Market Updates

Well that was exciting!  Please keep in mind that, as a long-term investor, what matters is the earnings power and yield of the companies in which you are invested.  Just because the price of a stock drops doesn’t mean that the underlying company is deteriorating – it simply means you have the chance to buy shares of the company at a cheaper price.  When Cheerios are on sale, you buy two boxes!  The earnings power is pretty much the same as it was last week so now the yield is higher.  Most people hate to see stocks drop but not me.  Volatility should be embraced as the wonderful opportunity that it is.

Here’s a quick update and summary from this week:

• This is the type of volatility I have been referring to all year. Currencies and commodities have been foreshadowing this kind of trouble in stocks for a while now.
• It didn’t take China long to let the Yuan drift lower (the next day), but this isn’t the big credit collapse yet. They still have too many levers to support things in the short-term.  They’ve boosted government spending again which should lift numbers the rest of this year and yet again, delay the serious issues.
• German and EU PMI’s came in better than expected. This plus China starting to let the Yuan float more freely means we’ll likely see Japan return to the currency debasing game.
• Despite stalling against the Euro and Yen, the US dollar has continued much higher against Emerging Markets, indicating that the US dollar bull market continues.
• You could probably tell from my tone all summer that we’ve been positioned somewhat conservatively in anticipation of a drop in stocks – like the one we’ve seen this week (down approximately 5% on the week…).  I did a decent amount of buying today, adding to: Ross Stores (ROST), Gilead (GILD), Howard Hughes Corp (HHC), Mead Johnson (MJN), and started a new position in Intuit (INTU) this morning.
• Interestingly, the best “buys” I’m seeing are in the stocks I classify as “Income” investments – the stable, dividend payers. Most of the high growth companies still look very pricey and the action this week gives you an idea of what happens to these stocks once valuations reprice.
• This selloff came at a bad time with today being August options expiration. All but 2 of the August put options I sold under stocks finished in-the-money.  I would typically let these fill to buy the stock on the dip but volatility is so high right now that it paid to roll them out a few weeks and collect the extra premium.

Do yourself a favor and ignore the financial media this weekend.  They’re way too dramatic.  I got it covered.

-Nick

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