Cracking the Obamanomics code and getting rich with our new rich Democrat friends.

If you follow our blog you know just over two years ago we almost gave up trading at the end of December 2012 as we got wiped out of cash flow due to Obama changing taxation of dividend stocks.  We were frustrated to say the least.  After some discussion with others as well as our accountant we decided for reasons based wholly on our tax situation to continue trading.  Prior to restarting trading we did some research about what trading approach to take going forward as it was clear what we had been doing was not working.  Basically up to that point we had used what we call a "run and gun" trading approach. Doing large numbers of trades with close strike prices knowing the offensive portion of gains would overcome any defensive portions or losses of capital.   Since we began fast track trading in 2003 we had done very well.  We have been trading options for over 30 years and to some extent used that approach prior to that point in time, just in less quantity.  However once Obama took office the trading got harder and the profits less until the wipe out of late 2012.  We needed another angle if we were to continue trading and produce cash flow and profits. 

That new angle came from nothing else than something that was staring us in our face at the time. That idea was to trade WITH Obama so to speak.  Seriously do not fight the President or the Fed as they say. What we noticed was that our retirement assets that were in mega cap stocks such as technology, Wall Street firms, big banks, and those contributing to Obama's re-election were doing very very well. We had foolish up to then been thinking that the companies that Obama had been talking against from day one were actually the companies he was looking after via non enforced regulations and lax tax enforcement and they were doing very well financially. We have called this the political economy in several prior blog posts.  In addition it was being aided by extremely low interest rates of the Federal Reserve which we have called financial engineering, profits being funneled into higher dividends and stock buyback's, of these same mega cap corporations. So we immediately moved almost all of our retirement assets into those stocks.  In our trading account we targeted these same companies that obviously were in the sweet spot with Obama and Democrats. Essentially accepting that Elizabeth Warren is correct in the premise that big banks, big technology and such are winning big and taking advantage of the middle class.  Of course what Ms. Warren fails to say is that her own party democrats are the ones in the pockets of big business. 

Boom!  In the two plus years since then our retirement assets have roared upward to our pleasure. Our trading has produced two losses.  Yes two losses!  Those two small losses which were carryover position trades from 2011 that we of course soon abandoned.  Our trading pace has come down by about 50%, but we are making more money than before, with less risk, and less asset exposure. We will be increasing our asset exposure this year since this approach is working so well and we will be still be making more and working less. This Obama/Democrat new normal is frankly working very well for us personally.  Thank you very much. 

As we said the reason we are doing well trading and investing is doing it with Obama and democrats and their crony businesses practices.  We currently trade big technology like Microsoft, Oracle, and Apple.  We trade big banks like JP Morgan, Goldman Sachs, American Express, and Wells Fargo. We trade big insurance like Metropolitan and Prudential.  We trade big telecom like Verizon and AT&T.   You get the point.  All these companies are Democratic lead and cozy with Obama and Democrats while contributing millions each election cycle to their campaign coffers.  

We are investing and trading with the winners, movers, and shakers in this economy.  Previously we assumed the economy was a free market one where the best run would succeed, but now it is the politically favored who win out in the market. Now as we have said for many postings here the rich get richer and the poor get poorer in this economy.  The jobless well they remain jobless.  Let's give one example of how this game works and that being the minimum wage.  Big business like tech firms, banks and such could care less about minimum wage since almost all their employees are paid much higher wages.  Walmart for example constantly is lampooned for paying people less is believe it or not actually is for a minimum wage increase.  The reason is simple Walmart already pays about 98% of their workers above minimum wage and can spread any minimum wage increase across millions of annual transactions and their competitors in small business can not.  So any increase in the minimum wage kills their competition which means more sales for Walmart.  These people are not stupid and now neither are we. 

Two other examples from just yesterday.  Microsoft reported a slower quarter for earnings and their stock got sold down almost 10%.  Not to worry all this means is the continuing profits from Microsoft will be used to buy back even more of the cheaper shares leaving us holding more valuable shares. Apple made record profits.  Apple is likely to use the now $40 billion in free cash flow each quarter to increase their dividend and stock buyback making shareholders more wealthy. 

