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Updated 10/19/2007
$25.00 Preferred Issues--A Good Buy
October 8, 2007
Let's look at a $25.00 Preferred Issues as a potential income buy.
Let's look at Sovereign Bancorp (SOV-PB--on Yahoo)
7.75% Capital Trust V Preferred Securities.
As the name implies you own a share in a Trust which in turn has purchased junior subordinated debt of Sovereign
Bank (SOV). The shares may be called at any point after 5/22/2011 (at a price of 25 plus accrued income) and
mature in 2036.
The shares pay a quarterly dividend of 48.4 cents per quarter and the dividends are cumulative. The dividends are
paid out of the proceeds of the subordinated notes that the trusts holds that were issued by Sovereign Bank.
The shares have traded in a 24.5 to 27.25 range in the past year.
As with most of these preferred volumes traded are light so a person needs to use limit orders when purchasing.
When researching a preferred it is best to research the common stock as that is where all the info is at---the
prospectus for the trust offering does not offer enough info.
With Sovereign Bank we note that they are having some sub prime mortgage issues---as you might expect, but with
the recently announced writeoffs they most likely will get this issue behind them.
Our approach to an issue like this is to put a 1-2% position in our portfolio. Your biggest concern with these issues
is that the parent company remain solvent.
The shares will be called after the first call date dependant upon the level of interest rates at the time of first call
(2011). If the company is able to borrow cheaper than this issue they will be called--if they can't they will not be
called
Attractive Hotel/Motel REIT
October 6. 2007
Looking for income securities that also have a possibility of decent capital gains as well is not easy.. Most of these
types of securities were REIT's and the REIT sector has been rather decimated in the last 3 months--most off at
least 25% .
Our most obvious pick for future capital gains plus a decent dividend yield is SuperTel Hospitality (SPPR). Now
trading at 7.50/share which is down from 8.50 about 3 months ago. They are in the mid-priced segment of the
Hotel/Motel Business and are paying an attractive 6.7% yield. The company has been acquiring many motels in the
recent months and we look for this to continue. The dividend has been raised each quarter for a number of
years--and again we believe this will continue as they improve the operations of the hotels/motels they acquire. We
see little if any downside in this efficient operator.
Additionally SPPR should be looked at as a possible buyout candidate. If this were to come to pass we belive it
would happen in the $9-10 range.
Confidence--Easy Come, Easy Go
September 26, 2007 9 AM
Last week we had a Fed rate cut which has temporarily helped confidence of investors and consumers. This week
we have the data showing plummeting home sales,. durable goods orders and consumer confidence. The net of
this is that we are still on track for a recession starting in the near future.
Of course what has the stock markets been doing? Up of course. It has been months since there has been good
economic news but the equity markets continue upward.
As always the obvious is being somewhat overlooked by the financial press, although interviews with people
expecting a recession are becoming more common.
Interest rates have ticked up by a dozen basis points since the Fed Rate Cut.--thus as we have written about before
this cut was not meaningful except in the context of investor and consumer confidence..
So our strategies will remain the same - redeploy into higher quality investments for income.
Confidence is Restored for the Time Being
September 20, 2007 1 PM
As we had mentioned earlier this week it was primarily CONFIDENCE that would be helped by a Fed Rate Cut. We
have now seen confidence being restored for the time being--but it will be only a temporary (say 1 month) fix to the
various markets. The FED will have to cut another 50 to 100 basis points to get things permanently fixed. Why do
we say this?
A big part of the reason we say this is because the 10 Yield Treasury yields have gone up 1/8% since the Fed rate
cut----this drives the mortgage market.. So while confidence will help sell some houses - only mortgage interest
rates AND confidence will make a longer term difference.
All of the problems we had before the FED rate cut still exist today. And with employment weakening things may get
worse yet.
The bright side of things is that home equity loan rates will fall, ARM resets will reset at lower levels and other credit
instruments may have lower interest rates--but all in all we still could use lower energy prices and further rate cuts
to bolster long term confidence.
The rate cut DOES GIVE US more confidence to purchase more high quality income investments and we will do
some more soon.
Does it Really Matter What the Fed Does?
September 18, 2007 11 AM
Well in a couple hours we will know what the FED will do with interest rates---but does it really matter?
We don't think that it does matter EXCEPT in the confidence of the markets or at least the confidence of the
players---and confidence is damned important
From an income investing point of view we will not change anything based upon todays decision. We are 95% in
Money Markets and we will continue to slowly redeploy our cash pile into what we hope are solid---safe income
investments.
