Rich, as an investor, I almost hate to agree with you about the outlook for the market, but Europe is the elephant in the room and should it continue to go South, the contagion effects will be large. I also agree that further upside (in price) of bonds is severely limited and going long for a gain will prove to be unrewarding. Should the ugly occur (Europe melting down) not only stocks will get hit, but credit markets (IG and HY) will get smacked due to lack of growth prospects... Of course, if it gets worse and growth stagnates or drops, then the value/yield we see in debt markets will be justified from a real rate basis.
Not all news is good news, and nothing is over until it is firmly over. We are not there yet - maybe the fifth inning and Bautista is at the plate.
Thanks for reading, commenting and adding further discussion points, all are appreciated. Mike
kwm3, I agree that this is one long train and the potential participant list grows by the day. In most bubbles, there was money to be made on the short side. Shorting bonds is different than equities - central banks can print you out of business. Thanks for the comment and discussion points, Mike
pmiller100, First, thanks for reading and contributing to the discussion - this is the true value of an article/analysis. Second, I believe you have hit the nail on the head. Bond investors have an asymmetric payoff profile - a little upside and a lot of downside. When I was running both corporate bonds and MBS, I would get defensive when the time was right and offensive when the time was right. You dial in or out your risk budget/appetite depending on the prevailing conditions and expected outcome (outlook/performance...).
Your comments on yield are spot on. The governments has been actively managing rates and the yield curve, they can continue to do so for quite a while (not to mention they are measuring inflation - which should be central to intrinsic value of debt on a real basis). The players involved (not just the US government do not want prices to roll over and yields to skyrocket as they stand to lose significantly - and China comes to the table with serious chips).
Thanks for reading, commenting, and adding to the discussion. Mike
An economic bubble (sometimes referred to as a speculative bubble, a market bubble, a price bubble, a financial bubble, a speculative mania or a balloon) is "trade in high volumes at prices that are considerably at variance with intrinsic values". It could also be described as a trade in products or assets with inflated values.
A bubble always has elements of speculative excess. What is the intrinsic value of sovereign debt? As it is being paid with a fiat currency, one might argue the intrinsic value is unknowable (should it be gauged by real rates of return, nominal rates, productive capacity...). Think of every "bubble" we have witnessed - a major element of speculative excess. Is principal preservation a form of speculative excess? Could be, I suppose - but there is a "value" to safety. How does one discern intrinsic value of a corporation - the ability to generate income based of the productive capacity of the assets and business of a company? Is paying 15x earnings disconnected from intrinsic value - something trades above/below market "norms". What is the intrinsic value of a house - equivalent rents?
My point is, most would agree there is an element of speculative excess fueled by the potential (or perceived potential) for outsized gains. We have neither here.
You make very good and valid points, and I appreciate your comments as they help further the discussion on what, I believe, is an issue that has to be addressed and will have validity on both sides. Thanks, Mike
Balancing Risk: REITs That Outperform In Good Times And Bad [View article]
Never fall in love with an investment. Value often turns into value trap. Starting out with a thesis on the investment helps - why should you own it, what is the purpose (income, appreciation, both) and what do you expect. If the investment is going down, investigate - has the company changed since your investment (or the last time you reviewed it), can you still expect your desired outcome, and, at times, is the valuation just plain silly (high). If the thesis has changed or the way the company is conducting business, or if you were just plain wrong (been down that road), then punt it. If everything is the same and macro forces have pushed it down, but it is still performing to your expectations and the outlook hasn't changed, keep it. I would rather lose some capital than a lot of capital - but for the right reasons. If it is an investment (not a trade, or a trading position) and it is performing as you expected (financially and operationally), hold on. REITs got slaughtered in '08, but they came back because they were fundamentally sound and overcame the liquidity concerns. People who stepped in, cleaned up (across the capital structure). Conviction takes courage (but not recklessness).
Just my opinion and what has worked for me and my employers.
Banco Santander - Preferreds Are Attractive [View article]
I have to say, the Euro isn't helping ADR holders, but I will add to my position in the equity and the STD-Es. Some will call me crazy, but this is one of my highest conviction situations available. Mike
Balancing Risk: REITs That Outperform In Good Times And Bad [View article]
If I may respond to all those who question an author/analyst's integrity or knowledge base on whether he/she owns securities they write about. A couple things come to mind:
Would you rather have an author write solely on what they own? Then we get the pumping/talking your book response. Damned if you do, damned if you don't scenario.
