Risk/Reward Vol. 179
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"The Big 3 baby and the finest cars
We spend our days on the line
And our nights in the bar."---lyrics from "Detroit, Michigan" by Kid Rock
"So you gotta have a swan/Or you're out of luck
And besides you couldn't say/I saw a chicken leg ballet."---lyrics from "The Swan" by Fanny Brice (from "Funny Girl")
"Sometimes I wonder/What I'm gonna do
Cause there ain't no cure/For the summertime blues."---"Summertime Blues" sung by The Who
As the Dow Jones Industrial Average continued to reach record heights this week, my portfolio fell 0.5%. One reason was expected; the other was a "black swan."
As loyal readers know, a few weeks ago I started buying municipal bond funds despite (actually because of) the precipitous drop in prices (and concomitant increase in yields) in the sector due in part to Detroit's recent bankruptcy filing. Some may say that I am way out "on the line" and would have done better to spend our money on the stock of the "Big 3" or one of their "finest cars" or even in "a bar." I disagree. Municipal bond funds are trading at historic lows despite the uptick in the fiscal health of most state and local governments. But, so long as Detroit is prominently discussed in the news, the downward trend will continue. Thankfully, the fall did slow considerably this week. Risky as it may seem, a taxable equivalent yield of 10+% on closed end funds that hold mostly AAA or AA bonds is just too tantalizing for me to resist.
But what sent me for a loop this week was not Detroit: it was a "Black Swan". A "black swan" is a random, surprise event that has a major impact. It was first applied to market behavior by statistician/author/trader Nassim Nicholas Taleb in his book "Fooled by Randomness" which I recently completed. I have found this read extremely valuable in giving context to my own anxiety and in coming to grips with my risk tolerance: especially my feeling "chicken" when I am "out of luck."
This week's Black Swan was the unexpected emergence of Larry Summers as the leading candidate to replace Ben Bernanke as Federal Reserve chair come year end. My "Summer(s)time Blues" manifested in an unanticipated drop in the 10Year Treasury Bond (and the concomitant spike in its yield from 2.49% last Friday to 2.61% Thursday). In turn, this caused the value of my recently reacquired portfolio of preferred stock, mortgage REIT's and business development companies to fall. "What am I gonna do?" All of this was because Summers, unlike Janet Yellen, the other leading candidate, is on record as disliking QE3 and would undoubtedly end it sooner rather than later. There was a "cure" however. An open letter from leading Democrats in support of Yellen was sent to the White House on Friday, an act which bolstered bond prices and caused my portfolio to recapture much of what it had lost. "Sometimes I wonder" if the White House is completely clueless. There is no more critical appointment than Bernanke's replacement, and that choice should not be driven by rumor or open-letter lobbying.
As proven once again this week, my approach to the market is too much like "Tommy" playing pinball: "Plays by intuition/Plays by sense of smell." Until Friday, randomness rendered my intuition faulty, and my sense of smell stunk.
Saturday, July 27, 2013
Saturday, July 20, 2013
July 20, 2013 Sign On The Wall
Risk/Reward Vol. 178
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"I loved ya' baby/From the start
Loved ya' baby/With all of my heart
Lord, you put a spell on me/I just want to testify."---lyrics from "Testify" by Grand Funk Railroad
"What's it all about, Alfie?/Is it just for the moment we live?
What's it all about/When you sort it out, Alfie?
Are we meant to take more than we give?"---lyrics from "Alfie" by Burt Bacharach
"There's a sign on the wall/But she wants to be sure
Cause you know/Sometimes words have two meanings
In a tree by a brook/There's a songbird who sings
Sometimes all of our thoughts are misgiven."---lyrics from "Stairway to Heavan" by Led Zepplin
The stock indices reached new highs on Thursday, but Wednesday was the big day for yield hungry investors like me. As reported last week (Vol. 177 www.riskrewardblog.blogspot.com ), Federal Reserve Chair Benjamin Bernanke was scheduled to "Testify" before Congress on Wednesday. At 8:30 Eastern, an hour before the markets opened, he released his prepared remarks. And "from the start", the bond market "Loved it, baby/With all of its heart." In the remarks and the subsequent testimony, Bernanke confirmed what other Fed members have been saying recently: that any tapering of quantitative easing (QE3) would be tied to how well the economy is doing, and that the economy is not doing well enough now or in the foreseeable future to warrant it. In so stating, Bernanke seemingly abandoned his comments of June 19th which the bond market had interpreted as putting QE3 tapering on a set timetable beginning no later than September, 2013 with a complete cessation by the summer of 2014; comments which, at the time, sent bonds and bond related securities into a nose dive. His remarks "put a spell" on the all important 10 Year Treasury Bond. Its yield quickly fell below 2.5% with a correspondent spike in the bond's price. (Remember, a drop in bond yields means a rise in bond prices.)
