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Churn, Churn, Churn

September 27, 2012

Oh, it’s churning time again and they’re going to leave us lonely. We can see that far away look in their eyes. (Lyrics inadequately adapted from Buck Owens (1929 – 2006) “Crying Time” and the Country Music Hall of Fame.) In January, most economists and portfolio managers thought that this would be a good year for stocks. After all, they said, it’s an election year and the markets do better (since 1896) when the incumbent President is running too. By May, they were singing the Blues (please see our Post, What’s a Girl to do?, June 2012) and advising us to buy bonds and defensive stocks. But now it’s September and all the markets are up with just three more months to go and the election is in November. They’re also masters of the really big moves from 60% equities and 40% bonds to 40% equities and 60% bonds (sic) but the other thing that we know for sure is that they really don’t know what they’re doing. Please see our Post, Run, Rabbit! Run, June 2012.

Exhibit 1: Market Index Returns vs the Market Perpetual Bond™

Index vs Management Returns

Index vs Management Returns

(Please Click on the Chart to make it larger if required.)

Exhibit 2: The NASDAQ 100 Index

(Please Click of the Chart to make it larger if required.)

The Chart (Exhibit 1) shows the year-to-date index returns for the major markets and the returns and transactions in the fictional Perpetual Bonds™ that we might have had to run in those markets using our usual (B)(N)-technologies. For example, the NASDAQ 100 Index is up +23% for the year-to-date and the Perpetual Bond is up +13% plus dividends (cash in our pockets) that would add another 2%-3% to our returns. That portfolio would now have fifty-eight companies in it but in order to get there we made thirty-seven “buys” and thirty-four “sells” (please see The Wall Street Put, August 2012, for more information on how we “buy” and “sell”)  in the course of the year.

In contrast (please see Exhibit 2), we could have just bought the Index in early January and should be happy with our +23% return for the year-to-date. Should we sell now and go to cash? We don’t know and if we do, then what are we going to do with all our money? We could also have bought the Index in early 2009 for $1,000 and we would have $2,800 now but obviously we had the same question and answer when the index was up +100% two years later and another +50% two years after that. Alas, we just don’t know and if we don’t know what we’re buying and selling and why, it’s just a gamble and not unlike buying a ticket to the lottery or, in this case, to the election.

And what are they going to do now? Sell their low-yielding bonds and buy the high-priced stocks from us notwithstanding the alleged January Effect or Hindenburg Omen? One would think that our money will buy their love.

For more information, 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


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*.

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