OJO Zafado

Why I Am Adding PGF and AGD to My Portfolio

The PGF does indeed look good as a diversification. I have been using these individual issues as a substitute in my IRA to additional re-investments in my bond ladder. Nearly half of my 2008 rung has matured and I have had a call at a premium to my cost basis on a '10 issue. Quality in med-term corporate bonds seems not to exist these days vs any kind of reasonable yield for risk premium and inflation protection. I am replicating the current yield of PGF with BAC investments in FBF-N. Others like C-F, JPM-W, MSJ, Goldman Sachs HJJ, USB-D, recent investments in TWC have done very well /GJG & PYI. I have hedged these higher payers with the very attractive Adjustable rate pfds selling well below par with slightly lower yields. The FNM-P, BAC-E and UBS-D all provide some kind of inflation protection. These are mostly selling below the minimium coupon. LIBOR will have to rise enough for the LIBOR + index to kick in. So there is a gap to the inflation protection. One Caveat the ISM (SallieMae) has not fared so well but may be a good longer term bet as it now has less than 10 years to maturity. It has kicked out some good increases on the inflation data recently. A democratic sweep of all 3 houses will dramatically improve it's quality/price. With the exception of ISM all of these listed have such !HUGE! premiums to the same issuer's bond coupons and YTMs as to make investing in their bonds of equal quality a "dubious" investment as we see real inflation in our everyday life severely eroding the value of the medium term bonds going forward. I like the fixed prferreds that are selling well below par with near term call dates. If called and some probably will be at some time you will get a hansome premium to your cost basis after enjoying the superior yield and quality. By then we would hope to see a return of +5.75% on high quality medium term corporate bond debt. That is when I will start filling my '12-'15 bond ladder rungs again. It seems there is no such thing these days that if imagined can't be invested in. I am also hedging with the DXSKX against higher rates eroding my preferreds valuations. Now we also have the PST "ETF" showing up in a very timely fashion. This seems to be a better bet than it's +20 year maturity sister TBT. These are all shorting the treasuries. I have held foreign bond positions in GIFD, MERKX,PFBDX, and LSGLX. The returns have been rewarding! However the cycle may be turning. While long term these may still outperform they look vulnerable in a US economy suffering/facing strong inflation and higher interest rates. Using the DXSKX allows me to incrementally buy into the short ten year position without the payment of commission fees. So we see again in the aftermath of the markets selling off yesterday the Treasury BULLs having their day. Even as the Treasury floated out a record $15 billion in 10 year notes, the FED increased TAF by 50% and TRCAs by 100% to the ECB and SNB. The lower rates in the long term are just unsustainable IMHO. Stagflation is here! Rates are going alot higher no matter who wins the Nov election for leader of "The FREE money world!"