Democrats are increasingly the rich party representing the really really rich corporations in the country and the Republicans represent more and more small business people who are getting screwed by Democrats who are in power right now.  Almost all regulatory activity originates in the administrative branch of government which is the President. So they have control of who gets a pass on say an environmental rule and who does not. Apple contributes millions and they continue to import cheap phones where the producers pollute as they like, on the other hand the small tire dealer company on the corner does not contribute to Democrats and they get fined big time for oil spills. So if you want to make money in the current political environment you stay with those politically favored corporations and avoid those not so. 

Therefore considering that we now make more money, work less, with less risk the obvious thought is to continue with this new new normal by supporting and voting for those who have our back such as Hillary Clinton.  Hillary is like Obama cozy with big banks and big corporations who will be supporting her run for election with large donations.  Yes electing Hillary Clinton as President in 2016 screws young workers, make life hard for the decreasing number of small businesses, and further widens the wealth and generational gap.  But who cares we, like our new Democratic big business friends, are doing darn well.  Our time here is limited to at most a couple more decades and life on the warm water beach, eating at fine dining establishments, and driving another new Mercedes seems like a fair deal to us for young folks to pay since they already have voted to do this to themselves anyway, TWICE!

So we are highly considering supporting Hillary Clinton in 2016 and any of those who on either side who continue to support the status quo.  What would you do in a similar situation? 

               

2015 Trading Portfolio

Reminder we are traders and look for value priced stocks where we see openings to make option trades for income.  However if you are a long term investor there are values here for individual stock pickers.  Most of these picks are low PE mega cap companies where risk is low.  However several are selections we believe offer significant upside potential along with little downside risk that are small cap in size. 

AAPL..We continue to like Apple for lots of reasons.   Low PE, lots of new phones being sold right now and lots of addicted users.   There is very little downside risk in this stock with it buying back tens of billions of dollars of stock quarterly and a nice dividend as well.  It continues to be our largest position.  We are in at $85, $95 and $97.50

BP...We are upside down in BP and fear we might remain so.  The dividend seems safe and the stock a solid oil major so unless something changes we will likely take a small loss at some point.   BP is just too big and too solid at this low PE to not have found a bottom.  We will wean ourselves out of this position since our faith in the stock price is uncertain.  We are in at $40. 

COP...We entered this oil major at a low price and with the recent sell off we believe getting in at $60 was a good entry point. However our concerns about the price of oil not finding a bottom causes worry about our short term ownership. 

GS...We continue to like Goldman Sachs at about 11 times earnings.  Our entry will be at around $155.  

JPM..Still the most undervalued mega bank out there at a single digit PE too. Our price in at $55. 

MEG..We continue to watch this television operator for a sell off and opening to move in at a better position.  Warren Buffet is a major stock holder too.  The 2016 election will bring lots of revenue and profits.  We have not set an entry point. 

MSFT..The release of Windows 10 offers some upside in Microsoft.  We also are interested in their new Spartan browser which could mean the end of IE.  Looking to get in at about $42. 

MET...A single digit PE mega insurance stock with almost no downside risk and upside potential when interest rates inch even the smallest amount. We are in at $50

NEWM...Consolidator of small to medium sized newspaper properties, which is where the profit remains in this industry. We see nothing but upside here as they buy on the cheap and mostly with cash.  We got two positions at $20 and $22.50 and we like this company's upside a lot. 

NNC...We continue to hold a large long position in Nuveen North Carolina Premium Fund.  This closed end municipal bond fund is selling $2 per share under net asset value and pays right at a 5% tax free dividend.  Safe, dependable monthly income for anyone needing such a combination. 

ORCL...Large technology stock that is still a good long term value at $46.  We are in at $39.  However we are thinking it if moves up much more the value will be gone. 

PRU...Mega sized insurance company with a single digit PE. We are in at $80.  Yes we really like insurance stocks right now. 

SF...Stifel Nicolaus is a steady acquirer of smaller investing and financial firms and is folding in the new buys very well.  We will be putting in a bid at $45 up from our current $40 strike price as we believe there is still value here. 

T...Telecommunications giant that has sold off too much for a almost 6% safe dividend. Strick price $32. 

