1. More On the Closed End Fund (CEF) JQC: I bought 100 JQC last week in an effort to dig myself out of a small hole by averaging down.(item # 3: Added 100 JQC) The fund closed last Friday, 7/31/09, at a 19.4% discount to Net Asset Value. WSJ.com This fund has an expense ratio of about .83% excluding the interest expense paid on the borrowed funds. JQC - Nuveen Multi-Strategy Income and Growth Fund 2 This is a leveraged fund, with leverage currently running around 25%. In a bull market, borrowing money at low rates to increase the amount of securities owned will increase returns. Leverage worked against the CEFs who used it during the recent bear market, as you would expect, since borrowing money to buy more assets that fall in price will only increase the amount of losses. This is a link to JQC's SEC filing of its Q/E 3/31/09: www.sec.gov The portfolio is basically a balanced fund, generally weighted more toward bonds than stocks. This report reveals that the fund does do some selling of call options for individual securities and some short selling. This is a link to the last filed annual report: N-CSR
2. Manufacturing Reports: Bloomberg reported this morning that the survey of U.K. manufacturing, similar to the ISM report for the U.S., had the first reading over 50, a level that shows expansion under these surveys, for the first time since March 2008. The new order component of the survey rose to 55.9, the highest reading since November 2007. The ISM manufacturing survey for July was released today and showed an increase from 44.8 in June to 48.9 in July. The new orders index surged to 55.3 from 49.2.
3. Emerging Market Index: The MSCI Emerging Markets Index climbed for the first time above the closing level of 9/12/2008, shortly before the Lehman collapse.
4. Bought 50 ISM in Regular IRA at $11.85 (see Disclaimer): ISM is another bond issued by SLM (Sallie Mae) that pays interest monthly based on a calculation tied to the CPI. It is different from my other CPI holding from Sallie, OSM, in that it matures a few months later and pays a slightly higher spread over CPI. ISM matures on January 16, 2018 at a $25 par value. The spread over CPI is 2.05%.
This is a link to the prospectus: www.sec.gov As with OSM I would expect the penny rate to remain low at a minimum for several months, even if the CPI starts to increase, due to the lag built into the equation used to calculate the penny rate.
The main issue with both OSM and ISM is whether Sallie Mae will survive to pay par value. For today's purchase of ISM, and with my last purchase of OSM at about the same price level, the return will be over 100% provided SLM pays par value at maturity. The monthly interest is almost gravy if SLM survives.
I did a calculation with my prior purchase of OSM that used an average CPI rate for the next nine years of 2 1/2% which seems reasonable to me.Late Afternoon Buys and Sells 6 9 2009 Inflation Forecasts: Can We Really Predict the Future?The actual rate of course could be higher or lower. So, I would add 2.05% to 2.5% to arrive at an average of 4.55% over the next nine years or so. Multiply that percentage by the $25 par value and you arrive at an annual penny rate per share of $1.1375. At a total cost of $11.9, the yield would become 9.558%, less than that now due to recent low CPI readings.
I am busy doing work unrelated to the market today and tomorrow.
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