Wednesday, September 7, 2011

ISM Services Index/Swiss Franc/FOR and DSR Ratios Indicate American Consumer is in Better Shape Than Many Believe/Sold Some Gold and Silver/Bought 1 Sears Holding 6.625% Senior Secured Bond Maturing 10/15/2018 at 83.25

The most recent CBO estimate of the Recovery Act's impact on jobs is discussed at this article found at the Center on Budget and Policy Priorities. The CBO report can be accessed at

This site has charts showing the long term decline of manufacturing jobs, compared to service industry jobs, in the U.S.

The NIKKEI 225 Index is currently at levels prevailing in 1982. Buy and hold, stocks for the long run?

The Hong Kong purchasing managers index for the total economy fell into contraction today, falling to 47.8 in August, compared to a reading of 51.4 in July. /hk_pmi.pdf

The Swiss National Bank announced yesterday that it will "no longer tolerate a EUR/CHF exchange rate below the minimum rate of CHF 1.2" and "is prepared to buy foreign currency in unlimited quantities" The SNB will "take further measures" in the event the "economic outlook and deflationary risks so require". Press Release Swiss National Bank.pdf  MarketWatch The CHF fell about 8% against the EURO in response to this announcement in yesterday's trading. CHFEUR The ETF for the Swiss Franc, FXF, declined 8.34% in trading yesterday to close at $114.8.   The market is not setting the price of a lot of things now. The main Swiss stock index, ^SSMI, rose 4.36% yesterday.  The USD priced ETF for Swiss stocks, EWL, fell 6.43% and the CEF Swiss Helvetia Fund (own) declined 2.37%, in response to that currency loss versus the USD and the appreciation in Swiss stocks.

Based on recent polling results, it is clear that Obama is in serious trouble in 2012. ABC News

I did sell some junk silver coins yesterday, along with enough gold to pay for my 2011 property taxes, home insurance and enough to fill up my Saturn for over a year (slightly less than 2 ounces) This was my first sale of bullion. Gold was over $1900 an ounce at the time.  I had no trouble selling that stuff without leaving the SUV Capital of the World.

The ISM Services index was better than expected at 53.3%. The consensus estimate was for 51. The new orders component was reported at 52.8%. Not everything is woe is me.

The EU is a mess. It is hard to visualize how the EURO survives or why the citizens of the northern European countries will want to bail out their Mediterranean neighbors except that the other outcome would likely be worse.  A report from UBS estimates that leaving the EURO would cost the indebted countries 40 to 50% of their GDP in the first year. ZeroHedge Forbes  And their estimate is the cost to each German would be around €6000 to €8000.  CNBC If that is the alternative, then perhaps another alternative to the current arrangement can be found before the market trashes the EURO.

1. Household Debt Service Payments as a Percentage of Disposable Personal Income: While the talking heads and assorted crystal ball gazing gurus are mostly in a doom and gloom mood now, I wanted to focus on two charts that are encouraging. The Federal Reserve has a data series that it calls the household debt service ratio (DSR). The DSR is an estimate of debt payments to disposable income. Those payments are required payments on outstanding mortgage and consumer debt. Household Debt Service and Financial Obligations Ratios Another data series, called the financial obligation ratio (FOR), adds automobile lease payments, homeowner's insurance, property tax payments, and rental payments on owner-occupied property. Both the FOR and DSR ratios have been trending down markedly, suggesting to me that consumers  are in better shape now to service their financial obligations. This may be due in part to refinancing mortgage obligations at lower interest rates and an increased saving rate coupled with pay downs of the most expensive debt obligations. Some of the decline in the DSR and FOR ratios would be linked to foreclosures and bankruptcies. Still, the consumer may be in better condition now to spend than many believe. This is a chart of the DSR ratio:

Household Debt Service Payments as a Percentage of Disposable Personal Income 

This is a chart of the FOR ratio:

Household Financial Obligations as a Percent of Disposable Personal Income

Another data series shows that the total amount of personal income has been trending up in recent quarters, which is also true for the total amount of disposable personal income in current dollars: National Income Table 2.1 Bureau of Economic Analysis:


2. Bought 1 Sears Holding 6.625% Senior Secured Bond Maturing 10/15/2018 at 83.25 Yesterday (Junk Bond Ladder Strategy(see Disclaimer):. This was my only trade for yesterday, as the LB's usually frenetic trading activity slows to a crawl while it assesses the many known and unknown variables. I am allowed to buy just 1 junk bond per month, and this Sears senior secured bond fulfills my entire quota for September.

This is a link to the prospectus: Final Prospectus As detailed in that prospectus, the note does have collateral consisting of credit card receivables and inventory, junior in priority than the secured revolving credit facility. Still, that is better than having no collateral at all.

This is a link to the FINRA information on this bond:  FINRA According to FINRA, the bond is currently rated Ba2 by Moody's and BB by S & P.

The current yield is around 7.9%. I will post the exact number from my confirmation later today. The YTM will be closer to 9.8% given the discount to par value and the relatively short period to maturity based on the information that I entered at the Price/Yield Calculator found on the Fidelity website. I will post the exact numbers based on my cost, taken from my confirmation, later today. (ADDED: My confirmation states that the current yield is 7.882% at my cost and the YTM is 9.792%.  The confirmation also confirms that the ratings found at FINRA and mentioned above)

Profile Key Developments

Link to last quarterly report: Form 10-Q This note is discussed at pages 6-7.

FINRA Links to Bonds in Junk Bond Ladder Strategy

1 comment:

  1. "...the consumer may be in better condition now to spend than many believe."

    If the recent flood of cash- rewarded, interest-free, no annual fee credit card offers showing up in my mailbox is any indication, the banks are well aware of this already!