OJO Zafado

Thursday Outlook: No Inflation? Who Knew?!

Widbey~`` I do not follow your logic on the bond market. Only those locked into bond funds and long term bonds will see significant deterioration. J M Keynes once observed, "When the situation changes, I change my mind. What do you do?" I am 80% in bonds and use my excess income over my distributions to invest in the equities. Once a year I take a harvest of 2-3% of my equity portfolio and drop it back into bonds. I am doing quite nicely here at the S&P-1400 having not lost any money in my portfolio since 1/2007. I am up by less than 1% but I have taken distributions at 4.6% so I am ahead by over $60K in distributions. The thing to do is to have a bond ladder that you keep short to less than 6 years. You minimize the amount you bar bell out to the long term for higher yield to less than 15%. In this fashion you have constant maturities. I am significantly improving my yield in this envirionment. As more than half of my bonds in this year's rung have matured and rates have been ridiculously low on "safe" issuances, I have temporarily switched into Subordinated debt securities. The BAC '12 bonds yield less than 4%. The BAC-PRE pays out 5.4% not much of a premium except it is adjustable and sells substantialy below par and it's default coupon. The FBF-PrN (BAC) also way below par yields 6.8%. combined you get a great yield with inflation protection of sorts. The same for the FNM-PrP at 6.3% adjustable and UBS-PrD . With some severly discounted HJJ (Goldman Sachs) you add on some more +7% yield. The PYI, MSJ, USB-PrE, C-PrF and WB-PrS are all up there in the 7.25% to 8% yield. Of course these are long instruments but their quality is superb. Many have short term call dates. I continue to build my hedge in DXKSX to hedge their valuations. I have indeed changed from the < than 6 year bond ladder model but the situation is changing. The premium in yield is just too compelling in these subordinated high quality debt issuances. This is good news for income investors as many of these like the PYI, FBF-PrN and HJJ have short call dates and if called will reap a windfall, in gain for the investor. I am also holding fully funded ladder rungs through 2011. As soon as the ten year bond rate gets up above 5.5% I will start filling my '12 and '13 ladder rungs again. This is of course very bad news for the common shareholders of these great companies as some newbie investors jump in line in front of them causing them to havce their dividends and future dividend increases substantially reduced. A good deal for one investor almost always means some other investor is being diadvantaged!

Thursday Outlook: No Inflation? Who Knew?!

Alot of charts. No sign of the charts for SDS or PST. Of course PST just started trading. The mutual fund of the same strategy has been doing quite nicely the last few weeks. It seems to have made a confirmed turn up. Does anyone really believe now that as oil and precious metals have become currencies via ETFs in their own right, the US 10 year Treasury bond can stand up going forward. There is certainly more The Republic of Check rebate economic policy comming. States and local are already feeling the pinch as COLA costs are driving up wages and benefits while at the same time the States are no longer recieving the Federal Medicaid mony. The FEd last week incresed the TAF to $75 billion and the TRCA to a whopping $100 billion. A good thing too as there were three more European banks writing down another combined +10 billion on Monday morning. The real kicker was after cooking the inflation #s this week the Treasury decided they had best come clean and reported the TIC for March to be a minus $47 billion. This is not so bad untill compared to the average monthly TIC which has been generally positive and last months ~$65 billion plus TIC. So you have an actual reverse "Corporal Parmenter" effect totalling $100billion. Who can blame the Chinese for not renewing their expiring treasury notes as they have their own Strat petroleum reserve to fill. They have also previously announced that they intended to Quad their Central bank holdings in Gold. Maybe as the worlds largest miner producer they can make half of that increase from in house production. Meanwhile McCain is arguing with Hillary as to who can give away more tax money and cut taxes more while dealing responsibly with the severe Near year" shortfalls in the the bommers Social security funds. Not much chance that the generation that has paid in the most money to date into the system will not execise their right to a fair return and Colas at the ballot box. I thank the author for his concise conclusion "For the rest of 2008...." Did anyone notice the pesky Loonie AKA "Petrel" went back above par again today? I agree with his sentiments and would strongly recommend GDX,GLD,SLV, PMY,DBA,MOO,ENY,USO, UHN, as well as the still grossly undervalued huge dividend paying EVDVF/EIN/TSX. Just own them all, with the RJI! Do not over lok the true bargain basement ETFs NLR& CUT. 2 asset classes that have yet to participate in this great commodities boom! Hey who isn't going to need toilet paper? in the comming US economic collapse and bad years? Imagine the TRCA $100 billion... a few key strokes and hit enter! There goes a $100 billion off to the ECB and SNB! Think of all the money, electronic money is saving the taxpayers by not having to pay for printing that much cash. Anyone know when the ATM's will start kicking out the $50s?