The Talking Heads were really something.
I saw them and The Ramones in Cambridge.
Not at a concert, but at an album signing.
I picked up an album just to be able to get a close look at the members of both bands, mostly because one of the Ramones had a safety pin through his cheek and I thought that was pretty weirdly cool.
Then I promptly put the signed albums back into the rack.
Maybe it’s strange that so many years later one of the Ramones, maybe the one with the safety pin, would sing an homage to American capitalism and maybe a bit of an homage to one of its media symbols, “The Money Honey.”
But that was all almost 40 years ago and I never dreamed that those two groups would have been so influential. I never would have returned the signed albums back to the rack had I any clue that they would have been worth something some day.
In time, I came to especially like the Talking Heads, but never got as close as I did that one afternoon, instead having to settle on repeatedly melting the cassette tapes holding their songs.
“Burning Down the House,” “Once in a Lifetime” and so many more.
This coming week, right on the heels of the FOMC’s most recent statement release that kept investors in a celebratory mood, is going to be something of a Talking Feds festival.
That’s because there are no fewer than 12 scheduled speaking engagements by members of the Federal Reserve.
After putting off an interest rate increase yet again, there are probably those investors who feel that their tantrums over the immediate prospects of an interest rate increase, were taken into account by the FOMC.
It would be understandable if those investors had their selling behavior reinforced as they pursued a “Once in a Lifetime” interest rate increase policy from the FOMC.
What we are likely to get in the coming week is the kind of whipsaw movement in markets that we’ve been seeing recently as there is increasing dissent among the members.
This idea of Federal Reserve Presidents and Governors seeking public audiences is a fairly new one and doesn’t really serve much purpose, but each instance is dissected by investors as perhaps offering the most keen insight into the thinking of the FOMC.
That is, of course, until the next speaking engagement.
If luck of the draw would have the first 6 of next week’s engagements presided over by interest rate hawks or interest rate doves, we might see a decided move in a single direction and then the same move in the opposite direction as the remaining 6 had their moment in the sunshine.
There’s also the matter of which speakers are actually voting members of the FOMC.
Of the 10 voting members, five will be speaking and on a total of 6 occasions.
The preponderance of the words that are going to be heard from the voting members will be coming from among the interest rate hawks, whose words may be perceived as “Burning Down the House” that cheap money built.
The final word, as it always comes, will be from Chairman Janet Yellen, as she is the last speaker of the week and is still only a reluctant hawk.
But, she also has to be a pragmatist.
Even as economic data may not yet seem to be compelling to those of us who don’t appreciate the nuances, she is increasingly surrounded by dissent and a cacophony of opinion.
What we do know is that the Bank of Japan, on the same day as the past week’s FOMC Statement was released, admitted that negative interest rate policies weren’t working.
That essentially removed that possibility from the FOMC playbook, as if they had even ever considered it.
I don’t know whether the Talking Feds are going to produce anything resembling melody or deep insight in the course of the coming week.
My expectation, as last week’s rally took a little break to end the week, is that there may be lots of confusion in the week ahead and a stream of words to prepare us for the interest rate increase that now everyone says they are willing to accept as long as it didn’t arrive before December.
As December nears, the same fear of an interest rate increase may manifest, as we all become “Psycho Traders” when the moment of truth is thought to be right around the corner.
This week may be a good head start for those wanting to take on that personality, but there will probably be many more opportunities in the coming months as earnings season begins again in a few weeks and Federal Reserve members increasingly seek out the spotlight and break away from the center.
As usual, the week’s potential stock selections are classified as being in the Traditional, Double Dip Dividend, Momentum or “PEE” categories.
I haven’t owned General Electric (GE) in a while.
Although I’m perplexed as to why that’s the case, I’m more perplexed as to General Electric’s latest ad campaign, which seems to be attempting to find some humor in the questions posed by a young man who may be developmentally disabled.
I understood their previous ad campaign that sought to portray General Electric as something other than your father’s old industrial company, but can’t begin to understand what message they’re trying to send with their latest commercial.
Nonetheless, General Electric below $30 has some appeal for me and I might be willing to overlook some of the very poor taste exhibited by their commercial.
The option premium isn’t terribly exciting, but a position in General Electric below $30 may look to capitalize on some capital appreciation on shares, in addition to that premium and the attractive dividend.
American Express (AXP) is another that I haven’t owned for a while and for much of the past 2 years, that has been a relatively good thing.
Having bounced off of its lows following a sustained decline when news hit that it was no longer going to be the exclusive credit card accepted at Costco (COST), I like the very narrow range it has traded in over the past 5 months.
That tight trading range, despite the relatively low volatility, still offers an attractive option premium and there will be an ex-dividend date probably in the next 2 weeks, or so.
One thing to keep in mind, if purchasing shares of American Express, however, is that it is one of the early earnings reporters and will be doing so before the end of the October 2016 monthly option cycle.
For that reason, I may consider a purchase of shares and the sale of calls with a longer term expiration, such as the November 2016 option, in an effort to capture the dividend, get some additional time value in the option premium received and have some additional time for price recovery in the event shares move lower upon an earning’s disappointment.
Dow Chemical (DOW) was among those stocks that I considered purchasing last week.
Last week was one in which I was very reluctant to part with any of my cash reserves and only opened a single new position on the week.
In hindsight, I wished I had not been so reluctant.
But there is another opportunity with Dow Chemical this week, perhaps even more acute as it will be ex-dividend.
While there may still be some chance that the proposed complex merger with DuPont (DD) may not occur, i don’t see very much downside for Dow Chemical shares. In fact, in the event that regulatory decisions cause the proposed merger to be cancelled, I suspect that Dow Chemical will move higher, just as DuPont will move lower.
If the merger is finally approved, I think Dow Chemical will have upside in that event, as well. In the meantime, what it offers is that upside potential, the dividend and the option premium.
Perhaps even better, if looking for a potential serial rollover candidate, if Dow Chemical keeps trading in this tight range, there may be some good opportunity to continue to accumulate option premiums.
Ultimately, no one cares where your profit comes from and no one will belittle you if your return came from lots of premiums and dividends, instead of the old fashioned way.
Finally, there’s nothing really terribly exciting about Cypress Semiconductor (CY), except that it goes ex-dividend this week.
I have long liked this stock, mostly for its ability to trade in a fairly tight range, as long as you ignore the frequent earnings related moves and perhaps a failed takeover that had met with nearly everyone’s approval, except for the takeover candidate and the would be suitor that ultimately was victorious.
Since then, it’s controversial founder and CEO, who also presided over the great technology incubator that Cypress Technology had become, had left the company.
Unfortunately, shares are trading near a 15 month peak.
I still have 2 lots of shares that have January 2017 $12 call contracts written upon them and I do hope to still get 2 dividend payments from those shares. However, even at the current price I would consider adding an additional lot, but being prepared for the possibility of a longer term holding.
Since Cypress Semiconductor only offers monthly option premiums and it reports earnings during the first week of the November 2017 option cycle, in the event that an expiring October 2016 contract had to be rolled over, I would likely consider using a December 2016 or January 2017, in order to cushion some of the potential of an earning’s disappointment.
Traditional Stocks: American Express, General Electric
Momentum Stocks: none
Double-Dip Dividend: Cypress Semiconductor (12/27 $0.11), Dow Chemical (9/28 $0.46)
Remember, these are just guidelines for the coming week. The above selections may become actionable – most often coupling a share purchase with call option sales or the sale of covered put contracts – in adjustment to and consideration of market movements. The overriding objective is to create a healthy income stream for the week, with reduction of trading risk.