June 8, 2015
(Update: Place Buy Limit order for BSJM at $24.75 Place Buy Limit order for PRH for $24.74 Waiting for buy signal to form on PG.)
OK kiddos, first up today, let’s talk about what we are NOT buying: preferreds, utilities, REITs, long term bond FUNDS, and most importantly annuities (the biggest scam in the world.) As we have been telling you for years, long term bond FUNDS should have been sold, and if you still own them, you may want to get out.
It appears that the Fed may be Finally ready to raise their overnite rate, altho many financial advisors that I read do NOT agree with this assessment. Long term bond funds are not the place to be if you see rising rates.
In term of bonds, we own INDIVIDUAL bonds, NOT bond funds. Individual bonds are purchased with the assumption that you hold to maturity. At redemption you get your principle and of course the dividends that you have received over the years. We own a bunch of these in the Core Portfolio: both individual and ‘baby bonds’…..and we recently suggested a new purchase just last week. Keep in mind that the prices WILL fluctuate until maturity.
We hold 24 positions in individual bonds……..hard to believe.
The toll takers and energy positions are getting hit hard, but we KNEW that this segment would be volatile. Just hold on and collect the dividends.
In terms of BUYING new positions you should look at the floating rate investments. BKLN is a good choice but the momentum is currently down: we will advise as to a buy price. We are also watching BSJM for a buy…we will send an alert if the price is right. This is one of our defined maturity corporate bond funds that hold the bonds to maturity. They are really great for small investors as the share price is around $25. You CAN sell this fund at anytime even tho they hold all bonds to maturity. This is a huge advantage in that you can collect the dividends and still sell when you want to. Finally remember that we are in the seasonally weak six month period for the stock market. I still think we are going to see a correction (the rising dollar is already hitting the big names) but as you know my ‘always wrong’ crystal ball is not working that well.
The moron in the White House keeps talking about income inequality. In truth it is HIS own policies that are contributing to the problem. Below is some text and the link: go here to learn the truth.
Ms. Yellen’s speech seemed heartfelt. Yet, she has endorsed the Fed’s policies, started by her two immediate predecessors, Alan Greenspan and Ben S. Bernanke, that drove down interest rates to historically low levels – policies that have actually exacerbated the problem that she says she wants to correct.
She is failing to appreciate how Mr. Bernanke’s extraordinary quantitative easing program, started in the wake of the financial crisis, has only widened the gulf between the haves and have-nots. If she does understand, she certainly made no mention of it in her speech in Boston. Indeed, there was no mention whatsoever of the Fed’s easy monetary policies at all, let alone how they have helped to cause income inequality.
Quantitative easing adds to the problem of income inequality by making the rich richer and the poor poorer. By intentionally driving down interest rates to low levels, it allows people who can get access to cheap money on a regular basis to benefit in extraordinary ways.
The first beneficiaries are the big Wall Street banks, the so-called group of 22 primary dealers, which can borrow directly from the Fed, essentially free. Because banks are in the business of making money from money, they use the Fed’s money to make more money by trading with it, investing it in government debt and pocketing the profit or by lending it out at wide spreads. Thanks to the Fed’s low-interest rate policy, the big banks also make a lot of money by taking our deposits, which they also pay us virtually nothing for – my savings account pays me an annual interest rate of 10 basis points, or one-tenth of one percent — and lending them out at wide spreads. No other business on the face of the earth gets its raw material so cheaply. No wonder bank profits have soared.
Then there is the gift the Fed has given to Wall Street’s traders and investment bankers. The traders benefit because they know – and have known for years, thanks to the Fed’s telegraphing of its quantitative easing program – that the Fed will be a continuing buyer of their risky securities at (ever-rising) market prices. Since the onset of Mr. Bernanke and Ms. Yellen’s policy, the Fed’s balance sheet has grown to $4.5 trillion, from around $800 billion before the crisis. That’s a whole lot of securities bought at high, profitable prices and paid directly to Wall Street traders. The Fed might as well have been paying the traders’ seven-figure bonuses directly.
The Fed’s low-interest rate policies have also been a bonanza for Wall Street’s investment bankers – and their bonuses — as companies around the world race to raise debt capital at low rates. Wall Street, of course, takes a cut of every dollar of debt raised. The steadfastly low interest rates have also propelled the stock market to new highs. That, in turn, has also led to a bonanza of new equity being raised and more fees being paid to Wall Street.
Private equity firms also have benefited wildly from the low-interest rate environment. That allows them to borrow money cheaply and leverage the billions of dollars in equity – said to be $3.5 trillion these days — to buy and sell companies. The buyout firms, and of course Wall Street, also get fees from all this deal activity. The investors in private equity funds have benefited too, and this often includes state-employee and teacher pension funds. The endowment funds of colleges and universities have also benefited from the low-interest rate environment. But it is the fund managers, not the pensioners, who really rake in the money from this arrangement.
What if you are one of the millions of Americans trying to get by on a fixed income? Or is trying to live off savings? Ms. Yellen claimed in her Boston speech to understand the problem these Americans face.
“The lower half of households by wealth held just 3 percent of wealth in 1989 and only 1 percent in 2013,” she said. “To put that in perspective…the average net worth of the lower half of the distribution, representing 62 million households, was $11,000 in 2013. About one-fourth of these families reported zero wealth or negative net worth, and a significant fraction of those said they were ‘underwater’ on their home mortgages, owing more than the value of the home.”
And yet in the past five years or so, the Fed’s low-interest rate policies have buried savers and those on a fixed income because they can’t get a return without taking an inordinate amount of risk, by either investing in the stock market, which as we were reminded again last week can also go down, or by “reaching for yield” by investing in risky debt securities that are increasingly overpriced. Either way, Ms. Yellen’s policies are crushing these 62 million American households.
MOVIES. SPY. An entertaining spoof of the Bond 007 fliks. Good for a few laughs, definitely recommend you see it.
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