1. Chart of Composite Bond Rates: I have seen some interest about the spreads between corporate and treasury bond rates. Yahoo Finance has a page in its bond section with this kind of data. Composite Bond Rates Yah Fin
The NYT contains separate charts for the Treasury, investment grade and high yield corportate bonds.Bonds - NYTimes.com
When I look at those rates now, it is hard to find anything that interests me. I am down to considering the purchase of one floater, provided it falls some in value.
Hopefully, the economy will start to show more signs of improvement, the VIX will find stability at below 20, and I can return to being a Stock Jock once again. The Trigger Event in the Vix Asset Allocation model occurred in August 2007, and it has already been a long time to hold RB in check. Restless is not a strong enough term to describe RB now. But, looking at how the model would have timed the prior bear market, two years may not be long enough period for the VIX to find stability below 20. In prior posts, I talked about the Trigger Events in 1997 and 1998, and it was not until 2003 before the VIX found stability again.
To be more precise, while the VIX Model was first developed in 2007, I did backtest it to see what it would have signaled in prior periods. A Trigger Event occurred in 1997, and the VIX returned to below 20 in February 1998. This would have been the time to do the reduction in stock exposures, with another reduction in August 2000 after the next Trigger Event. The green light was not flashed again until October 2003. I do not think that it will be possible to harnish RB for such a long period now, particularly when bonds are no longer interesting to either RB or LB.
2. SYNTHETIC FLOATER Rally-Down to PYV in Taxable Account: The synthetic floaters have had a good run over the past few weeks, which has allowed me to finish the transfer of those securities from my taxable account to my retirement accounts. Synthetic Floaters For the reasons mentioned in several prior posts, I decided to hold the synthetic floaters solely in my retirement accounts. Bought GYB/DD/Will Hold Synthetic Floaters In Retirement AccountI currently own just PYV in the taxable account, bought at $18 and change, and I am waiting for a slightly higher price before selling it. I have already substituted a similar security for it in a retirement account, GJK, at $19.83. BOUGHT 100 GJK IN ROTH
Both of those securities have the same underlying J P Morgan junior bond and mature in 2014. There are several differences: (1) GJK has a lower 3% guarantee, versus 3.25% for PYV; (2) GJK pays a monthly dividend and PYV pays quarterly and (3) the float provision in GJK is .7% above the three month treasury bill and PYV's float provision is .83% of the 10 year treasury rate. So it is possible that one or both of those float provisions could be triggered before the notes mature in 2014, which would give an investor a high rate. (Compare: http://www.sec.gov
with http://www.sec.gov)
Earlier, I speculated that the float provision in PYV would not likely be triggered, and that may not be the case. Since I engaged in that prior rumination, the 10 year has fallen in price and risen in yield. Once the Fed exits its buying program, the ten year would not have to fall much in value before the float provision would provide a higher yield than the 3.25% guarantee.
3. Treasuries Rally With Fed Purchases: The Fed bought 6.45 billion in treasuries on Tuesday, targeting maturities in the 3 to 4 year range. The ten year rallied 17/32 to yield 3.649%.
4. Glimcher Realty & Lexington Realty: Glimcher Realty declared its regular common and preferred stock dividends Yah Fin I own all of those securities as lottery tickets. I thought that I was being brave to buy GRTPRF at $2.9, and now I am still being brave (for me!) just holding onto it. The key for GRT is the 470 million line of credit that comes due later this year, which has a one year extension, provided all covenants are met by this REIT (#4: Glimcher ) CB & L Properties recently extended its line of credit and had to transform it into a secured line of credit. This could be problematic for GRT as explained by the CEO during a recent conference. Industry Stream I am just monitoring the situation. A couple more dividends paid on GRTPRF will recoup my investment for the shares bought at $2.9. All of these securities are high risk, and consequently I would never devote much money to them. I think that I have a total of 200 shares of the preferred issues and 100 of the common. The real pay day would be for GRT to survive this downturn more or less in one piece and continue to pay those preferred dividends until I meet my maker. I would be more interested in that outcome than making a few hundred by selling them now.
Lexington Realty (LXP) also declared its regular cash dividend on its preferred stock issues. Yah Fin I do not own the common but I do still own one preferred issue, LXPPRD, bought at $7 in an IRA. Buy 50 LXPPRD While I am still receiving the full amount of my preferred dividend, the common shareholders have already had their payout slashed, and now they must take 90% of the reduced payout in stock. This highlights one benefit of owing the preferred shares rather than the common when there is widespread reductions in the common dividend. I view these cumulative equity preferred stocks more as bonds than stocks, even though they are classified as equity capital by the accountants. For an investor, their sole attribute is the dividend, and the shares do not represent an equity interest in the business short of bankruptcy. Then there is an equity interest senior only to common stock, and both classes of equity could easily end up being worthless in that eventuality. Though depending on the circumstances, there is always hope that there might be something left for the preferred shareholder in a REIT collapse after the secured, senior and junior debt holders receive their just desserts.
5. VIX Moves to 32.68: The VIX closed below 30 for only six days, starting on June 3,2009. It rose yesterday 6.07% to close at 32.68. This signals the need for caution. The chart at this blog shows the VIX moving out of its 3 month price channel. MSN Money The writer of that blog added the VXX, the ETN for the S & P VIX Short-Term Futures. SDS may be more highly negatively correlated with the S & P 500 than VXX. USE OF THE IPATH S & P 500 VIX SHORT-TERM FUTURES ETN AS A NON-CORRELATED ASSET & HEDGE I do not own it, and I am not currently inclined to use any of the double short stock ETFs as a hedge so far into a bear market.
6. Cramer and Liz Ann Sonders: The Chief Market Strategist for Charles Schwab, Liz Ann Sonders, believes the recession is over. YahFin Cramer is maintaining that housing has bottomed. CNBC.com
I hope that they are right. I have become weary of buying bonds.
7. CPI: I am not sure that I believe the CPI number for May, released this morning. The CPI rose just .1% seasonally adjusted. Consumer prices have fallen, according to the government, 1.3% over the past year. That is the largest decline since 1950. Consumer Price Index Summary Of course, for investments tied to the CPI, like the TIP and the floaters from Prudential (PFK) and SLM (OSM), it does not matter whether the government's figure is correct or not.
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