The Age of Leverage took over twenty years to reach its crescendo and inevitable immolation. It may take at least half that long to repair the wreckage left in its wake. For over two decades, growth in most developed countries was financed by spending ever increasing amounts of borrowed money, creating an illusion of prosperity.
Almost 4 years after the Lehman bankruptcy, the seizure of Fannie and Freddie, and the near meltdown of the world's financial system, Europe has found it necessary to pour up to €100 billion into Spain's banks whose capital has been devastated by improvident real estate loans made prior to 2007. Bloomberg Reuters That aid will be on top of the €386 billion pledged to Greece, Portugal and Ireland from the EU and the IMF since 2010.
I wonder what the situation will look like in four or five years. Will the Euro survive and be regarded as the safe haven currency, as Europe deals with its debt and budget problems while the U.S. keeps the peddle to the metal, continuing to run up annual budget deficits at greater than a trillion dollars per year? It is certainly conceivable that, notwithstanding the bleakness overhanging Europe now, the EU will be successful in their restructuring and austerity efforts long before the U.S. starts to deal with its similar and potentially far more serious issues.
Initially, Spain's ten year bond rose in price and declined in yield to around 6%. After that brief rally, the ES 10Y rose to a 6.5% yield. The IT 10Y also declined in price after initially rallying on the news, with the yield topping 6% at yesterday's close. The German ten year continued to decline in yield yesterday, approaching a 1.3% yield. DE 10Y Govt Bond Benchmark
The infusion of capital into Spain's banks does not solve the underlying problems. Instead, that capital infusion would just keep Spain's economy from spiraling down due to large bank collapses combined with a flight of capital. It is just another band-aid that buys time.
It is important, however, to take a banking collapse off the table. This was done in the U.S. with the passage of TARP and aggressive Federal Reserve policies. Europe has acted in a far slower manner to address problems in its financial institutions.
Even though a widespread banking collapse had been removed as a threat to the U.S. economic system by late 2008, it took stock and bond investors several months to correctly assess the implications. Humans are frequently unable to process information to arrive at informed and sound judgments. Errors creep into the decision making process through a multitude of channels, including information bias, an inability to properly weight material information, and to distinguish material from immaterial or even irrelevant information. And that process is not improved by adding millions of individuals to the equation when making a collective judgment. Efficient Market Hypothesis as Hokum-March 2010 Post; ERROR CREEP and the INVESTING PROCESS-December 2011 Post
From December 2008 to the early spring of 2009, investors continued to pummel stocks as an asset class, and particularly all securities issued by most U.S. financial institutions. Even by early March 2009, for example, it was possible to buy BAC trust preferred securities yielding over 20%, even though it was clear that the U.S. government was not going to permit another implosion of a too big to fail financial institution and was not even requiring a deferral of interest payments on TPs as a condition to state aid.
Bank of North Carolina has entered into an FDIC assisted acquisition of Carolina Federal Savings Bank which had two branches in the Charleston, S.C. area. BNC Bancorp rose 30 cents yesterday to close at $7.3.
The Wells Fargo Advantage Multi-Sector Income Fund (ERC) was ex dividend yesterday for its monthly ten cent per share distribution.
1. Sold 100 DRAD at $2.36 Last Friday (Lottery Ticket Basket Strategy)(see Disclaimer): I was not impressed with Digirad's recent earnings report. SEC Filed Press Release Consequently, I elected to sell the 100 shares bought earlier this year at $1.9:
Almost 4 years after the Lehman bankruptcy, the seizure of Fannie and Freddie, and the near meltdown of the world's financial system, Europe has found it necessary to pour up to €100 billion into Spain's banks whose capital has been devastated by improvident real estate loans made prior to 2007. Bloomberg Reuters That aid will be on top of the €386 billion pledged to Greece, Portugal and Ireland from the EU and the IMF since 2010.
