jahowle

Will the FHA Be the Next Government Bailout?

Bill: Lot's of hard work there. Thanks. And if need be, yes FHA will be bailed out and the senior bondholders made whole. It is certainly been good to be a senior debt holder in an environment where no one is allowed to fail. It's like first grade where no one is failed and everyone gets lifted up. I have held off buying any junk waiting for the big headline bankrupcty but maybe that was Lehman when we saw spreads widen out beyond historic levels. The GM restructure may be as close as I get to a headline bankrupcty. I guess we will see what spreads do when that deal is done. Thanks again.

Bank of America: A Risky Bet That May Be Worth It - Barron's

Rachael: Thanks for the info. Bill Gross has commented on the 'shadow banking industry and it's demise in his recent commentary and that leads me to believe that going forward the banks will have much less competition. I know the TALF may bring some of that back to life but the origination must still be made by someone and that someone looks like it will have to be a bank. If you want to refinance a mortgage, take a new mortgage, buy or maybe lease a car, get a business loan, etc there are now few options outside the traditional banking industry. If these big banks can weather the storm they have the potential to book some very large profits going foward. I hope we American taxpayers get to participate in that.

TIP ETF: A High Dividend Stock and Inflation Hedge?

puttster: It could be a good reason, the logic is that if interest rates are up it is because of a rise in inflation. The 2 do not necassarily move in tandem. When you buy a TIP bond you are simply locking in a 'real rate of return' over and above an expected positive inflation rate. If inflation goes negative you can earn no interest but the Treasury will pay you back par value. Be warned that the older TIPs bonds have accrued inflation factors and that value can go down. Be careful out there.

JAH

Let's Use the 30-Year Treasury Bond to Reignite the Mortgage Market

The government needs to explicitly guarantee Fannie and Freddie's debt and call all the callable high coupon paper and replace it with Treasuries or Treasury collateralized securities like the FICO and REFCO bonds issued in the 80's for the S&L bailout. Lowering Fannie and Freddie's funding cost will quickly and efficiently lower rates and therefore adding to real estate transactions by reducing borrowing cost.

Short Treasuries? Never A Better Time

In regards to the post I made on the PZA/TBT spread trade keep in mind the John Meynard Keynes quote ' The market can remain irrational longer that an investor can remain solvent'. I put this trade on some time ago and was under water in mid Oct as spreads widen out even further. Caveat Emptor.

Short Treasuries? Never A Better Time

An investor can take some of the risk out of being short by taking a spread trade with munis and treasuries. You could buy PZA which is a muni ETF with about the same duration as TBT. So you could be long TBT (which is a short position in the long Treasury) and long PZA. Keep in mind that TBT is a double short so you would need to buy twice as much of PZA on a dollar basis. Now you would be long munis and short Treasuries with a positive carry since there is not interest to pay on the TBT and PZA pays about a 4.50% tax exempt dividend. Then you sit back and wait for the spread (which is at levels far above anything I have seen) collapse.

Stocks vs. Bonds: An Update for the Current Market

although credit spreads look tempting we have yet to see any headline bankruptcies and I think that is coming and could widen spreads even further. Senior loans also look cheap but there has to be some blowups coming in that area as well. The muni/govi spread trade looks more appealing from a risk standpoint. You can play this using the PZA and TBT. Just keep in mind that TBT is a double short of the Treasury so you would only buy half as much.


On Nov 09 06:04 PM Roger Knights wrote:

> What do you think about an arbitrage-type play of shorting long-term
> treasuries and buying BBB corporates? The great divergence in their
> yields shouldn't persist. (Right?)

T. Boone Pickens' Stocks Struggle

Where is the information on the hedges he had in place?

High Yield Credit Spreads at Post Bear Stearns High

Not an eye opening observation. What should be taken away from this graph is the fact that credit spreads are continuing to widen and will probably do so until they take out the July 15th low in the inverterd chart. Because the common is simply a long term option on the assumed future cash flows and are junior to the bonds they should be more volatile and lead the turns in the market.

Three Bond Classes: Year-to-Date Returns

Brett: A good observation but the question is why? Why do high grade municipal bonds on the intermediate and long term part of the curve out yield Treasurys?
Why has the intermediate portion of both the Treasury and muni curve out performed the long end? The muni/treasury relationship has created what I feel are rare opportunities in muni bonds. If you want to put on an abritrage trade then you can buy PZA (a muni ETF) and buy TBT ( a short treasury ETF) and wait for the spread to collapse.

Preferreds and Munis

Other than the fact that both MUB and PFF have interest rate risk there is very little correlation in the credit risk of the two. Therefore I would find it hard to draw the analogy. PFF is 78% financials and interest rates are rising. It may get some help if rates turn south again. Watch out for another fall in MUB if one of the old bond insurers gets taken into receivership.

Upstream MLPs and Canadian Royalty Trusts: High Return, High Risk?

It is my understanding that these can be held in tax-deferred accounts up to a limit. Check with your tax advisor. You can also avoid the issue by investing in a closed-end fund that owns these stocks. I like the midstream MLPs as the consistantcy of their dividends is less depedent on the price level of the commodity. Moving energy around the globe looks like a good business for many years to come.

Stocks vs. Bonds: A Surprising Result

The chart is correct because he started with a chart of t-bills which have very little price volatility and then he added a flat 200 basis point credit spread. The average returns of either asset class are simply a benchmark but almost no one actually ever realizes any where near those average returns. Investors usually fall into one of two camps, those that outperform on a long term basis and those that under perform on a long term basis. It is not a function of which asset class you chose but what you do with it. An able minded debt investor can hang with just about any equity, currency, commodity investor over the long term. These charts simply do not reflect real world after tax, after inflatoin returns. Consider the fact that in the early 80's investors could buy long term munis yielding 12% at a time when the tax rate was 50%. These investors were earning a tax equvialent yield of 24%. I know of course they were losing a fair amount of purchasing power for a period of time but not for the life of the bond, inflation was back down to 2.50% in 1983. Equity investors were experiencing the same inflation. So much for my ramblings. Have a good weekend.

Negative Real Yield 5-Year TIPS: Betting On Higher Inflation, Price Appreciation

George: Don't you find it interesting that these still trade at huge discounts given the quality of their assets? When traders start moving out of TIPs and they return to a more reasonable real rate of return we are going to see the NAV drop which could put even more pressure on the market price. I hate to sell my positions at such deep discounts but I surely do not want to be holding when the market turns. An inflation driven bear steepening in the Treasury market is coming at some point.

Some Muni Bonds Appear Screaming Buys Here

When investing in any market there will be certain securities to avoid. California munis with poor underlying ratings would be one. Here in Texas real estate values are holding up very well. The same is true for many other areas as well. California is a unique market that seems to have always had it's own unique financial problems. You have to be selective but there are still some great values in the muni market.