Seeking Alpha

"It's almost biblical," says Apollo Global (APO) CEO Leon Black. "There is a time to reap and...

"It's almost biblical," says Apollo Global (APO) CEO Leon Black. "There is a time to reap and there's a time to sow ... We are harvesting." The P-E kingpin says Apollo has unloaded about $13B in assets over the past 15 months. "The financing market is as good as we have ever seen it. It's back to 2007 levels. There is no institutional memory ... We're selling everything that's not nailed down."
Comments (117)
  • Price to Sales we are back to 2007 levels but the economy is not like
    2007. Residential Investment,Business Investment,and Durable goods
    consumption are not at excess levels, We can grind on....
    4 May 2013, 07:33 AM Reply Like
  • Probably shorting the market as we speak !!
    5 May 2013, 11:44 AM Reply Like
  • Translating for Mr. Black: Sell now when there are ready buyers and cheap financing - who knows how long this will last...
    5 May 2013, 03:35 PM Reply Like
  • Mr Black is wrong, short this market and you will lose, Lets see how he will feel by the end of the year, when he would have to explain to clients he is the worse performer of the year. The S&P is head to 2500+ but 2015 if he cant see the writing on the wall he should not be managing anybodies money.
    5 May 2013, 11:17 PM Reply Like
  • Compared to bonds and cash, blue chip financial stocks and precious metals are insanely cheap.
    6 May 2013, 09:33 AM Reply Like
  • And you know this how?
    7 May 2013, 07:05 AM Reply Like
  • I don't know bbro. Everyone is watching this market and now sees it for the fraud bubble that it is. People are waking up.


    "he who ears a smile for an umbrella get's their ass soaking wet"
    4 May 2013, 07:42 AM Reply Like
  • marketwatcher23, I agree this is a bubble and the wise ones know it just started, the S&P is positioned to grow 70% in three years, with all the new money from the Feds aka QE, Money from around the globe looking for growth and some safety. US equities are going to lead the way for a new level never imaged. Do not look back three years from now and say if i had know, you have just been served free of charge. Stay Thirsty My friend , Stay long all the way to mid 2015.
    5 May 2013, 11:17 PM Reply Like
  • act like you are "all knowing"...."the S&P is positioned to grow 70% in the next 3 years" Talk about a used car salesman. As long as you are COMPLETELY guessing....why not make it an even 90%. Anyone that listens to RB is insane.
    7 May 2013, 07:09 AM Reply Like
  • Blue Chip's are advisatory.
    4 May 2013, 07:43 AM Reply Like
  • A lot of commenters on this website have been calling this market a fraud since the Fall of 2009....a lot of money has been missed by the obsession on the Fed when the business cycle is the true guide....
    4 May 2013, 07:47 AM Reply Like
  • Maybe that's cause the market is a fraud since the fall of 2009? eheh. The FED really distorted everything.
    4 May 2013, 08:49 AM Reply Like
  • I completely agree with #bbro.


    Maybe this market is a fraud? Maybe the Fed is the cause behind the rally in equities? Maybe the Fed is putting an artificial floor under stocks? My question to people is this --- WHO CARES? If there is money to be made in stocks, you should be in stocks. Period.


    We have just lived through a ONCE IN A LIFETIME run up in the stock market. Have the "death bell ringers" just been sitting on the sideline waiting for the financial world to collapse? I frankly don't understand this behavior at all. If you are NOT leveraged to the hilt (a VERY key point), why would you NOT want to participate in this market? There are plenty of analysts on CNBC who think this will all end badly. However, that doesn't mean they are sitting in a corner doing the "duck and cover" from the Cold War days.


    Like I said, I just don't get it. To me, as long as you have positioned yourself to be able to survive when the music stops playing, you should enjoy the party and make as much money as you can, while you can. To do otherwise is just plain idiotic in my opinion.
    5 May 2013, 10:16 AM Reply Like
  • The point, Wis, is that there are only 2 possible paths, and if fundamentals indicate path 1 and the FED artificially provokes path 2, those who would have been right are now wrong, and those who would be wrong are now right because of an arbitrary decision.


    The FED would be choosing winners and losers, arbitrarily.
    5 May 2013, 10:30 AM Reply Like
  • So what? As long as I can make money along the way, I'm happy to ride the wave as long as it lasts. I can't do anything about Fed policy anyway or the other sovereign banks either for that matter. All I can personally do is play the cards that are dealt me.


    Let's say this is the same as 1999 with the tech bubble (and I'm not saying it is). People made money in the market then. A lot of money. I know I did. The problem was that people started to getting so damn greedy they were reaching for stocks that no one had any reason to buy. Prices were run-up beyond reason (which I don't see happening today). That was a bubble and it ended badly. However, money was made along the way. That's my point. Play the game. But keep your greed in check. And actively manage your portfolio.


    When (and if) the walls start falling down, get defensive as quick as possibly. At least then you can look back and say it's been a fun ride and know you took maximum advantage of the economic situation. I think in the long run, you'll be better off net-worth wise. I mean come on... how many times in your life are you presented with an opportunity to more then double your money in 4 years (from the March 2009 lows)? Even if you end up giving back 50% of that gain on a downturn, you are still way ahead.
    5 May 2013, 11:47 AM Reply Like
  • @WPS


    I agree but have a major concern. What happens if Asia either opens one morning severely down or not at all?


    Not saying it is going to happen, but it is possible. Then our markets open up severely down, you are trying to sell but have very low bids on the market, are you going to be happy then that you are now playing a new hand dealt to you.


    Just saying it's possible.!!


    For those who want a refreshing new chatroom to banter ideas please check out my instablog. We welcome all ideas and new posters!!



    Check it out!!.
    5 May 2013, 12:25 PM Reply Like
  • Paulo: Must be hard to have watched the world passing you by for the past 4 years. Can't blame you for being bitter, I guess.
    5 May 2013, 01:29 PM Reply Like
  • A few sectors are getting out of whack, I sold my consumer staples and rotated it into large tech companies...
    5 May 2013, 01:57 PM Reply Like
  • LeftBanker, I'm well ahead of the market in the last 10 years. But I have seen people, mostly people that shorted stocks, get destroyed by the arbitrary decisions of the FED. And my profitability was impacted as well, yes, due to those arbitrary decisions.