Also on Wednesday, CNBC televised its annual "Delivering Alpha" conference. (In the financial world, "alpha" means performance above a benchmark. It is short hand for profitable, risk adjusted investing, and "when you sort it out/ Alpha is what it's all about" ; it means you "take more than you give.") Tips from such luminaries as Leon Cooperman and Steve Kuhn who were featured at the conference are "moments for which I live." Hailed as clairvoyant for picking ten out of ten double digit winners at last year's conference, Cooperman again listed 10 stocks that he believes will out perform over the next twelve months. And five of them fit within my yield-hungry wheelhouse: two real estate investment trusts (REIT's), two business development companies and a master limited partnership. Universally recognized as a leading bond/fixed income fund manager, Kuhn recommended a re-look at mortgage REIT's which he said had been oversold. When asked to pick the one sector of fixed income which he believed would deliver the greatest alpha over the coming months, he stated unequivocally municipal bonds---about which I wrote last week.
Although I started my re-entry last week, I tiptoed "Cause you know/Sometimes words have two meanings." And the words from the Fed over the past few weeks about the future of QE3 were ambiguous if not contradictory. But Wednesday's pronouncement by Uncle Ben was "a sign on the wall": "a song bird singing" if you will, about which I have "no misgivings." As a consequence, this week I bought with conviction and am now 60% invested. Hopefully, I am again on a "Stairway to Heaven." I repurchased much of what I had sold in late May plus some municipal bond funds, the downdraft from Detroit's bankruptcy having provided an excellent buying opportunity. I am on track for annualized, taxable equivalent dividends of 8+%. All I want is stability but will gladly accept some capital appreciation.
It is my considered opinion that Bernanke's statements will impact the bond/fixed income world in which I dwell like a Led Zepplin concert: taking us from a market that has been "Dazed and Confused" to one that promises a "Whole Lotta Love."
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"I loved ya' baby/From the start
Loved ya' baby/With all of my heart
Lord, you put a spell on me/I just want to testify."---lyrics from "Testify" by Grand Funk Railroad
"What's it all about, Alfie?/Is it just for the moment we live?
What's it all about/When you sort it out, Alfie?
Are we meant to take more than we give?"---lyrics from "Alfie" by Burt Bacharach
"There's a sign on the wall/But she wants to be sure
Cause you know/Sometimes words have two meanings
In a tree by a brook/There's a songbird who sings
Sometimes all of our thoughts are misgiven."---lyrics from "Stairway to Heavan" by Led Zepplin
The stock indices reached new highs on Thursday, but Wednesday was the big day for yield hungry investors like me. As reported last week (Vol. 177 www.riskrewardblog.blogspot.com ), Federal Reserve Chair Benjamin Bernanke was scheduled to "Testify" before Congress on Wednesday. At 8:30 Eastern, an hour before the markets opened, he released his prepared remarks. And "from the start", the bond market "Loved it, baby/With all of its heart." In the remarks and the subsequent testimony, Bernanke confirmed what other Fed members have been saying recently: that any tapering of quantitative easing (QE3) would be tied to how well the economy is doing, and that the economy is not doing well enough now or in the foreseeable future to warrant it. In so stating, Bernanke seemingly abandoned his comments of June 19th which the bond market had interpreted as putting QE3 tapering on a set timetable beginning no later than September, 2013 with a complete cessation by the summer of 2014; comments which, at the time, sent bonds and bond related securities into a nose dive. His remarks "put a spell" on the all important 10 Year Treasury Bond. Its yield quickly fell below 2.5% with a correspondent spike in the bond's price. (Remember, a drop in bond yields means a rise in bond prices.)