I wonder what the situation will look like in four or five years. Will the Euro survive and be regarded as the safe haven currency, as Europe deals with its debt and budget problems while the U.S. keeps the peddle to the metal, continuing to run up annual budget deficits at greater than a trillion dollars per year? It is certainly conceivable that, notwithstanding the bleakness overhanging Europe now, the EU will be successful in their restructuring and austerity efforts long before the U.S. starts to deal with its similar and potentially far more serious issues.
Initially, Spain's ten year bond rose in price and declined in yield to around 6%. After that brief rally, the ES 10Y rose to a 6.5% yield. The IT 10Y also declined in price after initially rallying on the news, with the yield topping 6% at yesterday's close. The German ten year continued to decline in yield yesterday, approaching a 1.3% yield. DE 10Y Govt Bond Benchmark
The infusion of capital into Spain's banks does not solve the underlying problems. Instead, that capital infusion would just keep Spain's economy from spiraling down due to large bank collapses combined with a flight of capital. It is just another band-aid that buys time.
It is important, however, to take a banking collapse off the table. This was done in the U.S. with the passage of TARP and aggressive Federal Reserve policies. Europe has acted in a far slower manner to address problems in its financial institutions.
Even though a widespread banking collapse had been removed as a threat to the U.S. economic system by late 2008, it took stock and bond investors several months to correctly assess the implications. Humans are frequently unable to process information to arrive at informed and sound judgments. Errors creep into the decision making process through a multitude of channels, including information bias, an inability to properly weight material information, and to distinguish material from immaterial or even irrelevant information. And that process is not improved by adding millions of individuals to the equation when making a collective judgment. Efficient Market Hypothesis as Hokum-March 2010 Post; ERROR CREEP and the INVESTING PROCESS-December 2011 Post
From December 2008 to the early spring of 2009, investors continued to pummel stocks as an asset class, and particularly all securities issued by most U.S. financial institutions. Even by early March 2009, for example, it was possible to buy BAC trust preferred securities yielding over 20%, even though it was clear that the U.S. government was not going to permit another implosion of a too big to fail financial institution and was not even requiring a deferral of interest payments on TPs as a condition to state aid.
Bank of North Carolina has entered into an FDIC assisted acquisition of Carolina Federal Savings Bank which had two branches in the Charleston, S.C. area. BNC Bancorp rose 30 cents yesterday to close at $7.3.
The Wells Fargo Advantage Multi-Sector Income Fund (ERC) was ex dividend yesterday for its monthly ten cent per share distribution.
1. Sold 100 DRAD at $2.36 Last Friday (Lottery Ticket Basket Strategy)(see Disclaimer): I was not impressed with Digirad's recent earnings report. SEC Filed Press Release Consequently, I elected to sell the 100 shares bought earlier this year at $1.9:
The prior round trip was more successful: Bought Lottery Ticket 100 DRAD at $1.24 (June 2009)- Sold DRAD at $2.14 (July 2009).
This brings my realized gains for this strategy to $10,620.97, with $10,140.07 currently invested in 47 stocks. Lottery Ticket Strategy: New Gateway Post One rule for this strategy now is that the total amount devoted to this strategy has to be kept at a lower amount than the realized gains. Gamblers will recognize the name for the limitation, often referred to as playing with the house's money.
Digirad closed at $2.28 yesterday.
2. Sold 200 GDO at $19.18 Yesterday (see Disclaimer): Last Friday, this bond CEF closed with a net asset value per share of $19.32, creating at that time of -1.24%. I will frequently pare or liquidated bond closed end funds bought at greater than 5% discounts to net asset value when the discount narrows to near zero, provided I can realize a profit on the shares after harvesting several dividends. I would then wait for an opportunity to buy back the shares at a better price.
I realized a long term capital gain on the 200 shares, bought over two years ago, of $97.33.
With an earlier sell of 100 shares this year, the net 2012 realized gain is $93.29. Sold 100 GDO at $18.72 (January 2012)
This fund pays monthly dividends. At my total cost basis, the dividend yield was over 8%. I still own 120 shares of GDO in the ROTH IRA, solely for its income generation. I also own 36+ shares in a taxable account that were bought with GDO dividends. I am now taking the distributions paid by those shares in cash.
