellar compared to some of the European economies.
The Japanese economy looks like pretty marginal. A flood of money from the central bank and growth remains marginal and wages are stagnant for most of the workers in the country (in fact real wages are falling for most workers). It is a story of the ‘haves’ and ‘have nots’ once again. China is likely through with their growth spurt for now. These 2 economies just add more fuel to the no/low growth global story.
Whatever happens this week we believe the markets are awakening from their summer slumber and overreactions–up or down–have high odds of happening.
Weekly Portfolio Thoughts
After trading down early in the week our model finally caught Fridays updraft to end the week up about 9% YTD. As we had mentioned a week or two ago we would be happy to maintain our gains at current levels, but we now think that we will more likely to add more gains as interest rates have no reason to scream higher.
We made 2 moves last week–we bought a 1/2 position in Compressco Partners (ticker:GSJK) and we sold Preferred Apartments (a REIT ticker:APTS). With the benefit of hindsight we wish we would have bought a full Compressco Partners position as the shares are $1.19 above our entry on the first half–we will likely get the second half this week. APTS was sold when they announced a purchase of grocery anchored strip malls and we do not want to own this type of asset.
This week we are watching Hoegh LNG Partners (ticker:HMLP)–the new MLP we cover here. We think there is good potential in offshore LNG–and Hoegh is only 1 of 3 companies providing their type of LNG services. The shares came public at $20 and zoomed to $24.50 in 2 days–we would like them at a lower price.
We continue to watch issues of shorter duration–term prerferreds and debt issues that will mature in the next 10 years. While the interest rate environment is favorable we would still like to stay with short durations if it doesn’t hurt the yields too badly.