Also on Wednesday, CNBC televised its annual "Delivering Alpha" conference. (In the financial world, "alpha" means performance above a benchmark. It is short hand for profitable, risk adjusted investing, and "when you sort it out/ Alpha is what it's all about" ; it means you "take more than you give.") Tips from such luminaries as Leon Cooperman and Steve Kuhn who were featured at the conference are "moments for which I live." Hailed as clairvoyant for picking ten out of ten double digit winners at last year's conference, Cooperman again listed 10 stocks that he believes will out perform over the next twelve months. And five of them fit within my yield-hungry wheelhouse: two real estate investment trusts (REIT's), two business development companies and a master limited partnership. Universally recognized as a leading bond/fixed income fund manager, Kuhn recommended a re-look at mortgage REIT's which he said had been oversold. When asked to pick the one sector of fixed income which he believed would deliver the greatest alpha over the coming months, he stated unequivocally municipal bonds---about which I wrote last week.
Although I started my re-entry last week, I tiptoed "Cause you know/Sometimes words have two meanings." And the words from the Fed over the past few weeks about the future of QE3 were ambiguous if not contradictory. But Wednesday's pronouncement by Uncle Ben was "a sign on the wall": "a song bird singing" if you will, about which I have "no misgivings." As a consequence, this week I bought with conviction and am now 60% invested. Hopefully, I am again on a "Stairway to Heaven." I repurchased much of what I had sold in late May plus some municipal bond funds, the downdraft from Detroit's bankruptcy having provided an excellent buying opportunity. I am on track for annualized, taxable equivalent dividends of 8+%. All I want is stability but will gladly accept some capital appreciation.
It is my considered opinion that Bernanke's statements will impact the bond/fixed income world in which I dwell like a Led Zepplin concert: taking us from a market that has been "Dazed and Confused" to one that promises a "Whole Lotta Love."
Sunday, July 14, 2013
July 13, 2013 Separate Lives
Risk/Reward Vol. 177
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"You called me from the room in your hotel
All full of romance for someone that you met
And telling me how sorry you were, leaving so soon"---lyrics from "Separate Lives" by Phil Collins
"All around, people looking half dead
Walking on the sidewalk, hotter than a match head"---lyrics from "Summer in the City" by the Lovin' Spoonful
"You can't lease my love
Oh, this was just an empty space
That both we tried to live"---lyrics from "Lease My Love" by Rihanna
As reported last week, the correlation between the bond market and the stock market caused by quantitative easing (QE3) began to disappear on Friday July 5th. Those "Separate Lives" continued through Wednesday of this week as the stock market experienced gains despite the 10 Year Treasury Bond stabilizing above a 2.65% yield and the 30 Year Bond above 3.63%; yields that anticipated the tapering of QE3 come this fall. Then on Wednesday afternoon, from "some hotel room" in Cambridge, MA, Fed Chair Ben Bernanke "told us how sorry he was" that the markets were "leaving bonds so soon." "All full of romance " for QE3, his speech threw tapering in 2013 into question, intimating that QE3 could be around for quite some time. On Thursday, the stock market and the bond market skyrocketed together, stoked once again by the sugar high of continued low interest rates (and thus high bond prices) compliments of QE3.
And it happened just as I began tip toeing back into the market! For several days I had had my eye on sectors that have been pummeled by the spike in bond yields (and the corresponding drop in bond prices) occasioned by the prospect of QE3 tapering this fall. No sector has been hit harder than the municipal bond market. This is ironic because the drop in muni's has happened at a time that has been a "Hot time/This summer in the cities": a time when state and local budgets (Detroit notwithstanding) are healthier than they have been for several years. Nevertheless, "all around" the municipal bond arena "people are looking half dead." Meanwhile the rising rates have made the sector look "hotter than a match head" to me. So on Tuesday I bought NEA and EIM, two well regarded municipal bond funds that pay a tax free return in excess of 6% (which in my hand is the equivalent of a 10% taxable return!) Bernanke's speech caused my investment to go slightly negative, but my entry point is too good to consider a sale at this time.
A second sector made attractive by the prospect of QE3 tapering this fall is "leasing" by one of "my loves"---real estate investment trusts. Take a look at long time stalwart, Realty Income Corporation (O), which has an unparalleled history of dividend performance over the past 40 years, but which has taken a beating over the past month along with every other bond like security. (see Vol. 175-176 www.riskrewardblog.blogspot.com ) I will likely buy some of its investment grade, preferred stock (OpF) which pays a 6.6% dividend on a monthly basis. Whether QE3 tapers in September or not, I doubt that you will see OpF trade as low as it is currently.
