Wednesday, December 21, 2011

Velocity of Money and Money Creation/GIS TRST/Sold 300 CMK at $8.19/Robust Market Rally Based on Hopium

For those who are committed Stock Jocks, the website Zerohedge provides a consistent daily dose of negativity about the stock market. The site is especially appealing to connoisseurs  of negativity. The site is viewed here as consistent with Alan Abelson's perpetual negativity about stocks, though I find it to be generally more informative than Abelson.

A reader referenced this article that contains some worthwhile discussion supporting a negative outlook for 2012. ZeroHedge One of the charts referenced in that article shows the correlation of the S & P 500 and the velocity of money. This kind of correlation varies over time but the overall correlation is positive. There was a positive correlation, as noted by the author, between 1991 and 2009. There was an overall robust move in stocks and the velocity of money between 1991 to 1999. There was a high positive correlation between 2000 to around 2009, for both the up and down moves of these two indices. There was, however, a negative correlation during the robust stock rally between 1982 and 1987. The point of the author is that the velocity of money has continued to trend down significantly while stocks have rallied since 2009. 

The St. Louis Federal Reserve has an abundance of worthwhile charts for those looking to form opinions on the big picture issues. One of these charts is the velocity of M2:


Velocity of M2 Money Stock (M2V) - FRED - St. Louis Fed

If the money does not circulate and is hoarded by financial institutions, then printing more money will not be a catalyst for growth.

It is also questionable whether the Federal Reserve's Jihad will have a net positive impact on economic growth, given the negative impact on the saving class who would be in a position to spend more but for the Jihad. The Real Cost of The Federal Reserve's Jihad against the Saver Class What Are the Reasons for a Continuation of the Fed's Jihad Against the Saver Class     

This is a link to a positive article about Trustco (TRST) published by Motley Fool. I am near break-even on my position 370+ share position. I am reinvesting the dividends. REGIONAL BANK BASKET STRATEGY GATEWAY POST

I do not believe that there was any news that justified the market's robust rally yesterday. Some traced the spurt to an uptick in German business confidence, an index that moved up to 107.2 in November from the prior month's 106.6. Bloomberg This sounds ridiculous because it is.

Another purported reason was an increase in building permits. Building permits did jump due to more apartment starts. MarketWatch I would not call a 32.2% spurt in multi-family housing starts, off historic lows, as synonymous with a housing recovery. There was also a slight downward revision in housing starts for the prior month when the consensus called for an upward revision.

The rally yesterday appeared to me to be another one based on hopium. Consequently, I made a small add near the close yesterday to a double short. My current relatively small hedges went from profit territory to slightly negative yesterday.

1. Sold 300 of the Bond CEF CMK at 8.1928 Yesterday (see Disclaimer): Other than two bond CEFs that own U.S. inflation protected securities, CMK was the lowest yielding one currently owned by me. This CEF does pay monthly dividends and was selling at over a 9% discount to its net asset value last Monday.  CEFA

I took a small long term loss on this security.  Bought 300 of the Bond CEF CMK at $8.39 (August 2010 Post)

It is important to double check the yields provided by financial websites. Marketwatch currently shows that the yield for CMK at 9.52% which is simply not correct. This CEF pays a monthly dividend at the rate of $.038 per share.  MFS InterMarket Income Trust I In December, the rate was increased to $.065 but this was not a new monthly rate. Instead, there was an additional distribution for December 2011 so the fund could pay out its income for 2011. Marketwatch assumes that the $.065 rate will be paid for 12 months which is how it calculates a 9.52% yield. A more accurate yield would be 5.56% ($.038 x. 12 ÷ by $8.19 total cost=5.56%). I would not assume any additional payment in December 2012.

I have a few other sales from yesterday that I will discuss in subsequent posts. I am coasting until the end of this year.

2. General Mills (own: Common Stock Dividend Growth Strategy) General Mills reported adjusted earnings per share of 76 cents for its Q/E 11/27/2011, its second fiscal quarter, unchanged from the year ago quarter.  The consensus estimate was for 79 cents on that basis. The company reaffirmed its full F/Y 2012 guidance of $2.59 to $2.61, excluding integration costs connected with the Yoplait acquisition and mark-to-mark effects.  Margins are being pressured by higher costs. 

1 comment:

  1. The Federal tax receipts have plummeted almost 2% since the end of Oct, while the market is hyping the BLS job numbers as improving. Someone is wrong.
    http://www.hussman.net/wmc/wmc111219.htm

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