Risk/Reward Vol. 188
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Some people think life is a dream/So they makin' matters worse
But no matter what the crisis is/Doin' it, doin' it, doin' your own thing."---lyrics from "Crisis" by Bob Marley
"Treasure, that is what you are/Honey, you are my golden star
You know you can make my dreams come true
If you let me treasure you."---lyrics from "Treasure" by Bruno Mars
"Just let go/And let it flow
Let it flow/Let it flow
Everything's gonna work out right, y'know."---lyrics from "Let It Flow" sung by Toni Braxton
With last week's taper tandrum behind us, Washington keeps "Doin' it, doin' it" to us---"making matters worse"; that is. Thanks to our friends, the politicians--be it the launch of Obamacare, the approach of the debt ceiling or a government shut down-- "no matter what the crisis is" just make sure there is a crisis. For investors, Washington makes "life a dream"---unfortunately that dream is a nightmare. That is why the Dow Jones Industrial Average fell six out of the past seven trading days.
Fortunately for income investors such as yours truly, that downward trend has been mitigated by a slow, but steady decline in the yield on the ever important 10 Year Treasury Bond ("10Year"). Although its drop from 2.89%, just prior to last week's decision not to taper, to 2.62% at the close this Friday is not so great as to deserve "a golden star", the yield decline has been enough to make my "dream" of interest rate stability "come true". How long the 10Year yield will remain in its current steady state is a matter of conjecture, but I "treasure" every day it does.
As explained previously (see Vol. 172 www.riskrewardblog.blogspot.com ), income producing securities such as preferred stock, master limited partnerships, real estate investment trusts, business development companies, utilities, etc. are interest rate sensitive. Generally, they decline in value if the yield on the benchmark 10Year increases. Conversely, as the 10Year yield declines, the value of income producing securites increases--as mine have done over the past several days--- despite a decline in the overall stock market. Of course, this recent activity pales in comparison to the spike in the 10Year yield this summer which at the time caused me to sell most of my positions (see. Vol. 173 www.riskrewardblog.blogspot.com ), but it is a welcome development nevertheless. The real benefit from the recent 10Year activity (or lack thereof), however, is that it has justified my continued ownership of income producing securties which in turn has resulted in dividend income "flowing". I recognize that "Everything does not always work out right" and that the yield on the 10Year will start rising again someday (likely when QE3tapering becomes more certain). I further recognize that I may have to "Just let go" of those positions again at that time. But in the interim I enjoy the cash generated by my list of monthly dividend paying stocks (see. Vol. 151 www.riskrewardblog.blogspot.com ), and I say "'Let it flow/Let it flow/Let it flow."
Perhaps I should be more concerned about the shut down and the debt ceiling and whatever other crisis Washington can create. But having overreacted to these threats in the past, I am holding pat. I may be foolish, but I am following the lead of my favorite investment advisor, Bruno Mars who counsels:
"Today I don't feel like doing anything
I just wanna lay in my bed
Don't feel like picking up my phone
So leave a message at the tone
'Cause today I swear I'm not doing anything"
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