While previously we took larger risks we think now is the time to look more in the 6-7% return range instead of in
the 7-9% range. This gives us really good safety and a decent return.
The time will come in the next 6-9 months where we can look at higher returns--but now is not a time to be a hero.
The Stage is Set
September 17, 2007 5 AM
The stage is set for an exciting week in the debt and equity markets. With the FED meeting and ensuing
announcement we will see high volatility in all markets without a doubt----but in the end it is not the market
movements this week that will be important - but instead it is how the consumer reacts to better rates in the months
ahead.
Remember the obvious---
--Housing is dead
--Fuel prices are high
--Employment is slowing
--The subprime mess is spreading (still)
--Credit markets are a mess
--Consumer confidence is waning
These are all key drivers of the future. What do they tell you?
We know what they tell us----we are in trouble economically speaking and there will be real trouble for the equity
markets ahead.
The bottom line is to be very defensive---in all areas of your economic life.
Prediction for the next 6 months----the FED will cut rates by at least 1% by April, 2008.
A Glimmer of Hope?
September 12, 2007 10 AM
While it is only a tiny hint of hope it is worth noting that it would appear that the lower marketplace interest rates are
having some affect on the housing market as the Weekly Mortgage Applications Survey rose at a 5.5% rate during
the week ended 9/7/2007. The refinance Index rose at a 6% rate. The 30 year fixed rate mortgage rate dropped to
6.25% from 6.42% the previous week..
The key importance here is that lower rates will help stimulate-at a minimum - low credit risk borrowers into buying
homes which they may see as a bargain and refinancing of their homes to make other consumer purchases.
Unfortunately we do not see the lower rates being of a big help to sub prime borrowers at this point as these
mortgages are still very difficult to get.
The consumer reaction to lower rates will determine how deep our potential recession will be over the winter
months.
Food for Thought
September 6, 2007 2 PM
One bookmark we have on our computers is the Federal Reserve Statistical Release Site. In particular we have
been following the growth of consumer credit the last number of month
An interesting number has been the growth of 'revolving' credit (credit cards).. In May this debt was growing at an
annual rate of 12.2% and in Junes preliminary number it was growing at 8.4%. In the next few days we will see the
July preliminary and the June final numbers--these could be very interesting.
For years we were watching as folks refinanced their homes constantly to spend on cars, toys etc., etc. It has been
our belief that the American consumer could NOT stop spending until they were forced to do so (meaning they were
out of cash).
It would appear to us that lacking the ability to any longer
pull cash from their homes that they are now turning to the credit cards more than ever to satisfy the spending need.
Our prediction---consumers will continue to spend as long as they have available credit card limits----and when the
music stops--boom--this is when the recession will really take hold.
We are not sure of the timing of this even, but we feel confident that this is how things will play out in the not too
distant future.
Economic Stats Looking Bad as Predicted
September 5, 2007 11 AM
As we have continually stressed the economy is worsening as pending housing sales fell to its lowest level in 6
years. Of course this is no surprise if you pay attention to the obvious.
The mortgage and credit crunch will continue to spread and the retail markets are going to get SLAMMED.
We have determined we can get into a couple debt issues without much risk---and when the time is right into an
energy trust.
Watch for our model portfolio changes soon.
Our Current Take on the Markets
September 2, 2007 11 PM
Well August was a roller coaster month in most all of the markets.
The S and P 500 gyrated up and down and in the end went nowhere.
The 10 year Treasury yields moved down by almost 25 basis points for the month as the credit crunch continued to
have a grip on the credit markets.
What has all this meant to the high yield markets? Many of the various stocks, bonds and high yield funds dropped
like rocks---many have bounced back, yet some have come back very little.
Some of the leveraged high yield bond funds got hit by as much as 50% and have yet to come back much--so we
would stay away from these issues for now.
Many of the REITS we already hurting and did not get hit much with the high yield instruments. Just the same the
yields on most of these issues and the risk/reward ratios are not good enough to justify purchase at this time.
High yield exchange traded debt issues were off as much as 10-12% last month---but have bounced back to being
down only 3-4%. Some select issues can be purchased in limited amounts at this time.
High yield preferreds got hit, but not dramatically and we believe these can also be purchased selectively.
Currently we're looking closely at the Oil and Gas Trusts as we believe that Trusts with a bias toward Oil hold good
safety and yield in the months ahead.
