Moody's stated that it would review the credit ratings of the European nations. Moody's added that the recent summit failed to produce "decisive policy measures" and the risks to cohesion continue to rise.
Fitch also made some less than positive comments about the results from the recent European summit. Fitch's comments are reproduced in this WSJ.
I suspect that S & P will carry through with downgrades of European sovereign debt after placing most euro zone countries on credit watch with negative implications last week.
Italy sold one year paper yesterday to yield 5.952%, close to the record Euro era yield of 6.087% set last month.
As I previously mentioned I am checking the prices of European 10 year sovereign debt everyday now.
It is also important to monitor the Euro/USD. The Euro slumped to a two month low against the U.S. Dollar yesterday. Bloomberg One easy way is to check the price of CurrencyShares Euro Trust (FXE). (see also EURUSD) The break yesterday below 132 concerns me. The Euro is also heavily weighted in the Dollar Index which has been rising. U.S. Dollar Index (DXY) Index Charts A rise in that index indicates USD strength against a basket of currencies. The DXY is currently trading well above its 200 day moving average.
Intel (owned) reduced its estimate for 4th quarter revenue by $1 billion due to hard disk supply shortages. SEC Filed Press Release The shortages are due to the flooding of manufacturing facilities in Thailand.
The noble laureate in economics, the liberal Joseph Stiglitz, wrote an interesting article published in this months The Vanity Fair. Stiglitz believes that the government needs to ramp up its spending of borrowed money in order to jump start the economy. His recommendations for new spending programs are more than a bit mushy (page 37).
Fitch also made some less than positive comments about the results from the recent European summit. Fitch's comments are reproduced in this WSJ.
I suspect that S & P will carry through with downgrades of European sovereign debt after placing most euro zone countries on credit watch with negative implications last week.
Italy sold one year paper yesterday to yield 5.952%, close to the record Euro era yield of 6.087% set last month.
As I previously mentioned I am checking the prices of European 10 year sovereign debt everyday now.
It is also important to monitor the Euro/USD. The Euro slumped to a two month low against the U.S. Dollar yesterday. Bloomberg One easy way is to check the price of CurrencyShares Euro Trust (FXE). (see also EURUSD) The break yesterday below 132 concerns me. The Euro is also heavily weighted in the Dollar Index which has been rising. U.S. Dollar Index (DXY) Index Charts A rise in that index indicates USD strength against a basket of currencies. The DXY is currently trading well above its 200 day moving average.
Intel (owned) reduced its estimate for 4th quarter revenue by $1 billion due to hard disk supply shortages. SEC Filed Press Release The shortages are due to the flooding of manufacturing facilities in Thailand.
The noble laureate in economics, the liberal Joseph Stiglitz, wrote an interesting article published in this months The Vanity Fair. Stiglitz believes that the government needs to ramp up its spending of borrowed money in order to jump start the economy. His recommendations for new spending programs are more than a bit mushy (page 37).
Government spending is a fairly typical Keynesian prescription to replace private demand when it plunges, an approach advocated by Paul Krugman and other liberal economists. Both gentleman believe that the government has not spent enough borrowed money so far in order to stimulate the economy. In other words, the budget deficit needs to grow much larger in their view, which is okay for them since the government can now borrow money at low rates. I did not find that part of the article to be interesting, since it was more of the same from Stiglitz, and is not likely to garner more than a few votes in the current Congress. The President and the Democrats already blew the nation's wad on an ill-designed, short term stimulus program. (see introduction to Stocks, Bonds & Politics Post 4/27/11)
For these liberal economists, the reason that country sank back into the Depression in 1937 was the withdrawal of fiscal stimulus, generally viewed by them as inadequate from the start of FDR's Presidency in 1933 but sufficient to keep the world from sliding even deeper into an economic abyss.
Instead, the interesting part of the article was his non-traditional explanation for the severity and length of the Great Depression. The Depression was not due to the bursting of a stock market bubble and the subsequent tightening of credit by the Federal Reserve in this hypothesis, but to the productivity gains in agriculture. Those gains created an abundance of food and drove down agricultural prices. The nation was then dependent on the financial well-being of farmers since the transition to an industrial/service economy was still in the works. When farmers went under or cut back their purchases of goods due to lower incomes, the ripple effect was felt throughout the economy. No other source of income or employment was capable of picking up the slack, and it would take many more years to successfully transition workers to an industrial based economy.
His analysis breaks down when it attempts to superimpose that observation, which makes some sense historically, at least as one reason for the severity and length of the Great Depression, onto today's economy. He basically maintains that the economy is going through a similar transition now, except that the current transition is from a manufacturing economy into one more dominated by services. In his view, the government needs to spend a lot more money to assist in this transition, primarily on education and training more finely attuned to the new economy.