    I don't like it when an official entity can choose winners and losers arbitrarily. I don't like scams, and that's as close as one gets to an officially sanctioned scam..
    5 May 2013, 04:20 PM Reply Like
  • Why is everyone worried about what the Feds did, who really is setting the rules here for valuations Paulo Santos. No one should take investing personal, your job as an investor is to figure out market direction and invest accordingly. Do not fight it, when you think its not working as predicted. Stay long as long as QE++++ stays on
    5 May 2013, 11:17 PM Reply Like
  • Well said #WisPokerGuy
    5 May 2013, 11:17 PM Reply Like
  • Funny you mentioned 1999, I personal believe this a remix of 1997 to 2000, If we ever have a crash it would be around 2016. My price target for the S&P by 2015 is 2500+, there is so much potential for growth around the world and US equities are leading the way on the market fronts.
    5 May 2013, 11:17 PM Reply Like
  • Once in a lifetime? No, that was 1980-2000. It did this in 2004-7 as well. That's three times in my lifetime so far.


    And... When the music stops only a small handful can make money.


    He who sells first sells best.
    6 May 2013, 04:38 AM Reply Like
  • Agreed completely. The question is, are those market gains built on fundamentals, or on QE. We all know the answer. I suppose they will up QE now that all the data is turning awful. I think you are smart enough to see what a disaster that jobs number was yesterday and did not just take the headline number at face value. So maybe the music can play for a bit longer. But not much.
    4 May 2013, 07:50 AM Reply Like
  • MW...


    Do you know how many times I have heard (or read) that very thing in the past few years? The blood bath you all are expecting will NOT happen. Yes...the market will correct, but you will have missed out on YEARS of gains waiting for something that never happens (market falling off a cliff).
    4 May 2013, 08:34 AM Reply Like
  • @ The fox


    As I indicated to bbro....there is no disputing the last 4 years of gains. Hats off to all those who took part in them. But we are at 85 bil a month QE with a 4 trillion dollar balance sheet.


    I am talking about where we go from here. The answer very well could be 120 bil a month in QE and a 5 tillion dollar balance sheet. The market just continues to rip higher. However that just makes the correction that much worse when it comes...and we all know that they won't ring a bell to let us know to get out.
    4 May 2013, 08:40 AM Reply Like
  • As it turns out, they do ring a bell. The market goes up because the FED is buying. It would go down - and actually flash-crash - if the FED stopped.


    Now the thing is, will the FED ever stop? It seems less and less likely by the day. So for all practical matters "the market" no longer exists. It's just about what the FED decides to do.
    4 May 2013, 08:52 AM Reply Like
  • well thank god continuous QE4eva has no consequences except an endless market rally and euphoria.
    4 May 2013, 09:01 AM Reply Like
  • The Fed can't stop a recession, nor a bear market. The bigger they come the harder they fall. No one knows when and from what level.
    4 May 2013, 09:09 AM Reply Like
  • The FED can stop a bear market, and indeed, has stopped one multiple times in the last 3-4 years. The FED can buy every single asset if it wants to.


    Will there be consequences? There might be. But the FED won't stop until they're perfectly evident.
    4 May 2013, 09:12 AM Reply Like
  • they can stop a bear market but they can't stop a depression. They only make it worse.
    4 May 2013, 09:13 AM Reply Like
  • They can't stop the bear forever. This is a great market timer blog, with a great system - the only goal is to make money in stocks, not to be right about the economy, the Fed, and all that noise.
    4 May 2013, 09:14 AM Reply Like
  • 352 Bond Funds have bought stocks. Central Banks have bought stocks. When people feel they can't lose 'cause CB have their backs, it smells like 1999-2000 when it was "different this time"
    4 May 2013, 09:16 AM Reply Like
  • Last time the central banks came to the rescue. Once the CB's have bought stocks and bond funds have bought stocks....who do they sell to?
    4 May 2013, 09:18 AM Reply Like
  • It's a bubble alright. But this one relies on infinite money. Obviously the FED has an arbitrary power on determining how far it goes.
    4 May 2013, 09:23 AM Reply Like
  • CB's don't need to sell.
    4 May 2013, 09:23 AM Reply Like
  • Who do they sell to? That's a $20T question! Not to me! Likely they'll buy all the way down and bury themselves forever.
    4 May 2013, 09:25 AM Reply Like
  • Paulo, I just read your profile here, good stuff. Do you trade your own money mostly?
    4 May 2013, 09:27 AM Reply Like
  • Yes, I trade my own money.
    4 May 2013, 09:32 AM Reply Like
  • Paolo if inflation really takes hold how will the fed combat it?
    4 May 2013, 10:22 AM Reply Like
  • marketwatcher, that's a possible consequence, but the FED won't consider it until it does happen. How it combats it is an arbitrary choice - which is all the problem with the present policy: the FED can do as it pleases, and choose winners and losers in the process, arbitrarily.


    The FED is acting in a way that negates the very values upon which the US was founded.
    4 May 2013, 10:25 AM Reply Like
  • So is the US Govt., politicians are all crooks, 100%.
    4 May 2013, 10:33 AM Reply Like
  • I agree with you on those points.
    4 May 2013, 12:32 PM Reply Like
  • It will stop when everyone as bought a house at <4% and everyone has a home equity loan at at <3%, and everyone has bought a car at 2% and everyone has bought appliances and an iPad at zero%, and everyone with stocks is deep on margin.


    Or, if interest rates were to normalize. What will housing look like at 5 to 8%, and autos at 8 to 10% and credit cards back at 20 to 22%?


    This is "payment nation and bubble nation".


