Wednesday, August 26, 2015

What's Good For the Goose is Good For the Goldstein $SPE

I've mentioned the Special Opportunity Fund in the past. Just noticing that the share price is $14.27 and last Friday's published net asset value was $16.64.

So, it's trading at a 14.3% discount to NAV. It's pretty funny that the closed end fund activists have a closed end fund with a discount as big as some of the discounts they are agitating against.

SPE may be interesting right now because it's trading at a wide discount to NAV, and the closed end funds that it owns are probably also trading at wider discounts right now. So the double discount ordinarily there should now be wider.

"Peabody Said to Hire Lazard as Adviser for Debt Restructuring" $BTU

From Bloomberg:

"Peabody Energy Corp. hired Lazard Ltd. to advise the coal miner how to restructure its $6.3 billion of debt, according to two people with knowledge of the matter. The largest U.S. coal producer, which is suffering from a collapse in demand for the commodity, is talking to creditors about ways to cut its debt load, including swapping obligations for new shares or convertible notes..."
Most recent trade on the "sub-fulcrum" 4.75% notes was 12, which makes for a current yield of 39.6%.

Tuesday, August 25, 2015

"Charles Dow Looks At The Long Wave"

Essential reading [pdf] - which I've mentioned before. Key point:

"[T]he peak in interest rates always precedes the long wave peak in stock prices by many years. When interest rates and the stock market are both rising together, the industrial growth component is dominant. The period after interest rates peak is when stock prices rise as an alternative investment. During that period declining interest rates force yield-conscious investors into alternative investments of lesser quality in order to maintain yield. Since stocks are the most risky and least quality investments, they become the final alternative, especially when their price continues to appreciate as a result of increasing cash flow into the stock market."
We've gone through all the stages of Dow's theory.

Buy and Hold Investors Hit Hard Yesterday

A favorite retail investor said this morning,

"By the end of the day my Fidelity account had now officially lost all its gains of the past couple of years. My Vanguard index funds (which are held in a Vanguard account) all dropped a whopping 4% Monday. I am heavily in cash, But clearly not sufficiently. I need to raise more cash."
Wow, one bad day wiped out gains for past couple years? That's really astonishing.

But is it unusual for long-only, true believer investors? Maybe not! Look at well-respected value investors Southeastern Asset Management and their Longleaf Partners Fund which has $4.8 billion. They've gotten crushed this month, down almost 14 percent. They're down 20% year to date, and the bear market is maybe two days old!

Notice that despite some "very good years" in 2009, 2010, and 2013, their most recent fund value peak (quite a while ago now) was in June 2014. They're actually close to being down over the past five years. They've never exceeded their peak more than 8 years ago in June 2007 - and they're down 35% since then, not counting whatever dividends have been paid. [It's hard to figure out exactly what the total return including dividends has been over the last, say, twenty years. It doesn't seem great.]

So is this guy shunned and reviled? No, he's a billionaire. He gets profiled in Forbes.

There's something really odd about the psychology of most investors: they don't care how much they or their managers lose in bear markets. They're interested in how much they make at the "casino" during bull markets. So, nobody ever goes to cash. Being able (and willing) to go to cash is an advantage, but only over >1 market cycles which is too long to be relevant for any investor's career. Remember career risk:
"[B]ecause asset class selection packs a more deadly punch in the career and business risk game, the great investment opportunities are much more likely to be at the asset class level than at the stock or industry level. But even if you know this, dear professional reader, you will probably not be able to do too much about it if you value your job as did the nearly 1100 analysts in my survey. Except, perhaps, with your own assets or, say, your sister’s pension assets."
Career risk is what makes the mutual fund performance charts look like sine waves - no net progress - over the past 30 years.

Remember Friday's Post Title?

Impending Crash

Friday, August 21, 2015

Impending Crash

Bull market not looking so hot (S&P 500). The great divergence between SPX/DJIA and Dow Transports has been going on since November 2014.

Notice also the steady decline in net new highs. Today there are no new highs.

Is the EXXI blip over? The holding company note due 2018 last traded at 8 cents - current yield of 37.5%.

The BTU stock got squeezed back to the 50MA. However, the BTU sub note was only up a couple points to 13 cents - still a current yield of 36%. Even the second lien note traded at under 44 cents today!

It's great to see crude oil below $41. Equities are the dumbest market and bonds and energy are smarter; maybe oil is sending a message people should listen to?

Tuesday, August 18, 2015

High Plateau Drifter on the Republican Presidential Primary

As I watched that first Republican presidential debate the obviously opinionated interrogators from Fox spent far too much time talking and appeared to be attacking all the Republican candidates if not equally, nevertheless significantly. I wondered if Fox, which I never watch, must have switched sides and want Hillary to win. But realistically it seemed like a price Fox was willing to pay for thin cover over the hatched job they were doing on Trump. Also Mehgan Kelly set a new high in arrogance and obnoxiousness which I guess Roger Ailes thought she could get away with because of her looks.

But the message that resounded loudest with me was the effort that all candidates other than Trump expended to avoid giving any offense to anybody and the lengths to which they went to convince the audience they were nice guys. It was a stunning portrait of all that is wrong with American politics. Politicians want to avoid giving offense, primarily to actual and potential political contributors and secondarily to blocks of potential voters.

The candidates behavior at the debate screamed that our ruling oligarchs do not like controversial candidates. They love bland and boring. And of course political candidates hand out political favors, oligopoly legislative benefits and lots of government cash and profits to all comers. Why make enemies? And that is why the federal budget and federal debt is expanding at exponential rates. Its everyone gets a trophy day every day in DC and that is why the debt balloon, which can never be repaid, is expanding at an exponential rate.

And next behind bland and boring in order of preference is mediocre and stupid. Heaven forefend that someone might get elected who can visualize the secondary effects and collateral consequences of legislation they are passing and also have a conscience and strength of character and get elected. That would be a nightmare for our ruling oligarchs.

I have been opining to CP in our private conversations that we will never get meaningful change until the oligarchs realize there is not enough skim left to keep them all happy and begin fighting among themselves.

And therein lies the good news. We have billionaire oligarchs breaking ranks. Trump out front, with billionaire Mark Cuban wanting to be VP and Carl Icahn wanting to be his secretary of Treasury. Something is brewing beneath the surface here. Likewise the political advisor and campaign management industry is caught with its pants down, completely clueless about the anger of the Republican base out here in the Red States, and also clueless about the anxieties building among the oligarch class that knows the party will end at some point and want to control the process.

Personally I have a hard time believing that Trump could put up with the BS that a modern President must put up with for more than 8 or 9 months, but then that is not the point. The marker is down and the oligarchs are beginning to think about their plan B options, now that they may not have a safe field of nice guys fearful of offending any of them.

Stay tuned.