One lesson to learn from the nuclear crisis in Japan, without any doubt, is that the back up generators can not be at sea level when there is a mere possibility of a tsunami. The underlying cause for the ongoing problems at the Fukushima Daiichi nuclear station appears to the placement of those generators which allowed them to be swamped by the tsunami and rendered inoperable. CNN.com If those backup generators had not been so exposed, they would now be working to pump water into the chamber containing the radioactive rods.
The market took a turn for the worse yesterday after the European Energy Commissioner, Guenther Oettinger, said the Fukushima nuclear station is "out of control" and that Japan faced a potential "apocalypse". MarketWatch This gentleman is a tax lawyer and a politician.
Marc Faber is still bullish on Japan, and he believes this is the beginning of a once in lifetime opportunity to invest in Japan. YF If you can not stand 30% market corrections, you should not get out of bed in the morning according to Faber. The OG would like to hide under the covers, but Headknocker keeps saying there is no crying in investing.
Needless to say, I have restarted my count on the formation of a Stable Vix Pattern. While the VIX did move for several weeks below 20, starting on 12/2/2010, there was a substantial burst from a 16.43 close on 2/18/2011 to 22.13 on 2/23/11. ^VIX Historical Prices This occurred within the 3 month period. That kind of burst is not consistent with the formation of a Stable Vix pattern and consequently caused me to sell several stock ETFs in the ensuing days. Vix Asset Allocation Model Explained Simply VIX Chart from 2007: Alerts and Triggers Major Disruption of Cyclical Stable Bull VIX Pattern I wanted to see more data before actually re-starting my count. The 5.08 pop to 29.4 yesterday, plus close to a 30% spike in the VIX since 3/11, have confirmed my initial belief that the market was still in an Unstable VIX Pattern.
A few weeks ago, I discussed one approach to take with the VIX hovering in the 16 to 18 range after being in an Unstable VIX Pattern since August 2007. If the Unstable Pattern was to continue, which was certainly a possibility, the fall in the VIX to such a low level would not last for very long and would provide investors an opportunity to lighten up on stock positions and to establish hedges. (see 1/25/2011 Post, comments under Zulauf, Item # 1 Comments on Barrons Roundtable Part II ) I did do that to a minor decree, selling three Vanguard stock ETFs and buying 3 different double short stock ETFs.
I have also been taking steps to increase my cash flow by tilting more to bonds. And, I have increased my cash levels.
Over the past few days, several bonds and bond funds have gone up or have held their values. The balance given my portfolio by those type of securities has been welcomed in the recent selloff. I mentioned in yesterday's approach that I would not be following the approach of Ray Dalio, mentioned in his interview in this week's Barrons.com who had already sold out of bonds. (See Paragraph 4 of the Introduction to yesterday's post)
All of my Canadian bond ETFs have been rising some in value during the stock market's decline. {400 shares of Claymore 1-5 Yr Laddered Government Bond ETF, CLF; 300 shares of Claymore 1-5 Yr Laddered Corporate Bond ETF, CBO; 100 shares of BMO Mid Corporate Bond Index ETF, ZCM; 100 shares of iShares DEX Real Return Bond Index Fund, XRB) {BOUGHT 200 CLF:TO AT 20.20 CAD Added 100 CLF:TO-Sold 100 CPD:TO Sold HSE:TO at 30.48 CAD/Bought 100 of ETF CLF:TO at 20.10 CAD Added 200 CBO:CA @ 20.58 CAD Bought 100 CBO:TO at 20.4 Bought: 100 KMP:CA @ 10.17 CAD & 100 ZCM:CA @ 15.3 CAD Bought 100 XRB:TO @ 22.09 CAD-all pay monthly dividends}
The two term bond CEFs that I own, GDO and IGI, were ex dividend yesterday for their monthly distributions.
The market took a turn for the worse yesterday after the European Energy Commissioner, Guenther Oettinger, said the Fukushima nuclear station is "out of control" and that Japan faced a potential "apocalypse". MarketWatch This gentleman is a tax lawyer and a politician.
Marc Faber is still bullish on Japan, and he believes this is the beginning of a once in lifetime opportunity to invest in Japan. YF If you can not stand 30% market corrections, you should not get out of bed in the morning according to Faber. The OG would like to hide under the covers, but Headknocker keeps saying there is no crying in investing.
