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Forget Europe: Market Pros Say It's Time To Buy U.S. Stocks


Parsad
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I'm not in agreement.

 

It is important to make sure the rally has legs before buying in.  I would wait until the market can break through several more resistance levels before thinking of committing any serious money in this market.

 

LOL.  ;)

 

Yesterday, in my countries "top" financial newspaper, I read a troubling column. The author was actually encouraging the use of a momentum strategy. The main message was:  "Buy when the index rises 15% and sell when it drops 30%, nothing more to it! Buy leveraged short ETFs (...!!!) to cover big gains."

 

I know, it looks like I made it up. Really insane!

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I gotta say I was a little surprised by the recent rally given the way the market was so distraught in December.

 

Nothing has really changed in Europe or in the US.  There is talk of QE3 so maybe the market is placing a lot of emphasis on this, or on the improving economic indicators coming out of the US (which seem to be subject to continual revisions in the months following their initial announcements).

 

I find myself caught in the middle thought.  Like Sanjeev, I've gone defensive and I believe that is the right thing to do for me right now.  But I also find it difficult to watch this market rally while I sit on the sidelines.  It the classic "discipline" problem I guess.

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I am happy to lighten up on equities and book some decent gains. Should stock markets continue to go up (especially financials) I will be happy to sell more and move to the sidelines.

 

I am a little surprised BRK has not moved much the past couple of months given that insurance and especially financial stocks have done very well recently. Perhaps the buyback has put a floor under the stock and it will take much better economic news to get the stock moving.

 

I would expect markets to continue to be quite volatile. 'Long live the rally'... until the first sign of trouble, that is. Markets look to be quite bi-polar (euphoric or suicidal).

 

The closest thing to what we are going through now was the 1930's or Japan recently (debt deflations). Lots of volatility over many, many years with the averages not really going anywhere.

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Nothing has really changed in Europe or in the US.  There is talk of QE3 so maybe the market is placing a lot of emphasis on this, or on the improving economic indicators coming out of the US (which seem to be subject to continual revisions in the months following their initial announcements).

 

The best news I've heard recently is the rumor (rumor is news these days) of a new Obama mortgage refinance push.

 

It does quite a bit to address the consumer debt.  We are already at nearly the lowest household debt service level in 32 years. 

 

1)  Getting mortgage payments even lower is only going to push that debt service level lower.

2)  The initial payment's principal component of a 30 yr fixed mortgage refinanced at 4% is 76% larger than one at 7%.

 

So principle payments 76% larger?  Yes, that's accelerated de-leveraging.  While at the same time reducing the absolute size of the payment.  Who says you can't haver your cake and eat it too?

 

 

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Adding to my last point...

 

You see these charts that show US consumer debt being at an extremely large level relative to GDP.

 

Those historical levels where the consumer debt was much lower had mortgage payments in excess of 7%.  I mean, 7% is rather low historically.

 

But my example shows that 4% mortgage payments initially repay at a 76% faster pace than 7% interest rate mortgages.

 

So those charts can be a bit misleading because there is no RATE OF DECAY component, and the rate of decay is all important.

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So principle payments 76% larger?  Yes, that's accelerated de-leveraging.  While at the same time reducing the absolute size of the payment.  Who says you can't haver your cake and eat it too?

 

But that money has to go somewhere, either US Govt or Banks or MBS holders.  It will come off the homeowner's liability side of the balance sheet, but he assumption is that after it wipes out its liability, the homeowner will then go out an re-lever himself to start the game again. 

 

I don't know if the average US homeowner is willing to play that game since the headlines now are significantly different (read worse) than they were prior to the meltdown.

 

I hope you are right Eric, but even the refinance doesn't change the Euro or US based sovereign risks, in fact, it may exacerbate them.

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So principle payments 76% larger?  Yes, that's accelerated de-leveraging.  While at the same time reducing the absolute size of the payment.  Who says you can't haver your cake and eat it too?

 

But that money has to go somewhere, either US Govt or Banks or MBS holders.  It will come off the homeowner's liability side of the balance sheet, but he assumption is that after it wipes out its liability, the homeowner will then go out an re-lever himself to start the game again. 

