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No Free Cake

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  • Phillip Morris: Market Share Gains Across The Board [View article]
    I've been meaning to dig into the FX issues of this holding and here you've done it in a concise, clear way. Thanks.
    Apr 24, 2015. 11:19 PM | Likes Like |Link to Comment
  • Why Greece Should Follow The Example Of Argentina [View article]
    While I agree with the author that Greece is marching towards Argentina I don't agree that this is a positive development.

    I'll note just a couple disagreements:

    The author shows a GDP chart starting in 2001. I think he's being selective to make his point. A longer-term chart shows a different story. Click the below link to see his source website but pick 1970 as the starting point. Then, note the big uptick starting around 1991 when the USD currency board was started in Argentina.

    http://bit.ly/1yULkqF

    The author describes his chart as showing a brief downswing from the switch to pesos and then a recovery. But, the longer-term view shows how well they were doing under the dollar and how much was lost by switching to the peso. Yes, they have recovered some since but there is no telling how well they would've done had they just stayed under the dollar and been managed sensibly.

    Further, while others have already pointed out the government figures can be suspect there is one element to that not yet mentioned. That is the figures shown in the charts are using the government dictated exchange rate to express the totals in dollars. However, the unofficial rates have the peso at least 50% weaker and at times it has been 100% weaker. If the peso was allowed to freely float it would likely be in even far worse shape.

    The people of Argentina have not benefited from a weak currency and capital controls. And, the Greek people will end up far worse off than now if they let their politicians talk them into following that path. If they are not careful they will march right past Argentina to Venezuela.
    Apr 23, 2015. 12:41 AM | 1 Like Like |Link to Comment
  • Greece Contagion Risk [View article]
    You might check David's history and see he never comments.

    But, why do you think those countries might be subject to bank runs?

    For Greece, there is the risk of capital controls and a significant devaluation of the currency those accounts are denominated in (euros to drachmas). Are similar concerns present in those countries? Do those banks hold a great deal of Greek debt?
    Apr 17, 2015. 10:59 PM | Likes Like |Link to Comment
  • PIMCO High Income Fund: Change In Leverage To Effect Dividend Cut And Collapse Of NAV Premium [View article]
    Thanks for the info about MDP and LDP but for my purposes they seem a difference without a distinction.
    Apr 16, 2015. 12:49 PM | Likes Like |Link to Comment
  • PIMCO High Income Fund: Change In Leverage To Effect Dividend Cut And Collapse Of NAV Premium [View article]
    I am not saying those sources are wrong and you did say that unrealized gains were ROC. Your exact quote was this:

    "Realized capital gains are NOT considered RoC, while unrealized capital gains are considered CONSTRUCTIVE RoC."

    Note that no where did you mention "distributions" of these things. That was the only item I was addressing. You probably meant to imply that distributions from these things were such but that isn't what you said.
    Apr 16, 2015. 12:47 PM | Likes Like |Link to Comment
  • PIMCO High Income Fund: Change In Leverage To Effect Dividend Cut And Collapse Of NAV Premium [View article]
    You misunderstood me. You said *unrealized* gains were constructive ROC but in and of themselves unrealized gains are just that - unrealized. *Distributions* are what can be categorized as ROC. In some cases part of that may be assigned to ROC from unrealized gains although the cash for the distribution still had to come from some realized source.
    Apr 16, 2015. 01:19 AM | 1 Like Like |Link to Comment
  • PIMCO High Income Fund: Change In Leverage To Effect Dividend Cut And Collapse Of NAV Premium [View article]
    Yes, I was referring to PHK. The distribution is constant - not varying with the underlying income. The only way to do that is with a managed policy.
    Apr 16, 2015. 12:48 AM | Likes Like |Link to Comment
  • PIMCO High Income Fund: Change In Leverage To Effect Dividend Cut And Collapse Of NAV Premium [View article]
    user, unrealized gains are not ROC of any kind. You can think of them as a component of NAV but ROC comes from distributions - not unrealized anything.

    The link you provided to demonstrate the "step by step" was actually just the Pimco financials.

    I understand the issues well enough. My previous comment was not very clear. It sounded like I was trying to be educated when I was really trying to make a point. I apologize for my obtuseness.

    To me the NAV trend combined with their managed distribution policy says all I need to know (even if the premium was zero). The NAV *should* even be trending higher the last few years as it has been a bull market for high yield bonds. However, PHK's NAV has been decaying. The most likely reason is excess distribution which was the point made by the author (quite well I thought).

    You may wish to read some of the other articles on M* CEF solution center. I think you'll find they describe several concerns for a fund like PHK.