There is much to watch next week. China reports second quarter GDP on Monday, and earnings season is in full swing. But once again, nothing will be more important than Bernanke's testimony before Congress on Wednesday and Thursday. His conduct last Wednesday was disheartening to yield hunters like me. One is left to wonder why he felt compelled to infuse uncertainty into the timing of QE3's tapering since the bond market appeared to have accepted its inevitability and was beginning to stabilize---unless of course Bernanke concluded that the elevated interest rates at which longer term bonds (10-30 year) were trading made continued deficit government spending unsustainable. This is what CNBC's Rick Santelli believes. If that were Bernanke's reason, it constitutes an incursion into fiscal policy which is the bailiwick of Congress not the Fed. If so, it is time to follow Rihanna's admonition--- let's give Uncle Ben "A round of applause/A standing ovation" and then have him "Take a Bow."
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"You called me from the room in your hotel
All full of romance for someone that you met
And telling me how sorry you were, leaving so soon"---lyrics from "Separate Lives" by Phil Collins
"All around, people looking half dead
Walking on the sidewalk, hotter than a match head"---lyrics from "Summer in the City" by the Lovin' Spoonful
"You can't lease my love
Oh, this was just an empty space
That both we tried to live"---lyrics from "Lease My Love" by Rihanna
As reported last week, the correlation between the bond market and the stock market caused by quantitative easing (QE3) began to disappear on Friday July 5th. Those "Separate Lives" continued through Wednesday of this week as the stock market experienced gains despite the 10 Year Treasury Bond stabilizing above a 2.65% yield and the 30 Year Bond above 3.63%; yields that anticipated the tapering of QE3 come this fall. Then on Wednesday afternoon, from "some hotel room" in Cambridge, MA, Fed Chair Ben Bernanke "told us how sorry he was" that the markets were "leaving bonds so soon." "All full of romance " for QE3, his speech threw tapering in 2013 into question, intimating that QE3 could be around for quite some time. On Thursday, the stock market and the bond market skyrocketed together, stoked once again by the sugar high of continued low interest rates (and thus high bond prices) compliments of QE3.
And it happened just as I began tip toeing back into the market! For several days I had had my eye on sectors that have been pummeled by the spike in bond yields (and the corresponding drop in bond prices) occasioned by the prospect of QE3 tapering this fall. No sector has been hit harder than the municipal bond market. This is ironic because the drop in muni's has happened at a time that has been a "Hot time/This summer in the cities": a time when state and local budgets (Detroit notwithstanding) are healthier than they have been for several years. Nevertheless, "all around" the municipal bond arena "people are looking half dead." Meanwhile the rising rates have made the sector look "hotter than a match head" to me. So on Tuesday I bought NEA and EIM, two well regarded municipal bond funds that pay a tax free return in excess of 6% (which in my hand is the equivalent of a 10% taxable return!) Bernanke's speech caused my investment to go slightly negative, but my entry point is too good to consider a sale at this time.
A second sector made attractive by the prospect of QE3 tapering this fall is "leasing" by one of "my loves"---real estate investment trusts. Take a look at long time stalwart, Realty Income Corporation (O), which has an unparalleled history of dividend performance over the past 40 years, but which has taken a beating over the past month along with every other bond like security. (see Vol. 175-176 www.riskrewardblog.blogspot.com ) I will likely buy some of its investment grade, preferred stock (OpF) which pays a 6.6% dividend on a monthly basis. Whether QE3 tapers in September or not, I doubt that you will see OpF trade as low as it is currently.
There is much to watch next week. China reports second quarter GDP on Monday, and earnings season is in full swing. But once again, nothing will be more important than Bernanke's testimony before Congress on Wednesday and Thursday. His conduct last Wednesday was disheartening to yield hunters like me. One is left to wonder why he felt compelled to infuse uncertainty into the timing of QE3's tapering since the bond market appeared to have accepted its inevitability and was beginning to stabilize---unless of course Bernanke concluded that the elevated interest rates at which longer term bonds (10-30 year) were trading made continued deficit government spending unsustainable. This is what CNBC's Rick Santelli believes. If that were Bernanke's reason, it constitutes an incursion into fiscal policy which is the bailiwick of Congress not the Fed. If so, it is time to follow Rihanna's admonition--- let's give Uncle Ben "A round of applause/A standing ovation" and then have him "Take a Bow."