TCAP..This pick has more upside and downside and offers excellent premium options. We are looking at a $20 strike price. 

VZ...Telecommunications giant that has sold off too much for the safe dividend. We are in at $44.

WFC...Biggest bank in the country makes for steady profits at a low PE of around 11.  Our price will be around $45. 

XOM...Best of breed oil major.  Low PE for a mega sized company that has been sold off way too much. We are in at $85. 

                

What falling mortgage rates, falling oil prices, and falling US Treasury yields are telling us.

We have been pushing the concept of a long term steady market in mega and large cap stocks for some time.  Most of our belief in based in the financial engineering and political economy in which we are currently living.  The big companies, those with a $100 billion capitalization and above, are not hiring employees since there is essentially no growth in the economy.  Yes you are hearing otherwise in the media, but there is NO growth, only some churning of current business over and over. Job creation is going towards part time and low wage sector due to Obamacare and the high regulatory environment.  Small business is sitting still and making almost no new hires as they see too high a risk in hiring and too much government red tape just to expand. 

New hires last month was basically churn in that low wage employees quitting and new ones being hired. Much of that 30 hours or less.  Not noted by the media is there is an ongoing actual LOSS in full time employment as noted by the labor participation rate being at it's lowest in four decades. Most months we actually add part time jobs and lose full time jobs.  Note the recent DECLINE in wage growth for proof.  Also most highly skilled jobs are going vacant since many Americans refuse to retrain and just take government benefits.  We would not be surprised to see the national GDP go negative one quarter next year, but still this only shows a stall in the economy and no recession. 

Government statistics can be massaged and fudged so as to make the economy appear to be something it is not. Most do not know that in the 1990's unemployment reporting was changed by Billl Clinton to help make his tenure look more positive and that change continues today.  Look no further of course than the monthly employment report where if one would consider those figures and those along one would think we are in a boom.  Politicians are saying as such right now too.  If you are one of the 20 million plus unemployed you know better. Private business statistics on the other hand can not be massaged of fudged, except for those breaking the law, so in almost all cases you can take what they report to the bank.  For instance home builders are reporting no growth and that is reflected in the fact that mortgage rates are again below 4%.  Lack of housing sales is reducing loan demand and therefore rates are down to encourage sales.  Also note that oil prices are down as well and again some of this downtrend is due to lack of demand.  Oversupply is pushing down prices and unless demand increases that will continue for some time.  If the economy was growing oil demand would be stronger and oil prices move up some.  Holiday sales from the recent season were not strong either pointing to a weaker economy. This morning it was reported December 2014 retail sales were down right at 1%.  Now much of this weakness is due to young people not buying homes and therefore creating jobs by doing so.  No economy in my lifetime has expanded much without housing growth and until we get that we got a no growth economy. 

Likely the most important barometer of the no growth economy is the tumbling 10 year US Treausury bond now below 2% yield.  Almost no one thought the we would see a rate like that in the last year. Yes, foreign buyers are buying these securities for safety, but there is something else going on here. That something is no demand by banks for borrowing by customers and thus they are buying US Treasuries since under the new financial rules that is about all they can plow unused free cash into. Look at the CD rates and you will see them going nowhere, which tells you that there is no loan demand for banks to go hunt for funds to lend.  In all,falling mortgage rates, falling oil prices, and falling government bond yields tell you what is really happening in the economy and it is not what government supplied statistics are telling you. 

Investing and participating in this economic environment means keeping in the safe stocks and bonds.  The longer we go into this no growth abyss the more we tighten our grip on mega cap stocks and blue chip bonds.  The lack of demand for most services and goods makes us think carefully about which large cap and small cap stocks we are willing to take risks on buying. Only special situations like NEWM and TCAP where we see less risk merit our investment dollars.  In the last week we have added mega cap selections  MSFT and WFC to our list for safety.  

Watch oil prices here for where we might be going.  We would expect a below $40 price in the high $30 per barrel before we see capitulation on oil prices.  At just below $40 there is a whole list of countries and companies where the pain becomes enough they throw in the towel on production. We would expect one day soon there will be a huge several dollar drop in oil prices and that will be a bottom.  Unlike many in the media we do not find ourselves seeing much improvement in the economy from lower gas prices at the pump. Remember nothing much happened when the price went up and nothing much will happen when the price goes down as much of that added and subtracted cost is being borne on credit cards. 

