October 12, 2013 Sultans of Swing

Risk/Reward Vol. 190

THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN

"And then the man he steps right up to the microphone
And says at last/Just as the time bell rings
Thank you/Goodnight/ Now it's time to go home
And he makes it fast with one more thing
We are the Sultans of Swing."---lyrics from "Sultans of Swing" by The Dire Straits

"With a rebel yell/She cried "More, more, more"
Oh, yeah baby, she wants more, more, more"---lyrics from "Rebel Yell" sung by Billy Idol

"For the good times and the bad times
I'll be on your side for evermore
That's what friends are for."---lyrics from "That's What Friends Are For" sung by Dionne Warwick

With the Dow Jones Industrial Average vacillating from a 296 point decline on Monday and Tuesday to a 325 point rise on Thursday followed by an another triple digit move upward "as the time bell rang" on Friday, our elected representatives once again proved to be "The Sultans of Swing". As the world's economies continue to hang on every word from Washington, we need for someone to "step right up to the microphone" to announce a deal, and "make it fast." Then, as far as this writer is concerned, they can all say "goodnight and go home"---for good.

Almost forgotten in this week's noise was the announcement on Wednesday of the "Rebel Yell(in)" as the new Chair of the Federal Reserve. I say "rebel" because of her outspoken Keynsian views on monetary policy. When it comes to accommodation, Janet Yellin "cries more, more, more." Thus, I don't see the discount rate increasing until late 2015 or 2016, and tapering in 2013 likely is off table. Indeed, most commentators believe "She wants more, more, more" quantitative easing. If the debt ceiling issues are resolved, interest rate sensitive stocks (e.g. mortgage real estate investment trusts, preferred stocks, business development companies,etc.) should do well under Chairperson Yellin.

As the author of this publication, it is my desire to "be on your side (as investors) for evermore" That's true "for the good times and the bad times." In return, I would like you, my Readers, to share your investment observations and ideas. Some of you do and that is why I would like to extend a hearty thanks to a longtime friend and subscriber for alerting me to Main Street Capital Corporation (MAIN), an intriguing business development company ("BDC"). As a subscriber to BDCBuzz (www.bdcbuzz.blogspot.com ), I was aware generally of MAIN, but had not invested because it trades at a healthy premium to its book value, normally a BDC negative. My friend's heads-up, however, caused me to do further research which revealed that the premium was justified by MAIN's successful equity plays (in addition to a decent bread and butter loan portfolio) and its now regularly-scheduled supplemental distributions paid in addition to a monthly dividend calculated on a 6.4% annualized base yield. Thanks again for the tip. "That's what friends are for."

I stood pat all week with an eagle eye on the 10 Year Treasury Bond yield. It started to rise above 2.7% ,a disconcerting sign for income investors like me. Thankfully, it ended the week at 2.69%, a modest increase considering the continuing uncertainty. Clearly, there is room for the President and the House to compromise and in so doing each should remember the teachings of Dionne Warwick:

A room is still a room
Even though there's nothing there but gloom
But a room is not a house
And a house is not a home
When the two of us are far apart
And one of us has a broken heart