    Ben should test it. Give savers a 5% CD to throw them a lifeline and see what happens for a year.
    5 May 2013, 03:40 PM Reply Like
  • Why on earth would you say "people feel they can't lose"? The retail investor is not in this market, there is no euphoria and there is no feeling that you can't lose. Most people are afraid to commit funds because the market has gone straight up and they're waiting for a pullback. There's much more fear of losing money still, than greed to make money. With 2 epic bear markets and a massive housing bubble that engulfed most of the nation, all in the last 13 years, who can blame most people for being scared?
    5 May 2013, 11:23 PM Reply Like
  • Bubbles don't form at p/e multiples of 15-16 on the SP500.
    5 May 2013, 11:23 PM Reply Like
  • Actually I saw nothing in the jobs number to tell me a recession is on
    the horizon...I do see slower growth as the sequester starts to manifest itself....
    4 May 2013, 07:53 AM Reply Like
  • 278,000 new private jobs past 3 months were part time, and U6 rose to 13.9%. Feed the Rich, then Eat the Rich later. Just like they do with hogs
    4 May 2013, 09:10 AM Reply Like
  • Of course, ObamaCareNOT is hurting the jobs market, keeping everyone under 30 hours to avoid paying health care insurance, so service sector reduced hours and hired more part timers. That is not healthy by any stretch of the imagination. Fed thinks inflation is too low, but it depends on what a person buys. Tuition, health insurance, are skyrocketing, food, most energy rising. Brent fell a bunch but I'm paying $3.69/gallon locally while RBOB is around $2.80 front month.
    4 May 2013, 09:19 AM Reply Like
  • An interesting note in the jobs report was that total hours worked each week dropped by 12 minutes. If these new hires are simply replacing hours of existing employees so that business owners can skate under the 30 hour work week requirement for ObamaCare, then it's not a good sign.... (they have until the end of the year to get everyone under 30 hours)


    We'll have to watch that over the next couple job reports to see how it pans out... will be telling.
    4 May 2013, 10:42 PM Reply Like
  • Actually i was in a casino in blackhawk colorado. What is happening is that they are lowering employees hours to less than 30 hours and these same employees are going to the casino next door and getting another job to equal 40 hours, so they have two 20 hour jobs but no health insurance. there are new hires but it is the very same people who had their hours reduced.
    5 May 2013, 11:39 AM Reply Like
  • Anecdotal tao, but I've seen the same thing in fast food, casual dining, sports-oriented bars.
    5 May 2013, 01:05 PM Reply Like
  • Well the ISM at 49 would be more indicative of the recession that we are currently in.



    I have to tip my hat to marketwatch for actually putting that in print. They are usually toting the msm line.
    4 May 2013, 07:56 AM Reply Like
  • ISM was 50.7 and ISM should not be considered a leading indicator .In
    fact at best it is a coincident indicator. Aggregate weekly hours is a poor leading indicator and as far as I can tell it needs to drop below
    1% year over year to signal a possible recession. We are currently 1.64% yoy. We would needs some significant job losses to have the aggregate hours yoy growth rate to drop below 1%
    4 May 2013, 08:10 AM Reply Like
  • My bad I meant PMI
    4 May 2013, 08:37 AM Reply Like
  • bbro: Past performance is not indicative of future results, even in the labor markets.
    5 May 2013, 03:50 PM Reply Like
  • ... We're selling everything that's not nailed down."


    I guess that means they are not expecting their assets, on average, to be not worth too much more than they are today for some time. Could be a warning in there somewhere.
    4 May 2013, 08:28 AM Reply Like
  • If people own what the other 95% of all investors and Wall Street own and write about then yes, you might want to consider selling some regardless of the so called past history of the company.


    If you invest a bit outside the most widely held, you too might suffer a bit however your future exponential gains plus dividends going forward, will far surpass the most widely touted.
    4 May 2013, 08:31 AM Reply Like
  • Know yourself & to yourself be true.
    4 May 2013, 08:32 AM Reply Like
  • Or stay thirsty my friends....
    4 May 2013, 08:39 AM Reply Like
  • good advice.
    4 May 2013, 08:42 AM Reply Like
  • I don't always buy stocks, but when I do, I BTFD.
    4 May 2013, 08:53 AM Reply Like
  • what dip?
    4 May 2013, 09:00 AM Reply Like
  • Get in on the tech rally, but don't get greedy.
    4 May 2013, 09:31 AM Reply Like
  • I have been moving from high risk stocks to dividend stocks. Seems like a good strategy.


    The high yield stocks won't crash as hard.
    4 May 2013, 09:52 AM Reply Like
  • Mister D everybody owns div stocks. Everyone. There is risk there as well
    4 May 2013, 10:23 AM Reply Like
  • Forty-plus comments in a flash. All it takes on SA is for someone, anyone, to offer another negative view. If folks clamor for anxiety, they can just trot over here, where almost 200 comments have piled up:


    First off, no PE manager who wishes to liquidate assets publicly announces that assets are overvalued, and it's time to "harvest." This is no different than Bill Gross showing up every other week announcing that his current policy is the opposite of what he said two weeks before. Large grains of salt are required when digesting this stuff.


    Finally, we are still in an environment where the average investor is closer to being terrified of the market than o being in any buying euphoria. And, capital allocations continue to support this. Huge sums are sequestered in cash, gold, and myriad bonds, all huddled for near-zero returns, or even negative. And, market volumes remain anemic, indicating no surge of enthusiastic buying by the hoards.


    Just worry, worry, worry. Crashes don't happen with these ingredients. Crashes occur when everybody can't wait to day-trade the next dot-com stock on margin or flip the next house, after maxing out the HELOC on their principal home.


    Lastly, for those convinced that inflation and/or higher rates spell certain doom and destruction for equity markets, take note of the fact that between 1975-1981, while the U.S. experienced some of its highest inflation and interest rates in history, the SPX advanced 84% (not including dividends).