Needless to say, I have restarted my count on the formation of a Stable Vix Pattern. While the VIX did move for several weeks below 20, starting on 12/2/2010, there was a substantial burst from a 16.43 close on 2/18/2011 to 22.13 on 2/23/11. ^VIX Historical Prices This occurred within the 3 month period. That kind of burst is not consistent with the formation of a Stable Vix pattern and consequently caused me to sell several stock ETFs in the ensuing days. Vix Asset Allocation Model Explained Simply VIX Chart from 2007: Alerts and Triggers Major Disruption of Cyclical Stable Bull VIX Pattern I wanted to see more data before actually re-starting my count. The 5.08 pop to 29.4 yesterday, plus close to a 30% spike in the VIX since 3/11, have confirmed my initial belief that the market was still in an Unstable VIX Pattern.
A few weeks ago, I discussed one approach to take with the VIX hovering in the 16 to 18 range after being in an Unstable VIX Pattern since August 2007. If the Unstable Pattern was to continue, which was certainly a possibility, the fall in the VIX to such a low level would not last for very long and would provide investors an opportunity to lighten up on stock positions and to establish hedges. (see 1/25/2011 Post, comments under Zulauf, Item # 1 Comments on Barrons Roundtable Part II ) I did do that to a minor decree, selling three Vanguard stock ETFs and buying 3 different double short stock ETFs.
I have also been taking steps to increase my cash flow by tilting more to bonds. And, I have increased my cash levels.
Over the past few days, several bonds and bond funds have gone up or have held their values. The balance given my portfolio by those type of securities has been welcomed in the recent selloff. I mentioned in yesterday's approach that I would not be following the approach of Ray Dalio, mentioned in his interview in this week's Barrons.com who had already sold out of bonds. (See Paragraph 4 of the Introduction to yesterday's post)
All of my Canadian bond ETFs have been rising some in value during the stock market's decline. {400 shares of Claymore 1-5 Yr Laddered Government Bond ETF, CLF; 300 shares of Claymore 1-5 Yr Laddered Corporate Bond ETF, CBO; 100 shares of BMO Mid Corporate Bond Index ETF, ZCM; 100 shares of iShares DEX Real Return Bond Index Fund, XRB) {BOUGHT 200 CLF:TO AT 20.20 CAD Added 100 CLF:TO-Sold 100 CPD:TO Sold HSE:TO at 30.48 CAD/Bought 100 of ETF CLF:TO at 20.10 CAD Added 200 CBO:CA @ 20.58 CAD Bought 100 CBO:TO at 20.4 Bought: 100 KMP:CA @ 10.17 CAD & 100 ZCM:CA @ 15.3 CAD Bought 100 XRB:TO @ 22.09 CAD-all pay monthly dividends}
The two term bond CEFs that I own, GDO and IGI, were ex dividend yesterday for their monthly distributions.
1. Sold 50 OSM at $21.06 On Monday (see Disclaimer): I sold my highest cost shares bought in a satellite taxable account at $18.47 last December. Added to OSM at 18.47 This is just profit taking. I am keeping the 100 shares held in the main taxable account with a much lower cost basis.
I have traded this security on several occasions, and have sold out of lower cost positions using FIFO accounting. It is my intention to hold 100 shares until this senior bond matures in 2017. When I started to discuss OSM in this blog, it was trading near $10. CPI and CPI Floaters-OSM (December 2008)
Interest rate risk for this security is minimal for two simple reasons. First, OSM is a senior bond that matures in 2017, so any buyer can just wait a few years to receive the $25 par value, assuming SLM is still solvent of course. Second, and of lesser importance than the term, the security pays monthly distributions at a spread over CPI. So, a troublesome increase in inflation, which could cause a decline in fixed coupon bond prices, will increase the interest payable by this security, thereby making its less subject to interest rate risk than a fixed coupon bond when interest rates are rising due to an increase in inflation.
Interest rate risk for this security is minimal for two simple reasons. First, OSM is a senior bond that matures in 2017, so any buyer can just wait a few years to receive the $25 par value, assuming SLM is still solvent of course. Second, and of lesser importance than the term, the security pays monthly distributions at a spread over CPI. So, a troublesome increase in inflation, which could cause a decline in fixed coupon bond prices, will increase the interest payable by this security, thereby making its less subject to interest rate risk than a fixed coupon bond when interest rates are rising due to an increase in inflation.
