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Wednesday, June 13, 2012

Palm Trees and Stock markets

So the time has come at long last. The boxes are starting to pile up around the house and the packing is well under way. I never really meant to stay in Maryland this long but have been here now for a little over 20 years. I came home from the West Coast for a wedding and just stayed. I grew up here in Annapolis and have lived a big percentage of my life somewhere between Kent Island and Baltimore. I have many wonderful memories of the state but the time has come to leave.

I have talked about leaving for years now. I considered moving to my favorite city on the planet. I love Chicago and was pretty much ready to move there back in the early part of the new century. I love the city and am pretty sure I would have been able to easily raise more money and been exposed to more opportunities in the Windy City. I am one of those weirdoes who doesn’t even mind it there in the winter. The bars are heated and you can always take advantage of the window between snowstorms to get south for a few days. It’s a vibrant exciting city with everything New York has with wider streets and nicer people. However right about then the daughter developed her health problems and my son was not solidly on his feet yet.

Key West has always been a potential destination. As has Siesta Key. Naples has been a serious consideration as a new home. I love coastal living and Florida has long been an idea I have considered as a new home. Property prices and life style once made Lexington, Kentucky a very serious candidate. A town settled by Irish gamblers with a world class university as the focus of the town would not have been a bad place to live back in my single days. Despite all these considerations and ideas something always came up and I stayed put in Maryland.

Maybe I needed to stay here to meet Erin. God knows life anywhere with my partner and best friend is a lot better than being the curmudgeonly old man at the end of the lane who scares the shit out of the neighborhood kids. Had we never met I could easily see myself as a hermit with a little house at the end of the longest road in the smallest town on the west coast of Florida or along the redneck Rivera of the  panhandle or Alabama. Thankfully fate provided and I have been spared that existence.

Now at long last it is time to go. Erin has received a great job offer in Florida working with the same bank. We are heading to Orlando, not the coast but I am more than okay with that. It is only an hour or so to the beach and the 9 year old is over the moon about living in the same neighborhood as Mickey Mouse. I will have palm trees in my yard and am contemplating taking up bass fishing again as there are several big lakes right by the new house. An average temperature in February in the 70s just doesn’t suck.

I love Maryland but it simply no longer makes sense to live here. The recent tax increases passed by the legislature are a punishment for achieving any sort of success. They instituted a millionaire tax on those making more than 100k or 150k as a couple. The new blended rate including local add ons is now over 8%. They doubled tobacco taxes on certain products. Flush taxes and vehicle registration fees were doubled. The dealer processing charge for when buying a car wars tripled. The drink tax was raised by 50%. Road and bridge tolls were raised by 60% with more on the way. The cost of a birth certificate doubled.

Let’s consider some of our other legislative achievements the past few years. We spent gajillions to pass same sex marriage which immediately was moved to referendum and will likely be defeated on the November ballot. I support same sex marriage but this was all political posturing for Mr. O’Malley when he moves to the national stage. We voted to allow ILLEGAL immigrants to pay in state tuition. We redistricted that state creating voting districts where you cannot drive from one to the other of most of them without crossing a boundary. We basically outlawed pit bulls. The state shifted teacher pension burdens to the counties with no means to pay for them.

Maryland is consistently ranked as one the most anti-business states in the country. We have high income and corporate taxes. Our environmental laws and fees are onerous to the point of the ridiculous. Local zoning restrictions and regulations are draconian. The cost of unemployment insurance keeps rising. Business is over taxed and over regulated. In spite of this state officials ponder why there are no corporate headquarters in downtown Baltimore anymore. They are clueless. The Free State is now the over taxed nanny state.

I have loved living here. Kent Island in particular is one of the best places I have ever lived. It is like living in a resort town populated by incredible people. I loved my 15 years there and have stories, memories and friends there that will last the rest of my life. The Chesapeake Bay is a national treasure that has provided endless hours of fun. Ocean City is the tackiest place on earth and fun as hell if you approach it with the right attitude. I know every inch of every street, alley and barroom in Annapolis and I will always treasure the thoughts of my childhood and teenage years in that beautiful town. Navy football, Orioles baseball, and Ravens football are all things I shall recall fondly. I will still root for them all but from 800 or so miles south under the shade of a palm tree.

I love the state, the places and the people. The local government has become untenable for me. I just do not see the value of living in a state that thinks so little of me of an individual but is so overly fond of taking my money. It has been a long time coming but it is time to go. Palm trees, warm winters and Mickey Mouse await my arrival.