    Remain calm, thoughtful, invested and make sensible changes to allocations, depending on the performance and valuation of individual holdings.
    4 May 2013, 11:21 AM Reply Like
  • Crashes happen when no one expects them. Read Mauldin's Thoughts from the frontline today, about the grains of sand, etc. Most everyone believes they'll get out in time. The market and its algobots have a different plan. Even Greenspan wrote global economies are far too complicated for any human to understand, let alone affect, effect, or manipulate. There is much fear, distrust, and complacency - somehow intuitively people understand that massive interventions are risky.
    4 May 2013, 11:52 AM Reply Like
  • The beginning of 1975 occurred at the end of a huge cyclical bear market. Before you get excited by the returns in 1975-1981, understand that the inflation corrected returns of the S&P 500 were negative, just like the inflation corrected returns since year 2000 are still negative (roughly -20% as of today's date).


    If you don't believe in correcting for inflation, ask yourself how much $1553 (the S&P500 peak in 2000) will currently buy in gasoline, housing, food, medical care, college education, etc.


    Today can't be compared to 1975. Unlike 1975, we're not near the end of a -35% bear market. We're 4.2 years into a +140% bull market. The current trailing P/E of the S&P500 is about double the P/E in 1975.


    If you are so good at predicting when crashes will or won't occur, why did you suffer big losses in 2008-2009 (by your own admission)?
    4 May 2013, 12:30 PM Reply Like
  • WSD:


    Now, tell me what good it does to "correct' for inflation in 1975-1981? Does that tell someone that they shouldn't have invested in the markets, so they could have avoided those 84% gains AND had the inflation losses, too? There is no other game than maximizing nominal gains. One has no control over inflation, so discounting for it is a totally useless exercise. The only relevant exercise would have been to discover another investment that performed better in nominal terms.


    I'm not a market timer. Regarding 2008, I didn't predict or not predict the decline. I am always invested for income (it's how I live) so I suffered some paper losses during the decline, but because I always reallocate to the best values (i.e., most depressed) sectors, I easily recouped these and much more in the 2009 revival (bank preferred shares). (I know, I know, you don't believe a word of it, so don't bother commenting).


    Don't worry about me or my predictive abilities. Just ask yourself how well all your negative views have served you in the many months you've been posting them.
    4 May 2013, 12:45 PM Reply Like
  • Tack: Risk free money market funds were a great hideout during the secular bear of the 1970s. There were periods of 17% annual yields! Stock performance was crap relative to volatility and risk.


    You should ask yourself if your overtrading of high dividend junk stocks has outperformed Berkshire Hathaway over your investing years. If not, you've been wasting huge amounts of time in a silly hobby with high risk and minimal reward.


    The greatest investors who understand risk--Klarman, Rodriquez, Gundlach, and Howard Marks--are all men who you would describe as having negative views. I'm happy to be in their company. My tribe outperforms in the bad times and in the long run.


    At least you no longer are repeating the malarkey about a rotation from bonds to stocks.
    5 May 2013, 02:23 AM Reply Like
  • WSD:


    There's no point having this discussion because you demonstrate a continuing lack of appreciation for what I do and have challenged the long-term results from such a strategy, as I have occasionally reported, so just stick with your own views and their results. I'll happily remain ignorant in your eyes and just have to muddle along with my "silly hobby," which has created and supports my comfortable retirement..


    Your disdain for how current capital dispositions and resulting flows underpin stocks seems particularly adamant and, again, it's pointless for me to repeat, yet again, how and why, as the market demonstrates it, repeatedly, for anyone with ability to observe its behavior.for many months.
    5 May 2013, 03:58 AM Reply Like
  • Tack, I'm not trying to converse with you. I'm trying to advise readers of your comments to cast a skeptical eye toward the debunked myths in your comments. Greed, speculation, and reckless opinions are what caused the last three financial debacles. We don't need another bubble/crisis whipped up by the mythology-repeating permabulls who didn't see the prior ones.
    5 May 2013, 05:05 AM Reply Like
  • The largest fund inflow last week was to the iShares Barclays 3-7 Year Treasury Bond. Where is that Great Rotation out of bonds that you were predicting for months on end?


    NYSE stock market margin interest is near all-time highs from 2007. Nope, nothing could go wrong here because "the average investor is terrified".


    All assets are having money thrown at them. If you still haven't figured out why this is occurring, look up "Ben Bernanke" on Google.


    If you want me to stop debunking your comments, read more and write less.
    5 May 2013, 05:24 AM Reply Like
  • WSD:


    If you did take any note of my commentary, you'd realize (but don't) that I am the exact opposite of the speculator. I don't market time. I don't short. I don't use margin. I don't short-term trade for capital gains. I don't buy issues that can only make me money by price changes.


    I stay perpetually invested. That has utterly nothing to do with staying permanently bullish. It has everything to do with constantly changing allocations to deal with market conditions and due to the internal performance of my portfolio. I generate high yields, and I compound, compound and compound some more.


    My portfolio (presently 8.47%) has never once dropped below 8% yield since 2000. Most of the time, it's been more. Do the math. Eight percent compounded for twelve years is over 150% gain from yield alone, not to mention capital gains from choosing undervalued issues.


    My advice is a constant, steady investment strategy, not speculative gambling nor running in terror to cash accounts. It's worked very well for me, and I am sure it would for others, if similarly employed.


    Perhaps, instead of "debunking," you might offer readers your own strategy for successfully navigating markets and building assets.
    5 May 2013, 05:58 AM Reply Like
  • Where are you getting that yield, mREITs? mREITS are highly-leveraged portfolios of risky debt, whose performance and yield was also only made possible by Ben Bernanke. Those would hit the wall at some point, without FED intervention.
    5 May 2013, 06:15 AM Reply Like
  • Paulo:


    I have been getting such average yields for over 16 years, not just in the QE world. I achieve this by a constantly changing mix of investment types and sectors. Presently, I am allocated at 50% equities, 30% preferred shares and 20% debt issues.


    Within the foregoing allocations, the equities are spread throughout banks, insurers, BDC's, commercial REITs, a few MREITs, and select energy, materials, real estate, and select European and Latin American issues. Regarding MREITs, this position has been mostly reduced over the last twelve months, as the perceived risk of tighter spreads has developed. Also, funds have been shifted to MREITs with less agency exposure and more non-agency and floating-rate paper. Overall, MREITs comprise less than 5% of the portfolio. (By the way, MREITs have offered sizable yields for long before Ben Bernanke and QE were even imagined.)


