March 25, 2014
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Last week that nit-wit Yellen (Fed President) roiled the markets. She talked about rising interest rates and the markets have still not recovered. Yesterday we took a roller coaster ride and our dividend paying investments took a tumble.
Rates will be going up but WHEN is the question..it could be next year or the year after. Many advisors I follow feel that the economy is so bad that we will NOT see higher rates anytime soon. So who is right?
High interest rates will hurt dividend payers and you need to know when to SELL. Don’t just buy and hold. And keep in mind that we typically see corrections before mid-term elections which are coming up in November.
So what do you do. Continue holding your positions. Watch floating rate bonds, a topic I have talked about frequently. We hold PFLT in the Core Portfolio…paying almost 8%. You can also buy BKLN but pays only 4%.
PowerShares Senior Loan Portfolio (BKLN) is a bank-loan fund ie “floating rate funds”. The rates on the loans are reset every 30 to 60 days and the duration is low. This is exactly what you want if you think interest rates are going up.
Here is more information from SeekingAlpha.com: “While bonds of every stripe carry exposure to rising rates, bank loan funds are floating rate securities, meaning the rates on the underlying loans are re-set every 30 to 60 days. That means that their prices have almost zero sensitivity to interest-rate fluctuations, a metric known as duration. (Example: If a bond fund has a duration of 5.25, a 1% rise in interest rates will cause the value of the fund to decline by 5.25%.)
But because bank loan funds regularly and frequently adapt to rate changes, they have virtually no sensitivity to them. Hence, their duration is effectively zero. As rates rise, so will the yields of these funds. That said, they might not rise immediately, due to a rate “floor” that could exist on some of the underlying loans. But, really, who cares if you miss a single-point increase when the yield is already so good?”
There will be short term fluctuations in the BDCs for probably a few months. You have to buy these as a LONG term investment meaning a year or more.
ALSO if you own mid and long term bond Funds, SELL them.
Last week I suggested you read Earth An Alien Enterprise by Timothy Good. This has to be one of the most fascinating books I have read in decades. If you have not paid attention to this UFO phenomenon you really need to get up to speed. The stories of sightings and interactions are absolutely stunning.
Liberal main stream media hurting: “The Nielsen Media Research data show that the biggest decline came at MSNBC, which lost nearly a quarter (24%) of its prime-time audience. CNN, under new management, ended its fourth year in third place, with a 13% decline in prime time,” states the report.
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