We suggest being careful and being invested in mega cap stocks where the dividends are being increased and buybacks are in full progress and that is holding up stock prices in those companies. Continue to buy large cap mutual funds in your retirement accounts and large cap stocks if picking individually. Even if the economy stalls more this year and the market goes down the big companies will just keep in doing what they have done for some time now returning lots of free cash flow to shareholders.   Individual stocks in the technology field are the safest out there now such as AAPL, MSFT, CSCO, and ORCL.  Mega cap and low PE's all. 

We remain on record that nothing more will change until there is change in Washington DC and we do not expect much there for no less than two years and maybe longer.   Meanwhile the rich get richer and the poor poorer, not exactly what Obama promised.

              

 

Five stock picks right now.

Three of these have some risk, but we believe for long term investors a worthwhile risk. 

TCAP...We have long liked Triangle Capital and we really like it here at about $21 per share and what we believe is a sustainable above 10% yield.  Well managed and did not cut their payout right on through the financial crisis. They had a small hiccup in earnings last quarter, which looks to us to be an unusual event.  Yes this is risk money, but we are looking an entry point ourselves so put them on your radar.  No reason TCAP is not selling nearer $25, or even closer to $30.  

T...AT&T has sold off due to concerns over the brutal competition in wireless.  But in our opinion the sell off is a bit too much and the yield now over 5.5% is just too juicy to ignore.  Seriously who would want a low yield US Treasury when you can own safe and secure AT&T yielding this much and you get annual increases in the dividend?  Plus a couple of dollars of capital gains as well. 

NEWM..New Media Investments...We continue to like this newspaper stock and that since it has moved up above $19 where we suggested purchase. It is still not priced in the nice fold in buy of Halifax Media and the company is still on the hunt for more of those nice small to medium sized newspapers which are producing 12% or more annual returns.  Note the Halifax buy works out for a 20 % plus annual EBITDA. Unlike many of the former newspaper chains NEMW is using mostly cash to buy other properties.  Selling at just above $21 we still see the high $30's as a fair price. 

NNC...Nuveen North Carolina Premium Fund...Low rates and continuing fiscal control by North Carolina makes this now almost 5% tax free yield a darn good buy at just over $13.   The closed end mutual fund has repeated last year's sell off and that has made the shares a buy.  Take advantage and enjoy the monthly tax free dividends and capital gains potential with this fund selling $2 below net asset value. 

MEG..Somewhere further out on the risk curve is Media General.  This former newspaper company has sold all their newspaper properties and kept the television stations.  They have folded in a couple of other television companies now to be a large sized owner of television stations in medium sized markets.  We like the fact many of those stations are in states where millions of political dollars will be spent next year in the Presidential election.  We also like their markets in general which are in growth areas like the Southeast US.  Lastly Warren Buffet owns about 5% of the outstanding shares, a fact most people do not know. 

We have positions in NNC and T. 

       

This IS your father's stock market.

This stock market is indeed your father's, or in some cases your grandfather's stock market.  We are believers of the generational theory that history repeats or at least rhymes.  As in generations are human and repeat the same mistakes on a regular basis once they get far enough away from remembering the perils of those mistakes.  The generational theory we like best was penned by Howe and Stauss back in the early 1990's.  They made famous the 80 year cycle that works best for us. If you are not familiar with their work go get their original book entitled Generations 1584 to 2069 it will give you the concept. They have wrote several books since then and one of them does a online blog now.  Oh, if you think this stuff is crackpot trust us here people as diverse as Obama to Gingrich have read these books and apply them to their thinking and policies.  It IS worth your at least getting some understanding if you want to be up to grade in knowledge.  Rahm Emanuel used the concepts of Strauss and Howe to run the Obama White House while he was there.  Remember never letting a good crisis go to waste? 