    In the preferred sectors, most the issues are banks, commercial REITs and select industrial and commercial enterprises.


    In the debt area, I confine my holdings to exchanged-traded debt and ETF's. Presently, these are weighted toward convertible and floating-rate debt.


    Interestingly, the average-yield components of my three investment types are very similar, presently: equities 8.59%; preferreds 8.45% and debt 8.10%.


    When preferred or debt issues sell above par, with reduced yields, and possible call implications, they are rolled over into new, more attractive value plays. Similar judgments are made about the equities, too, but using different criteria.
    5 May 2013, 06:45 AM Reply Like
  • mREITS have offered high yields, yes, but at the present yields on the underlyings it doesn't take much to bankrupt them.


    For you to have a 8% yield in the present market, you have to be holding very risky securities ...
    5 May 2013, 08:23 AM Reply Like
  • Paulo:


    "For you to have a 8% yield in the present market...."


    I have held over 8%-yield portfolios in all markets, at all times.


    I could never explain it all in a few short paragraphs -- it would take a book -- but, I discovered, over the years, that the classic "cw" on risk is very mistaken. The notion that low-yield, low-return investments are "safe" and that the opposite are necessarily "risky" is simply not true. Yes, higher-yielding investments may have, but not always, higher betas, but over time they have much higher compounded returns.


    As an example, I discovered the foregoing by examining the behavior of numerous companies that had multiple issues of securities in different positions in their capital structure, e.g., senior debt, junior debt, preferred stock, and common stock. Each of the foregoing debt and preferred issues offered higher yields, the further down the capital structure, the issue.


    Just as examples, the senior debt may have offered 5% yield, the junior debt 6% yield and the preferred stock 7.5% yield. Now, of course, classical wisdom says the senior debt is "safest," but one must ask safest from what? It's only safest in the event of a liquidation, so unless that's an investor's primary goal, to have the highest return in the event of a bankruptcy and liquidation, accepting a lower yield for that safety is like paying too much for insurance, especially if it's apparent that the company's bankruptcy risk is nil.


    And, what happens in panicky meltdowns, like 2008? Does the senior debt decline the least, then the junior down more, then the preferred, even more? No, it turns out that they all, more or less, suffer similar sell-offs because the selling behavior in panics isn't rational, so nobody's splitting hairs any more over positions in the capital structure; they're just selling.


    Then, what happens? they all recover equally, naturally, in the recover phase. So, what are we left with? What we have are three investors, who each received, respectively, 5%, 6% and 7.5% yields for whatever period they held. They all suffered volatility and similar declines in a bear phase; they all made similar recoveries in the rebound phase. The only --and key -- difference is that the preferred shareholder got paid 7.5%, while the holders of the "safer" securities got paid less.


    When one comes to this realization and one deploys their capital at what has conventionally been called riskier positions, and it's done in a methodical manner and the results are compounded, year after year, it makes a major difference in the achieved returns. The compounding effects, alone, are substantial.


    This is why a high-yielding portfolio can substantially outperform the market, most especially in times of high volatility, such as 2000-2013, because the yield keep getting paid and compounded relentlessly. When the market's suppressed, the compounding effect is magnified, as all new shares are purchased at bargain prices.


    Now, keep in mind that the foregoing requires substantial research, portfolio management and discipline. It's not buy-and-hold forever. It's definitely hold something forever -- because you can't compound cash -- but the "somethings" change, as the best performers are harvested and rolled into new plays and as market and interest-rate changes suggest changing allocations between equities, preferreds and debt, as well as sectors.


    The concept, in fact, is simple, and it works -- it has for me for more than 16 years and through all kinds of volatile markets -- but the research to find good buys, and the management thereof afterwards, is significant and one must be steadfastly disciplined.


    Hope this further illuminates my views and strategy.
    5 May 2013, 11:09 AM Reply Like
  • @TACK


    Do you still like PSEC ?


    My wife owns a small % and am looking to add to that nice dividend of close to 12%


    5 May 2013, 12:35 PM Reply Like
  • IT:


    I have my BDC-sector investments spread across nine names, of which PSEC remains my largest single holding, presently.
    5 May 2013, 12:49 PM Reply Like
  • Why don't you tell us honestly and accurately how much your portfolio declined in 2008-2009. I know from your posts that you bought two stocks that went to $0 (bankrupt)--and this was after the bear market ended. You seem to be oblivious to risk based on your love of junk securities--all of which have surged on friendly indirect federal government subsidies.


    My recommendations are to avoid junk, avoid chasing yield, & be patient for much better opportunities. Otherwise, If someone wants to get a (possibly volatile) 4-5% compounded return going forward, average into Berkshire Hathaway and be done with it.


    99.9% of the writers and commenters on this board will not do better than Berkshire, especially the yield chasers. The Bernanke tailwind reversal will crush yield chasers, not to mention our tax authorities.
    5 May 2013, 01:17 PM Reply Like
  • WSD:


    Why don't you just give it up? It's obvious you despise my strategy, despite it's proven effectiveness over 16 years. Does it gall you so much that my own approach has worked for me? Why not tout the genius of your own approach, rather than attacking what''s worked for me?


    I have laid out everything I do and why in lengthy detail in many posts. Anybody who follows me has seen it all and can accept or reject it for their own use. During the 2008 meltdown I suffered paper losses above 40% (which I have stated in numerous posts, so you're not uncovering any surprise), like many others did. However, during this time I continued to reap huge yields and, by reallocating in 2009 to bank and other financial preferreds, was able to reap a huge windfall in the rebound, easily wiping out prior paper losses. I'm a turtle, not a hare. Time works for, not against, what I do.


    You mention some stocks going bust. Yep, sure did. That's why disciplined diversification and absolute limits on size of holdings is mandatory. One, in fact, expects blow-ups; they're just part of the equation. The important thing is net results, not what any single issue may have done.


