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(B)(N) What’s A Girl To Do?

October 29, 2014
The Bull Chase and the Bear Embrace

The Bull Chase and the Bear Embrace

Drama. “Cash” is “money” that isn’t working very hard, but cash as money in an investment is better than cash because we want 100% capital safety – as good as cash – and 100% liquidity – again, as good as cash – and a hopeful but not necessarily guaranteed return above the rate of the inflation – and we want an income. Already so much better than cash that doesn’t give us an income, and we know how to get it in any market.

The current market volatility and fashionable anxiety has riven us with cash, and we need to look for new investments in the all-weathers among the Dows (Industrials, Transports, and even the Utilities), the S&P 100, the NASDAQ 100, and the S&P TSX 60; please see our reports below.

But having said that, we also know that an “income is very expensive” in the markets these days, and that the “new normal” is 50% below the current one; for example, if we lop-off only a fashionable 20% from the current $18.6 trillion in the S&P 500 companies, we’re back to $14.9 trillion and  June 2013, less than eighteen months ago – and oops! there goes $3.7 trillion to somebodies as if it were only a wardrobe failure – and the dividend yield increases from the current 2.0% to 2.5%, but the return of earnings doesn’t move at all and remains steadfast at about 39%, and there’s also $3.7 trillion that is looking for a new home, to earn income.

However, unlike balloons, stock prices only rise if they are bid-up, and somebody is willing to sell them at that price or a higher price; else the stock price won’t change, and is more likely to go down than up if there are no offers for it, and up than down if nobody is willing to sell it at the current prices on offer. It doesn’t have much to do with the companies themselves because a “stock price” is not the “value” of anything unless it’s such a price  that we might think about buying the whole company, and absent a depression, how much less should these companies earn this year and the next?

And even if the earnings are slack for a time, most companies will raise the payout rate in order to maintain the dividend yield; and some companies will even borrow money to do it, which is a lot easier to do if the stock prices are low, and investors often oblige them in that way by selling-off companies that they don’t “think” will make the yield.

Figure 1: S&P 500 What are they buying?

Figure 1: S&P 500 What are they buying?

But that’s not their call and to enjoy this “miracle of compounding”, however ersatz it may be, we have to be in it, even if it looks “expensive” to buy our share of these earnings; please see Figure 1 on the right for an explanation of how the “miracle of compounding” works, and for more information on the 50¢ dollar and how it got there, and how to “fix” it, please see our Posts on “(B)(N) The Stock Market Is Always Cheap“, “(B)(N) Volatility Ho! – Ha!” and the state of the world in “(P&I) The World Trader’s Almanac” in which we have found the “Lost Continents” where our money is dear and the investments are cheap.

Our “complaint” about this market is not that it’s hard to make money in it – quite the contrary, it is “dead easy” and there is nothing in the economics or finance of the day that might help to explain it or counter it  – our complaint is that this market, and these markets are promoted by Wall Street and the “academies” and are nothing more than “pumps”, pumping the stock prices up and down, and up and down, and so forth, in order “create” profits that are akin to “compounding” the same investments over and over again – and they’ve been doing it for forty years. But we say that the “well” is dry, and 50% above its plausible value as a source of income earned from the companies that are in it, and some bondholders are happy with their bonds, and savings for investment are not growing at 20% per year; please see the references above for more information.

Let’s Make A Wish

Courtesy: Ni No Kuni

Let’s make a wish. Courtesy: Ni No Kuni

Each of the panels in Exhibit 1 below is a story about the (B)-class companies in that market; by the sixth panel it will be clear that anybody can be an investor in these markets – all they need is some cash that isn’t working very hard and – most importantly – the will to keep it, and that will be demonstrated by how they choose to make their investments, and what they expect of them – is it to be a fantasy and a “magical mean”, or a reality?

Exhibit 1: What’s A Girl To Do – Major Markets “Wish List”

Figure 1.1: (B)(N) Dow Jones Industrials (B)-class Companies - Risk Price Chart

Figure 1.1: (B)(N) Dow Jones Industrials (B)-class Companies – Risk Price Chart

Figure 1.2: (B)(N) Dow Jones Transports (B)-class Companies - Risk Price Chart

Figure 1.2: (B)(N) Dow Jones Transports (B)-class Companies – Risk Price Chart

Figure 1.3: (B)(N) Dow Jones Utilities (B)-class Companies - Risk Price Chart

Figure 1.3: (B)(N) Dow Jones Utilities (B)-class Companies – Risk Price Chart

The Dow Jones Industrial Companies - Fundamentals

The Dow Jones Industrial Companies – Fundamentals

The Dow Jones Transportation Companies - Fundamentals

The Dow Jones Transportation Companies – Fundamentals

The Dow Jones Utility Companies - Fundamentals

The Dow Jones Utility Companies – Fundamentals

Figure 1.4: (B)(N) S&P 100 (B)-class Companies - Risk Price Chart

Figure 1.4: (B)(N) S&P 100 (B)-class Companies – Risk Price Chart

Figure 1.5: (B)(N) NASDAQ 100 (B)-class Companies - Risk Price Chart

Figure 1.5: (B)(N) NASDAQ 100 (B)-class Companies – Risk Price Chart

Figure 1.6: (B)(N) S&P TSX 60 (B)-class Companies - Risk Price Chart

Figure 1.6: (B)(N) S&P TSX 60 (B)-class Companies – Risk Price Chart

S&P 100 - Fundamentals

S&P 100 – Fundamentals

NASDAQ 100 - Fundamentals

NASDAQ 100 – Fundamentals

S&P TSX 60 - Fundamentals

S&P TSX 60 – Fundamentals

And for more information on real “risk management” in modern times and additional references to the theory and how to read the charts and tables, please see our Post, The RiskWerk Company Glossary and “(P&I) Dividend Risk and Dividend Yield“, and our recent Posts “(P&I) The Profit Box” and “(P&I) The Process – In The Beginning“; and we’ve also profiled hundreds of companies in these Posts and the Search Box (upper right) might help you to find what you’re looking for, such as “(B)(N) TLM Talisman Energy Incorporated” or “(B)(N) ATHN AthenaHealth Incorporated” or “(B)(N) PETM PetSmart Incorporated“, to name just a few.

And for more applications of these concepts please see our Posts which rely on the Theory of the Firm developed by the author (Goetze 2006) which calibrates The Process to the units of the balance sheet and demonstrates the price of risk as the solution to a Nash Equilibrium between “risk-seeking” and “risk-averse” investors within the demonstrated societal norms of risk aversion and bargaining practice. And for more on The Process, please see our Posts The Food Chain and The Process End-Of-Process.

And for more on what risk averse investing has done for us this year, please see our recent Posts on “(P&I) The Easy (EC) Theory of the Capital Markets” or “(B)(N) The Easy (EC) Theory of the S&P 500“, and the past, The S&P TSX “Hangdog” Market or The Wall Street Put or specialty markets such as The Dow Transports & Utilities or (B)(N) The Woods Are Burning, or for the real class actionLa Dolce Vita – Let’s Do Prada! and It’s For You, Dear on the smartphone business.

And for more stocks at high prices, The World’s Most Talked About Stocks or Earnings Don’t Matter – NASDAQ 100. And for more on what’s Working in AmericaBig OilShopping in America or Banking in America, to name just a few.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond
Alpha-smart with 100% Capital Safety and 100% Liquidity
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.

Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.