1. Ing Debt: The 2008 ING Annual report contains some information which may be of interest to a few readers of this post from the Netherlands. On page F-49 the hybrid securities are listed, and the total is listed at 10.281 billion at "balance sheet value". Those funds realized from the hybrid sales, with one exception, were used by ING to make "subordinated loans by ING Group N.V. to ING Verzekeringen N.V. and ING Bank N.V. under the same conditions as the original bonds" as follows:
ING Bank N.V. 5.8 billion Euros
ING Verzekeringen N.V. 4.471 Euros
Both figures were as of the end of 2008. So the funds raised by the hybrid securities were funneled by the holding company to its subsidiaries as loans. This would suggest to me the possibility that the insurance company will pay back those loans when it is divested, and hopefully those funds would be used to buy back the hybrids which provided the source of funds for the loans. I do not have any information if particular hybrids are associated with the insurance company or the bank. While I do not know what will happen when the insurance operation is divested, I am just making an assumption now that it would be reasonable for the outstanding loans owed to ING by the insurance subsidiary will be paid back and that those funds could be used as a source to buy back some of the hybrids. This would explain what ING meant by the cryptic remarks at page 5 of this document filed with the SEC: fwp The bank would be less likely to pay back its loans received from ING who used hybrid sales to fund the loans, at least in full. I hope that makes some sense. An important question for the future is whether particular hybrids are tied to one or the other subsidiary. I would certainly like to know if any of them are tied to the insurance subsidiary. If anyone finds out, please let me know.
The next page of the annual report shows other debt that comes to close to 100 billion EUROs (96.488). (See page F-49 20-F)
I am not going to bust a brain cell trying to figure out now what ING might do with the divestment proceeds from the sell of its insurance operations down the road. Instead, as an owner of ING hybrids, which are an immaterial position for me, I am just going to focus on one small step at a time. The first and most important step near term is the formal approval of ING's restructuring plan by the European Commission and the successful offering of shares to pay back 1/2 of the 10 billion Euros in state aid received last year. This will give me some comfort as an owner of hybrids. Assuming that comes off without a hitch, I explained in a recent comment to one of my Dutch readers my future general approach to my shares in the following manner:
"I do not intend to do anything with my hybrids until I have further concrete information or new significant adverse developments. An adverse development would be another major economic downturn, a second recession close on the heels of the last one, or a significant downturn in ING's fortunes which would call into question timely payments of the hybrid coupons."
If there is no such major adverse development, most likely I will wait until I know more about what ING intends to do with the divestment proceeds before making a decision: buy, hold or sell.
2. Bought 100 of the ETF AOR at $29.5 (see Disclaimer): After selling a large chunk of stock in the past two weeks, the market continued its upward march, confounding me some. I should say confounding the Old Geezer. My primary explanation is that the world is full of liquidity, the excess funds are not finding their way in the real economy as needed, and are being used to buy risk assets (stocks, bonds and commodities), with many players borrowing money on the cheap to fund the purchases. As long as short term interest rates stay near zero, there is an incentive for big money to borrow short and to use that cheap source of liquidity to speculate on risk assets, borrow at 1% and hope for 30 or 50% so to speak. Part of the surge off the March lows was due of course to a realization that Financial Armageddon had been taken off the table, the financial system had been saved, and the last wave of panic selling particularly in the first quarter of 2009 was overdone. Thereafter, as the weeks past, more evidence of a global recovery was revealed, even as other data such as jobs continued to show weakness.
While I am in the camp that GDP growth in the U.S. in 2010 will be stronger than currently expected, I am far more uncomfortable about the durability of the recovery going into 2011, especially when the FED starts to raise rates and the federal government winds down its stimulus spending. But, for now, while acknowledging the uncertainty, the path of least resistance may continue to be up- with minor setbacks of 3 to 7% for the next few months. The VIX Model that I use to assist me in my major allocation decisions, as just one of many indicators, is still in the Unstable Pattern, moving back toward 20 after a one day spurt over 30, a movement consistent with the Unstable Vix Pattern. VIX Spikes to Over 30 When I wrote that post on October 30th, I predicted that the spike, consistent with prior patterns, would not stay above 30 for long before moving back down into the 20s.
Given the uncertainty, I am going to increase my allocation some to ETFs. Anything that I buy from today until I have further clarity is nothing more than a trading vehicle, to increase quickly my exposure to stocks or to a stock sector. Possibly, if further clarity and stability is found, with continuous movement in the VIX below 20 for at least 3 months, I may hold onto these ETFs until the next Trigger Event, as defined in the model, which would be a spike to close to 30 in the Vix after a prolonged continuous movement below 20. Vix Asset Allocation Model Explained Simply With as Few Words as Possible The VIX closed down 3.63% to 23.36 on Friday: ^VIX: Summary for CBOE VOLATILITY INDEX
I have bought some ETFs a few months ago with the intention of holding them long term, including the Vanguard ETFs VV, VTI, and VEU and a few others. I am not sure what I am going to do with VIS.
AOA, the one bought today, is sponsored by Ishares, and contains a collection of other Ishares ETFs. It is called the S & P Aggressive Allocation Fund, and I just bought 100 shares at $29.5. iShares S&P Aggressive Allocation Fund (AOA): Overview The expense ratio is capped at .34% until 6/30/2011, at which time is will rise a tad. AOA consists of the following ETFs:
|ISHARES S&P 500 INDEX FUND||26.80%|
|ISHARES S&P MIDCAP 400||23.01%|
|ISHARES MSCI EAFE INDEX FUND||21.70%|
|ISHARES BARCLAYS AGG BOND FUND||11.00%|
|ISHARES S&P SMALLCAP 600||7.90%|
|ISHARES MSCI EMERGING MKT IN||5.46%|
|ISHARES BARCLAYS TIPS BOND||4.05%|