 

The key thing holding back investment is final demand from consumers.  That's it!  Look if people are buying things off the shelves companies will hire and expand.  They can only do this if they have the cash flow. 

 

Refinancing can not only boost their cash flow but accelerate their debt retirement at the same time.  It does wonders for morale.

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I am happy to lighten up on equities and book some decent gains. Should stock markets continue to go up (especially financials) I will be happy to sell more and move to the sidelines.

 

I am a little surprised BRK has not moved much the past couple of months given that insurance and especially financial stocks have done very well recently. Perhaps the buyback has put a floor under the stock and it will take much better economic news to get the stock moving.

 

I would expect markets to continue to be quite volatile. 'Long live the rally'... until the first sign of trouble, that is. Markets look to be quite bi-polar (euphoric or suicidal).

 

The closest thing to what we are going through now was the 1930's or Japan recently (debt deflations). Lots of volatility over many, many years with the averages not really going anywhere.

 

Didn't you have like a 60% cash position and most in BRK? What are you selling that had 'decent' gains, was below IV a couple of months ago and is a sell now? I couldn't find a candidate in my portfolio to be honest.

 

Selling anything now, for me that would be pure market timing and nothing more. If the run in financials continues like this, I'll have to sell some, but mainly because I can't justify 30% position holdings in my portfolio (unless BRK, FFH and some other holding companies maybe).  :P

 

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I'm still fully invested, so no going defensive for me.

 

I did, however, take some gains in financials and redeploy into nat gas-related companies.

 

 

Are you looking at CHK, ECA?

 

Personally, I'm selling some 25 to 50% positions that ran up to purchase a full position in CHK and hopefully MA if it comes 5-10% lower.

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I'm still fully invested, so no going defensive for me.

 

I did, however, take some gains in financials and redeploy into nat gas-related companies.

 

 

Are you looking at CHK, ECA?

 

Personally, I'm selling some 25 to 50% positions that ran up to purchase a full position in CHK and hopefully MA if it comes 5-10% lower.

 

I'm looking into a number of companies, including CHK.  Nat gas producers and midstream.  Also nat gas-levered utilities.

 

Will have to take a look at ECA.

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I find myself caught in the middle thought.  Like Sanjeev, I've gone defensive and I believe that is the right thing to do for me right now.  But I also find it difficult to watch this market rally while I sit on the sidelines.  It the classic "discipline" problem I guess.

 

We haven't gone totally defensive or anything.  We are still very much long our U.S. financials, but certain other investments continue to rise where we have and will continue to take small profits from.  As well, things like Winn-Dixie were bought out. 

 

U.S. financials were so distressed that they have a long ways to go to recover.  I said that I expect BAC to hit tangible book this year, and it still will have a long ways to rise over the next few years.  We don't plan on selling a single share for the forseeable future.  It will pay nice fat dividends a few years from now that will probably be a significant percentage of our total cost.  Cheers! 

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We haven't gone totally defensive or anything. 

 

"Totally Defensive" is subjective.  I still hold a core position of names that I believe to be solid, FFH, BAM, BIP.  Its just I am "more" defensive than I was throughout 2011. 

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I'm also moving to the nat gas sector, focusing on the lowest cost producers. Other than some name already mentioned on this board like Contango and Peyto in which I already have a position, I'm particularly intrigued by UPL. They seem to have an all in cost even lover than the former two which are already best in class. Moreover Darren Gee (Peyto CEO) mentioned UPL and Michael Watford in his December report with quite positive tone.

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If gas is cheap now, during peak season, it will very possibly get alot cheaper as we head into spring.

 

The economy, US at least is performing exactly as it should coming out of a balance sheet recession. 

 

Governments are taking on enormous debt loads, effectively transferring private debt to public debt.  Corporate balance sheets are way up, and personal balance sheets are starting to show improvement.  At some point people will start thinking new car, nice vacation, new appliances, home reno with new carpet, even a new bigger house.  The kids may even get around to moving out on their own.  This will start to drive spending, which appears to be happening.  Companies will start raising wages and hiring.  Then, government income will rise, and the need for government spending will decrease. 