Before we move along I want to take minute to consider the markets. We have moved into what I like to call a “are you fucking kidding me” (AYFKM) market. Spain is being bailed out. AYFKM? Jobs fell to 69,000. AYKFM?  NetFlix (NFLX) is losing customers AYFKM? Gold is down 50. AYFKM? Gold is up 20 AYFKM? Mortgage applications are up. Home prices are down. Europe is dead. Europe is rescued.  All AYFKM moments.

We are in a market where a lot can go wrong but the central banks of the world are determined to not let that happen. Some companies are showing sterling earnings and there is a significant chance that Amazon (AMZN), LuluLemon (LULU) and Ulta Salon (ULTA) could end up owning the universe. At least we will be a well groomed, trimly attired and well-read population should this actually happen. There is a lot that could go wrong and some things that could go right. We are in no man’s land where prices do not justify widespread buying and with zero interest rates and a market that is not grossly overpriced. If anyone tells you with a high degree of certainty what the economy and the market will do over the next year I suggest you kick them the general area of the genitals and  stand over their fallen form, yell AYFKM and walk away.

The proper course of action is to do nothing. Last fall when the world was widely perceived to be ending I added to my cheap stocks. I have my hotel REITs like Sunstone Investors (SHO),Felcor Lodging (FCH)and Ashford Hospitality  Trust (AHT). We bought shopping centers like Kite Realty (KRG) and Cedar Realty (CDR). I have been selectively adding little banks like Eagle Bank of Montana (EBMT and Heritage (HBOS). I have not sold any of my foreign banks like Royal Bank of Scotland (RBOS) or Bank of Ireland (IRE). I bought  a small energy postion earlier this year  with names like EXCO (XCO),  Penn Virginia and most recently Hess (HES).I still have stocks like Disney (DIS), Fly Leasing (FLY), Rowan (RDC) and Seagate (STX) I bought in the 08 and 09 meltdowns.  I am holding them all but not rushing to add or buy new names

We came into the year with a diversified portfolio of safe and cheap stocks along with a high percentage of cash. Nothing is up enough to sell but the market is not creating a plethora of new inventory right now either. I am not up as much as I once was but I am still up a good number on the year. My time horizon is a minimum of five years and ten is more realistic for my financial stocks so I have learned to ignore the day to day. When the money honeys look hangover in the morning and fund managers are puking under their desk again, I will drag out the cash and be a buyer. If the VIX crosses 35 I will be a seller of cash secured puts and option combos on depressed stocks. In the unlikely event that coordinated global intervention and money printing actually works I will be happy to sell some of my stocks at a huge premium to book value. Until then doing nothing is exactly the right move.

There is a mindset amongst my peers that because the casino is open you have to play. The best poker player I have ever known will walk around the poker room at the Borgota or Caesars looking for a game with an edge. . If he doesn’t see one he never sits down. The great horseplayers never leave the rail if they do not spot a race with a substantial edge. I look every day for a safe and cheap stock, an arbitrage opportunity or event driven situation. If I don’t see one I don’t trade that day. More money is made by individual investors by waiting for the inevitable big down draft in the stock market to buy and holding until the next euphoric rally than by trading every day. Doing nothing takes incredible patience and discipline but it is also wildly and consistently profitable. Short term market participants are trading against PHDs and supercomputers as well as the 1/10 of 1% of the population that is actually a great trader. All the edge is theirs and you are merely lunch. Wait until the market gives you the edge by creating a widespread inventory of safe, cheap stocks.

Until that happens life is good. Lisa got her first teaching job. The Orioles are competitive. Tom is firmly entrenched and successful in his profession. Maeve is busy being nine. Erin is excited about a new job in a friendlier work environment and still has not stabbed me in my sleep. How she puts up with me I will never know but I am damn glad she does. I have stacks of books to read, wine to drink and baseball to watch.

Most importantly, I am going to have palm trees in my yard.


Adam Keeling said...

Well said Tim. I've followed your RM posts for some time now. I enjoy your writing and have learned quite a bit from your approach. I'm over here in Gaithersburg, MD (originally from Suffolk, VA) working in IT (graduated from Salisbury in '09). I plan to move out of MD, though I am unsure of my next destination. I agree with your comment's on the political nature of MD and frankly, on this side, it's become quite pretentious.

I hope you continue your posts to RM, enjoy the sun, and don't forget the Orioles... I'm hopeful the bullpen can continue keeping us in games - we'll have a shot to get to the playoffs soon if they do.

I have tweeted you a few times (@MainStInvesting) - and thank you for the responses. Hope all continues to go well for you!

Fadi Shadid said...

Best wishes to you and Erin. It will take a while to think Orlando when thinking Tim Kent Island Melvin..
Thank God Andy in the office here passed on this post and hope not to miss anymore. Great stuff of course..very useful to me with places to live and my excessive recent trading.