Anyway using the 80 year cycle idea brings us to the 1929 and 2009 financial crashes, see how this works.  The market responded similarly each time to the mistakes of political financial policy and we have as a nation reacted with new policies tightening regulation each time.  We loosened too much in the 1990's and we have tightened too much starting in 2009.  Go back to the 1920's and 1930's and you will see similar loosening the tightening.  Now each time the last decades prior to the financial crisis were only the finishing off of such policy moves and ended in a crescendo. 

So taking that we are now in the mid 1930's cycle again one can expect the stock market to behave like it did then.  Little up and little down and a economy so restricted by financial engineering and political fiscal policies there is little growth, few real jobs, and only the big boys make real profits. Ditto 1930's and 2010's.  So what are we to expect going forward?  Simply put much more of the same.  We have opined that the underpinning support of the stock market in a Herculean effort to keep it from crashing makes that almost impossible and we have been investing accordingly. Also note the same impact regulations had on invested assets during the 1930's and 1940's is being repeated today in the form of such legislation as Obamacare.  Obamacare is killing small business, but helping big corporations who can mitigate the harmful effects via political muscle and sheer size.  If history repeats this could go on until 1947 or so or in our time well into the mid 2020's.   If history repeats Hillary Clinton will be your next president. If history repeats she will be followed by a Generation Xer sans Truman.  Think a Paul Ryan type.  

So smart investors who use this rhyming of history will purchase mega cap stocks and hold on for a decade plus now. Obviously being in touch with any change in the scenario, like Clinton NOT winning in 2016, and continuing these same policies of Obama.  Yes, as we have said job seekers and upward movement in careers will be keep at bay with an economy restricted so much by policy there is little economic growth, which will be continued in a Clinton President.  The rich got richer in the 1930's and 1940's, but smart young people not only saved, but they also invested in stocks.  Few did then, few do now. Jobs were hard to find in the 1930's as in our time as well. 

So take a read of the book and do some research on your own.  In the end do your own decision making for investing.  In our case we will continue to believe mega cap investing and stable prices are here for awhile. 

The real fear I have is the uncertainty of a war like 1941 repeating in 2021.  Yes, that is out there, but it has happened in 80 year cycles going back to the Civil War and the Revolutionary War.  Think about that one for awhile too.

                

Predictions for 2015

It's that time of the year for predictions so we will post some of our own.  Often wrong, but never in doubt. 

1. The stock market will be up around 6% to 7% this year and it will again be lead by the mega cap stocks meaning those over $200 billion in market value.  Some of the $150 billion plus stocks will join that group this year as well so if doing your own picking check those out as well if you are into individual stocks.  Look for single digit or lower than teens PE's.  We again like Vanguard's large cap funds for most people.  One can not go wrong with VFIAX by just buying and forgetting. 

2. Best stock value of the year.  Triangle Capital,  symbol TCAP.  This stock has been beaten down mercilessly for reporting some small bad credit issues last quarter.  The 10% plus dividend will not be cut and the stock rebounds 25% making for a nice 35% annual gain. 

3.  New Media Investments, symbol NEWM,  proves us right as the best current long term hold.  This company that is the holder of a large number of medium and small daily newspapers will prove to be a solid buy advancing from the current price of around $23 to past $30 by year end.  Good dividend payout remains as well. 

4. The market will have at least two corrections this year and those who hold mega cap funds and stocks will ride right through them untouched. Stocks, not mega caps,  in industries being sold off will take the pain and stay down. 

5. Interest rates will remain flat.  The Federal Reserve wants to move rates up, but stays on the sidelines as they watch the housing market go nowhere another year and Obamacare pinches full time employment in small businesses and the economy remains too weak to raise rates.  This continues to make our selection NNC a safe choice for yield and capital gains potential into 2015. 

6.  Housing, which is absolutely essential to a growing economy, remains on the sidelines with no growth and with mortgage rates remaining near 4% for a 30 year loan.  Go buy a home to live in, not for an investment (unless at the beach),  if you have not already and lock in these generational low rates. 

7. By the end of the year it will become clear to everyone that Jeb Bush is going to be the next US President. He will win over most independent voters and even some democrats to take a solid lead in the polls versus Hillary Clinton, who will be burdened by Elizabeth Warren and Bill Deblasio.  Bush is the safe choice for the well off, both democrat and republican, so he will gain steam throughout the year. 

