Sunday, January 11, 2009

Morningstar Touts Loomis Sayles Bond fund again/Cash Needs a new home/More on VIX and Hedging/Bad dreams about the Titans

Morningstar is still touting the Loomis Sayles Bond fund after its incredibly poor performance in 2008.  I will certainly give the managers of that fund their just due in the event they increase NAV by 50% this year to bring me back to even after their dismal 2008 performance.   The continued recommendation of this fund, as shown in Morningstar's recent article Six Great Rebound Candidates for 2009 and Beyond, is available to subscribers on its web site.  I like their use of the word "Beyond" as in way beyond 2009.  Barron's has the three year return of this bond fund at -4.6 as of 1/9/09 compared to the Vanguard Total Bond Index fund at +17.4%.  Maybe the ones writing these articles need to have 25% of their bond fund investment evaporate in a year when the bond index was positive.  I felt that the best use for some of my shares was to sell at a loss in 2008 to off set the profits that I made in my bond trading.Completed Additions Long Bond with minor GTC limit orders in place/LOOMIS SAYLES/SNTA
My cash allocation, which is currently nesting in money market funds (except for some bank CDs), is starting to cause me some consternation.  I do check the weekly fund yields and see that all of them are yielding less than 2%.  While some may say that 2% is better than -50, which is true, it does not solve the quandary for me that a falling yield on money market funds makes that asset class more and more unappealing by the week.  This may cause before the end of this month some acceleration of calculated risk taking activity.   Maybe I will use part of that cash to buy some more shares in electric utilities that still have the favorable tax rate whereas the money fund dividends are hit at the highest marginal rate, which even makes them more unappealing at this juncture-a negative real rate of return after tax assuming an inflation rate of at least 1 to 1 1/2%. 

In previous posts, I discussed how changes in volatility would cause a change in my asset allocation.   Most of that discussion revolves around what I call stable and unstable VIX patterns. Increases in volatility, particularly in the percentage moves, is an indicator of increased risk and increased risk means more of a focus on reducing the allocation to the asset class showing enhanced volatility.  It may also mean developing a plan to partly hedge the increased risk by buying puts or one of the double short ETFs. (at most I would hedge 10 to 15% of the remaining value of the asset class after reduction, for one way and probably the best way to reduce risk is just to sell the securities in the class and forget about hedges)   In 2007, when I started using the double shorts, I was tying the buys and sells of SDS to movements in the VIX.  A move up in the VIX would cause me to sell, and a move down would cause a re-entry and so on.  More structure was added to this decision making process as I developed a rough model of what I now call the VIX asset allocation model applicable to my U.S.  stock positions.   A trading strategy of using the VIX movement itself as a model for the hedging was readily apparent simply by comparing the charts for the VIX, SDS and the S & P 500 average.  As I said the breakdown occurred after the Lehman bankruptcy as the VIX shot through 40 on its way to 80 which caused me to change in the trading strategy for the future, and further and continuous modifications will of course be made as facts warrant.  Any model has to be changed to reflect what has actually happened or happening. 

I keep having bad dreams about the Titans loss to Baltimore on Saturday.  The game is still running through my head, over and over again, like some bad horror movie that I have to watch.  Tonight, I am going to try and insert a few script changes in this movie such as no fumbles,  Crumpler catching that pass and running into the end zone rather than coughing the ball up to be recovered by Baltimore on their 1 yard line, Bironas hitting the first field goal dead center rather than wide to the left, Johnson running unhurt for a hundred yards in the second half, and Kevin Mawae snapping the ball.   It got worse last night when I was dreaming about the game only to receive a call while watching it that the IRS had just seized and sold my house while watching the game after my check for the 4th quarter self employment tax bounced due to my bank going belly up.  I checked online this morning to just be sure that it had cleared the bank.  So I am okay with the IRS but the Titans have still lost. 

Maybe W could do one more rendition before leaving office, send Bernie Madoff to the worse Somali prison system to serve a life sentence.  Now, you may say that it is illegal, I know, but has that ever stopped W?

I found another small cap where I am playing with the house's money and just need to re-familiarize myself with it.  I have enough money in cash flow arriving on Monday to buy 50 shares.

The WSJ dividend page does show the TC, PIS, going ex interest later in the month. Dividends - Markets Data Center -

The WSJ also has an article about a potential loss of "at least" 10 billion in Citigroup's latest quarter.
And who has faith in the competence of our financial titans now?  I know, if you ask them, they will say there are worth every penny of that 20 mil a year? Is there any doubt that the government saved an implosion at Citibank caused by extreme incompetence? TAX AND SPEND OR BORROW AND SPEND?/ Managing the Future Now/African Grey Parrot for President of U.S. or Just Citigroup? ROBERT RUBIN: CITIGROUP JUST AN INNOCENT BYSTANDERCitigroup Bailout: Where is the Outrage?Corporate Bonds, Citigroup & Robert Rubin, DKRI suspect that any investor in C now would have to be a very, very patient sort of person, more patience than I could ever muster.  The only reason that I would buy a share is to have a feel good moment voting against the board of directors who allowed the bank to careen into the abyss under Chuck I Never Knew What I Was Doing Prince.  

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