Strong Bounce Back in Some Issues. Are there Some Safe Buys Out There?
August 24, 2007 8 PM
I made the mistake of watching some CNBC today and I am amazed (well not really--the folks on there have been
mostly fools all along-so what should have changed) at what I am hearing.
'No chance of a recession', 'the markets have stabilized, 'its up and away from here' ---what the hell---they have
been nothing but wrong for the last 1-2 months with their incessant harping about how the subprime would not
spread---every damn one of them wrong.
ANYWAY--why bother to listen to them.
Yes--we believe we can stick a couple of toes in the water next week--very carefully.
We mentioned in the column of 8/17/2007 that there are some great values coming up. Probably the best was
CapitalSource (CSE) which hit a low of 14.76 a week ago and bounced back to 19.25 and now has settled back to
17.80 yielding 13%.
Nordic American Tanker (NAT) hit a low of near $35 and now is back to $37.50.
Selective Insurance Exchange Traded Debt (SGZ) fell to as low as $21.00 and now has bounced tremendously
back to $23.78.
So certainly there have been some great short term bounces since the 'revaluing' of the past month or so.
Since we have an outlook as we have outlined we will be looking in every area for some 'deals'. While many high
yield issues have bounced back we think they will drift down again so we have no sense of urgency to buy. Ob-
viously our 5% Money Market return is adequate until we get redeployed.
Some areas that we think probably have great potential are the Master Limited Partnerships, U.S and Canadian
Energy Trusts and very select REIT's and exchange traded debt.
As we tiptoe back in most likely it will be in increment of $2,000 to $5,000 blocks instead of the $10,000 amounts
invested previous to this month. This means we likely will not be more than 50% invested for a very long time--but
we will be searching for not just yields but capital appreciation in the issues we research.
Opportunities Galore Ahead
August 17, 2007 Noon
As we have surveyed the carnage in the high yield sector we see so many issues that are now yielding 9-15%
which we would have considered quality issues a few months ago---but have been slaughtered in the 'revaluing' of
the sector recently.
If we are to assume that we have the recession that we believe is coming and that it is a mild recession, which we
believe will be the case ---there are going to be so many opportunities to get back into the markets at nice yields
it will make your head spin.
Just to name a couple----CapitalSource (CSE) which we consider to be a fairly high quality lender--with minor
residential mortgage exposure has traded down to a low of $14.76---with a yield of 15.5%
Another issue hit--but for different reasons to some degree is Equity Inns Preferred B (ENN-PB) which has traded
down to $19.25 for a current yield of 9.7%. Equity Inns is being taken private and the shares traded off because of
the higher perceived risk--yet Equity Inns is a high quality hotel operator.
There are sooooo many available like these-----it is time to be in cash Money Markets and to be building a
shopping list for the months ahead.
Other Possble Opportunities
Sun Communities (SUI) Current Yield 9.6%
Senior Housing (SMH) Current Yield 7.6%
PacHolder Fund (PHF) Current Yield 10.7%
Selective Insurance Ex Traded Debt (SGZ) Current Yield 9%
Pimco High Income Fund (PHK) Current Yield 11.6%
Nordic American Tanker Shipping (NAT) Current Yield 13.3%
We do not believe it is time to buy anything YET---but it is time to get ready for some nibbling when the time is right.
What's Next?
August 13, 2007 10 PM
It's the million dollar question---what happens next in the credit and equity markets?
Here is our summary of how we think things will play out in the next 30-60 days.
The subprime contagion will continue---there will be more bankruptcies of Mortgage Companies--of course the
next one will be Accredited Home Lenders (LEND) which should file within 2 weeks after its buy-out with Lone Star
fell through over the weekend. LEND's lawsuit against Lone Star will be found to be meaningless.
Many of the big investment bankers will have to fess up to issues in their portfolios and will have to take relatively
large write downs of value and infuse cash to keep various funds afloat.
Central banks will need to continue to pump liquidity into the markets--and the foreign central banks will need to
stop raising rates for the time being.
By November most of the hidden issues should be behind us and by then the Fed will have lowered rates by at
least 50 basis points.
The consumer is in miserable condition as we will be in or on the verge of recession by December/January.
From this point we believe we will have a shallow recession with tumbling interest rates into the spring and
summer of 2008. With the housing market beginning to get squared away in the later part of 2008.
