Risk Happens Fast.

Right on time and right on target the small investor and part time stock picker crowd has shown up to buy stocks just when the market has reached a value top and looks to be teetering towards falling.  We have been watching, trading, and investing in this market for now over three and a half decades and it is always the same.  Human nature being what it is the crowd comes in when confidence is at a top and animal spirits feeling good.  This for us is a clear sign of a market top.  If this also is a economic top remains to be seen. We expect the economy is reaching a point where the slow slow growth of the new normal is setting in and with it a new frugality even among the younger set.  Check out how tough the economy right now is on Walmart for example and how mortgage rates can not push past the upper 4 per cent range every time it gets there.  In either case buying when stocks are at their highest price is foolish, but unlike people who search for bargains when buying other retail merchandise the retail investor thinks that since stocks have been going up for a while now they will keep doing so forever.  Risk like today happens fast and you can be sure judgement day cometh and that be quite soon. 

We have tried to several decades now to persuade part time investors to NOT try and pick stocks for the quick buck or to make the lottery million, but to just buy a basket of stocks and let the market drive your wealth creation.  But to no avail in the past two weeks we have been asked at least a dozen times which stock we believe will make them millionaires and if the stock they got a tip on and are going to buy will do so as well. Trust me they WILL be buying that stock pick no matter what we suggest. The temptation is just to strong and the greed to great.  They will soon find out it was not smart and/or run out of patience and sell later .

For several months now we have been suggesting buying municipal bonds and even went so far as to suggest our favorite was NNC a municipal bond fund for North Carolina investors to make money in this market.  NNC ended yesterday at $13.14 right at a full dollar over our purchase prices in January of this year.  Basically a 10% gain in four months including interest payments, that an annualized 30% gain with some of that gain tax free.  Not bad for a safe stodgy bond fund huh?  Stocks too have been going up, but right now bet many of you are worried about your pick and maybe wanting to sell it?   The best choice all along for stocks is a index fund,  make that the Vanguard 500 index fund, to keep your money in the big boys and safely producing gains and those lovely reinvested dividends.  Not the sure fire stock picks. 

 For those with larger portfolios, bet you our large portfolio of NC municipals over the past four months have beaten anything you got in your portfolio or anywhere else. We will wager lunch on that, call us and let's bet lunch.  Buy bonds in a topping out interest rate market and buy stocks in a bottoming out interest rate market, simple easy investing but even the big boys and professionals miss that one too.  Louis Rukeyser would be something proud of our portfolio right now.  

Reviewing our 10 predictions back in January regarding the financial predictions  we seem to be doing well.   ARCP which we picked for a safe buy for 2014 is about $1 above our buying price, raised it's dividend, and still paying right at 8%.  Monitise, MONIF, has not performed as well, but we still got about 7 months left in the year.   Interest rates still stuck in the lower 4 per cent range offers a once in a lifetime entry point into real estate that should be considered. 

So risk happens fast and right now with fear overtaking greed as the predominant emotion in the markets we again suggest NNC which is still undervalued by about $1 per share at the current price. Otherwise prepare your cash for when the market does tumble and you get some opportunities to buy some great companies at bargain prices.  Not great companies at high prices.  Price is what you pay, value is what you get.  Stocks and bonds have made money than any other investment, business ownership, or anywhere else one could have placed their investment assets over the last hundred years and will do so over the next hundred years. The key here is patience as the best investment at many times is keeping your investing assets in cash and waiting for those opportune moments or better yet for most people stay invested and ride out the market tops and bottoms to lifelong wealth creation by great American companies.

            

Current Market Environment

We find little to like in this market unless like us you have some assets in mutual funds with exposure to some high quality corporate bonds and larger mega cap stocks.  The valuations continue to be stretched and the market has all but ignored the less than stellar earnings reports of the last month.  This market is precisely the reason smart investors do not try to pick stocks and individual bonds unless you are very experienced in doing so.  Risk happens fast. 

We continue to buy some NNC, a closed end NC muni bond fund, which is undervalued after running up over 8 percent since we bought it about 4 months ago.  With our dividends rolled in we are up a nice 30 percent annual rate on this buy we began in January of 2014.  Just hard to beat just under 5 percent tax free interest and capital gains too. Now trading at just over $13 per share NNC is still about $1 under it's net asset value so there is some room to run here.  We will buy more on any pullbacks. 

Trading in our options account has had only one small loss this year.  We believe this is due to the wide strike prices we are trading and the mega caps we tend to trade.  We also look for low PE stocks such as BP which is one of the few securities we find attractive in this market.  We also find ourselves warming back up to ARCP a triple net lease REIT we traded earlier this year before a nice run up.  It has been trading down recently due to some concerns over earnings which are to be released May 8.  Trading here just below $13 and with a nice 7.8% yield we are looking to move back in post earnings.  

One area where stocks have seen some backtracking are banks.  Banks post Dodd Frank are not a good investment.  They are battling introduction of new rules that all but make banks and many financials nothing more than highly regulated utilities like some state regulate power companies. Add in that with rates so low and no sign of them moving up any time soon there is little spread to make money on loans either. One reason most banks are not lending except to high value customers.  We currently trade JPM and C, but are extra careful not to stay too long in our rental.  Small banks still have issues with the cost of complying to new federal rules. I would completely avoid them. 

Again for most investors the best course is stay the course of regular investments in your 401-k and IRA.  If you are retired consider some municipals and NNC. 

              

May 2014 Primary Predictions.

Everyone else does it, so why not us.  So with that stated let's actually predict and comment on who we think will win, not who we hope will win or even who we voted for, some local Johnston County  and state races here in North Carolina.  With the precondition that yes we will get some of these wrong here goes... 

