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ADD TO PFLT. FLOATING RATE LOAN SECTOR.

March 8, 2015

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This corrupt government continues to publish bull crap jobs numbers.  Of the 295,000 jobs listed in the report, 40% were fabricated out of thin air based on the “birth-death” model that they use.  And the rest of the jobs are bartenders, and remodeling of apartments, NOT houses.  This is pure BS.  Be aware.  If you want to know more go to this link:

http://theeconomiccollapseblog.com/archives/nearly-full-employment-10-reasons-unemployment-numbers-massive-lie

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UPDATE:  WE SOLD ALL FLOATING RATE POSITIONS.

Investors have been anticipating rising rates for years……….yes for years.  And it has not happened.

Now the good (but manipulated and fake) jobs report on Friday has everyone thinking that maybe, finally, rates really will go up….probably very slowly.  Who knows.  And my always wrong crystal ball certainly doesn’t know.

My strategy has been to own PFLT PennantPark Floating Rate Capital, a business development company that invests primarily in floating rate loans.  We have had this in the Core Portfolio for a long time steadily collecting a very nice yield, currently 8%.  Not bad.

The interest rates on floating rate loans adjust to keep pace with rates…so you receive a higher yield.

NOTE:  If you do not own a floating rate position you should consider buying.  PFLT is scheduled to go ex-dividend March 13 and it is very possible you could get shares at a lower cost….BUT with the sudden concern about rising rates these funds may head higher.  You may want to buy NOW.

I plan on adding to our PFLT holding.  We also hold PHD in the Core Portfolio which you could consider….and BKLN is another option.

I have copied part of an article from morningstar.com below which describes this segment of investments.

Image result for FLOATING RATE BONDS

Bank-Loan/Floating-Rate Funds

The Bull Case: Bank loans–or floating-rate loans–behave differently from most other bond types. Conventional bonds have fixed interest rates, and that means they’ll tend to lose value when prevailing bond yields rise; the presence of new bonds with higher yields decreases demand for the older, lower-yielding bonds. By contrast, the interest rates on bank, or floating-rate, loans adjust on a regular basis to keep pace with short-term interest rates. That means that when bond yields go up, bank-loan owners receive a higher yield–not immediately, but eventually. For that reason, bank-loan securities may also appreciate in value during periods of rising interest rates. Moreover, considering that interest rates often increase in periods of economic strength, bank loans may also appreciate during a rising-rate period because investors assume that there’s less of a risk that the companies borrowing via the bank-loan market will have trouble meeting their obligations. Finally, investors have been pulling assets from bank-loan funds over the past year, to the tune of $21 billion in outflows in the one-year period through December 2014. The fact that other investors have been leaving doesn’t automatically mean that there’s no froth in the sector, but big outflows from a given category can be a contrarian indicator. 

What Could Go Wrong: Bank loans face risks under a few different scenarios. One is what we’ve experienced recently: When interest rates decline, the returns from bank-loan funds will be meager alongside investments with greater interest-rate sensitivity. As intermediate- and longer-term bonds have rallied on interest-rate declines over the past year, bank-loan funds have done just a little better than stand still, gaining only 1.6%, on average, versus a nearly 5% return for the Barclays U.S. Aggregate Bond Index. Perhaps the bigger concern with bank-loan funds, however, is if the economy were to weaken unexpectedly. Because many bank-loan borrowers have low credit qualities, they’re at greater risk of default in a weakening economic environment. The typical bank-loan fund lost 30% of its value in 2008’s financial crisis, for example. Given their junky credit profiles, bank loans aren’t likely to provide as much diversification in an equity-market sell-off as high-quality bonds would. 

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From zerohedge.com

Once again Congress is likely to do something stupid.  Really, really stupid.

 

Sometime next year Social Security’s $150 billion disability-insurance program will become insolvent. The program, which offers income supplements to those who cannot work full time due to physical or mental disabilities, has buckled as the number of beneficiaries has soared to more than 11 million in 2014, from 3.8 million in 1984. The bipartisan Social Security Advisory Board has urged reforms.

You can’t explain this away as “demographics” (e.g. people getting older); that’s not the answer at all.  Further, not only have the self-reported rates of work-limiting disability not changed materially in 30 years but the reported rate of on-the-job injuries has come down materially.  Whatever you may think of OSHA, the fact is that “the job is getting done” in that regard.

But Congressional loosening of benefit requirements, and more-importantly allowing people to remain on disability effectively for life once they gain it (less than 1% of the people on disability return to the workforce in any given year) make the problem one that is utterly intractable without major changes.

In addition we must consider those who become disabled through either intentional personal conduct or willful refusal to follow through on a rehabilitation program.  Today you can literally smoke meth or suck down bottles of booze for decades, utterly destroy your health, and then go on disability, receiving what amounts to a $24,000 a year income between your SSDI payments and eligibility for Medicare at zero cost.  That’s not bad, and you can then turn around and make up to about $13,000 on the side without losing any of those benefits!

I will note that these gimmes are also non-taxable, meaning that we’re talking about a middle-class living for which you need do exactly nothing.  There are a whole host of people making $30,000 a year that take home less than the person on “disability.”

There are in fact people who, through just bad luck or otherwise no fault of their own, find themselves unable to work.  Then there are those who legitimately are hurt on the job.  Part of your Social Security taxes that are paid in by you every pay period is supposed to go toward the possibility that one of these things will happen to you.

But it is utterly outrageous for you to be able to buy fire insurance on your house and then intentionally burn it down to collect the money.  That is considered arson and a crime.

But that is, in effect, what we permit with this program when we allow disability claims for people who are unable to work due to self-inflicted and intentional injury, such as disability caused by the ingestion of drugs or alcohol.

Cutting that off alone would not resolve all the problems but it sure would go a long way toward helping.  So would requiring medical exams on an annual basis by physicians paid for by the government instead of “private physicians” who have every incentive to find someone “disabled.”  Indeed, independent studies have found that a very material percentage of the people on disability have the ability to perform some sort of  remunerative work.

If we shift funds to the Social Security disability fund from the Social Security retirement fund it will simply will hasten the day on which the retirement fund goes broke and is unable to pay promised benefits.  Shifting money around from one bankrupt program to another is not only bad policy it’s an act of fraud and one we must not tolerate as a society.

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