Sunday, September 22, 2013

"What to make of the Fed continuing to buy $85 Billion of treasury bills at every bond auction? I would say: don't go out on any limbs with your stock investments and sell one or two of your high PE stocks, just to prepare for a wicked financial hangover"

Dow Jones Industrial Average 15,451 (UP) Week ending 09-20-2013

Funny Money. "Billionaire investor Warren Buffett compared the U.S. Federal Reserve to a hedge fund, because of the central bank’s ability to profit from bond purchases while accumulating a balance sheet of more than 3 Trillion dollars." Here is a link about it. Buffett lectures at Georgetown University in Washington DC. -Bloomberg .

Chris Prybal, a Quantitative Analyst at, says, "Based upon statistics from the New York Stock Exchange (NYSE), Margin Debt is approaching all-time high levels."  Here is the link to  Prybal's report on Margin debt on the NYSE

Funny Money. What does this all mean? It means people and the government are all leveraging to purchase investments.

How does this usually and always turn out? Bad, is the one word that comes to mind.

What should you do to respond?  If you own some high PE stocks, (25+ PE), that pay little or no dividend, you should review what you have and in the next month take one or two of them to the sidelines and lock in your profit.

On the flip side, I would, for the time being, only buy things that are pretty sure and steady stocks. One of those stocks is:

Express Scripts Holding Corp. (Symbol ESRX, $62.05)

is, according to CBS Marketwatch, "a holding company that operates through its two wholly owned subsidiaries, Express Scripts, Inc. and Medco Health Solutions, Inc.  The company provides pharmacy benefit management services and clinics healthcare account administration services in North America."  

One thing you can be sure of is that people are still going to take their medicine everyday, whether or not Ben Bernanke or Janet Yellen decide to "taper"  the amount of bonds the FED is going to be buying.

ESRX is projecting 2013 earnings of $4.31 per share, (PE of 14.59), and 2014 earnings of $4.94 (PE of 12.71) on the current price. Express Scripts has a PEG Ratio of 1.01 and a Return on Equity of 10.37.

Revenues for the company in 2012 was $93.86 Billion. The company has 5 year EPS growth of 24.95%.

Express Scripts has very strong Institutional support with companies like Vanguard, State Street, BlackRock, Janus and Fidelity being very large holders of the stock.

So the Freewilly final word is to be careful here in the next 3 months and just own mostly stocks that could weather a financial storm. Also, lower the average PE of your stock portfolio overall as a safety hedge.


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