This is a link to an interesting article about bond investing.MarketWatch The author points to a study by perma bear Gary Schilling which purportedly demonstrated that a purchase of a zero coupon 25 year treasury in October 1981, and then rolling it over at maturity in a similar instrument, would have beaten stocks by a factor of 11. MarketWatch
One caveat about that analyst is the very high treasury bond rates prevalent in 1981 which was captured in the best possible way and time in Schilling's analyst to play a long term secular decline in rates starting around 1981. I have said in these posts that I regret not locking in those rates for 30 years back in 1981. Static v. Dynamic Asset Allocation The author does not mention that October 1981 was the peak in yield for the 20 year treasury bond with the rate hitting 15.55% on 10/2/1981.
This would have been the best week to buy a 20 year treasury strip, which would have compounded the large gains realized thereafter compared to buying just the regular coupon bond that week. But I wonder, how many individuals bought a zero coupon treasury on 10/2/1981 and kept it for the next 20 years. And, it can not be emphasized enough that the current rate on the 20 year treasury is not 15.55% but only 3.8% at the last auction.
So, I would have to say that a long term secular decline in rates which benefited tremendously that strip bought in 1981 at the very height of interest rates will not be a tailwind for one bought when rates are at 3.8%, and the reasonable forecast would be just the opposite. For the future, a rise in rates would be the more likely scenario which would hurt not help a 20 year strip bought today. Schilling does apparently recognize this point when he is quoted as saying that a different strategy is needed now.
Many talk about the wealth created by the great secular bull market in stocks that started in August 1982. I noted in a post from March that a 20 year treasury bond had outperformed stocks from 1968 through February 2009. Duality of Long Term Risks/Stocks Under $5: Per Se Lottery Tickets/ It is hard to see that happening with a shorter duration test period starting today, say for the next ten years, given the current low 20 year treasury yield. Personally, I would take stocks over a 20 year treasury zero coupon for the next decade, maybe I would make the same choice over the next 20 years. A zero coupon bond will be more sensitive to a rise in interest rates rise after purchase than the same bond without a zero coupon. I do not have to weight treasuries in my bond portfolio now, and I do not own any treasury securities, other the TIP ETF and two treasury bills that I am in automatic rollover in a Treasury Direct account, trying to ignore what Uncle Sam is paying me. I am comfortable buying individual bonds that I have discussed in these posts, since I am willing to take on more credit risk for a decent yield. Nothing that I buy will be forgotten and I will always attempt to assess and manage risk.
I do not own any zero coupon bond funds. I am familiar with several from American Century, such as BTTRX, which have done well in the current bear market. BTTRX - Fund returns - MSN Money
Of course, zero coupon bonds are appropriate only in an individual's tax-deferred retirement account. Zero-coupon bond - Wikipedia, the free encyclopedia
Abbott Labs (ABT), a recently added position, had a good report this morning. Excluding special items, earnings from continuing operations rose to 73 cents from 63 cents. The consensus estimate was 70 cents. Sales fell .07% to 6.72 billion due primarily to the stronger dollar which was less than expectations. Also, one of its drugs, Depakote, lost patent protection and its sales fell 64.5% globally as a result. Humira sales rose 16.7% gain, and the company had forecasted a 25% gain for the year. Since institutional investors will frequently have knee-jerk reactions to news about Humira, I would expect Abbott to sell off today, notwithstanding beating estimates and re-affirming guidance of $3.65 to $3.7 for the year. I would just highlight that Humira's foreign sales increased 29% and the dollar was strong during the first quarter. But the sales momentum does appear to be slowing down for Humira which is causing the sell-off today in ABT. The vascular division saw worldwide sales increase 47.2% led by the Xience coronary stent Abbott included a chart in its earnings release showing the impact of foreign exchange on international sales. Worldwide sales would have increased 5.4% without the 6.1% negative impact of foreign exchange due to the dollar's strength during the quarter.Abbott Reports 16 Percent Earnings Growth in First Quarter; Confirms Double-Digit Earnings Growth Outlook for 2009 - Yahoo! Finance
Under my trading rules now in effect, I will be able to invest my cash flow, which has been accumulating, on May 1st by purchasing common stocks, provided the S & P 500 closes April 30th above 815. Abbott is one of the names that I will consider buying on that day.
The consumer price index fell .1% last month on a seasonally adjusted basis, due to decreases allegedly in food and also energy costs. Consumer Price Index Summary The index has declined .4% over the past 12 months, the first yearly decline since 1955.