If I invested in any bond with a short maturity, and had a need for the money tied up in that bond purchase before the maturity date, then I would have some interest rate risk. This is just not an issue for me.
Since my first purchase of OSM in 2008, my concern then, as now, is solely credit risk of the issuer. I am less concerned about credit risk now due to my low exposure, trading profits and the monthly interest payments already received over the past two or so years.
I am far more comfortable just holding PFK, an exchange traded CPI floater issued by Prudential maturing in 2018. Bought 100 PFK at 18.47 (June 2009) Bought 90 PFK in IRA $18.94 (June 2009) Added 50 PFK at $17.83 (August 2009) Added 50 PFK in Roth at 20.88-Averaged UP (Jan 2010-Last Purchase).
In retrospect, it was just unbelievable that PFK could have been bought for less than $12 as late as February 2009. PFK | Prudential Financial Inflation It is now selling for over over $26, even though par value is $25. I have zero interest in PFK at anywhere near its current price. About 1/2 of my position is tucked away in my IRA where I am content to just leave it alone. PFK closed at $26.4 yesterday.
OSM closed yesterday at $21.05. Given the low rate of reported inflation, this security is currently a low yielder. If anyone is interested in how the monthly interest rate is calculated, I explain it in detail in Item # 9: Bought 50 OSM at 15.74 (Post May 25, 2010). My average cost for the remaining shares is around $15.75, maybe a little lower. I did not check but I do recall that the oldest 50 shares have turned into an unrealized long term capital gain of close to $300 and the newest shares were the 50 bought at $15.74 last May.
2. Sold 50 GSPRA at 22.44 on Monday (see Disclaimer): In yesterday's post, I asked some rhetorical questions about four floaters, GSPRA, GSPRD, PYT and GYB. All of those securities are exposed to the credit risk of Goldman Sachs. I have a fair amount of credit exposure to GS when I combine the amounts invested in those securities with the investments in TCs containing the 2033 GS senior bond. I decided to trim my exposure some on Monday.
Based on my analysis, the equity preferred floaters were less desirable than the two synthetic floaters based on prices prevailing at the time I placed my order on Monday. A primary consideration was their higher prices, and consequent lower discounts to the $25 par value shared by all four securities. With GYB and PYT, both owned in retirement accounts, I have the option of holding to maturity in 2034 and receiving the spread between my cost basis and the $25 par value. The three GS equity preferred floaters have no maturity dates.
Another consideration is that both GYB and PYT have better float provisions and those floats will kick in sooner given their lower minimum rates compared to all of the GS equity preferred stocks. And, the higher float provisions for GYB and PYT are even more valuable since I am able to purchase them at a lower cost per share than the equity preferred floaters.
Lastly, while it may never come into play, the interest payments on GYB and PYT can only be deferred short of bankruptcy, rather than eliminated. Provided no dividend payment is made to the owners of GS common stock, the dividends on the GS equity preferred floaters can be eliminated which means exactly what you think it means-as in gone, not there, forget about it.
Based on my analysis, the equity preferred floaters were less desirable than the two synthetic floaters based on prices prevailing at the time I placed my order on Monday. A primary consideration was their higher prices, and consequent lower discounts to the $25 par value shared by all four securities. With GYB and PYT, both owned in retirement accounts, I have the option of holding to maturity in 2034 and receiving the spread between my cost basis and the $25 par value. The three GS equity preferred floaters have no maturity dates.
Another consideration is that both GYB and PYT have better float provisions and those floats will kick in sooner given their lower minimum rates compared to all of the GS equity preferred stocks. And, the higher float provisions for GYB and PYT are even more valuable since I am able to purchase them at a lower cost per share than the equity preferred floaters.
Lastly, while it may never come into play, the interest payments on GYB and PYT can only be deferred short of bankruptcy, rather than eliminated. Provided no dividend payment is made to the owners of GS common stock, the dividends on the GS equity preferred floaters can be eliminated which means exactly what you think it means-as in gone, not there, forget about it.
I bought the 50 shares of GSPRA at $21 last December. So the profit on the shares was minimal plus one quarterly dividend payment.
I have traded all of these securities, with far more success to date with the Synthetic Floaters. While I have never owned many shares, I have booked good percentage gains in many of my trades. Those gains are set out in Item # 3, Bought 50 GYB @19.07, current as of October 2010. The total realized gain from trading GYB, GJS and PYT was then $2,411.49 after commissions, plus interest payments.