The current problems are not caused by the transition from a manufacturing dominant economy to a service one, as Sitglitz tries to maintain. That transition was largely completed a long time ago. The U.S. industrial sector also may be coming back now as wages and costs increase in emerging market nations. The current problems are just far more complex than that simple theory. The current predicament has resulted from borrowing too much money by individuals and governments, throughout most of the developed world, in order to live in a style beyond their means. Living on borrowed time and money. The U.S. will see the repercussions of irresponsibility soon enough.
Another article in this month's Vanity Fair explores the crony capitalism practice by Rick Perry that I have previously mentioned. I would simply call it "corruption". (see previous Post on Perry's Texas Style Crony Capitalism) While politicians of both parties will exchange favors for campaign cash, Perry takes this form of corruption to a new level, unseen in American politics since the days of Mayor Richard J. Daley of Chicago or possibly going back to Boss Tweed in NY.
Several owned securities are ex distribution today, including the following: GFW ($.46875 per share interest quarterly); ARCC ($.36 quarterly dividend); AINV ($.28 quarterly dividend); HBAPRF and HBAPRG (quarterly dividends/floaters with minimum coupons); WIW ($.0335/monthly dividend); STLPRA (.20938/Quarterly interest); JLA ($.284/quarterly dividend); JTD ($.26 quarterly dividend); JSN ($.279/quarterly dividend); JQC ($.2 /quarterly dividend); and CBU ($.26/quarterly dividend).
Several owned securities went ex distribution yesterday, including several CEFs that pay monthly dividends (CMK, BTZ, PSY, ERC, MMT, BHK) and CPP which went ex interest for its semi-annual payment.
The most basic part of my strategy is to generate a constant stream of cash flow from income generating securities and to reinvest that cash flow.
Several owned securities went ex distribution yesterday, including several CEFs that pay monthly dividends (CMK, BTZ, PSY, ERC, MMT, BHK) and CPP which went ex interest for its semi-annual payment.
The most basic part of my strategy is to generate a constant stream of cash flow from income generating securities and to reinvest that cash flow.
1. Sold 50 CYS at $13.33 Last Friday-Roth IRA (see Disclaimer): I have miniscule positions in Mortgage REITs, primarily in my Roth IRA account.
I noticed last Friday morning that INVESCO MORTGAGE CAPITAL (IVR) made a substantial and unexpected cut in its dividend, the second consecutive quarterly decline. I read a summary of FBR Capital's downgrade of IVR. While some of the problems seem unique to IVR, I suspected that other mortgage REITS might follow suit. I consequently sold my minor position in CYS at $13.33 Friday, having just bought the shares at $12.97. I did hold onto the shares long enough to receive one dividend.
After the bell on Friday, CYS did cut its quarterly dividend from 55 to 50 cents. SEC Form 8-K This reduced rate still results in an oversized dividend yield at the current price. I will look for an opportunity to buy the shares back at below $12.5. CYS was last trading consistently below that level last October, CYS Historical Prices.
I have discussed briefly in several recent posts some of the headwinds facing mortgage REITs. A primary concern is the narrowing spread between the cost of borrowed funds and the yields received from mortgage securities bought with those funds. Decline in Mortgage REITs Linked to Prepayment Risks (9/2/11 Post).
2. Main Account Performance Numbers: Fidelity calculates these numbers. While I have not added to this account, I have withdrawn from it and do not know how Fidelity accounts for withdrawals when calculating the return. The end period is October 31, 2011, the last performance data provided by Fidelity. I do not provide a snapshot, obviously, of the total amount and the account number, but the total portfolio is substantial with well over 200 holdings. Anyone with a Fidelity account can check their performance. The top number is my cumulative performance numbers for this account, and the bottom line is the comparable S & P number.
Given my large cash allocation in this account, I suspect that I will outperform the S & P 500 this year only with the market declining into year end, i.e., going down less than the market. I have been hurt in 2011 by my junk bond ladder strategy. Yesterday, this account went down .49% compared to the 1.49% decline in the S & P 500 and some of my decline was due to the ex distributions.
This performance illustrates the importance of losing less in a major bear market and then having the capital to invest at lower prices. The performance data for the 3 year period starts soon after Lehman's failure in September 2008.
I do not know how Fidelity calculates the return from the S & P 500 but it must include dividends. On October 31, 2006, the S & P 500 stood at 1,377.94, Historical Prices | S&P 500 The close on October 31, 2011 was at 1253.3. If you were calculating the return without dividends, then the number would not be +1.24% but a negative 9%. Since Fidelity is using a positive number for the five year S & P 500 return, that must take into account reinvested dividends over those five years (probably reinvested somehow).