Another reason for lightening up on this fund is that it does have some exposure to bonds issued by European financial institutions. This is a link to the latest SEC Form N-Q filing which lists the funds holdings as of 1/31/12. www.sec.gov
I have discussed this fund in several posts: Bought 100 of the CEF GDO at 18.6; Item # 4 More on GDO; Bought 200 of the CEF GDO at $18.63 March 2010; Item # 1 GDO December 2010 (discussion of exposure to European bonds)
Last SEC Filed Shareholder Report for the period ending 10/31/11: www.sec.gov
The fund is currently paying a monthly dividend of $.1275, which is a reason for me to keep some of the shares. Western Asset Global Corporate Defined Opportunity Fund Inc. (“GDO”) Announces Distributions for the Months of June, July and August 2012 Even at a total cost of $19.18, that penny rate would equate to a yield of about 7.98%, and over 8% at my average total cost per share.
I had a GTC AON limit order to sell those 200 shares at $19.15. The order filled at the opening price of $19.18 yesterday.
I will consider buying those shares back, probably in a retirement account, when the price is lower $18.7 per share, provided the discount exceeds 3%. I am willing to accept a smaller discount when adding to the existing 120 share position in the ROTH IRA, since I have an excessive amount of cash earning zero in that account and the dividends paid by GDO are tax free when paid into that retirement account.
Western Asset Global Corp Defined Opportunity Fund (GDO) closed at $19.11 yesterday, up 3 cents per share.
Digirad closed at $2.28 yesterday.
2. Sold 200 GDO at $19.18 Yesterday (see Disclaimer): Last Friday, this bond CEF closed with a net asset value per share of $19.32, creating at that time of -1.24%. I will frequently pare or liquidated bond closed end funds bought at greater than 5% discounts to net asset value when the discount narrows to near zero, provided I can realize a profit on the shares after harvesting several dividends. I would then wait for an opportunity to buy back the shares at a better price.
I realized a long term capital gain on the 200 shares, bought over two years ago, of $97.33.
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| 2012 GDO 200 Shares +$97.33 |
This fund pays monthly dividends. At my total cost basis, the dividend yield was over 8%. I still own 120 shares of GDO in the ROTH IRA, solely for its income generation. I also own 36+ shares in a taxable account that were bought with GDO dividends. I am now taking the distributions paid by those shares in cash.
Another reason for lightening up on this fund is that it does have some exposure to bonds issued by European financial institutions. This is a link to the latest SEC Form N-Q filing which lists the funds holdings as of 1/31/12. www.sec.gov
I have discussed this fund in several posts: Bought 100 of the CEF GDO at 18.6; Item # 4 More on GDO; Bought 200 of the CEF GDO at $18.63 March 2010; Item # 1 GDO December 2010 (discussion of exposure to European bonds)
Last SEC Filed Shareholder Report for the period ending 10/31/11: www.sec.gov
The fund is currently paying a monthly dividend of $.1275, which is a reason for me to keep some of the shares. Western Asset Global Corporate Defined Opportunity Fund Inc. (“GDO”) Announces Distributions for the Months of June, July and August 2012 Even at a total cost of $19.18, that penny rate would equate to a yield of about 7.98%, and over 8% at my average total cost per share.
I had a GTC AON limit order to sell those 200 shares at $19.15. The order filled at the opening price of $19.18 yesterday.
I will consider buying those shares back, probably in a retirement account, when the price is lower $18.7 per share, provided the discount exceeds 3%. I am willing to accept a smaller discount when adding to the existing 120 share position in the ROTH IRA, since I have an excessive amount of cash earning zero in that account and the dividends paid by GDO are tax free when paid into that retirement account.
Western Asset Global Corp Defined Opportunity Fund (GDO) closed at $19.11 yesterday, up 3 cents per share.
I read JPM owns $100Bil in Spanish mortgages, is this another stealth TBTF bailout?
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