3. Added 50 of the stock CEF JSN at $12.21 and Bought 50 ARCC at 16.51 in Roth IRA Last Tuesday (see Disclaimer): The purchase of the high yielding stock CEF JSN was an average up from my existing cost basis for shares held in the ROTH IRA:
The lowest cost shares have an average cost of $9.04. When I transferred this account to Vanguard, I had some fractional shares which had to be liquidated since fractional shares in a stock exchange traded security can not be transferred between brokerages or sold on the exchange. I did reinvest the dividends for a short period, which accounts for the odd number of shares, but I have been taking the dividend in cash for over a year now.
The current quarterly dividend of 31.5 cents per share just went ex dividend. JSN - Nuveen Equity Premium Opportunity Fund Distributions and Yield Assuming a continuation of that rate, which is of course in no way assured, the yield would be over 10% at a total cost of $12.21. As previously noted, the fund sells call options which hopefully will moderate volatility, assuming it is done competently. At the close on Monday 3/14, the fund had a net asset value of $13.37 and a closing price of $12.42, creating a -7.1% discount to net asset value as of that day. JSN Overview When I made the purchase on Tuesday, that was the latest NAV information available to me.
This fund is currently rated 4 stars by Morningstar. One knock on the fund is that the dividend has been supported by a return of capital, as shown in the foregoing linked page at Morningstar. This is a negative without question in my view. But, if the market continues to recover, I am not concerned about that issue going forward so much.
The last SEC filed shareholder report for the period ending in December 2010 can be assessed at www.sec.gov. Several Nuveen stock CEFs are included in this report. The JSN section starts at page 23. As of that date, the unrealized appreciation in the stock portfolio was close to 200 million (see page 30 which also contains a listing of the call options written as of 12/31/2010)
JSN closed at $12.16 yesterday. Hopefully, the call options sold by the fund on major indexes will cushion the decline some. JSN closed with a net asset value of $13.27 per share on Tuesday.
JSN closed at $12.16 yesterday. Hopefully, the call options sold by the fund on major indexes will cushion the decline some. JSN closed with a net asset value of $13.27 per share on Tuesday.
I also bought 50 shares of the high yielding Business Development Corporation (BDC) Ares Capital Corp (ARCC) in the Roth at $16.51. The shares closed at $16.39 on Tuesday, down 43 cents for that trading day. The yield at a total cost of $16.51 is around 8.48%, assuming a continuation of the current 35 cent per share quarterly dividend. This stock just went ex dividend on 3/11. At the time of the ex dividend, I owned 100 shares of ARCC in taxable accounts. Bought: 50 LXPPRD at 23.28, 50 of the BDC ARCC at 16.17 Bought: 50 ARCC at 16.89
Assuming the stock recovers to $17.75 to $18, I will sell the 50 highest cost shares in a taxable account. I have sold the 100 shares of ARES' senior exchange traded bond. Sold: 100 ARY @ 24.6 I have nothing to add to my discussions of ARCC made in Item # 3 of this 1/21/2011 and Item # 2 of a 3/2/2011 Post discussing the latest earnings report.
Some of the decline in ARCC shares may be due to the lower than expected results released by BlackRock Kelso (BKCC) last week, a matter discussed in this article from Seeking Alpha.
Ares Capital Corp (ARCC) closed at $16.05 yesterday.
Headknocker, our Great Leader and Ruler here at HQ, has ordered the cessation of all stock or stock fund buying until there is more clarity about the nuclear situation in Japan. The market is not likely to react well to a major nuclear disaster.
Assuming the stock recovers to $17.75 to $18, I will sell the 50 highest cost shares in a taxable account. I have sold the 100 shares of ARES' senior exchange traded bond. Sold: 100 ARY @ 24.6 I have nothing to add to my discussions of ARCC made in Item # 3 of this 1/21/2011 and Item # 2 of a 3/2/2011 Post discussing the latest earnings report.
Some of the decline in ARCC shares may be due to the lower than expected results released by BlackRock Kelso (BKCC) last week, a matter discussed in this article from Seeking Alpha.
Ares Capital Corp (ARCC) closed at $16.05 yesterday.
Headknocker, our Great Leader and Ruler here at HQ, has ordered the cessation of all stock or stock fund buying until there is more clarity about the nuclear situation in Japan. The market is not likely to react well to a major nuclear disaster.
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