Best in Breed Dividend Stocks: Portfolio Check Up

Over the last week I received numerous emails regarding my last column on Seeking Alpha. Readers inquired why I was so negative on the market. Other than the macro elements that I laid out, the market had set itself up for a psychological correction.

Generally speaking, I am a firm believer in the efficient market theory. I believe most equities trade at, or near, their true market value. There is little to no money to be made when equities are fairly valued. Alpha becomes harder and harder to come by.

When markets are in a sustained uptrend, as we witnessed throughout the duration of QE2, they begin to trade with a sense of invincibility. We forget to worry or factor in risk. Riskier assets simply become conduits to greater returns. With the Bernanke ‘put’ in place, there was no downside risk. The only way to generate alpha was to chase greater risk. When this occurs, the efficient market theory quickly devolves into the ‘castle in the air’ theory, or more aptly, the ‘greater fool’ theory.

All equities begin to trade at multiples that are unwarranted, limiting upside while exacerbating downside risk. Who was buying Open Table (OPEN), Salesforce (CRM) and Netflix (NFLX) at these multiples? I guess there is always a greater fool waiting to carry your bag, so why worry?

Eventually this over exuberance comes to end. In our recent scenario, Bernanke took off the training wheels and we had the sudden realization that the US economy was not ready to ride on its own. We careened off the edge at full speed. Selling begets selling, and the market became increasingly irrational. Risk begins to rear its ugly head and the weak retreat to the security of their bank accounts.

This is capitulation. This is purely psychological, and it’s exactly the time to purchase equities. This is when real money is made.

Read the rest of the article here

T20YM Update: Emerging Markets and GLD

What a strange, strange week.

If you were looking for volatility, you got it. Up one day, down the next. Mr. Market is one fickle son of a bitch. The selloffs, by my calculations, were overblown. An Irish debt crisis… how long have we known that this was coming? Other than driving the price of the dollar through the roof, this has very, very little effect on US equities. The total GDP of Ireland is equal to the state of Nevada. In the grand scheme of things, this is a drop in the bucket. When/if we get to Spain, then we can start to get worried. The idea that the world stock market is selling off because of Ireland is ridiculous. People need to put on their big boy pants and stay in the game.

The second big worry we have was North Korea shelling a South Korean island. Again, I think the markets’ reaction to this noise was overblown. This happens on a monthly basis in Korea. This type of border clash is not war; it’s the North Korean’s form of negotiation. Even IF there was full scale war on the Korean peninsula, this would not be a reason for every market in the world to tank… The conspiracy theorist in me thinks this was just an extension of the US/China trade war. China politely asks North Korea to fire a few shells at the south, the Asian markets tank, the US Dollar sky rockets and Helicopter Ben and the whole QE2 experiment turns into a gigantic waste of time and money.  This is classic Cold War politics. If the President Obama wants a trade war with China, he will quickly realize they won’t be playing by the same rules. If this is truly a start to a Trade/Cold War with China, then we will have something to worry about. As I see it now, both our economies are too intertwined to isolate the other.

Over reaction to macro events is often a strong sign at a 'top' of a market. I'm not saying this is a long term top, but a small pullback prior to year end is in the cards. 

I have been looking for an entry point to add some Emerging Market exposure to my portfolio. Last weeks volatility offered me a few decent entry points. I started some small positions in some broad based foreign ETF’s. I chose to put some money to work in China, India, Brazil, South Africa, Turkey and VWO. My current portfolio is as follows:

Symbol	Qty	Price Paid	Market Value
DVY	50	$47.97	2,409.00
EPI	75	$25.31	1,845.00
EWZ	30	$74.62	2,244.30
EZA	20	$69.98	1,355.80
FXI	50	$43.76	2,160.00
IAU	100	$12.64	1,329.00
IDV	50	$33.12	1,607.00
JNK	50.70756	$39.57	2,013.09
PFF	50.55118	$39.58	1,987.67
PGF	111.2868	$18.07	1,989.81
TUR	20	$71.16	1,361.80
VWO	50	$46.11	2,280.00
GLD Dec 18 '10 $134 Call	10	$2.61	1,800.00
SLV Dec 18 '10 $26 Call	10	$1.11	1,100.00

As you can see, I have a few some short term option plays on Gold and Silver. I am down on the GLD position, flat on the SLV. I am having trouble pegging the moves in gold. It seems to have a mind of its own. One thing I do know is that it likes to go higher. This is a perfect environment for GLD, it either tops here or pushes to 1500. Two weeks for me to find out.

The QE2 Cometh....

How I’m playing the QE2

First, I have learned to never fight the fed. This seems cliché, but it’s the honest to god truth. Bernake gave us a free ‘put’ on the market; it would be asinine to over think the situation. In the short term I think we head higher, in the long run my outlook is not so positive.

My trades for the last week have been fairly simple. I’m shorting the TLT via puts. Long term treasuries are going to be hammered. I’m long commodities via calls: CVX, NG, GLD. Dollar goes down, these go up. I’m long leaps on C, these were too cheap to pass up. I started a small position in PCL, another commodity play with a decent dividend. Short bonds, long commodities.

I also took a flyer on BIDU today at the close. POMO Is going to hit the market everyday for the next month. I think high beta names are going to pop.

The dollar is going to lose value fast. Make sure you put it too work in something that will sustain value.