    If what I do doesn't work for you, here's a simple suggestion: don't do it. I leave such choices to all readers.
    5 May 2013, 01:33 PM Reply Like
  • Tack: If your "paper losses" were over 40% in 2008, I'll assume your paper losses were approaching 70% from the peak in 2007 to the lows in 2009 when the Fed bailed out all holders of junk securities. Not many reasonable people would be willing to suffer those types of declines to achieve a long term small return after adjusting for inflation.


    Your self-congratulatory attitude to high-yield junk reminds me of Michael Milken's evangelist promotion of junk bonds in the 1980s. It worked many years, until it ended in catastrophe. You are risking a similar outcome for a relatively small reward.
    5 May 2013, 03:45 PM Reply Like
  • WSD,
    I too suffered paper losses in excess of 40% during the 2008 crisis. Now without adding a penny to the portfolio ,I was fortunate to re-allocate, use cash in account, make timely decisions (don't sell at the lows) and build the portfolio back to well over it's original worth.


    I added that "junk security" INTC at $13 , GE at 6. Care to do the math on what INTC yields when purchased at those prices & it's current dividend ?


    I am not a Phd, and don't pretend to be one, just an experienced investor that can as Tack eloquently stated use time as an ally.


    Each to his or her own, your comment that "99.9% of the writers and commenters on this board will not do better than Berkshire, especially the yield chasers" is insulting and incorrect.
    Maybe you suggest they then follow the well educated PM's that consistently underperform the market and further suggest you are a member of that society.


    Best of Luck with Berkshire and your investment strategy.
    5 May 2013, 04:16 PM Reply Like
  • The FED has made it so that a lot of risk got removed from the market. If not so, betting on the riskiest securities could have provided a very different outcome. There's a reason why you observe those different yields. A reason that mostly hasn't been let work as it should.
    5 May 2013, 04:23 PM Reply Like
  • The fairest solution for the 2008 crisis would have been to dilute and nationalize the banking sector, instead of giving it free money. How one did in the rebound, especially in bank stocks, was a path that could have been very different if society hadn't been robbed to favor a few.
    5 May 2013, 04:29 PM Reply Like
  • Fear&Greed,


    I should have written "the overwhelming majority of writers and commenters on Seeking Alpha will not do better than Berkshire in the long run". Whether that percentage is going to be 70% or 80% or 95% is open to debate, but the percentage will likely be huge. Berkshire has huge information, managerial, and funding advantages over all contributors on SeekingAlpha, not to mention a friendly relationship with the movers and shakers in Washington D.C. and the Fed.


    Intel and GE are investment grade, not junk. Everyone has huge winners in a 140% bull market. It's the complete market cycle (bull AND bear) or black swan episodes that separate the skilled investors from the lucky investors.


    If you took losses in excess of 40% in 2008, you're carrying too much risk in my view. In any case, good luck to you.
    5 May 2013, 05:19 PM Reply Like
  • I lost somewhere around 50% - don't know exactly the time frame. I owned mostly highly rated investments. Leaders in segments. And they all tanked. To give specific examples - two of my biggest "losers" were DOW and IP.


    Now, perhaps I'm really stupid and just lucked out. But it became obvious to myself that even though I personally believe that the government should have allowed the banks to go under (nationalize to some extent if necessary - but if so then take over and sell off the parts minus the management) that many businesses were going to survive. And I made some "smart" decisions.


    I sold all my DOW and IP once they partially rebounded. I purchased smaller companies that had growth prospects (IMO) in their place. Now I didn't purchase them "at the bottom", but many of these firms had lost 95% of their market cap - so the fact they had rebounded slightly still left them plenty cheap. And I prefer companies that pay back cash flow to shareholders.


    Now, my investment actions differ from my personal beliefs and political position. I didn't purchase banks, but did invest in some financial type firms like PSEC - which I still hold and like. I realized that commercial real estate wasn't going to be totally foreclosed on and purchased REITs (even adding to some I had held the whole way through - from $40 to $2).


    I agree with Tack on this. Hi yield investments are sometimes hi yield because management is actually working for shareholders instead of themselves. There is nothing wrong with cash cows. Often in unglamorous businesses, that simply do the same thing over and over, and produce free cash flow. I own a couple of small businesses and thats all we do - we do simple things well - we do them again and again - offer good solid service - contribute to our community - and we are successful.


    I would add that I take all my yield from these type of investments and invest in other firms. So I'm not putting all my eggs in one basket. And I like to invest in mainly things I can understand. But I am not super diversified. If I like a business I will keep buying. And yes, I am wrong sometimes. But so what.


    Just as I have never started a new business to break even - I don't invest to break even either - why do I want to just keep up with inflation or slightly beat it?


    No risk - no reward.
    5 May 2013, 05:44 PM Reply Like
  • The fairest solution for the 2008 crisis would have been to dilute and nationalize the banking sector, instead of giving it free money.
    Paulo, Unfortunately - trying to be "fair" is part of the reason they bailed everyone out.


    If we had instead relied on the law and our experience with the S&L debacle, we would have let firms go under. The government could have stepped in and guaranteed deposits. They could have taken over the failed banks and sold off the assets. That would have also allowed them to PROSECUTE FRAUD!!! That is the single most glaring failure of the financial crisis. And I mean fraud from the very top (Fuld, Mazzilo, London AIG guy) to the very bottom (liar's loan applications). In the S&L crisis we sent more than 2000 people to jail and many more were fined and given probation.


    I laugh when I hear all the talking heads on tv wonder why we don't have stronger growth coming out of the recession. Well, in addition to all the stupid political garbage and increasing regulatory irritations - there comes a point in time when many folks like myself (not rich - but successful and willing in the past to invest locally in small businesses) say enough. And I've reached that point during this fiasco.


    Why would I want to start a new business in my community today? Lets see. Local bureaucrats, State bureaucrats, Federal bureaucrats. Nope those aren't reasons to start a business. Obamacare? Nope. Politicians telling me what the minimum wage should be for a high school student on their first job? Nope.


