Added 6/30/2009: After recovering from buyer's remorse for not buying the Prudential CPI floater at $12.5, or at $16 in December, I finally added some shares at over $18 in June 2009:
My excuses are discussed in this post: Item #2: BOUGHT 100 IGE/Forbes Makes Case for Bonds Over Stocks/PFK Retrospective/S & P Economist: No Inflation Threat for Five Years at Least
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The medium term CPI linked note issued by Prudential, discussed briefly in my last post, has moved decisively out of my buy range, rising $.80 today to 16. PFK: Summary for PRUDENTIAL FNL INFLT - Yahoo! Finance I am no hurry to buy a security like that one, and I am willing to be patient for a better price, similar to the $12.5 that I passed up in a bout of indecision the other day. Otherwise, I will just pass on it and buy something else, for there are always alternatives. In case anyone was wondering about the terms of PFK, this is a link to the prospectus. Pricing Supplement No. 122 dated March 31, 2006
This medium term note matures on 4/10/2018 and it has a $25 par value. So, as with OSM discussed earlier. Investment Grade Corporate Bond Spreads/ CPI FLOATER: OSM, a considerable amount of its appeal would be capturing the spread between cost and par value at maturity. That appeal has been reduced compared to OSM with the recent price rise of PFK from 12 to 16. Interest is paid monthly based on a spread of 2.4% over an inflation index. So, for now, I want a lower price and a few days or months closer to maturity which will only make it more attractive. Since both PFK and OSM have maturity dates, that gives them an important advantage over perpetual preferred stock floaters like METPRA, AEB, HBAPRF, GSPRA, UBSPRD and a few others that I may have discussed. Unfortunately, unlike those perpetual preferred stock floaters, OSM and PFK do not have a minimum guaranteed rate, and it is conceivable that their respective interest rates based on CPI could go to zero in a prolonged and significant deflationary period. I own METPRA, AEB, OSM and GSPRA with the later one being a mistake at my purchase cost.
This medium term note matures on 4/10/2018 and it has a $25 par value. So, as with OSM discussed earlier. Investment Grade Corporate Bond Spreads/ CPI FLOATER: OSM, a considerable amount of its appeal would be capturing the spread between cost and par value at maturity. That appeal has been reduced compared to OSM with the recent price rise of PFK from 12 to 16. Interest is paid monthly based on a spread of 2.4% over an inflation index. So, for now, I want a lower price and a few days or months closer to maturity which will only make it more attractive. Since both PFK and OSM have maturity dates, that gives them an important advantage over perpetual preferred stock floaters like METPRA, AEB, HBAPRF, GSPRA, UBSPRD and a few others that I may have discussed. Unfortunately, unlike those perpetual preferred stock floaters, OSM and PFK do not have a minimum guaranteed rate, and it is conceivable that their respective interest rates based on CPI could go to zero in a prolonged and significant deflationary period. I own METPRA, AEB, OSM and GSPRA with the later one being a mistake at my purchase cost.
I used the rally today to sell 100 shares of an ETF that I just bought, PHO, PHO: Summary for PS WATER RESOURCE - Yahoo! Financewhich had a good rally today. I am focusing on some bond buys for later this week including one or more floaters that have maturities within ten years and a guaranteed rate, selling at more than 30% discounts to par, but the float provision will probably not come into play since it is tied to a small spread over either treasury bills or to a percentage of the ten year treasury. I am also assembling a collection of short bonds, maturing in less than five years, that pay over 10% from companies that I have some confidence even though the debt rating may be BBB. An example would be a Time Warner senior note maturing in less than 4 years.
It is still very difficult for me to see light at the end of the tunnel. If the current rally is a start of a bull market, I will be surprised by it. The parade of just awful news is unrelenting, and I can not forecast a stop to it anytime soon. While a market bottom will be placed at some point when the news continues to be disheartening, I am not sure even the most ebullient of investors will be able to withstand the onslaught of negative earnings news coming over the six months, virtually in the bag. This question, whether the worst is over and a new bull has started to stir, can not be answered with any degree of confidence now. I can only say that I will have some confidence of the start of a new bull market after the VIX returns to below 20 and stays there for 3 months. We are not even close to the first day of that 3 months with the VIX closing today at 58.49 and the RVX at 68.31. ^VIX: Summary for CBOE VOLATILITY INDEX - Yahoo! Finance^RVX: Summary for CBOE RUSSELL 2000 VOLATILITY IN - Yahoo! Finance The levels for all of the volatility indexes are still firmly in bear territory and are inconsistent with an investable bull market in my view.
The earnings warning from Texas Instruments after the close is even more confirmation of an acceleration of the downturn. Three other chip firms also warned after the bell-Broadcom, National Semiconductor & Altera . Reuters MarketWatch TXN told investors late today that things will get worse and they were already awful. Revenues for the 4th quarter were reduced from a range of 2.83 to 3.07 billion to 2.3 to 2.5 billion. Earnings guidance was substantially trimmed. I do not own any of these companies but I am going to start monitoring Texas Instruments for a possible purchase sometime next year, and will give it serious consideration whenever it falls below 10 for an immediate nibble. Another possibility sometime around mid year or the 3rd quarter of 2009 would be for me to re-purchase SMH http://www.holdrs.com/holdrs/main/index.asp?Action=HOLDROutstanding&SubAction=SMH&HoldrName=Semiconductor%A0HOLDRS, a security sold more than a year ago at well over 30 subject to check, which has several semiconductor stocks in it and now selling for 16.71. I would be looking for a price closer to 10. These chip stocks are now in a seemingly bottomless bear market pit. The worm will turn but I am not ready to play it yet.
In addition to the four chip makers who warned, FedEx substantially reduced its earnings forecast for its fiscal year ending in May 2009. Yahoo! Finance The stock fell over 11% in after hours trading.
I can not help but noticing the tremendous rally in S L Green Realty (SLG) over the past few days.LATE DAY TRADES: GCI, CBL, FR, SLG, NYT, NWSA I did a scatter buy with cash flow on 11/18 as described in this last linked post, one being S L Green which continued to fall after my nibble to an intra-day low of 7.75 on 11/21 and closed today at 27.89 up 27.35% for the day. SLG: Summary for SL GREEN REALTY CP - Yahoo! Finance Now, that is volatility. Wow!!
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