3. Regular IRA Performance Numbers: The regular IRA is up over 100% over the three year period.
I transferred this account to Fidelity which explains the absence of five year data. The problem over the past year is that some of the exchange traded bonds have declined in price, as well as some stock CEFs and BDCs. I also own 1 Eastman Kodak 2013 bond, purchased this year, which subsequently lost about 1/2 of its value and I sold an Edison Mission bond at a loss out of this account too. So, it has not been a stellar year managing the Regular IRA. Fortunately, the ROTH IRA is about four times larger and is up a few percent. The main taxable account is about 6 times larger than the Roth IRA.
I do not have the ROTH IRA at Fidelity but believe that the performance number for that account would be substantially higher than the regular IRA, primarily due to the concentration of large and relatively quick gains from TCs and REIT preferred stocks (see snapshots in respective Gateway Posts), as well as some opportunistic buys in other asset classes including European hybrids issued by ING and Aegon and some stocks purchased in March 2009 (e.g. Dupont at around $16). There were a large number of doubles and even triples. I suspect the performance number from that account would be over 150% over the past three years through 10/31/11. Both retirement accounts did not suffer a meltdown since they had small allocations to stocks then and now.
Both retirement accounts have an usually high cash allocation earning nothing at the moment. The cash allocation in the retirement accounts is over 10%. Generally, I will run that number up when I believe better buying opportunities lie in the future.
The performance numbers in all accounts have been hurt by money market yields being near zero, given the very high cash allocations in taxable accounts starting in 2007.
2. Main Account Performance Numbers: Fidelity calculates these numbers. While I have not added to this account, I have withdrawn from it and do not know how Fidelity accounts for withdrawals when calculating the return. The end period is October 31, 2011, the last performance data provided by Fidelity. I do not provide a snapshot, obviously, of the total amount and the account number, but the total portfolio is substantial with well over 200 holdings. Anyone with a Fidelity account can check their performance. The top number is my cumulative performance numbers for this account, and the bottom line is the comparable S & P number.
 |
| TOP LINE Main Taxable Account Cumulative Performance numbers to 10/31/11/Bottom Line: S & P 500 |
Given my large cash allocation in this account, I suspect that I will outperform the S & P 500 this year only with the market declining into year end, i.e., going down less than the market. I have been hurt in 2011 by my junk bond ladder strategy. Yesterday, this account went down .49% compared to the 1.49% decline in the S & P 500 and some of my decline was due to the ex distributions.
This performance illustrates the importance of losing less in a major bear market and then having the capital to invest at lower prices. The performance data for the 3 year period starts soon after Lehman's failure in September 2008.
I do not know how Fidelity calculates the return from the S & P 500 but it must include dividends. On October 31, 2006, the S & P 500 stood at 1,377.94, Historical Prices | S&P 500 The close on October 31, 2011 was at 1253.3. If you were calculating the return without dividends, then the number would not be +1.24% but a negative 9%. Since Fidelity is using a positive number for the five year S & P 500 return, that must take into account reinvested dividends over those five years (probably reinvested somehow).
3. Regular IRA Performance Numbers: The regular IRA is up over 100% over the three year period.
 |
| TOP Number is Regular IRA Performance/2nd column is the S & P 500 Performance/3rd column is Barclays Capital U.S. Aggregate Bond Index/ 4th column is BC U.S. 3 month treasury |
I transferred this account to Fidelity which explains the absence of five year data. The problem over the past year is that some of the exchange traded bonds have declined in price, as well as some stock CEFs and BDCs. I also own 1 Eastman Kodak 2013 bond, purchased this year, which subsequently lost about 1/2 of its value and I sold an Edison Mission bond at a loss out of this account too. So, it has not been a stellar year managing the Regular IRA. Fortunately, the ROTH IRA is about four times larger and is up a few percent. The main taxable account is about 6 times larger than the Roth IRA.
I do not have the ROTH IRA at Fidelity but believe that the performance number for that account would be substantially higher than the regular IRA, primarily due to the concentration of large and relatively quick gains from TCs and REIT preferred stocks (see snapshots in respective Gateway Posts), as well as some opportunistic buys in other asset classes including European hybrids issued by ING and Aegon and some stocks purchased in March 2009 (e.g. Dupont at around $16). There were a large number of doubles and even triples. I suspect the performance number from that account would be over 150% over the past three years through 10/31/11. Both retirement accounts did not suffer a meltdown since they had small allocations to stocks then and now.
Both retirement accounts have an usually high cash allocation earning nothing at the moment. The cash allocation in the retirement accounts is over 10%. Generally, I will run that number up when I believe better buying opportunities lie in the future.
The performance numbers in all accounts have been hurt by money market yields being near zero, given the very high cash allocations in taxable accounts starting in 2007.
I am busy this week on other matters and will have short or no posts for the remainder of the week. It will probably be Thursday before I will have time to discuss the one small buy (a TP) from yesterday.
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