Quiet Market and Few Bargains.

The stock and bond markets seemed to have settled into a holding pattern since the first of the year. Even the better than expected job report last week only moved the market some over 100 points.  The last few days have been a slow drift back of double digits daily so even that bump was only temporary.  We believe there are two situations that are making the market behave this way. One is that there have been and continue to be no events that would drive the market either way. European debt scenarios are on hold as Greece is making up it's mind about bankruptcy. There is no movement in the US towards any improvement in our debt situation.  The middle east is on hold with Iran. Two is that most investors and traders are of the belief that the market is overvalued. Dividend stocks have been driven up in price and this week investors seem to have discovered high yield bonds funds and are now driving them up as well. 

The only thing we find fascinating and could move the market near term is the lack of cohesion in the policies of the Federal Reserve and the supposedly improvement in the unemployment situation. One of these views is plainly wrong as they can not exist in the same economic environment.  Sooner or later one of these economic views will take hold going forward, but even then the fact is there is not going to be a all out economic expansion due to the current lack of movement on debt in the US.  Like it or not the expanding national debt is a drag on expansion and wise investors are holding their resources to protect capital. 

With all this in mind there are few stocks we like in the current environment.  The agency reits remain our favorite choice, but even those are now at the mercy of the above noted lack of agreement between the rate of economic expansion and the Federal Reserve's scenario.  If the Federal Reserve is right and the economy is basically dead for three years hence stocks like AGNC and HTS make perfect sense now. If the economy is expanding quicker than expected these Reits will find a shorter time frame before losing some capital value.  We also like ERF at this price, since the pending issuance of stock to fund future capital needs is at $23.45 per share there is a floor in this stock currently. The annual yield is over 9% and there is a monthly payout so what is not to like. 

Otherwise this market remains a traders delight. If one is into derivative investing via a hedge fund profits are plentiful in this environment and it is showing with the nice January reports coming from hedge funds.  

We own options on AGNC and ERF.