Johnston County Commissioner...Cookie Pope the long standing commissioner is facing Smithfield Fireman Patrick Harris.  First run for Mr. Harris.  Maybe Mr. Harris is setting himself up for when Ms. Pope retires,  but we see Ms. Pope winning by a comfortable margin. Too much history and too many voters who know Ms. Pope.   Cookie as she is known to just about everybody in the county broke the Democratic hold on the Commissioners back in 1994 and is fondly remembered for that.  Mr. Harris is doing a good job presenting himself as new blood on the county board and that is likely to get him some votes.  We know of Mr. Harris and think he has lots of credentials to be a fine commissioner but we expect his association with the Town of Smithfield and it's issues is going to drag down his chances this time.  If he ends up losing maybe the time between now and next time will offer some opportunity for the Smithfield taint to go away.  However if Mr. Harris pulls off an upset it would show that voter concerns about current county leadership is stronger than we think presently. 

Johnston County Clerk of Court...This is the race that will bring out the voters this round in Johnston County.  In our opinion this race has changed some in the last month.  A month ago we would have said either David Ford or Michelle Ball would win with the 40% needed to avoid a run off.  However Keith Branch from what we hear is closing fast.  How fast remains to be seen.  So now we expect a runoff,  most likely between the aforementioned Mr. Ford and Ms. Ball.  Note that there is no old establishment Republican candidate in this race.  We find that interesting due to the long tenure of power in the Republican Party that political machine has had in the county and this post is one of the top county office posts.  Note that District Attorney Susan Doyle did not draw a challenger either after several attempts to unseat the current DA by the old establishment.  Add in that Sheriff Steve Bizzell who was a Republican before it was cool to be such in Johnston County did not draw a challenger either.  All that to say that the old line county power base has slowly eroded with the huge population gains in Northern Johnston and for now the Sheriff and DA posts are likely set until someone retires or quits. 

Johnston County Commissioner...This one is the race we are watching most closely in Johnston County.  Chad Stewart is from the old line county Republicans, Keith Brinson is from mostly the new county Republicans.  Both must reach Clayton/Cleveland/Archers Lodge voters to win.  We have no idea who win will as this one is going to be close in our opinion.  Mr. Stewart is using his connections to help with his vote and after what appears to us to be a late start is working hard to retain his appointed seat.  Mr. Brinson is working quite hard too and seems to be everywhere in the county and has used the new social media in a way no other county level candidate has used in the past.  Gun to head prediction is Mr. Brinson pulls off a squeaker, which would say the county power structure has shifted for good.   If Mr. Brinson wins his use of the social media could transform how future local campaigns are run in this county. Full disclosure here we serve on a board with Mr. Brinson and have donated a few bucks due to the friendship, but that in no way clouds our opinion as we want to get these predictions right. 

Congressional District Seven...Woody White surprised a lot of people with a vigorous campaign.  David Rouzer having just missed last time is now widely known in the district.  Mr. Rouzer seems to be everywhere, either attending a gathering near Wilmington, speaking in Bruinswick County, or back home in Johnston County.  This race will be closer than expected, but we believe Mr. Rouzer will win and part of that win will come from a higher turnout from the highly contested Johnston County Clerk of Court open position.  Those same extra numbers should vote for the county favorite son and give him enough votes in Johnston County to win the district in what is normally a slow turnout primary vote.  We also think that the last week's hard hitting ads that Mr. Rouzer has been running has helped boost his lead in this race a good bit. Full disclosure we have contributed more than a few bucks to David Rouzer's campaign. 

Congressional District Two..We will review both parties primaries here.  Republican Congresswoman Ellmers versus challenger Frank Roche.   Despite the desire on the more "conservative" side of the party here, Cong. Ellmers should win the primary.   Cong. Ellmers seems to be everywhere like the Energizer Bunny all over her district and it shows she is not taking anything for granted.   As for the Democratic side of this race we think Clay Aiken had the lead early on, but now believe Keith Crisco has done some hard work and exercised his huge party connections and will in the end win the primary.   Full disclosure we contributed some bucks to a joint fundraiser that involved Cong. Ellmers. 

House District 26...Leo Daughtry has held this post for as long as most can remember, we see no reason at this election to say he will lose now.  This seat is his until he decides to retire or gets caught...well you know that rule. 

US Senate Republican Primary...If there ever was a race that displayed the split in the state Republican conservative and moderate wings this one is it.  First off we believe Ms. Grant has little chance to win this race, but after watching her in several debates find her most appealing politically and would strongly encourage her to run for some other positions.  A state council run we believe would be a place to start in 2016 or how about the Governor getting smart and appointing her to a position where her skills could be used.  Mr. Harris might be the most likable of the candidates, but we expect many Republicans in the state will sense his closeness to a church will hurt him in a statewide race against sitting Senator Hagan and he will come up short here.  However how many voters he pulls will make a significant impact on IF Mr. Tillis, who is the frontrunner, can pull off the 40% threshold to avoid a run off.  Dr. Brannon appeals to the conservative base of the party and if there is a run off will be the one who ends up running off with Mr. Tillis.  A runoff would likely not be good for the Republican party in November. However Dr. Brannon has hurt his chances with a civil lawsuit of late that he has not cleared up to many Republicans liking and frankly came across as sorta hard edged in a couple of debates with the other Republicans.  Thom Tillis, the so called establishment candidate seems to be pulling away in the last week, but some of his latest endorsements such as Jeb Bush and John McCain is not a plus in our opinion.  In the end we believe Mr. Tillis will avoid a run off with just over 40% of the vote, but it could have been higher if not for some of these latest endorsements.