1. Bought 50 PFK in Roth IRA at $17.83 (see Disclaimer): PFK is the senior bond from Prudential (PRU) that pays interest monthly based on a 2.4% spread to a CPI calculation. The bond matures in April 2018 at $25. Pricing Supplement No. 122 dated March 31, 2006 The profit on the shares in less than nine years would be around 28%, guaranteed as long as Prudential survives to pay the bond's principal at maturity which seems reasonable to forecast. The penny rate is low now, due to several months of negative inflation. The market is currently pricing this security in my opinion as if negative or low inflation will be the norm over the next nine years. An average annual CPI rate for the next nine years of just 2.5% would produce an average yield on this security at an $18 total cost of around 6.8%. That assumption would bring the yield to maturity, which includes the profit on the shares to close to 10% per year. If inflation averaged just 1%, then the current yield would drop to 4.7%, which is okay with the profit on the shares. And, while no one really knows what the future will bring, other than a lot of surprises, I would anticipate that a 2.5% average CPI rate over the next 9 years will end up being closer to the reality than a 1% forecast. A 3% rate might be closer, even after starting the 10 year period at a negative rate. This brings my total in all accounts to 240 shares. I will take it as high as 400 shares.
2. Bought 50 of the Currency ETF for the Brazilian Real (BZF) at $24.54 (see disclaimer): Personally, I do not think anyone can predict currency movements with anything approaching regular accuracy. I will buy currency ETFs as part of my asset allocation, and have traded them fairly aggressively and profitably so far. In prior years, I owned and sold most of my shares in the currency ETF for the Australian dollar which was by far my most successful currency play, and I still own 30 shares of FXA which is close to my profit realized on the my currency trades from 2008. I also have bought and sold the currency ETF for the Swiss Franc (FXF), the Canadian dollar (FXC), the Indian Rupee (ICN) and the Brazilian Real (BZF). I also attempt to manage my investment in BWX based on the moves of the Dollar Index: Pared BWX Recently, I tiptoed into a 50 share position of the ETF that contains a basket of emerging market currencies, which includes the Brazilian Real, and I intend at some point to buy another 50 shares. Bought 50 Currency ETF for Emerging Markets-CEW Emerging Market Currencies and Bonds as Non-Correlated Asset Classes If the Chinese Yuan was allowed to freely float, I would probably be buying the currency ETF for the Yuan, CYB, which is a component of CEW. Of the remaining currencies in CEW, I am the most comfortable with the Brazilian currency, and the growth prospects of the Brazilian economy. So, what I did today was to increase the weighting of the Brazilian currency in my emerging market currency allocation by buying 50 shares of BZF. Wisdomtree is the sponsor of this ETF and this is a link to their web page on it: WisdomTree - WisdomTree Dreyfus Brazilian Real Fund (BZF) This is a link to the Wisdomtree page that shows global money rates. WisdomTree - Currency Income ETFs Brazil has close to the top rate among the countries shown in that chart.
This is a link to a recent seeking alpha article on BZF with just basic information that could be gathered by anyone reading the material at the Wisdomtree site. This Seeking Alpha article has some charts and graphs about the Brazilian economy.
These currency ETFs are volatile, and are inappropriate investments for most individual investors. I use them as an integral part of my personalized asset allocation plan, in conjunction with international bonds.
This currency ETF has already had a good run this year, starting 2009 at around $18.6.
Hello Tennindependant,
ReplyDeletePFK seems a good deal but where do you go to buy it? I use on-line broker, Ameritrade.
I remember once you mentioned about some site to do research on Corp. Bond. Will you please post the address once again? Thanks so much.
I am curious whether those characters are Chinese.
ReplyDeletePFK is an exchange traded bond, which simply means that it trades on the stock exchange and can be bought just like a stock. It is lightly traded, and I will use limit orders most of time.
I have a main table of contents in my blog that will be found near the top of my blog. Within that Gateway Post, there is a link to the quantum online web site, which is an excellent free site to start researching all of the available exchange traded bonds. The quantum site requires you to register and I keep their cookie to avoid having to log into the account.
I also have a Gateway post that discusses exchange traded bonds. and a link to that post is contained in the table of contents post:
THIS IS A LINK TO THE GATEWAY POST:
http://tennesseeindependent.blogspot.com/2009/05/gateway-posts-links-in-one-post.html
THIS IS A LINK TO THE EXCHANGE TRADED BOND GATEWAY POST:http://tennesseeindependent.blogspot.com/2009/05/exchange-traded-bonds.html
Until CPI starts to trend up on a regular basis, I would expect some weakness to continue in all of the corporate bond floaters that tie their interest payments to CPI including PFK. I intend to hold PFK until maturity unless I become concerned at some later time about Prudential's credit rating.
I also have a post comparing PFK with other Prudential floaters tied to CPI and Prudential fixed rate coupon bonds: http://tennesseeindependent.blogspot.com/2009/07/comparing-prudential-floating-rate.html Of those that I discuss in that last post, only PFK is traded on the stock exchange, the rest are traded in the bond market and consequently trade in $1,000 increments (where 1 bond = $1,000). PFK is accessible to individual investors because the par value is $25 rather than a $1,000 and PFK trades on the stock exchange.
Tennindependent, thanks for your quick response. I checked out Quantum site. I see there's a lot of information that I like to see.
ReplyDeleteBy the way, that's Japanese.
Thanks again.
Tennindependent,
ReplyDeleteA Japanese letter uses 16 bits, while alphabet uses 8 bit. When you see Japanese letters (probably Chinese too) with an English-preset browser, it breaks down a 16-bit letter to two 8-bit parts, which you end up viewing. My computer is set in both languages and I can view both Japanese and English letters as they should look.
Hope it helps.
Are you from Japan or an American of Japanese descent?
ReplyDeleteI recall responding to an earlier inquiry that you made. You said that you were new to investing. I started when I was 16 and I will soon by 58. Hopefully, I am in still learning. It is good that you are approaching investments like PFK by wanting to know more about it, checking the prospectus, and I would suggest learning more about the company. I approach bond investing by first doing the same research about the company as I would do as a stock investor, reading earnings releases, looking at the balance sheet, reading some of the pertinent sections in the annual report and the most recent quarterly report filed with the SEC, and whatever analyst reports are available to me. For a security like PFK, you would want to become familiar with historical rates of inflation in the U.S. and what the market is now saying about the rate of inflation over the next ten years. One security that will give you an indication of the market's prediction of the future inflation rate is the breakeven for the treasury inflation protected bond.
There are no short cuts to prudent investing other than hard work, careful analysis, and dispassionate decision making.
If you are not familiar with the TIP, this post may help you get started. http://tennesseeindependent.blogspot.com/2009/06/advantages-and-disadvantages-of.html
This is a link to historical rates of inflation in the U.S. from the Fed Reserve: http://www.minneapolisfed.org/community_education/teacher/calc/hist1913.cfm
You would also want to consider alternative corporate bonds that are also tied to CPI. I discuss two others, OSM and ISM, far riskier than the Prudential CPI floater, but selling at a much wider discount to par value too.
You can find my discussions about anything by using the google search box underneath the Feedjit widget on the right side of the blog which is a very handy tool for searching my blog. If you have any questions, please feel free to send me an email. The address can be found by hitting the profile link.