    Also pertinent on M*

    PTY vs PHK: http://bit.ly/1J5m1Ca
    See the last question of that interview and also note that PTY's premium is now 8% (not 20%)

    Dividend reinvestment at high premiums:
    http://bit.ly/1NNaLB6

    You might also wish to read this SA author who delves into destructive ROC:
    http://bit.ly/1J5mvIr

    Best of luck to you.
    Apr 15, 2015. 11:41 PM | 1 Like Like |Link to Comment
  • PIMCO High Income Fund: Change In Leverage To Effect Dividend Cut And Collapse Of NAV Premium [View article]
    "Nowhere does the author include the effects of "net capital gains" on NAV"

    Actually, I thought the author was considering this but treating any distribution of a gain as a return of capital. This may not be how the IRS treats it but operationally it seems more reasonable.

    If the fund has a holding with unrealized gains its current value is reflected in the NAV. If it sells that holding and uses the entire proceeds to buy something else then the NAV is not changed. But, if it instead distributes some of that realized gain it has less proceeds to buy its replacement and the NAV will be lower as a result. Mind you, after the gains distribution your capital position is unchanged but it is now made up of some cash from the distribution to go along with a lower NAV (I'm ignoring any fund price prem/disc).

    Your point #1 seems to imply that distributions of gains won't have any effect on NAV. Could you walk me through your thinking on that?
    Apr 15, 2015. 12:46 PM | 2 Likes Like |Link to Comment
  • JPMorgan's 6% Preferred Stock Is Worth A Look [View article]
    On Schwab, looks like JPM/PRE on Schwab.com and JPMpE on Edge.
    Apr 14, 2015. 02:45 PM | Likes Like |Link to Comment
  • PIMCO High Income Fund: Change In Leverage To Effect Dividend Cut And Collapse Of NAV Premium [View article]
    sj, how do you explain CEF Connect's stating the average earnings per share was 0.0824 (as of 9/30)? Doesn't that mean only 67% of the distribution is coming from income? Which is in line with what Pimco says about its own fund (as I just referred to).

    CEF also says the average coupon is roughly 8%. Let's assume that's a weighted average. At roughly 50% leverage you get 12% which, again, only covers about 2/3 of the distribution.

    How do you explain these?
    Apr 11, 2015. 08:37 PM | Likes Like |Link to Comment
  • PIMCO High Income Fund: Change In Leverage To Effect Dividend Cut And Collapse Of NAV Premium [View article]
    sj, I'll probably regret interjecting here but Pimco's site shows the net investment income coverage for the most recent payout to be just 70% for PHK which leaves 30% of the payout coming from capital or undistributed income. The UNII is only 0.06 which will only last about 2 more months based on this coverage ratio.

    See Pimco's pdf:
    http://bit.ly/1yNn1Wl

    This pdf is found by going to this Pimco page and clicking the UNII link below the "At A Glance" section.
    http://bit.ly/1FQqje7

    Note well that the year-to-date coverage ratio is just over 100%.

    Oh, and 200% leverage is 3x the original number - it's just math. 10% leverage gives you 1.1 times the original, 50% gives you 1.5 and so on.
    Apr 11, 2015. 10:40 AM | Likes Like |Link to Comment
  • PIMCO High Income Fund: Change In Leverage To Effect Dividend Cut And Collapse Of NAV Premium [View article]
    There is no need to quibble about NAV trends with selected starting dates. PIMCO's site has very good info including this chart of NAV back to inception. It's pretty easy to see the trends in NAV and Price.

    See their page and then click the Performance section:
    http://bit.ly/1FQqje7
    Apr 10, 2015. 12:20 PM | 1 Like Like |Link to Comment
  • Philip Morris: How You Can Receive The Dividend With Minimal Risk [View article]
    You're welcome. There is no free cake either :)
    Apr 8, 2015. 11:35 PM | Likes Like |Link to Comment
  • Philip Morris: How You Can Receive The Dividend With Minimal Risk [View article]
    zaphod, if you kept moving to other equities then you wouldn't have the benefit described in the title and the article which was minimizing risk by not having to hold shares.

    Trying to locate other front-running opportunities isn't bad. But with any trading strategy you just have to hope you win more than you lose. It's a different perspective (and a different kind of risk) than someone buy-holding for the dividend income.

    And, in my case as a US taxable investor, I would have to win a lot more with this strategy to pay the higher ordinary tax rates on the short term gain rather than the qualified dividend rate.

    I think it's an interesting discovery but one that is better directed to traders rather than folks interested in dividend income.
    Apr 8, 2015. 11:07 PM | 1 Like Like |Link to Comment
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