What’s New since the Last Edition

Hi folks, here is my latest entry, I hope you enjoy it. News media keeps repeating how the market is making new highs or how close the market is to reach the 17,000 level for the first time. Since 1/1/14, the Dow is up 4% but over the past 83 days, it has been only up by 2.95%.  Three of my recommendations, Ford (F), Johnson Controls (JCI) and Emerging Markets ETF (EEM) are up by 7.69%, 8.49% and 13.67% respectively during the past 83days. I recommended Ford against the actions of Warren Buffet and all auto analysts and came out a winner in 2014. Since the Wells Fargo downgrade, JCI share price has moved up by 8%+ proving that I was correct and Wells Fargo was incorrect! It is always good not to follow the herd or one might get slaughtered when the herd heads towards the slaughterhouse! I recommended selling DRYS when the loss reached 9%but since then it has risen by 13% to the level we initially purchased. It is better to stick to a discipline than go after every opportunity. I am still deeply concerned about some Wall Street analysts had say about the management at DRYS. This 13% increase took place when the company announced that it was getting in to some new business areas.

What will happen to the market in the future? No one knows for sure. In my case, I only hold 50% of my portfolio in cash, most call options and a small percentage in put options on the overall market as a hedge against a very big correction (15% to 25%). People get excited over a 500 point decline or an uptick but that is nothing. People should see things only on relative terms. 1600 drop is only 10% and that would be healthy. I would prefer a correction 3400 (20%) or more which would make the market healthy for a long time and open up many opportunities to invest for the future.  People ask if it is possible to have huge financial disaster as we had around 2007/2008. It is definitely possible. In my opinion, the next disaster will come from the equity investments made by the world’s 157 central banks.  Evidence of an increase in equity-buying by central banks and other public-sector investors has emerged from a survey of publicly owned or managed investments compiled by the Official Monetary and Financial Institutions Forum (OMFIF), a global research and advisory group. The OMFIF research publication, Global Public Investor (GPI) 2014, launched on June 17, is the first comprehensive survey of $29.1 trillion worth of investments held by 400 public-sector institutions in 162 countries. The report focuses on investments by 157 central banks, 156 public pension funds and 87 sovereign funds. It has long been recognized that sovereign wealth funds and public pension funds around the world have become large holders of company shares. The best-known example is the Norwegian sovereign fund, Norges Bank Investment Management (NBIM), with $880 billion under management, of which more than 60% is invested in equities. The fund owns on average 1.3% of every listed company globally, and 2.5% of listed companies in Europe. Rivaling NBIM is now the State Administration of Foreign Exchange (SAFE), part of the People’s Bank of China, the biggest overall public-sector investor, with $3.9 trillion under management, well ahead of the Bank of Japan and Japan’s Government Pension Investment Fund (GPIF), each with $1.3 trillion. Jens Weidmann, president of Germany’s Bundesbank — which retains a highly important, conservative role in the euro area in spite of the establishment of the supranational European Central Bank to run the continent’s single currency — spoke yearningly last week of the need for “central banks to shed their role as decision-makers of last resort and, thus, to return to their normal business.”

(David Marsh, “Market Watch”,6/16/14).

Thanks for reading it. I wish you all prosperity.



L S Fernando.