    What do all those things have in common??? "Fairness". People don't like to hear it - but my businesses exist to provide for my family. And yes, along the way, I'm proud of the people I've employed, the contributions we've made to our community, and the solid service and products we've provided. But at the end of the day, no profits for my family - no business.


    Fairness??? Things were pretty "fair" in the USSR.


    If Tack has invested well and is earning a sizable return I say good for him.
    5 May 2013, 06:03 PM Reply Like
  • WSD:


    You just make assumptions to suit your own negative biases and make your criticisms sound better.. The number I quoted was my peak loss from the prior highs achieved in June 2007. And, how did the Fed help me outperform back in the late 1990's or during the pre-2008 period?


    Your notion that everything with substantial yield is, ipso facto, "junk," just demonstrates how little you understand about yield and risk. No sense me trying to educate you on that because you'd reject it, anyway.


    My risks and rewards have been balanced for over sixteen years, resulting in an overall performance well above the SPX. More volatility than some might tolerate, absolutely; more net gains, absolutely, too.


    Lastly, I don't evangelize what I do and suggest that everybody is stupid if they don't do it, too. I just offer the strategy and results for SA's readership, and the occasional adults herein can decide for themselves.


    I note that, other than criticism, you offer nary a word about what you do, how it's performed or whether you recommend it for others. Perhaps, that's instructive and also explains your rather negative, accusatory tone.


    I am disengaging from this dialogue and will cede the floor to you, henceforth. SA readers may decide for themselves who is offering more cogent advice.
    5 May 2013, 06:13 PM Reply Like
  • david:


    It's also worth noting that the return on bank and insurance preferred shares since March 2009 isn't merely 140%, like the overall market, but in many cases over 400%. A big difference for those that saw the value as soon as Geithner announced in March 2009 (P-PIP) the Government was buying bank preferreds.
    5 May 2013, 06:24 PM Reply Like
  • Cal 5 and 6% GO's have been a double AFTER taxes since 2000 also, plus price appreciation on top. So what?


    Every year I ask the "gurus" what they would TODAY with $1,000,000 in cash. Nobody ever answers.


    So, tomorrow, with 30-year apple paper at 3% and the S&P at 1600. What would you do?


    Will Apple even be around in 30 years ??? Yikes!
    5 May 2013, 06:40 PM Reply Like
  • "Fairness" in my book is he who produces 3 potatoes, gets to keep 3 potatoes. "Fairness" is not everyone having the same.
    5 May 2013, 06:52 PM Reply Like
  • Tack: Great--you're giving someone the last word for a change!


    Alan Greenspan helped you in pre-2008 by helping create the credit bubble, just as Bernanke is helping you again by indirectly stimulating excessive valuations in junk bonds and dividend stocks.


    I don't follow all of your meanderings and excessive trading in and out of various high-yield securities. What a waste of time that would be. I've seen posts in which you arrogantly hyped up a junk stock that went bankrupt within months. I've seen you espouse broader market mythologies with no basis in fact--like your famous "great rotation" fallacy. The vast majority of very high yielders are speculative (junk) stocks. Some junk has not yet achieved official junk status, like your recently bought France Telecom stock. Give it time.


    I'm not offering advice to people. I leave that to the blowhards who need to feel important and get approval. This isn't an advice column. It's a comment column. My hope is that novice investors are not seduced into over-reaching for yield and buying junk securities now--at perhaps the most risky time since 2007--when they see comments from you and others who are, yet again, throwing risk out the window.
    5 May 2013, 06:59 PM Reply Like
  • 400% sounds impressive--for those who don't realize that an 80% decline must be followed by a 400% gain to break even. I am certain that the "always fully invested" types who brag about 400% gainers had many stocks that previously suffered 80% declines (and worse). That's the price to be paid for owning highly leveraged, shaky financial services companies and assorted other low quality stocks.
    6 May 2013, 12:14 AM Reply Like
  •'s cool this time because the fed will give us all the signal ahead of time so we can all calmly exit together....yep...
    4 May 2013, 12:20 PM Reply Like
  • I don't think its time to sell everything.


    Rather, buying smaller firms with good management and growth potentials should serve folks well over the next decade.


    There will always be companies and they will produce profits. If you aren't invested you won't receive a part of them.


    That is all seperate from what may happen to our country and more specifically to our children and grandchildren's standard of living. But that in and of itself is even more reason to invest more to try to be able to provide them a cushion when looking a decade or two out.


    So if you own things you think are overvalued - sell. And if you own things you think are undervalued - buy. Who cares what some PE guy has to say - he's getting paid on commission and all the money he claims to have on the line is just deferred commission that he's paying 15% income taxes on - while the rest of the world is paying in the 20's and 30's.
    4 May 2013, 07:29 PM Reply Like
  • "Don't fight the FED" is the new "Home prices can never go down"
    4 May 2013, 10:37 PM Reply Like
  • But the FED can print infinite money, so it's slightly different. Imagine if the buyers of those homes could also print infinite money. What risk would there be of them ever falling in price?
    5 May 2013, 06:16 AM Reply Like
  • Infinite borrowing, spending and printing are "gateway drugs." The question is: Gateways to what?


    We'll see but, I'm betting the settling point will be a US dollar that doesn't have much value.
    5 May 2013, 10:13 AM Reply Like
  • Time to allocate more to preferreds and hedge with long-dated puts winning stocks you don't want to sell. There's an interesting chart by Doug Short that shows the inflation adjusted S&P 500 now is 57% above the regression trend line from 1871, a level significantly exceeded only five times since 1871: twice in early 1900's, 1929, 2000 and 2007.
    5 May 2013, 09:58 AM Reply Like
  • I don't know where the market is going. I have a hunch that a market in an economy that is on a long slow upward path from a depression will keep going the way it is for several more years, with periodic wobble due to normal cyclical factors like seasonality and supply changes, as well as standard level government policy blunders like sequesters and tax increases. Does this look like a prelude to collapse or like a good time for a correction? Maybe a correction. But I'm just guessing based on typical behavior.
    5 May 2013, 10:25 AM Reply Like
  • @KYLE


    Assume is a dangerous word when you are investing!
    5 May 2013, 12:32 PM Reply Like
  • Uggh, so many vague generalities. Everyone would be best advised to avoid the emotive, administrative hating, blaming statements on the U.S. fed and just about every other bureaucratic administration. Not that they're blame-worthy!?, but God, please stop.


