Schizophrenic Investors, More Pickups And Why Yield Matters So Much
Wall Street Daily | Jun 07, 2013 05:13AM ET
Words mean little on Fridays in the Wall Street Daily Nation.
Instead, I select a handful of graphics to put important economic and investing news into perspective for you.
So I’ll try to shut up now…
Another Pick-Up for Pickups
Last week, I did my best Jeff Foxworthy impression and mentioned that you might be a redneck if you drive a pickup. But you’d be a pretty darn smart redneck if you also owned a few hundred shares of Ford (F).
Well, that’s even truer today.
Since then, Ford F-150 sales data for May came out. And it looks like the boom times are back for dealerships!
Ford sold a total of 72,000 trucks in May, which brings the year-to-date total up to almost 300,000. That’s a 21.5% increase over last year – and the highest total since the recession hit.
As Americans keep buying pickups, is your portfolio built Ford tough? It should be.
Get a Grip, Would Ya?
The summer months promise to bring volatility to the stock market. But investors really need to get a grip on their emotions.
The latest bullish sentiment reading from the American Association of Individual Investors (AAII) dropped to 29.5%. Keep in mind that two weeks ago, it stood at a jubilant 49%.
So we’re talking about the largest two-week decline in bullish sentiment since the bull market began, according to Bespoke Investment Group.
And all it took was about a 5% selloff for the S&P 500?
Again, investors need to get a grip. I get that their risk appetite remains “almost paralyzed,” as UBS Group’s (UBS) CEO, Sergio Ermotti, said. But there’s no such thing as investing without volatility. Unless you’re Bernie Madoff.
I must confess. The contrarian in me rejoices when I see this data.
As average investors get more and more cautious about the rally, it’s a strong indicator that stock prices are going to head higher still. Bring it!
Wherefore Art Thou, Yield?
Yesterday, I chastised Bloomberg for preying upon everyday investors’ insatiable hunger for income.
Get The News You Want
Today, I want to flip the script and share why we’re such easy targets: We’ve watched yields literally collapse ever since the Great Recession hit.
“In the past six years, central banks around the world have cut interest rates 515 times, increased global liquidity by $12 trillion and crushed bond yields to the point that almost 50% of all global government bond market cap currently trades below 1%,” says Michael Hartnett at Bank of America (BAC).
That’s left investors of every stripe wondering if they can get any income at all these days.
Sure you can. Just not a lot. Not from the old tried and true investments, at least.
Now you know why I’m such a fan of merger arbitrage opportunities in this zero-yield world. It’s a proven (but largely overlooked) way to earn short-term yields of 5% to 10% (or more).
Speaking of which, it appears that one of my recent merger arbitrage recommendations, Zhongpin, Inc. (HOGS), will close in the next 30 days or so. But fear not, I’m researching several new opportunities and will be in touch immediately once I find a suitable one.
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