Like it or not, stocks are going up, and we have yet to find either a better alternative for investments or a danger signal that the Federal Reserve's "Risk-On" trade is likely to come crashing down anytime soon.
Here's the latest MarketShadows, March 10, 2013
By Paul Price:
"Few of us have unlimited investable resources. That means we often have to triage our holdings when we uncover what we see as a great stock to buy. We are required to exit our least promising existing position to raise the money to fund our newly discovered gem.
"While the concept of selling one stock to buy another is not rocket science, the ability to actually improve our overall results is much harder than it would intuitively seem."
"Selling the call brings in immediate income. It imposes a sell discipline on the call writer (seller) at a predetermined price."
"The DJIA has been hitting new all-time records. The S&P 500 is also near its record level. Things could still get hotter as ZIRP has made bonds, CDs and money markets guaranteed losers, especially after figuring in the reality of inflation and taxes.
"I like putting money to work in stocks that are not reflecting their true values, particularly after the recent stock market run-up. Laboratory testing giant Quest Diagnostics (DGX) closed last week at $55.89. That’s only 12.6 times its 2012 EPS of $4.43..."
"Writing puts, as opposed to simply buying shares, lets us invest in APD without needing to call the end of the market’s selloff. For those who do not sell options, I like the stock around $84."
Excerpt: "Treasury supply will be heavy in the week ahead, with bill sales and the mid month round of notes and bonds, which should result in net new supply of $31 billion if the 4 week bill totals $45 billion as forecast. That should be no problem for the market to absorb as the Fed will be settling the usual $11 billion in weekly Treasury purchases and will also start the settlement of $80 billion or so of MBS [mortgage backed securities] forward purchases from the 12th to the 19th. [The Fed gives money to the Primary Dealers for the MBSs, which the Primary Dealers can put into the financial markets.]
"By the time the Fed is finished those settlements there will be plenty of excess cash around to drive stock prices higher and also keep a bid in the Treasury market. But again, if there’s any selling in Treasuries some of that cash should flow through equities. I cannot think of a reasonably likely scenario at this point where the sentiment and the flows would be away from stocks and toward Treasuries. I might just be very unimaginative. We’ll see."
Read the full newsletter: Best Game in Town, MarketShadows, March 10, 2013