We realize this is only a summary, but it will steer all of our future investments until we see further information.
Where should a person look for reasonably safe investment income at this time?
This is not a time to be a hero---and having your funds primarily in a money market fund or account that is at 5% or
better yield for a few months until things shake out is not a bad idea.
We list a number of money market funds and accounts on another page and unless you are receiving at least 5%
interest on your liquid funds you should consider opening an account with the money market fund or account that
meets your needs.
Also having a small amount of your portfolio in Prosper Marketplace (see our write-up in the right margin of this
page) is not a bad idea as we believe you can make a very safe 8% or higher return with this investment.
Most high yield investments are at risk for 'revaluation' in the coming month or two. By then we will have a clear
idea of further subprime fall out.
We believe the equity markets will remain very volatile for the next couple of months before heading lower for the
following year.
Are The Inmates Now In Charge of the Asylum?
August 5, 2007
On June 20, 2007 we wrote a column 'Is a Major Debacle Just Ahead?' Our column conveyed our
attitude that the mortgage market issues were much deeper than was being admitted.
Are all the people that do analysis and reporting on these types of issues just plain STUPID or
what? For months and months we have written how deep the issues were and the related
issues--consumer debt, inability to get mortgages, high fuel prices and all we have heard from the
'smart people' was 'the problem in not spreading'.
I can't think of many issues that were more obvious than this one---if I knew it and you knew it--why
are the smart people getting paid the big bucks so damned blind?
Now here is a new problem---even prime borrowers are having trouble getting a mortgage.
Many of the same fools who were throwing money at borrowers 1-2 years ago now won't approve a
loan for a borrower who has 30% down and a FICO of 800 (this is a real life example).
Will the inmates now torpedo the entire economy?
We believe without a rate cut by the FED in the very near future the inmates will succeed---and
they may succeed even with a rate cut.
The overtightening of credit standards will only make the situation worse by creating massive
unemployment in the building and financial sectors (of all types).
From this we get a downward spiraling---which has already started with American Home Mortgage
going to liquidation and 7000 employees being let go and the equity markets gyrating wildly and
plunging every 2 days.
At this moment we are looking closely at our model and personal portfolios and determining how
much will go into money markets funds next week.
Money markets Funds in general look like they are the place to be in weeks ahead.
October 8, 2007
Let's look at a $25.00 Preferred Issues as a potential income buy.
Let's look at Sovereign Bancorp (SOV-PB--on Yahoo)
7.75% Capital Trust V Preferred Securities.
As the name implies you own a share in a Trust which in turn has purchased junior subordinated debt of Sovereign
Bank (SOV). The shares may be called at any point after 5/22/2011 (at a price of 25 plus accrued income) and
mature in 2036.
The shares pay a quarterly dividend of 48.4 cents per quarter and the dividends are cumulative. The dividends are
paid out of the proceeds of the subordinated notes that the trusts holds that were issued by Sovereign Bank.
The shares have traded in a 24.5 to 27.25 range in the past year.
As with most of these preferred volumes traded are light so a person needs to use limit orders when purchasing.
When researching a preferred it is best to research the common stock as that is where all the info is at---the
prospectus for the trust offering does not offer enough info.
With Sovereign Bank we note that they are having some sub prime mortgage issues---as you might expect, but with
the recently announced writeoffs they most likely will get this issue behind them.
Our approach to an issue like this is to put a 1-2% position in our portfolio. Your biggest concern with these issues
is that the parent company remain solvent.
The shares will be called after the first call date dependant upon the level of interest rates at the time of first call
(2011). If the company is able to borrow cheaper than this issue they will be called--if they can't they will not be
called
Attractive Hotel/Motel REIT
October 6. 2007
Looking for income securities that also have a possibility of decent capital gains as well is not easy.. Most of these
types of securities were REIT's and the REIT sector has been rather decimated in the last 3 months--most off at
least 25% .
Our most obvious pick for future capital gains plus a decent dividend yield is SuperTel Hospitality (SPPR). Now
trading at 7.50/share which is down from 8.50 about 3 months ago. They are in the mid-priced segment of the
Hotel/Motel Business and are paying an attractive 6.7% yield. The company has been acquiring many motels in the
recent months and we look for this to continue. The dividend has been raised each quarter for a number of
years--and again we believe this will continue as they improve the operations of the hotels/motels they acquire. We
see little if any downside in this efficient operator.