One of the Americans who used the services of the Swiss bank UBS to evade taxes plead guilty to criminal charges yesterday. USATODAY.comThe U.S. now has the names of about 300 Americans who failed to disclose these secret accounts when answering that question on the tax return about the existence of foreign accounts. Now, it appears that other wealthy Americans are becoming concerned that UBS may be forced to reveal their criminal tax evasion and are moving accounts away from that Swiss bank to others more accommodating. UBS revealed this morning that 23 billion Swiss francs was moved shortly after UBS revealed those 300 names. As I mentioned in a recent post, those Americans ,who routinely lie about the existence of these accounts and fail to pay taxes on their secreted assets, do not want to pay any taxes. It would not matter to them if the highest marginal tax rate was 28% or 20% or even 15%.
The stock that I sold yesterday to finance the purchase of GJS was Cisco, with the order filled at $17.96 and a small profit was made on the trade. I hope to buy CSCO back at less than $15 which would be below my last purchase price.
Proctor & Gamble, one of Right Brain's 30 or so buys in early March, raised its dividend by 10%Yahoo! Finance
I would have to admit that Phoenix bond that I own, PFX, is one wild and crazy security. It just went ex interest and has risen from its death bed a few weeks ago when it was priced at $3 to over $10 now. This is a link to the one year chart. PHOENIX COS 7.45QUIB Share Price Chart | PFX - Yahoo! Finance For some reason deep in my psyche, I do not find solace in a 300% gain in a few weeks. It gives me more of a queasy feeling like riding one of those roller coasters that go way to fast up and down, and reminds me of the pearl of wisdom easy come, easy go.
Factory utilization fell to its lowest level in March since records started to be compiled in 1967. Industrial Production and Capacity Utilization
I now assume that anyone reading these posts have familiarity with the terminology that I frequently use and understand what particular terms mean, such as Trust Certificate or synthetic floater. GJS, purchased yesterday, is both a Trust Certificate and a synthetic floater. Synthetic simply means that the underlying security in the TC is not a floater but a fixed rate coupon bond. The floater is created by a swap agreement. As long as the swap agreement is in effect, the investor in GJS receives the interest provided by the float provision. If the swap agreement terminates for some reason, then the investor in GJS receives interest as provided by the fixed rate coupon of the underlying bond. That rate was 6.125%. I am okay with receiving that rate at my cost, but see no circumstances now under which I would receive that rate. If I did at some point in the future, my yield at a $10.5 cost would be 14.58%.
This is a link to an article that discusses the potential tie between increasing inflation and the government's need to borrow. CNBC.com No one knows for certain what the future will bring. But it is at least reasonable enough to assume that inflation may become a problem down the road and to start preparing for that day now.
J P Morgan cut Sysco (SYY) to neutral from overweight due to the decline in inflation and the recession's impact on restaurants, hardly new considerations.
I saw on TV yesterday the President of the NRA flatly deny that the U.S. was the major source of weapons for the Mexican drug cartels. He was contradicted in the same broadcast by a spokesman for the Bureau of Alchohol, Tobacco and Firearms. Nightly News video : Stopping the flow of guns to MexicoSee also,
Fox and the NRA say that the 90% statistic used by the government refers to those weapons seized in Mexico and traced back to the U.S. The Myth of 90 Percent: Only a Small Fraction of Guns in Mexico Come From U.S. - Presidential Politics | Political News - FOXNews.com
Since all guns are not traced, with many having their serial numbers filed off, the NRA and their publicity organ at Fox maintain that the total number supplied to the cartels from the U.S. has to be less. The NRA is very much in favor of spreading the use of AK-47s throughout the country and views this kind of statistic from the government as interfering with that goal.
Newsweek recently pointed out that cheap imitations of AK-47s produced in places like Romania are starting to flood into the U.S. as a result of the NRA's efforts. Newsweek.com
One of the 65 blue dog Democrats, Dan Boren, who support the dissemination of assault weapon maintains that any effort to regulate them is a dead issue, which is undoubtedly true, but then he further asserts that regulation of assault weapon purchases is just a ploy to take away a sportsmen's shotgun, which is just silly and asinine. But, you can not reason with anyone who is incapable of thought. The NRA is in firm control of this nation, and nothing reasonable can be done for the foreseeable future. Maybe the next generation will be rational and less susceptible to group think and parroting cliches.
