Hunkering down

With European markets down big, investors are bracing for yet another awful opening tomorrow. Thus far this year, the S&P is down 9.75 percent -- think about it, losing 10 percent of your money in just 13 trading days.
The "Five for 2008" portfolio is up 1.55 percent this year, mostly thanks to Capstead Mortgage (CMO), up 13.6 percent. This is a stock that does better in recessionary times because its earnings and dividends move inversely with interest rates. Credit risk is low, unless you think FNMA insurance on mortgages isn't worth anything (seems like Congress would never allow a default) But if things get bad enough in the credit markets, wouldn't surprise me to see CMO take a hit too, in which case it might be time to buy more.
The worst of the five stocks has been Pepsico (PEP), down 5.85 percent. Funny, this was our "safety stock." As the only common stock in the portfolio, it suffers from positive beta. The other three haven't moved much this year. In this market environment, that almost counts as a victory.

Ford bonds recommended

In this week's Barrons, highly respected PIMCO fund manager Bill Gross recommends senior bonds of both Ford and General Motors. With a yield of over 12 percent, they're poised to take advantages of structural changes in the auto industry and the weak dollar making imports more expensive, he says.
This recommendation should be good for KSK, which is senior Ford debt packaged to trade like a stock. As it's my largest position, I might consider selling a little into a Barron's rally, but it does look underpriced.

First days tell the tale?

If the first five trading days of the year tell the tale -- an old market saw with a grain of validity -- 2008 will be awful. The S&P is down 5.3 percent already.
Our "Five for 2008 portfolio," which was built for a near-recessionary environment, is holding up well, up 1.0 percent YTD. Unfortunately, there's a lot in my personal portfolio that isn't doing so well, starting with the big T, which cracked today after AT&T's CEO cited consumer weakness -- not so much sales as disconnections due to non-payment. That's a bad sign right there.
I've made a few small sales so far this year, haven't bought anything yet.

Sell into it

Ended 2007 with a gain of 9.9 percent, the worst since '03. I was up about 15 percent at midyear but didn't see the financial meltdown. Best stock was Apple, followed by Southern Copper (PCU). Worst was Citibank.
2008 has started extremely poorly as the market seems to think a recession is in the offing. Not sure that's true, but the cyclicals, the materials and the techs, which did so well last year, have turned sharply lower. I think any rally will have to start with the financials, so I've been selling in an orderly fashion in the early days.