Additionally SPPR should be looked at as a possible buyout candidate. If this were to come to pass we belive it
would happen in the $9-10 range.
Confidence--Easy Come, Easy Go
September 26, 2007 9 AM
Last week we had a Fed rate cut which has temporarily helped confidence of investors and consumers. This week
we have the data showing plummeting home sales,. durable goods orders and consumer confidence. The net of
this is that we are still on track for a recession starting in the near future.
Of course what has the stock markets been doing? Up of course. It has been months since there has been good
economic news but the equity markets continue upward.
As always the obvious is being somewhat overlooked by the financial press, although interviews with people
expecting a recession are becoming more common.
Interest rates have ticked up by a dozen basis points since the Fed Rate Cut.--thus as we have written about before
this cut was not meaningful except in the context of investor and consumer confidence..
So our strategies will remain the same - redeploy into higher quality investments for income.
Confidence is Restored for the Time Being
September 20, 2007 1 PM
As we had mentioned earlier this week it was primarily CONFIDENCE that would be helped by a Fed Rate Cut. We
have now seen confidence being restored for the time being--but it will be only a temporary (say 1 month) fix to the
various markets. The FED will have to cut another 50 to 100 basis points to get things permanently fixed. Why do
we say this?
A big part of the reason we say this is because the 10 Yield Treasury yields have gone up 1/8% since the Fed rate
cut----this drives the mortgage market.. So while confidence will help sell some houses - only mortgage interest
rates AND confidence will make a longer term difference.
All of the problems we had before the FED rate cut still exist today. And with employment weakening things may get
worse yet.
The bright side of things is that home equity loan rates will fall, ARM resets will reset at lower levels and other credit
instruments may have lower interest rates--but all in all we still could use lower energy prices and further rate cuts
to bolster long term confidence.
The rate cut DOES GIVE US more confidence to purchase more high quality income investments and we will do
some more soon.
Does it Really Matter What the Fed Does?
September 18, 2007 11 AM
Well in a couple hours we will know what the FED will do with interest rates---but does it really matter?
We don't think that it does matter EXCEPT in the confidence of the markets or at least the confidence of the
players---and confidence is damned important
From an income investing point of view we will not change anything based upon todays decision. We are 95% in
Money Markets and we will continue to slowly redeploy our cash pile into what we hope are solid---safe income
investments.
While previously we took larger risks we think now is the time to look more in the 6-7% return range instead of in
the 7-9% range. This gives us really good safety and a decent return.
The time will come in the next 6-9 months where we can look at higher returns--but now is not a time to be a hero.
The Stage is Set
September 17, 2007 5 AM
The stage is set for an exciting week in the debt and equity markets. With the FED meeting and ensuing
announcement we will see high volatility in all markets without a doubt----but in the end it is not the market
movements this week that will be important - but instead it is how the consumer reacts to better rates in the months
ahead.
Remember the obvious---
--Housing is dead
--Fuel prices are high
--Employment is slowing
--The subprime mess is spreading (still)
--Credit markets are a mess
--Consumer confidence is waning
These are all key drivers of the future. What do they tell you?
We know what they tell us----we are in trouble economically speaking and there will be real trouble for the equity
markets ahead.
The bottom line is to be very defensive---in all areas of your economic life.
Prediction for the next 6 months----the FED will cut rates by at least 1% by April, 2008.
A Glimmer of Hope?
September 12, 2007 10 AM
While it is only a tiny hint of hope it is worth noting that it would appear that the lower marketplace interest rates are
having some affect on the housing market as the Weekly Mortgage Applications Survey rose at a 5.5% rate during
the week ended 9/7/2007. The refinance Index rose at a 6% rate. The 30 year fixed rate mortgage rate dropped to
6.25% from 6.42% the previous week..
The key importance here is that lower rates will help stimulate-at a minimum - low credit risk borrowers into buying
homes which they may see as a bargain and refinancing of their homes to make other consumer purchases.
Unfortunately we do not see the lower rates being of a big help to sub prime borrowers at this point as these
mortgages are still very difficult to get.
The consumer reaction to lower rates will determine how deep our potential recession will be over the winter
months.
Food for Thought
September 6, 2007 2 PM
One bookmark we have on our computers is the Federal Reserve Statistical Release Site. In particular we have
been following the growth of consumer credit the last number of month
An interesting number has been the growth of 'revolving' credit (credit cards).. In May this debt was growing at an
annual rate of 12.2% and in Junes preliminary number it was growing at 8.4%. In the next few days we will see the
July preliminary and the June final numbers--these could be very interesting.