Saturday, July 6, 2013
July 6, 2013 Bonds
Risk/Reward Vol. 176
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"You see it's all clear
You were meant to be here
From the beginning."---lyrics from "From the Beginning" by Emerson Lake & Palmer
"Thinking all love ever does/Is break and burn and end
But on a Wednesday in a cafe/I witnessed it begin again."---lyrics from "Begin Again" by Taylor Swift
"Feel the city breakin'/And everbody shakin'
And we're stayin' alive/Stayin' alive."---lyrics from "Stayin' Alive" sung by the BeeGee's
Sitting on the sidelines, in cash, I ask myself "Were you meant to be here?" The answer is yes as I look back "from the beginning", and "I see it's all clear". Here is what I wrote in volume 1 of Risk/Reward back in June, 2010
" I am in search of a 6%, pre tax return. Throughout most of my life, this would have been a layup. From 1969 through 1997, the 10 Treasury rarely fell below 6%. From 1980 through 1985, it never fell below 10%. So, at this stage in my life all I need is a little inflation. Indeed, right now 90% of my money is parked, waiting for that to happen. Unfortunately, it looks like we are into a prolonged period of stagflation and perhaps deflation. So, Barb and I decided to get off our duffs, and to become more active money managers"
I have achieved a 6+% return for the year. Thus, the sidelines is where I should be. But, of course, it is human nature to want more, especially with the Dow Jones Industrial Average (DJIA) and the S&P 500 doing so well. Is it worth the risk?
Not for me. Not at this time. And here is why.
I am a yield hunter. My favorite sectors are high dividend payers such as real estate investment trusts (REIT's), master limited partnerships (mlp's), preferred stocks, exchange traded debt, junk bonds, floating rate loans, etc.--- all of which share one characteristic: they are all priced in relation to the 10 year U.S. Treasury Bond ("the 10Year"). Right now prices in these sectors, like the price of the 10Year, are "breaking and burning" and their meteoric rise in 2013 is at an "end." If there were any doubt about this, one only had to "witness" what "happened on Wednesday, in a cafe" or any other place that had access to market news. On Wednesday, the president of Egypt was deposed causing oil prices to spike, and mounting economic turmoil in Portugal caused its bonds to fall precipitously. As they always do, these events resulted in a flight to the safety to the 10Year, the world's most secure asset. Yet that flight-in was not enough to counter the steady sell-off of the 10Year, as frontrunners continue to anticipate the end of QE3 about which I have written over the past several weeks. Predictably, my favorite sectors likewise sold-off.
And then came Friday. The good jobs report spurred a spike in equities (the DJIA rose 147 points on Friday) but
caused a massive sell-off of the 10Year. Favorable economic news increases the likelihood that QE3, which has kept 10Year prices high and 10Year yields low, will be tapered sooner rather than later. (Remember--and never forget--a rise bond yields means a drop in bond prices.) On Friday, the yield on the 10Year rose from my benchmark of 2.5% (see last week's edition www.riskrewardblog.blogspot.com) to 2.71%, a rise of 8.56%--IN JUST ONE DAY! Of course that meant that the price of the 10Year fell correspondingly. My favorite sectors suffered an equally devastating decline.
Obviously, the bond and bond related worlds are "breakin'" with "everybody shakin." This week, PIMCO's Total Return Fund, the largest bond fund in the world, announced that $9.9billion had been withdrawn from its coffers in June, the most in its 26 year history, as investors abandoned what they perceive to be a sinking ship. Indeed, as reported by Lipper, bond funds generally are struggling, just "stayin alive/stayin' alive.". In the four weeks ending June 28th, U.S. bond funds saw $23.7billion dollars withdrawn, the most since October, 2008. REIT's, mlp's, preferred stocks, etc. are suffering a similar fate, many having gone from a year-to-date positive to a ytd negative.
In the long run, this is very good news for me. As noted above, all I have ever wanted is for longer term U.S. Treasury Bonds to pay 6%(heck, I would take 4.5% on the 10Year)---at which time I will buy a ladder full and head to the beach. Until that occurs, I will continue to dart in and out of the market, using my wits to make 6%; all the while fixating on preserving principle. So, as you can see, having already earned a 6% profit in 2013, cash is indeed where I should be--- at least until some stability returns to the bond market. In cash, I sleep very well. Were I invested in my favorite sectors today, I would have lost my ytd profits and like the BeeGee's, would be suffering "Night fever, night fever."