I would rather have someone with in depth knowledge of an industry write about many companies to get his/her opinion and insight into the sector rather than one or two companies. If you want insight into a sector, is it reasonable to expect an author to own every company he/she talks about?
Think of the sell side - an analyst comes out and upgrades/downgrades a company/stock and it moves markets - and yet they typically (99.9% of the time) cannot have positions in companies/sectors they cover.
The bottom line is that you cannot fault an author for not owning all the securities they cover, nor can you expect it if you want broad coverage - as most of us do.
Just my take. I write about many companies I do not own (and many I do) and I have never been questioned as to the validity or the quality of my research.
Banco Santander Brasil: An Investment Gem In The Santander Stable [View article]
Two things to consider - if the Spanish banking sector implodes (which it won't broad based - the largest exposures to the RE and commercial sector are not in STD or BBVA) and China slows precipitously or implodes - the effects will transcend Spain and Brazil and the global macro-economic situation turns bad. Should this happen, the only viable option is cash (and watch which currency it is in). Just a thought.
Don't Let One Bad Apple Spoil The Whole Darn Bunch [View article]
KL, Anytime there is a fixed income alternative, you know I am a fan. I hope you find some time to contribute as the readers and I would surely gain. If you are hard pressed for time, please continue to use my (and other folks) comment stream/discussion to share insight and ideas. Mike
National Bank Of Greece: It Ain't Over Until... No, It's Over [View article]
As someone whose family is Greek and half still live there, I take offense to the last sentence as well, which is why I said I can't slam the Greeks. Most Greeks are hard working individuals and are not responsible for the current situation, just as most Americans (French, German, Spanish...) are not responsible for their country's deplorable financial condition. One should not fault a people as it is the government (and other entities) that get them into the situation. I recently wrote an article entitled "don't let one bad apple spoil the whole darn bunch" - there are those that profit from government weakness and multiples more who do not.
Unfortunately, if the country continues down the path that some advocate, it is the average Joe that is going to get buried - the currency will devalue, the country will be bankrupt and god forbid you have borrowed in foreign currency. I have begun to hear the voice of reason out of the New Democracy party (which is pro bailout) which seems to have the lead in opinion polls. Either way - austerity or bailout rejection - there will be more than enough pain to go around. It is unfortunate.
Don't Let One Bad Apple Spoil The Whole Darn Bunch [View article]
CV, so you migrated to the salsa life, nice! Sadly, you are right about the upfront. The temptation is often too great and people are put into unsuitable investments where the only winners are the adviser/salesman and the REIT sponsor. If a client wants the stability of a non-traded REIT, the due diligence has to be done and the right sponsor has to be found. I also believe that you can replicate the stability and yield through investment in public REITs (possibly with an option strategy layered on).
Thanks for the insight into the sector and the issues it often presents, it is always appreciated. Mike
Don't Let One Bad Apple Spoil The Whole Darn Bunch [View article]
KL, I am waiting for the articles, you have so much value to bring to the table for everyone. Thanks for the comment and the suggestion. You know how I like the up in the capital structure trade. Mike
Checking In With The Hospitality REIT Equities - My Top 3 Picks [View article]
Correctamundo, Two things kept me from selecting HPT, one more than the other. The first is the inclusion of TA travel centers. While I like the travel centers and believe they are highly profitable, I was focused on lodging. The second - and more important - reason is they are externally managed, which is a turnoff for me (likes: music, sunsets...Dislikes: externally managed REITs). I recently wrote an article on CommonWealth REIT (the "original" HPT) in which I wrote I was concerned about the external management of the REIT (RMR) and the possible perception of a conflict of interest. While my "RMR issues" are more prevalent in CommonWealth, I could not just dismiss them for HPT.
Some may not view these reasons as rationale to exclude the sector's big dog, but I guess I have my nuances. Excluding the external management, the REIT has been doing well and stands to prosper in the upturn. The REIT went "on sale" earlier this month as it is down over $3 from early May, and has a fat dividend yield of nearly 7.5%.
It also has two preferreds - Series C and D. Like the Cs even though they are callable (and might get redeemed) while the Ds were issued earlier this year and have 5yrs call protection. Both yield less than the common.
Longest winded answer ever, probably - and I apologize if it is. I might be wrong on the RMR issues with HPT (even if they are on the TA board as well), and would love to get thoughts on it.