For years we were watching as folks refinanced their homes constantly to spend on cars, toys etc., etc. It has been
our belief that the American consumer could NOT stop spending until they were forced to do so (meaning they were
out of cash).
It would appear to us that lacking the ability to any longer
pull cash from their homes that they are now turning to the credit cards more than ever to satisfy the spending need.
Our prediction---consumers will continue to spend as long as they have available credit card limits----and when the
music stops--boom--this is when the recession will really take hold.
We are not sure of the timing of this even, but we feel confident that this is how things will play out in the not too
distant future.
Economic Stats Looking Bad as Predicted
September 5, 2007 11 AM
As we have continually stressed the economy is worsening as pending housing sales fell to its lowest level in 6
years. Of course this is no surprise if you pay attention to the obvious.
The mortgage and credit crunch will continue to spread and the retail markets are going to get SLAMMED.
We have determined we can get into a couple debt issues without much risk---and when the time is right into an
energy trust.
Watch for our model portfolio changes soon.
Our Current Take on the Markets
September 2, 2007 11 PM
Well August was a roller coaster month in most all of the markets.
The S and P 500 gyrated up and down and in the end went nowhere.
The 10 year Treasury yields moved down by almost 25 basis points for the month as the credit crunch continued to
have a grip on the credit markets.
What has all this meant to the high yield markets? Many of the various stocks, bonds and high yield funds dropped
like rocks---many have bounced back, yet some have come back very little.
Some of the leveraged high yield bond funds got hit by as much as 50% and have yet to come back much--so we
would stay away from these issues for now.
Many of the REITS we already hurting and did not get hit much with the high yield instruments. Just the same the
yields on most of these issues and the risk/reward ratios are not good enough to justify purchase at this time.
High yield exchange traded debt issues were off as much as 10-12% last month---but have bounced back to being
down only 3-4%. Some select issues can be purchased in limited amounts at this time.
High yield preferreds got hit, but not dramatically and we believe these can also be purchased selectively.
Currently we're looking closely at the Oil and Gas Trusts as we believe that Trusts with a bias toward Oil hold good
safety and yield in the months ahead.
Strong Bounce Back in Some Issues. Are there Some Safe Buys Out There?
August 24, 2007 8 PM
I made the mistake of watching some CNBC today and I am amazed (well not really--the folks on there have been
mostly fools all along-so what should have changed) at what I am hearing.
'No chance of a recession', 'the markets have stabilized, 'its up and away from here' ---what the hell---they have
been nothing but wrong for the last 1-2 months with their incessant harping about how the subprime would not
spread---every damn one of them wrong.
ANYWAY--why bother to listen to them.
Yes--we believe we can stick a couple of toes in the water next week--very carefully.
We mentioned in the column of 8/17/2007 that there are some great values coming up. Probably the best was
CapitalSource (CSE) which hit a low of 14.76 a week ago and bounced back to 19.25 and now has settled back to
17.80 yielding 13%.
Nordic American Tanker (NAT) hit a low of near $35 and now is back to $37.50.
Selective Insurance Exchange Traded Debt (SGZ) fell to as low as $21.00 and now has bounced tremendously
back to $23.78.
So certainly there have been some great short term bounces since the 'revaluing' of the past month or so.
Since we have an outlook as we have outlined we will be looking in every area for some 'deals'. While many high
yield issues have bounced back we think they will drift down again so we have no sense of urgency to buy. Ob-
viously our 5% Money Market return is adequate until we get redeployed.
Some areas that we think probably have great potential are the Master Limited Partnerships, U.S and Canadian
Energy Trusts and very select REIT's and exchange traded debt.
As we tiptoe back in most likely it will be in increment of $2,000 to $5,000 blocks instead of the $10,000 amounts
invested previous to this month. This means we likely will not be more than 50% invested for a very long time--but
we will be searching for not just yields but capital appreciation in the issues we research.
Opportunities Galore Ahead
August 17, 2007 Noon
As we have surveyed the carnage in the high yield sector we see so many issues that are now yielding 9-15%
which we would have considered quality issues a few months ago---but have been slaughtered in the 'revaluing' of
the sector recently.
If we are to assume that we have the recession that we believe is coming and that it is a mild recession, which we
believe will be the case ---there are going to be so many opportunities to get back into the markets at nice yields
it will make your head spin.