8. The NC Legislature will continue to play chicken with real financial reform and do nothing to change tax schemes or any other reforms either.  Hey guys cut income taxes to zero both individual and corporate and end the energy subsidies !!

9. Dan Blue will decide to run against Sen. Richard Burr and be immediately deemed the one as all other democrats drop out of the race. 

10.  Gas prices will remain low as Saudia Arabia will continue to use their clout to bludgeon Russia and Iran. US companies will do as they always do and find ways to cut costs and keep right on drilling.  Obama will veto Keystone Pipeline after having passed both houses of Congress. 

11.  Apple, symbol AAPL, will remain the bluest of blue chips this year and when investors get worried they will pile into the stock as a safe haven for it's super safe dividend and addicted group of users.  Buy some very early in the year and hold. Better than owning US Treasuries. 

12.  For those who like to take real risks in picking stocks, but some Media General, symbol MEG.  This company has consolidated lots of television stations in media markets where politicians will need to spend millions in 2016 election and the company will see profits soar.  It has debt and it has risk, but it also has as it's largest shareholder Warren Buffet, which is not widely known. 

13. Super safe 5 stocks diversified.  APPL, XOM, GS, VZ, and PM. 

14. Super risky stocks for best chance at big return.  TCAP, NEWM, MEG, GILD, and BP. 

15. Sears will be gone by the end of 2015.  Ditto Radio Shack.  Add in one metro newspaper or newspaper chain yet to be named. 

Our Mistakes..

We make mistakes.  We suggest stocks that at some point after our suggestion to buy have issues.  So let's review some of our recommendations and our current opinion on those selections. 

ARCP...We really really thought this REIT had their act together.  But we were not the only ones as several big bank lenders kept piling in the cash so the management could buy retail properties.  The dividend rate was stable and secure per their quarterly reports and the spin offs of shopping centers made lots of sense too.  Then they bought big into the Red Lobster real estate.  Too big in our opinion and we backed off a bit thinking they had too many of their eggs in one basket.  Of course they finally jumped the shark with the killer statement about "accounting issues".  Accounting issues anywhere means run.  We never lost money here as we exited our positions early on with that having more to do with luck than smarts.  If you are holding the preferred stock you likely are ok, but if we were holding the common stock we might consider it time to take a tax loss and move on as these shares are not going anywhere real soon. 

TPL...Texas Land Trust peaked out at over $200 per share and have of late settled in around $!25 or so.  As we mentioned early on if you bought in this would be a wild ride and it has been and will continue to do so.  The deal here is to hold on and be one of the last holders when the trust liquidates.  It is a game of chicken and Russian Roulette rolled into one and only for the serious gamblers and big boys. 

TCAP...Triangle Capital has sold off a good bit since we suggested their purchase.  Now settled into around $20 we still like TCAP.  In fact we will go as far to say it is an outright steal here.  Dividend over 10% and one of the best CEO's around who will move on from their hiccup of a quarterly report.  We personally are looking for a place to move in, but will wait until after the New Year to avoid the tax loss selling. 

DOLN...We did not outright suggest the purchase of Dolan Company, but we did say the risk might be worth a few dollars.  We hope you only had a few dollars in this dumper since it declared bankruptcy last year.  The money you had is completely lost as a shareholder.  Bad, really bad management can not be overcome even with decent opportunities for profits is a lesson well learned again. 

CVE, ERF, COSWF...Who knew?  Almost nobody thought oil prices would crash and if you owned any of these stocks noted here the pain has been intense as all of them act as owning a oil well yourself.  We only like one of them right now and that is CVE.  CVE has said their now 5% yield is sustainable and they might be right, but we urge caution and only risk capital if you buy in. 

SBY.. We honestly thought the housing market would take off in 2012 since rates were below 4% for 30 years loans.  The feds were in the game helping people buy and lastly there was a huge market in young people needing first homes.  This made for ideal conditions for renting homes and buying homes reconditioned from the housing crash in 2009.  Not so as what we failed to see was the fact most people were getting only part time jobs and most young people were having issues with even these low payments.  Thus nothing housing related improved or has improved since the so called recovery has begun.