Heyer Capital, LLC

investment management and timely advice from a local CPA (Fox Valley, Wisc.)

Archive for March 2007

Rooting for the fire

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I’ll admit it. I don’t wish harm to anyone, particularly the taxpayers or insurers. But when I saw that Drudge Report’s picture of the wild fire approaching the “Hollywood” sign, I was rooting for the fire.

Hollywood sign

Written by heyercapital

March 31, 2007 at 12:20 pm

Posted in Business/Econ

Recession watch

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When dealing with economic systems built on the shifting sands of fiat money and bubble credit, recessions are necessary to wring out the excesses of the previous growth period. It’s always disconcerting to watch friends and neighbors lose their jobs as businesses re-shuffle, or have businesses suspend growth plans as credit contracts and lenders pull in their risk profile, and trading partners reassess plans themselves.

The trouble we currently face is that the greater and longer the boom, the harder the subsequent bust. Throw in the fact that governments always exacerbate the effects of the recession by a) not realizing we’re heading toward one, b) denying it when we’re in one, c) sweet-talking away the severity of it, and d) by the time the economy is actually out of recession and recovering they will start passing economic ‘aid’ packages creating further distortions.

Mike Shedlock (Mish) runs a great global econ blog, and his latest posts on recession indicators are worth the time to read (if you’re into econ.) The short answer is that there are about a dozen indicators the indicate we are currently in recession. Does it feel like one yet? How will we know for sure? When they lead the evening news with politicians denying it.

What does this mean for investors? Wait and see. The market will dictate our actions, not the history books.

I will tell you this. When we’re in the depths of the recession, junk bonds will crater in price as defaults rise and market shuns them. When things look their worst, the credit spread between junk bonds and the treasury will widen dramatically to where many junks bonds are yielding 10%(+) more than U.S. Treasuries. Friends, that what fear smells like in the market. At that point, I plan to start buying junk bond funds. (I’ll use funds to distribute risk against any individual issues.) The likely result: as the market returns to normal, the market price of the bond portfolio improves and I get a juicy yield to wait. Hold at least one year. Rinse. Repeat. (Hat tip to GPE for showing me the idea during the last recession.)

Right now that difference in yield (spread) between the junk credits and Treasuries is very narrow, recently reaching the lowest point in a decade. There is just a lot of money chasing yield right now, and it’s not (yet) scared away by default risk. Things always look great at the top. Unless you like riding through big declines in market price and suffering defaults, avoid junk debt until risk is adequately priced in.

Written by heyercapital

March 31, 2007 at 11:59 am

Welcome

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Thanks to Mike’s encouraging words, I’m rolling out this blog to accompany my website, www.HeyerCapital.com. Since I often write to clients about various topics of the day, I must take advantage of the web and put my thoughts out there for the world to see.

A little bit about my business. I am the Owner of Heyer Capital, LLC, an independent Wisconsin Registered Investment Advisor (RIA). What does this mean? In a nutshell, I manage money and make investments for regular folks. Call me and I’ll send you my Form ADV that more completely describes my business. My goal is to grow wealth when the market is good and protect it when there is weakness.

I draw ideas from across the markets and the web. One of my primary sources is the Investor’s Business Daily. I strongly enourage every investor to visit their website (www.investors.com) and read their Investor’s Corner archives and their Learning Center.

I intend for this blog to be an outlet for my thoughts and ideas, and hopefully you can pick up a few pointers on how to read stocks and the general market. If I mention a stock, ETF, or fund, then I will also mention whether or not my clients or I have a position in it. That’s only fair, right?

Importantly, when I mention an investment or idea, do not construe it as a recommendation for you to act on. I presume we’d all like to make money in the world’s capital markets, and I’ll publish my ideas with that goal in mind. I cannot possibly know, though, if it makes sense in your personal financial situation and goals.

Please do not hesitate to leave a post or ask for a clarification about something. I don’t mind fielding questions about specific stocks. Just let me know if you want to keep your question offline. My preference is to make this useful for everyone.

Written by heyercapital

March 29, 2007 at 1:08 pm