That lonely sinking feeling
The Cowboy Junkies are probably not whom you turn to when you are looking for investment advice, but I was looking at DragonLZ's recent blog entry about how to know when the market is topping and thinking about gut feelings, technicals, and valuations and I find myself in the same boat - I don't like this market, not one bit.
Sector rotation is the name of the game for the last couple of months and one of the sectors that suddenly got off on a tear are the casino stocks. MGM, the most highly levered of the large names, has placed a huge amount of gains into my account, completely offsetting the totally wrong call I made on GCVRZ - and if anyone followed me into that warrant, I am sorry, because I got it totally wrong. Not the first time I've screwed up on a warrant bet, either (I am talking to you, JMBA); I'm no good at them.
Now I've been holding casino stocks for a few years because I gamble and stay at Vegas from time to time and I've learned that, unlike John Cusack, at the end of the movie I really do prefer a sure thing. But what I've noticed is that when the market is frothy and toppy - when the hedgies are trying to churn a few more drops of espresso out before the foam goes flat - the casino stocks generally pop, and pop heavy. Small cap industrial names and energy - cyclicals - tend to do the same thing to a lesser extent.
And that's kind of the pattern I'm seeing.
I don't know quite how to interpret Buffett's bid for PSX's midstream assets. They'll be a nice complement to MidAmerican Energy Holdings; I am divided as to whether they'll unlock more value for PSX by turning it into a pure refinery play; or whether Buffett just skimmed the cream off a good stock and turned what's left into a run-of-the-mill competitor to VLO and TSO where the crack spread rules all and volatility is king. I am sort of fearing the latter, and, honestly, if I wanted to own a TSO and make crack spread bets, I could have done that any time.
Finally, I am noting a distinct lack of interest from the market in my beloved tobacco stocks, PM and MO. 10-year treasury yields are flirting with 3% and I think if you assume that PM and MO can't continue buybacks forever, that the risk of capital loss in these names at a risk free rate of 3% is starting to make their dividends - especially reinvested dividends - look like dicey long-term prospects.
The entire landscape for investors looks dicey and I think that is the main reason there is any interest in stocks right now at all - everybody knows, especially Leonard Cohen, that real inflation is happening even as the CPI numbers and the Fed say no - and everybody knows that stocks represent real assets, valued in dollars that are worth less every day. As soon as an alternative arises - even a 4% risk-free alternative, as in the Forsyte Saga - people are going to dump their South Seas shares - Macau, I am looking at you - and the landscape is suddenly going to look very different.
That's my story and I'm sticking to it. I still think we've got about 5% to go in the major indices from here. But if you've got runners, consider taking some profits.