Author: Tom Yorke, Oceanic Capital
Covestor models: Global Diversified Conservative, Global Diversified Moderate, Global Diversified Aggressive
Ok. Once again the universe can continue.
The U.S. employment report has been released and – from one angle – it did not disappoint.
The number has always had its share of fireworks given its propensity for massive revisions and that the range number of statistical variance is about 100,000 jobs (a mere pittance for those folks toiling at the Bureau of Laborious Statistics). Anyway, the report did disappoint from about every other angle:
- Unemployment Rate: Higher
- Number of Non-Farm Payroll jobs created: 50 % below expectations
- Prior month’s Job Created number: Revised down 30%
- Average Hourly Earnings and the Average Work Week: Both below Street expectations
The reaction was swift and painful unless, of course, you were long bonds (overvalued as they were), long gold (about to hit the tank), long the dollar (a “Flight-to-Poverty” trade) or short equities.
Well, here at OCM we think that three out of four isn’t too bad and our preparedness helped us survive the fallout without as much pain as others.
“Misery loves company” is what Aesop (or somebody) used to say, but we’ll take a smaller hole to dig out of any time.
Europe is still a mess, but now that George Soros has given the EU three months to get their act together (or else) maybe they will finally listen. Our guess is when two largest trade insurers – who have now pulled out of insuring Greek trade altogether – will be one the final nails in the coffin.
As Reuters reports, Euler Hermes and Atradius -said they had stopped providing cover for export shipments to Greece due to mounting fears that Athens could be forced out of the euro.
Can you imagine all those Greek ships sitting idly in Piraeus with no cargo to move?
Quite possibly the best thing that could happen would be a victory for the communists, the prompt withdrawal of Greece from the EU, and the return of a devalued Drachma.
At least we could cut the dead wood, the agony would mostly be over, and the EU could turn its attention to directly supporting the banks of the peripheral nations.
Theoretically, this would stop the flow of euro out of Spain and Italy. As Reuters reports, European money market funds saw outflows of some $13 billion in the latest week, the biggest weekly outflows from money market funds since it began tracking the sector in 2007.
We are guessing the only people happy about the employment numbers Friday was Mark Zuckerberg, Facebook (FB) insiders, and possibly some well-known investment bankers.
Don’t you think FB et. al. wanted off the front pages and the Financial News Network talking head scripts?
Give me a break. Mr. Zuckerberg did one hell of a snow job on Wall Street and Main Street (and in the process took out a nifty billion dollars plus in cash for himself).
We get that 90% of his holdings suffered the same fate as the rest of the world – down 30% from the $38.00 a share IPO price – but we are definitely not weeping for him. All we can say is watch out for the end of the lockup period in 90 days, instead of the normal 180 days, as we will likely see another round of sellers in August!
As we have said in the past the volatility of gold has been more than just a thorn in our side. We know given the current environment that gold is a store of permanent value and the only true currency. It has been said that no fiat currency has ever survived for more than 50 years, but gold has been around as a store of value for centuries.
In any case, when the printing presses are running and quantitative easing a virtual certainty in Europe, it seems appropriate to hold a significant stake as a hedge against the craziness that is popping out of the worldwide woodwork these days. We suspect in the long run save the recent flurry, gold is taking nothing more than a breather. Thankfully our current allocation certainly helped our portfolios in the recent storm.
Our feeling though is we may begin to shift into some of the major mining stocks as a slight adjustment, the Market Vectors Gold ETF (GDX) being a good place to start. It has underperformed gold, and we feel like it will carry on even if gold takes another breather.
Additionally we feel it’s time to take a serious look at one of our favorite “category killers,” Microsoft (MSFT). The company has had a nice run in the last six months and retraced about 50% of its move up, pulling back recently to its 200-day moving average. The stock pays over a 2.5% dividend, and has steadily grown its payout over the last 7 years.
Anyone who has endured the upgrade to Windows 7 and its seemingly mandatory simultaneous upgrade to Office 2010 realizes how the business world is simply tied to this company. If all we do is ride the wave and collect an nice and growing dividend in the process, we think it’s a home run.
Add to that the initial positive readings on Windows 8 – due out in the coming months – and we see both competitive strength and revenue growth in the name.
So our portfolios held up pretty well, and weathered a serious storm without any outsized damage. The game is the same: pick your allocations, find uncorrelated assets, avoid market timing and think for the long haul.
This will keep you sleeping at night and avoiding any outsized holes created by the “risk-off” days.