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"You see it's all clear
You were meant to be here
From the beginning."---lyrics from "From the Beginning" by Emerson Lake & Palmer
"Thinking all love ever does/Is break and burn and end
But on a Wednesday in a cafe/I witnessed it begin again."---lyrics from "Begin Again" by Taylor Swift
"Feel the city breakin'/And everbody shakin'
And we're stayin' alive/Stayin' alive."---lyrics from "Stayin' Alive" sung by the BeeGee's
Sitting on the sidelines, in cash, I ask myself "Were you meant to be here?" The answer is yes as I look back "from the beginning", and "I see it's all clear". Here is what I wrote in volume 1 of Risk/Reward back in June, 2010
" I am in search of a 6%, pre tax return. Throughout most of my life, this would have been a layup. From 1969 through 1997, the 10 Treasury rarely fell below 6%. From 1980 through 1985, it never fell below 10%. So, at this stage in my life all I need is a little inflation. Indeed, right now 90% of my money is parked, waiting for that to happen. Unfortunately, it looks like we are into a prolonged period of stagflation and perhaps deflation. So, Barb and I decided to get off our duffs, and to become more active money managers"
I have achieved a 6+% return for the year. Thus, the sidelines is where I should be. But, of course, it is human nature to want more, especially with the Dow Jones Industrial Average (DJIA) and the S&P 500 doing so well. Is it worth the risk?
Not for me. Not at this time. And here is why.
I am a yield hunter. My favorite sectors are high dividend payers such as real estate investment trusts (REIT's), master limited partnerships (mlp's), preferred stocks, exchange traded debt, junk bonds, floating rate loans, etc.--- all of which share one characteristic: they are all priced in relation to the 10 year U.S. Treasury Bond ("the 10Year"). Right now prices in these sectors, like the price of the 10Year, are "breaking and burning" and their meteoric rise in 2013 is at an "end." If there were any doubt about this, one only had to "witness" what "happened on Wednesday, in a cafe" or any other place that had access to market news. On Wednesday, the president of Egypt was deposed causing oil prices to spike, and mounting economic turmoil in Portugal caused its bonds to fall precipitously. As they always do, these events resulted in a flight to the safety to the 10Year, the world's most secure asset. Yet that flight-in was not enough to counter the steady sell-off of the 10Year, as frontrunners continue to anticipate the end of QE3 about which I have written over the past several weeks. Predictably, my favorite sectors likewise sold-off.
And then came Friday. The good jobs report spurred a spike in equities (the DJIA rose 147 points on Friday) but
caused a massive sell-off of the 10Year. Favorable economic news increases the likelihood that QE3, which has kept 10Year prices high and 10Year yields low, will be tapered sooner rather than later. (Remember--and never forget--a rise bond yields means a drop in bond prices.) On Friday, the yield on the 10Year rose from my benchmark of 2.5% (see last week's edition www.riskrewardblog.blogspot.com) to 2.71%, a rise of 8.56%--IN JUST ONE DAY! Of course that meant that the price of the 10Year fell correspondingly. My favorite sectors suffered an equally devastating decline.
Obviously, the bond and bond related worlds are "breakin'" with "everybody shakin." This week, PIMCO's Total Return Fund, the largest bond fund in the world, announced that $9.9billion had been withdrawn from its coffers in June, the most in its 26 year history, as investors abandoned what they perceive to be a sinking ship. Indeed, as reported by Lipper, bond funds generally are struggling, just "stayin alive/stayin' alive.". In the four weeks ending June 28th, U.S. bond funds saw $23.7billion dollars withdrawn, the most since October, 2008. REIT's, mlp's, preferred stocks, etc. are suffering a similar fate, many having gone from a year-to-date positive to a ytd negative.
In the long run, this is very good news for me. As noted above, all I have ever wanted is for longer term U.S. Treasury Bonds to pay 6%(heck, I would take 4.5% on the 10Year)---at which time I will buy a ladder full and head to the beach. Until that occurs, I will continue to dart in and out of the market, using my wits to make 6%; all the while fixating on preserving principle. So, as you can see, having already earned a 6% profit in 2013, cash is indeed where I should be--- at least until some stability returns to the bond market. In cash, I sleep very well. Were I invested in my favorite sectors today, I would have lost my ytd profits and like the BeeGee's, would be suffering "Night fever, night fever."
Subscribe to:
Posts (Atom)