The Fallacy Of A Bond Bubble [View article]
Not all news is good news, and nothing is over until it is firmly over. We are not there yet - maybe the fifth inning and Bautista is at the plate.
Thanks for reading, commenting and adding further discussion points, all are appreciated. Mike
The Fallacy Of A Bond Bubble [View article]
The Fallacy Of A Bond Bubble [View article]
Your comments on yield are spot on. The governments has been actively managing rates and the yield curve, they can continue to do so for quite a while (not to mention they are measuring inflation - which should be central to intrinsic value of debt on a real basis). The players involved (not just the US government do not want prices to roll over and yields to skyrocket as they stand to lose significantly - and China comes to the table with serious chips).
Thanks for reading, commenting, and adding to the discussion. Mike
The Fallacy Of A Bond Bubble [View article]
A bubble always has elements of speculative excess. What is the intrinsic value of sovereign debt? As it is being paid with a fiat currency, one might argue the intrinsic value is unknowable (should it be gauged by real rates of return, nominal rates, productive capacity...). Think of every "bubble" we have witnessed - a major element of speculative excess. Is principal preservation a form of speculative excess? Could be, I suppose - but there is a "value" to safety. How does one discern intrinsic value of a corporation - the ability to generate income based of the productive capacity of the assets and business of a company? Is paying 15x earnings disconnected from intrinsic value - something trades above/below market "norms". What is the intrinsic value of a house - equivalent rents?
My point is, most would agree there is an element of speculative excess fueled by the potential (or perceived potential) for outsized gains. We have neither here.
You make very good and valid points, and I appreciate your comments as they help further the discussion on what, I believe, is an issue that has to be addressed and will have validity on both sides. Thanks, Mike
Balancing Risk: REITs That Outperform In Good Times And Bad [View article]
Just my opinion and what has worked for me and my employers.
Banco Santander - Preferreds Are Attractive [View article]
Balancing Risk: REITs That Outperform In Good Times And Bad [View article]
Would you rather have an author write solely on what they own? Then we get the pumping/talking your book response. Damned if you do, damned if you don't scenario.
I would rather have someone with in depth knowledge of an industry write about many companies to get his/her opinion and insight into the sector rather than one or two companies. If you want insight into a sector, is it reasonable to expect an author to own every company he/she talks about?
Think of the sell side - an analyst comes out and upgrades/downgrades a company/stock and it moves markets - and yet they typically (99.9% of the time) cannot have positions in companies/sectors they cover.
The bottom line is that you cannot fault an author for not owning all the securities they cover, nor can you expect it if you want broad coverage - as most of us do.
Just my take. I write about many companies I do not own (and many I do) and I have never been questioned as to the validity or the quality of my research.
Just trying to explain my point of view. Mike
Banco Santander Brasil: An Investment Gem In The Santander Stable [View article]
Banco Santander - Preferreds Are Attractive [View article]
Don't Let One Bad Apple Spoil The Whole Darn Bunch [View article]
National Bank Of Greece: It Ain't Over Until... No, It's Over [View article]
Unfortunately, if the country continues down the path that some advocate, it is the average Joe that is going to get buried - the currency will devalue, the country will be bankrupt and god forbid you have borrowed in foreign currency. I have begun to hear the voice of reason out of the New Democracy party (which is pro bailout) which seems to have the lead in opinion polls. Either way - austerity or bailout rejection - there will be more than enough pain to go around. It is unfortunate.
Don't Let One Bad Apple Spoil The Whole Darn Bunch [View article]
Thanks for the insight into the sector and the issues it often presents, it is always appreciated. Mike
Don't Let One Bad Apple Spoil The Whole Darn Bunch [View article]
Checking In With The Hospitality REIT Equities - My Top 3 Picks [View article]
Checking In With The Hospitality REIT Equities - My Top 3 Picks [View article]
Some may not view these reasons as rationale to exclude the sector's big dog, but I guess I have my nuances. Excluding the external management, the REIT has been doing well and stands to prosper in the upturn. The REIT went "on sale" earlier this month as it is down over $3 from early May, and has a fat dividend yield of nearly 7.5%.
It also has two preferreds - Series C and D. Like the Cs even though they are callable (and might get redeemed) while the Ds were issued earlier this year and have 5yrs call protection. Both yield less than the common.
Longest winded answer ever, probably - and I apologize if it is. I might be wrong on the RMR issues with HPT (even if they are on the TA board as well), and would love to get thoughts on it.
Hope I mostly answered your question. Mike