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BE CAREFUL OUT THERE.

June 12, 2011 – Comments (8) | RELATED TICKERS: ITT , VBF , FXF

I am posting another blog because I do not want to see individual investors get hosed by Wall Street. In my last post I indicated the severity of the systemic risk and the need for you to gather your own information from original sources that are unbiased. Some of the sources are expensive, but a public library, or even a college or university near your residence probably have subscriptions and are probably available for free. The Financial Times, which is published in London, provides unbiased information about the sovereign debt crisis in Europe. It appears to me that Germany, and specifically German Chancellor Angela Merkel, will determine the fate of the Eurozone. The ECB and the IMF do not have a strong enough balance sheet to bailout Greece and the other peripheral Eurozone members, such as Italy, Spain, Portugal, and Ireland. There are too many different scenarios that could happen, so as I indicated in my last posting I have been raising a lot of cash, but still have about twenty percent of my actively managed accounts in equities. However, I am net short. Here are some of the moves that I have been making.

1) Since late March and early April after traveling to Europe I suspected the global stock market rally was over, so I sold all of my growth stocks and have bought stocks with solid balance sheets that have decent dividend yields, such as Pfizer, which has a dividend yield of 3.85% and a lot of cash on its books. I bought shares of PFE on April 25th and May 3rd. The ex-dividend date was on May 11th, so I collected my dividends. This is one of the strategies that I use; I buy or increase my shares of stocks that pay a nice dividend before the ex-dividend date. This is a pretty common strategy, so I buy the shares a few weeks before the ex-dividend date as the shares of these companies sometimes go up right before the ex-dividend date. I still own shares of PFE. I also am long Coca-Cola FEMSA, KOF, which has a dividend yield of 2.31%. At one time in my life I lived in Mexico, and Coke basically has a monopoly in that country. KOF is a bottler & distributor of Coke & has virtually no competition. I also have been buying shares of ITT---not the educational company--but the holding company which is currently divided into three units, but plans to spin-off its divisions into three separate publicly-traded companies before the end of the year. As of June 3rd its shares are trading at $55.75, but it has a break-up value of probably between $65.00 and $70.00 per share. I continue to hold shares of BRKB, but also have my long position hedged by a short position. I am not "short the box," because I am still net long BRKB. It is possible to use a covered call strategy to generate some short term income, but I do not like the covered call strategy. However, some traders do generate a decent income using covered call strategies.

2) I have been buying shares of the Swiss-Franc, because I believe it is the strongest currency in the world. Its price has increased a lot, but I think it still will go higher. The symbol is FXF.

3) I am short using basic inverse ETF's, such as DOG, RSW, & SH. I understand these inverse ETF's have a bad reputation, but I like them.

4) To generate income, I own bond ETFs and bond funds---not individual bonds--such as TIP, TLT, and WIP. 

5) I also buy closed-end funds, CEF's to generate income. I like to buy CEFs that are trading at a discount to their Net Asset Value, NAV, or generate a high income-only yield. When buying CEFs it is important to distinguish between the income-only yield and the distribution yield. The income-only yield is the one to focus on, because it does not include the return of capital. Here is a good web-site that is free and explains CEF's: www.closed-endfunds.com. This site also gives information about whether the CEF is trading at a discount or a premium. 

In conclusion, here are some easy strategies that I am currently using for myself. I am not trying to hit a home-run now, but I still like to make money at all times. I believe that ultimately, the Eurozone debt crisis will resolve itself, without the devastation of a Lehman Brother's collapse. However, there is still significant systemic risk. The key assumption to my theory that there will not be financial armageddon as some hucksters have been hyping is that Trichet, Bernanke, and even Angela Merkel know what kind of damage could happen because they saw first-hand what happened after the demise of Lehman. However, I do believe the odds are more favorable that the market could head significantly lower. If I am right, then I will still be making decent money now, but I will also be able to go for the fences by preserving my capital and deploying it when the market is less expensive. Conduct your own due diligence before taking any actions. Good luck trading.

IMPORTANT DISCLAIMER:These are solely my opinions and should not be construed as advice or recommendations for you. You should consult with a financial professional before making any important financial decisions. My positions can change at any time.