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(B)(N) What’s A Girl To Do?

July 26, 2014
"American Gothis", Grant Wood, 1930

“American Gothic”, Grant Wood, 1930

Drama. The quarterly strategy report from the Goldman Sachs Group has suggested that if bond rates were to rise, particularly, if the 10-year Treasury Yield were to rise from the current 2.46% to 3% by the end of this year, and maybe 4% in 2017 (which could happen), investors might lighten-up on equities and buy bonds (which actually did happen in 2013, for a short time).

Having reached that conclusion, the Goldman Sachs Group has also suggested that now is not a good time to buy bonds because yields might rise sooner rather than later (Bloomberg, July 26, 2014, Goldman Sees Risk of Stock Decline on Rising Bond Yields).

We’ve been spinning our wheels, too, because the market is at rest, and doesn’t know what to do if  there’s no “excitement” such as “the blue sky is falling down“.

But the equities market can help itself  – without any help from the government – to higher yields by “selling on the left and buying on the right” or, more conservatively, “lightening up on the left and weighing-in on the right”, like a “teeter-totter”, all the while still staying in equities with the usual safeguards of an attentive stop/loss policy – or sell points below the current price, if we want more control over the issue. And we need control because, for us,  “volatility” is an opportunity, not a hazard.

We don’t have any sell points above the current price and, of course, all of our holdings are (B)-class and, therefore, trading above the price of risk which makes it easy to control our risk and is something that we can’t do for the (N)-class companies; please see our Post on “(P&I) The Easy (EC) Theory of the Capital Markets” for more information on that.

Figure 2: Dow Industrials Dividend Risk & Dividend Yield

Dow Industrials Dividend Risk & Dividend Yield

During this time of “recreational economics”, we’ve also given some serious thought to the issue of “Dividend Risk & Dividend Yield” and even more thought to “debt” in “(P&I) The Process – Debt & The Company We Keep“, and our conclusion is that unless there is such a demand for money that interest-rates exceed the return on equities, and are in the double-digits, we’re best off with the latter, equities all of the time.

For more details, please see our Posts “(P&I) The Process – The 1st Real Dollar” which shows how a “currency” gets its value from the “subsistence economy” at the Company D modality, and “(P&I) The Process – The Guns of August” which explains how that modality actually “works”.

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 information on real “risk management” and additional references to the theory and how to read the charts and tables, please see our Post, The RiskWerk Company Glossary; 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.

And for more on what risk averse investing has done for us this year, please see our recent Posts on 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*.

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