Cramer was more chipper than Alan Abelson about stocks during the start of his show yesterday. CNBC Next week, this may change since that OG is more manic depressive than the market. His take on the New York Fed manufacturing survey was brimming with negative bias, and he was somewhat hysterical about the current atmosphere in Washington. The S & P 500 did cross over its 200 day moving average to the upside yesterday. The line was at 1107 and the index closed at 1115.
1. BP- A Rogue Company Acting with Reckless Disregard for the Consequences: There is no other conclusion possible after reading documents about BP's decisions prior to the rig explosion. The latest salvo of internal BP documents was revealed in a story on the CBS Evening News last Monday. (video at CBS News Video) HK has prohibited the LB from making any purchases of BP stock. Yes, BP managed to save a few million prior to the rig explosion by taking short cuts and by choosing the less expensive and less safe alternative whenever a choice had to made by it. And, it did so with what appears to be a mega well that just keeps spewing black crude at high pressure that would have earned billions for it.
Given BP's long history of malfeasance, debarment from operation offshore operations appears to be the only viable alternative for the U.S. ProPublica Some of the historical episodes are summarized in these articles:ProPublica The Center for Public Integrity Some of the articles summarizing information leaking out about BP's reckless operation of the Deepwater Horizon rig include the following: WSJ . This article from the NYT from Tuesday describes some of the recently disclosed emails highlighting BP's culture of emphasizing cost savings over safety.
It turns out that BP's estimate of the magnitude of its oil gusher was on the low side. The new estimate by independent experts is a flow rate of 35,000 to 60,000 barrels a day. CNBC BP claimed that the spill rate was around 5000 barrels a day for weeks after the rig explosion: NYT
This long letter from Henry Waxman to Tony Hayward summarizes the shortcuts made by BP to save money shortly before the rig explosion: http://online.wsj.com /WSJ-20100614-LetterToHayward.pdf Every decision summarized in this letter was made by BP to save money at the expense of safety. The letter is summarized in this WSJ article.
2. Staff Report from San Francisco Federal Reserve: Over the past several weeks, I have started to believe the Fed really does mean to keep the federal funds rate at zero for an extended period of time. This is one reason why I have made some recent bond fund buys notwithstanding my concerns about them. Possibly, and this may be 50/50, the Fed might increase the rate to .5% before the end of this year assuming decent reports about the economy. But, it is difficult to anticipate a 1% federal funds rate before the middle of next year, given the unemployment situation in the U.S. and the sovereign debt problems.
Yesterday, I saw several news reports about a study published by the San Francisco Fed that predicted no change in the federal funds rate until 2012. NYT CNBC
This is a link to the analysis: FRBSF Economic Letter: The Fed's Exit Strategy for Monetary Policy (2010-18, 6/14/2010)
3. New York Fed Manufacturing Survey: The manufacturing reports from the Federal Reserve branches and the ISM have been among the most positive of the economic statistics. The New York Fed reported yesterday that its index for manufacturing rose slightly from the May level to a reading of 19.6, which extended the streak of positive readings to eleven months. Empire State Manufacturing Survey (overview) - Federal Reserve Bank of New York The new order component also rose from its May reading. In this report, a reading over zero is positive. The chart provided in this report shows a steep decline starting in the later part of 2007, hitting bottom in March 2009 at -32.29.
4. Bought 100 BSCE at $20.16 in the Roth (see Disclaimer): I discussed yesterday the new Claymore term corporate bond ETFs: Item # 1 Claymore Introduces Term Corporate Bond ETFs I discussed these ETFs in a recent email exchange with a reader by making the following observations:
"I think the new Claymore ETFs are a good product particularly given my views over the likely course of interest rates now. We may be looking at zero federal funds for up to a year, or maybe longer according to a recent study by a staffer at the San Francisco Fed. FRBSF Economic Letter: The Fed's Exit Strategy for Monetary Policy (2010-18, 6/14/2010) On the upside possibility, it looks like a 1% federal funds rate may be the upper limit through mid 2011. If this turns out to be correct, it would be okay to buy some of these ETFs in the 2013 to 2016 range, where you can receive something better than zero now and then reinvest the liquidation proceeds in something that has a higher yield, thus possibly avoiding most of the risk of lost opportunity and interest rate risk inherent in non-term bond funds. I have an order for another one this morning. The bids are above the NAV but not by enough to concern me. I prefer putting them into the retirement accounts and will reinvest the dividends."
BSCE has a 2014 term date: Claymore BulletShares 2014 Corporate Bond ETF - BSCE Since the liquidation will occur in December, I have only until December 2014 for the fund's liquidation. If I am correct about interest rates being substantially higher in January 2015 than now, I will be able to find another investment then to reinvest the proceeds from BSCE's liquidation into a higher yielding security. This is a link to the current holdings: BSCE Holdings Distributions will be paid monthly. Since this is a new fund, I do not have the current dividend rate, but I do not expect it to be much. The expense ratio is .24%. This is a link to the prospectus in PDF format: www.claymore.com.
This statement from the sponsor's web page explains how the fund will transition to liquidation: " In the last year of operation, when the bonds held in the Fund mature, the Fund’s portfolio will transition to cash and cash equivalents, including without limitation U.S. Treasury Bills and investment grade commercial paper."
This might work out just fine with those short rates providing a decent return in 2014. It would be entirely possible for the short rates in 2014 to provide more yield than four year paper currently owned by the fund.
The yields on short term investment grade corporate bonds are not much now: Bondsonline: Composite Bond Rates Yahoo Finance also has a table of Composite Bond Rates, pretty slim pickings.
My main risk in the retirement accounts is interest rate risk with the long term bonds (15 to 25 years before maturity). The presence of several floaters like PFK, AEB, METPRA, and a few synthetic floaters does help on the interest rate sensitivity side. But having some of these short maturity, term bond ETFs makes sense given the long duration of several bonds in the retirement accounts, though these Claymore ETFs will lower my overall yield some compared to alternative investments that would carry substantially more interest rate and credit risk.
If Claymore continues with these products by adding some for years subsequent to 2017, I could in effect rollover the proceeds from the 2014 and 2015 ETFs upon liquidation into similar term maturities (say 2019 or 2020) which will hopefully be at better yields than now. The Fed is not likely to continue its Jihad against savers and responsible Americans into 2014 and later. Thus, with these products, I have an out, similar to what I would have by buying an individual bond, which will enable me to invest the proceeds soon after the liquidation date in what will hopefully be higher yielding securities.
I may add one more. I do not want to overdue it given the low yields associated with these short term corporate bonds now. But I also want some assets rolling over in a few years that I can reinvest hopefully at higher rates. I do not view zero money market rates as an option or 1% rates for one year CDs.
I read an article yesterday that the head of Vanguard's fixed income group says that his favorite bond class is investment grade corporate bonds. WSJ
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