    Know the flow, and roll with it, folks. For example, not seeing much mention of aapl's rise on these boards, from $390 to $450. Ride the train folks; vs. predicting when it will derail.
    5 May 2013, 09:23 PM Reply Like
  • We're selling everything that's not nailed down."
    Wonder if Leon knows about this announcement posted on their website


    NEW YORK & PITTSBURGH--(BUSINESS WIRE)--May. 2, 2013-Apollo Global Management, LLC announced today that they have formed a strategic partnership to invest in oil and gas properties in the Appalachian Basin, with a primary focus on the Marcellus Shale.


    For that matter what the heck is an Apollo Group and why would anyone blindly follow this headline ..
    5 May 2013, 03:35 PM Reply Like
  • I held and added new money in 2008 and through 2009 - I bought more and more with new money.


    In 2010 and 2011 I did the same.


    In 2012 ditto.


    This year I have held off adding new money, merely rotating from winners into losers


    We are not at the top - the top is somewhere around 1800 to 2000 in this cycle and most likely in 2 to 3 years but we are due for a 5 to 8% correction. It is not 1999/2000 more like 1996/1997. When and how this comes - hard to guess. I would have thought about now but not yet. Therefore I am building cash and wating and watching. At 5 to 8% below these levels the market will be a compelling buy. Get ready and don't worry if you miss it. There will be one more later this year. About two is the norm.


    By the way. For a public company CEO to make such absurd comments in public - is just stupid. Shows profound narcissism and mostl likey will cause regret.


    5 May 2013, 05:11 PM Reply Like
  • You know that song on Cops TV program?: "Bad boy, bad boy, what's you gonna do, what's you gonna do when the interest rate goes through (the roof)?"


    The cost of money to the banks goes up, housing market collapses, and money leaves the market. You see, the way to keep inflation down is to depress the economy to dampen demand and wages, through the statist, socialist, Marxist policies of the Democratic Progressive Socialist Party. Using stimulus and bond buying is a cheap, elitist substitute for real nutrition. It favors the wealthy and makes the markets one big casino. The aristocracy of Louis IV could not have designed a self serving system better.


    And who supports this the most: America's uncle, Warren Buffet and the rest of the Marxist Billionaires with all the right connections.
    5 May 2013, 06:24 PM Reply Like
  • I thought socialists were trying to boost demand to get more goodies for the working class like, you know, more jobs and higher wages. That doesn't seem like a program for deliberate deflation to me. Aren't we all super Keynesians? Don't we want inflation along with growth? Haven't we been arguing for Big Stimulus for years?


    Since we want these things we don't want to dampen demand, we don't want to depress the economy or hold wages down. These bad things are happening because people decided not to do what we want, which is to boost demand, raising inflation and real growth by keeping the deficit relatively high until the economy fully recovers. That's what Communist Socialist statist progressives want. Oh, and cut taxes for the proletariat!
    5 May 2013, 08:28 PM Reply Like
  • It seems more like the plan is to inflate the assets held by the 1%, for after all if demand and inflation was what was sought, then distributing newly-minted cash to the masses would achieve it much quicker.
    5 May 2013, 09:04 PM Reply Like
  • Tax cuts for the masses, Comrade? The capitalists would never permit it!
    6 May 2013, 02:24 AM Reply Like
  • Clearly inaccurate statement - lol. Read here:


    They invest in oil and gas assets which makes 100% sense since the sector is beaten down!
    5 May 2013, 09:16 PM Reply Like
  • No one here has mentioned US energy, bringing corporate dollars home, tax incentives for jobs, micro and macro infrastructure increases. The President has a lot of possible cards. By the way great discourse!
    5 May 2013, 10:55 PM Reply Like
  • Cocaine party... you need more for the same high... thats all QE is & ever will be... but like a coke party too much will kill you


    Thats a long way off... see Japan.


    I'm not sure we have any precedent to global money printing like this. Its going to be a great history lesson but I give up guessing how its going to end so I hedge & play both sides. Can't lose to pick heads & tails although I wont be breaking the bank like some on here, I wont be losing my ass when \ if the Fed changes course


    Lets be honest... QE at 250 billion per month in 2020 at this trajectory? Can that possibly be good?
    5 May 2013, 11:02 PM Reply Like
  • Sitting on monster gains that only a bubble could produce. I have an eye on the exit. The only thing stopping me is the IRS has an eye on me. It would be nice to liquidate everything and relax all summer but the IRS would get too big of a bite. Maybe a hedge fund who wheel and deal with other peoples money can do that (disregard tax consequences) but I will not. I have taken all the long term gains for this year in March. So that means contribute new capital collect dividends and wait for a pull back. I have been buying cyclicals because if we get improvement in Europe then we will get improvement in China then these stocks will take off.
    6 May 2013, 12:24 AM Reply Like
  • Lots of times bad investment decisions emanate from tax considerations.


    Although I am not advocating selling or going to cash, if that were your instinct, but you feel the taxation would be excessive, here's a hedging strategy that might prove cheap, relative to your taxation, and would take the risk of losing those monster gains off the table.


    SPY is at $161. You could purchase Jan 14 SPY $160 puts for about $12, or a 7.5% premium, probably less than your marginal-rate tax exposure. Then, you'd be protected throughout 2013, at a price.
    6 May 2013, 12:38 AM Reply Like
  • It's a market of stocks, not a stock market - therefore there are still some cheap stocks with good prospects that you can hold or buy. There are also international markets to invest in.


    Having said that, it would make sense to increasingly lower one's allocation to stocks as the markets grind higher.
    6 May 2013, 02:31 AM Reply Like
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