I still had some cash in my regular IRA and bought 50 shares of a cumulative preferred issue from Cousins Property, CUZPRB at $12.8. I am deep into playing with the house's money on the two functionally equivalent Cousins' preferred stocks. I choose the B series today rather than the A series. The yields on the two issues are close at the current ask prices, and I only had sufficient funds in that account to buy 50 of the B series, almost down to my last dollar. If it falls in value significantly, I will include it in my next Roth conversion. Last time, I bought the A and sold it quickly after it went ex dividend for a good gain, buying at $11.5 and selling at $16.1. CAN NOT IGNORE SPIKES IN PRICE OF REIT CUMULATIVE PREFERRED ISSUES: SOLD CUZPRA
Prior to that I traded CUZPRB.COUSINS PREFERRED B (CUZPRB)
This has been going on for a long time.
The coupon is 7.5% on CUZPRB with a $25 par value. The yield at my price is around 14.65%, not as good as some of my other recent buys in this sector of REIT cumulative equity preferred issues. The most ridiculous yield was GRTPRF purchased last quarter at $2.9 which resulted in close to a 75% yield. I have discussed Cousins many times so I do not want to repeat myself now. Cousins did announce yesterday its regular preferred dividends which are payable to shareholders of record 5/1 (ex 4/29). The common dividend, which had previously been reduced, is now payable in stock and in cash with the cash portion not exceeding 33.34% of the gross dividend amount. MarketWatch So less cash is leaving the company to pay the common shareholders which is fine with me as a preferred shareholder who has to be paid in full as long as the common holder receive any cash dividends, irrespective of the amount. So I just look at this kind of announcement as a net positive for the preferred shareholder because the company is keeping more cash that it would normally pay out to common shareholders in better times.
Here are the links to both the A and B series for comparison purposes, the A series has a higher coupon at 7.75%:
Before delving back into Cousins, I do read whatever research reports that I have access, which was the Morningstar report on Cousins from 2/09. I do not have access to GS reports and that firm raised Cousins to neutral today from sell. The Goldman analyst, Jonathan Habermann, also raised S L Green (SLG) to buy and CB & L to neutral from sell. I own both the common and preferred for SLG and CB & L with CBL being a lottery ticket purchase.
The CUZ common is now selling above Morningstar's fair value with a 13% rise in price in early trading today to over $8.5, and that firm has concerns about Cousins' ability to finance its projects in development. Any purchase of a bond or bond like investment requires the same research that I conduct for a stock plus research on matters unique to the security itself. Since I am already familiar with the prospectuses for these preferred issues, I do not read those again but I do believe it is necessary to refresh my research on the company before buying a bond or bond like investment, and an equity preferred stock is bond like in my opinion, even though classified as equity by accountants and the companies themselves.
DISCLAIMER:
I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. I have never worked for a financial institution and never will. In these posts, I am acting as an unpaid financial journalist and an occasional political commentator. I am also aggregating financial news stories that I view as important and providing any reader of these posts, assuming there are more than a couple, with links to those articles, sort of a filtered, somewhat intelligent, free search engine. Any discussion made by me of particular securities is not a recommendation to buy or to sell. Trade at your own risk. Consult with your financial advisor prior to making any purchase or sale. I will try to identify my sales too but it may take a few minutes after I implement them to create a post explaining my reasons. The sale may before or after the post. Before buying or selling any stock, even one recommended by a trusted financial advisor, please research it and make up your own mind which is what I always try to do. Research would include reading reports, reviewing financial records, earnings estimates, sec filings and prior earnings releases and news. In this post, and all others by me, I am merely describing my reasons for purchasing or selling securities, and the potential pitfalls that I identified prior to purchase or the reasons for a sale. The securities mentioned in this and all posts written by me may not be suitable for others based on their unique financial position and risk profile. By way of example, it is unlikely that I will ever need the funds contained in my retirement accounts. Always read the prospectus before buying a Trust Certificate, bond, preferred stock or other bond or bond like investments. Information contained in my posts has been obtained from sources believed to be reliable but cannot be guaranteed. It is always important to follow the investment process. the investment process/links to further information on canadian energy or royalty trustsInvestment Process Part II: Bonds and Bond Like Investments NOT A RESEARCH SERVICE/Add of PWE Last Week These posts by me do not constitute investment advice, nor shall they be construed as a guarantee of future results, or as an offer of any transaction in securities. All content in these posts is provided for informational and entertainment purposes only, and it is a form of entertainment for me.
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