Monday, December 1, 2008


I decided to amend this post to simply add for those who are new to bond ETFs that they do go ex interest on the first trading day of the month, which is today (see,e.g. ishares LQD,
ex interest today at .4515 payable on the 5th.

While discussing the Forbes article which mentioned three Trust Certificates in a prior post, I mentioned that the same CS bond was contained in 2 separate TCs, PYE and DKY.Article in this Week's Forbes on Trust Certificates/Trust the Government?  FINRA has quotes on the underlying bond, symbol CS.LH/Cusip 22541LAE3. FINRA - Investor Information - Market Data - Bonds - Bond Detail I faulted the author for not mentioning this important detail since the one he did not mention, PYE, was then providing a better yield.  I do not own either one.  Based on my reevaluation of the desirability of more long bond positions to fit my financial objectives as discussed in an earlier post, Long Term Bonds in Trust Certificate Form/Grantor Trust Legal OpinionI will consider buying one of these two on weakness.  I will have to spend some time trying to ascertain the credit worthiness of Credit Suisse (CS) rather than rely on the rating agencies grade.  This will include at a minimum a review of recent earnings releases, reading reports, reviewing the balance sheet and debt information including types of debt and maturities, and all news on writedowns and other problems that CS may have encountered over the past two years.   I have severe misgivings about investing in the debt of any investment bank and have almost no confidence in any of them. I am only confident in the fact that investment bankers are way over paid and prone to blow up the firms that they work for in pursuit of their own self interest.    Consequently,  buying any bond issued by one of the few currently breathing investment banks will only be on an opportunistic basis after a decline.   However, notwithstanding my low opinion of them, as a class,  I am looking to buy more long bonds pursuant to the directive given to myself yesterday and will not exclude per se bonds issued by Credit Suisse and Goldman Sachs.   Long Term Bonds in Trust Certificate Form/Grantor Trust Legal Opinion

FIRNA has only the bond trades reported to it.  However, without access to a Bloomberg terminal, this will have to do for my purposes.   

I also faulted in my prior post the author of the Forbes article, Richard Lehmann, for recommending a Motorola bond maturing in 2097.  I would never buy any bond maturing so far in the future.  And, if I am interested in a long bond from a particular issuer, I would generally have several choices in the 2020 to 2038 range.  As I mentioned there is a Motorola bond in another TC, XFJ, which matures in 2028 with a 8.375% coupon.  I believe the symbol for the underlying bond in XFJ is  MOT.GJ and the CUSIP is 620076AP4.  I do not own it but will now treat it in about the same way as the CS or GS bond.  I will simply look for an opportunity to make a small purchase at a lower price.   I have a low opinion of MOT too. 

By using the FINRA site, I can find other bonds from the same issuer.  So, for example, if I did not want to go out even to 2028 for a MOT bond, I could find at the FINRA site a MOT bond maturing in 11/2011, MOT.GN with a 8% coupon or MOT.GQ maturing on 11/15/2017.   Others are also available in maturities shorter than 20 years. I am not aware of any of those being the underlying bond in a TC  so they would have to be purchased using a broker. I would be more likely to place a limit order to buy a few of the one maturing in 2011 than any significant order beyond that date.  

It looks like the economy is continuing to tank.  The November ISM manufacturing index fell to the lowest reading since 1982, decreasing to 36.2%-well below a 50+ indicating expansion of manufacturing activity.  New orders plunged 27.9% and order backlogs fell 27%.MarketWatch   Only bad numbers can be expected for several months.  The market will continue to find it extremely difficult to maintain a rally for more than a few days.

  As the Dow sinks almost 400 in early trading, the VIX has shot up again, rising over 13% to 62.69.   You can not look at the percentage rise of the VIX and know the percentage decline of the S & P 500 average. It is more a question of direction rather than degree.  A 13% advance in the VIX would tell me that this was a major down day so far, and I would expect to see a 4 to 6% decline in the S & P average without looking at it first.   I do not use the VIX as a daily trading tool.  Instead, I am using it as an integral part of a long term asset allocation strategy.  And, that strategy tells me to keep the cash raised in the forced reductions last year in cash and my maximum cash allocation is supposed to be 20%.  I have strayed from that number unintentionally and pleasantly fortuitous, as I mentioned in a prior post, currently sitting at 30%VANGUARD ASSET ALLOCATION: IS VANGUARD PROUD? MORE ON VXD

No comments:

Post a Comment