You Can’t Win

Steve McDonald
by Steve McDonald, Bond Strategist, The Oxford Club

We are using a new format this week: More ideas in less time. I hope you like it. And the SITFA will be moving to a new day of the week. I’m not sure which yet but as soon as I know, you will know, too. Just keep your ear to the ground. We’ll probably be here for another week or so but keep your ear to the ground for the change.

First up this week: What the heck is a heuristic?

According to John Huber, the CIO of Huber Capital Management, it is a cognitive decision flaw common across all demographics. That means everyone is doing this and it is costing everyone money.

This is part of the relatively new area of behavioral investing, and it has also kept most small investors out of the best stock market in our lifetimes since 2009.

If you haven’t looked objectively at your investing behavior and decision making, I can almost guarantee it is costing you money.

Google heuristics and decision making - take a look at these.

U.S. Steel Due for a Charge?

Next, Morgan Stanley is calling for a 50% runup in U.S. Steel (NYSE: X).

The complete makeover of U.S. Steel’s business model, cost-cutting, new limits on dumping cheap steel, higher profit margins, less competition and increasing demand from the autos and gas and oil drillers are all why it has upped its target to $60 from $35.

Morgan Stanley says the 70% runup from U.S. Steel’s protracted, multiyear bottom is not a reason to sell, not yet anyway.

Transports Are Really Hot

Transports are really hot. They have beaten the S&P 500 this year by as much as 21% and volume indicates demand is still strong. The index recently moved above resistance levels and is showing signs of more strength.

The names people are talking about: Norfolk Southern (NYSE: NSC), UPS (NYSE: UPS) and a little one called Forward Air (Nasdaq: FWRD).

Take a look at the transports.

The “Slap in the Face” Award: Guaranteed Loser

Here’s one that I know will drive a lot of email because it so outrageous and stupid it isn’t believable, but... well, whatever, here it is.

There is finally a way to guarantee you will lose money in an investment, compliments of Germany.

Not just a guarantee, a government guarantee.

I told you this one was really stupid.

It is now possible to take away all the uncertainty about losing money because the German government now has bonds with maturities as far out as 2018 that are guaranteed to lose money.

Government bonds that are not guaranteed to pay but guaranteed to lose money.

The two-year German bond will lose 0.4%.

Yields have gotten so low that you have to pay to own these German bonds.

And yes, there are lots of buyers for them. In fact, that is what has driven the yields so low. Yields don’t drop unless people are buying.

Now, let me put this into perspective and show you how stupid this really is.

Send me $1,000 and I guarantee I will return 99.6% of it in two years.

In fact, I am having a special. Send me $100,000 and I will give you $996,000 in two years.

What a deal!

I’m sorry, is it me? I’m beginning to wonder.

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