 

The economic cycle has not been repealed, only delayed, or slowed up.  If several megacaps increase or start dividends then the markets will start to rise.  Add to all of this, we are now deep into  an election year.  Obama is pulling every lever his office can and still bypass congress to get the job machine rolling along in the US.  They will succeed. 

 

I for one plan on holding a portion of my US banks for years to come as well. 

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If gas is cheap now, during peak season, it will very possibly get alot cheaper as we head into spring.

 

The economy, US at least is performing exactly as it should coming out of a balance sheet recession. 

 

Governments are taking on enormous debt loads, effectively transferring private debt to public debt.  Corporate balance sheets are way up, and personal balance sheets are starting to show improvement.  At some point people will start thinking new car, nice vacation, new appliances, home reno with new carpet, even a new bigger house.  The kids may even get around to moving out on their own.  This will start to drive spending, which appears to be happening.  Companies will start raising wages and hiring.  Then, government income will rise, and the need for government spending will decrease. 

 

The economic cycle has not been repealed, only delayed, or slowed up.  If several megacaps increase or start dividends then the markets will start to rise.  Add to all of this, we are now deep into  an election year.  Obama is pulling every lever his office can and still bypass congress to get the job machine rolling along in the US.  They will succeed. 

 

I for one plan on holding a portion of my US banks for years to come as well.

 

I don't disagree that nat gas prices could go lower and remain there for a while.  And nat gas producers seem to trade in concert with nat gas prices.  So I'm trying to concentrate on companies that could be M&A targets or who can pick up attractive assets from overleveraged companies.  CHK is a special case because of all the JVs and financial engineering they're doing.

 

I also plan on holding much of my US bank exposure for the long run, particularly those warrants that adjust downwards for distributions.  US financials remain a large part of my portfolio.

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With nat gas I will be looking at coventional producers in Western Can, and the US rockies.  The whole business of fracking makes me nervous.  I can see many local governments shutting it down due to local political pressures.  There is also the issue of water contamination, and possible links to Earthquakes.  If a major aquifer is poisoned, or an Earthquake related to fracking causes significant urban damage we could be looking at the biggest lawsuits in history.  Exploding rock deep underground cant be safe no matter what anyone attests.

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If a major aquifer is poisoned, or an Earthquake related to fracking causes significant urban damage we could be looking at the biggest lawsuits in history.  Exploding rock deep underground cant be safe no matter what anyone attests.

 

They've only just barely got going with fracking and already we've had recorded earthquakes and contaminated drinking water.  No wonder one of the political parties wants to get rid of the EPA.  Geez I wonder why?

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Brings to mind Centralia Pa - where a coal fire has burned unchecked for 40 years;

 

or Kirkland Lake Ontario, where part of the town has sunk into old mine shafts. 

 

Cracking up rocks on a large scale underground near Urban centers is probably not a real smart thing to be doing. 

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No wonder one of the political parties wants to get rid of the EPA.  Geez I wonder why?

 

Have you ever considered that extingushing the flames when our rivers start catching on fire again will create much needed jobs? In fact that is the foundation of Rick Perry's jobs plan.

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No wonder one of the political parties wants to get rid of the EPA.  Geez I wonder why?

 

Have you ever considered that extingushing the flames when our rivers start catching on fire again will create much needed jobs? In fact that is the foundation of Rick Perry's jobs plan.

 

I read the biography of Rockefeller.  Apparently before the automobile there was no use for gasoline so they just dumped it in the river (all they wanted was the kerosene for lighting).  I guess this means the auto industry cleaned up our rivers.

 

The oil industry led by Rockefeller actually saved the whales (kerosene replaced whale blubber).  Electric light nearly killed the oil industry were the car not to come along just in time.

 

The EPA never saved the whales.  Who needs the EPA when you've got the Texans?  Whales for Texans 2012!  Although back in those days oil hadn't been found in Texas yet.

 

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