Just to name a couple----CapitalSource (CSE) which we consider to be a fairly high quality lender--with minor
residential mortgage exposure has traded down to a low of $14.76---with a yield of 15.5%
Another issue hit--but for different reasons to some degree is Equity Inns Preferred B (ENN-PB) which has traded
down to $19.25 for a current yield of 9.7%. Equity Inns is being taken private and the shares traded off because of
the higher perceived risk--yet Equity Inns is a high quality hotel operator.
There are sooooo many available like these-----it is time to be in cash Money Markets and to be building a
shopping list for the months ahead.
Other Possble Opportunities
Sun Communities (SUI) Current Yield 9.6%
Senior Housing (SMH) Current Yield 7.6%
PacHolder Fund (PHF) Current Yield 10.7%
Selective Insurance Ex Traded Debt (SGZ) Current Yield 9%
Pimco High Income Fund (PHK) Current Yield 11.6%
Nordic American Tanker Shipping (NAT) Current Yield 13.3%
We do not believe it is time to buy anything YET---but it is time to get ready for some nibbling when the time is right.
What's Next?
August 13, 2007 10 PM
It's the million dollar question---what happens next in the credit and equity markets?
Here is our summary of how we think things will play out in the next 30-60 days.
The subprime contagion will continue---there will be more bankruptcies of Mortgage Companies--of course the
next one will be Accredited Home Lenders (LEND) which should file within 2 weeks after its buy-out with Lone Star
fell through over the weekend. LEND's lawsuit against Lone Star will be found to be meaningless.
Many of the big investment bankers will have to fess up to issues in their portfolios and will have to take relatively
large write downs of value and infuse cash to keep various funds afloat.
Central banks will need to continue to pump liquidity into the markets--and the foreign central banks will need to
stop raising rates for the time being.
By November most of the hidden issues should be behind us and by then the Fed will have lowered rates by at
least 50 basis points.
The consumer is in miserable condition as we will be in or on the verge of recession by December/January.
From this point we believe we will have a shallow recession with tumbling interest rates into the spring and
summer of 2008. With the housing market beginning to get squared away in the later part of 2008.
We realize this is only a summary, but it will steer all of our future investments until we see further information.
Where should a person look for reasonably safe investment income at this time?
This is not a time to be a hero---and having your funds primarily in a money market fund or account that is at 5% or
better yield for a few months until things shake out is not a bad idea.
We list a number of money market funds and accounts on another page and unless you are receiving at least 5%
interest on your liquid funds you should consider opening an account with the money market fund or account that
meets your needs.
Also having a small amount of your portfolio in Prosper Marketplace (see our write-up in the right margin of this
page) is not a bad idea as we believe you can make a very safe 8% or higher return with this investment.
Most high yield investments are at risk for 'revaluation' in the coming month or two. By then we will have a clear
idea of further subprime fall out.
We believe the equity markets will remain very volatile for the next couple of months before heading lower for the
following year.
Are The Inmates Now In Charge of the Asylum?
August 5, 2007
On June 20, 2007 we wrote a column 'Is a Major Debacle Just Ahead?' Our column conveyed our
attitude that the mortgage market issues were much deeper than was being admitted.
Are all the people that do analysis and reporting on these types of issues just plain STUPID or
what? For months and months we have written how deep the issues were and the related
issues--consumer debt, inability to get mortgages, high fuel prices and all we have heard from the
'smart people' was 'the problem in not spreading'.
I can't think of many issues that were more obvious than this one---if I knew it and you knew it--why
are the smart people getting paid the big bucks so damned blind?
Now here is a new problem---even prime borrowers are having trouble getting a mortgage.
Many of the same fools who were throwing money at borrowers 1-2 years ago now won't approve a
loan for a borrower who has 30% down and a FICO of 800 (this is a real life example).
Will the inmates now torpedo the entire economy?
We believe without a rate cut by the FED in the very near future the inmates will succeed---and
they may succeed even with a rate cut.
The overtightening of credit standards will only make the situation worse by creating massive
unemployment in the building and financial sectors (of all types).
From this we get a downward spiraling---which has already started with American Home Mortgage
going to liquidation and 7000 employees being let go and the equity markets gyrating wildly and
plunging every 2 days.
At this moment we are looking closely at our model and personal portfolios and determining how
much will go into money markets funds next week.
Money markets Funds in general look like they are the place to be in weeks ahead.
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