Thanks for your comments. I had owned just a little of ISG and ISP, but started looking at all of the minibond issues in the 4th qtr. of last year and decided I would sell a few mutual funds and use the proceeds to concentrate on the international banks. I focused on BAC, HSBC, ING, and Dexia's sub FSA. I actually accelerated my purchases in March of this year and at one time I had 50% Of my IRA in just these securities. I stayed away from all traditional perferreds and bought only the retail bonds. What I was doing was not diversification, but concentration in securities that I hoped would offset the losses from the bear market. This was a risky proposition I know, but I thought it would work especially after seeing prices on many retail bonds fall below $10. I remember trying to buy FSAs in 1000 lots on limit orders. I didn't always succeed like I had hoped for. Nevertheless, I bought a ton of FSF for less than $10 each. However, my best purchases were in FSE and have a average unit cost of about $8
The best price changes I found were not in FSA, but in ING bonds. I started to calculate the daily price changes in FSA and ING and realized that the liquidity in the latter was superior. I still bought more of FSA bonds than ING simply because they had a higher credit rating.
I had my share of screw ups that I was trying to offset and that included owning shares in SLM and MBI. I got slaughtered in both. However, by going with the international bank strategy I more than offset these losses. As incredible as it may seem I'm up 27% year to date. In contrast, on March 31 I was down 5%. Never in my investment performance have I had such a fantastic turnaround. I need to start diversifying pronto even if it means buying those utility bonds that are only yielding 6%. Best of luck to you.
Tony, I bought into the INZ and ISG back a couple years ago after I first retired and spent lots of time learning about the preferred and exchange-traded debt markets. I had learned some in prior years, and now the likes of quantumonline really made the task of finding issues effortless. I figured some retirement monies investment in European issues would spread the risk. I wound up with outsize positions with those two before the "doodoo hit the fan" so I'm still well underwater, but decided that the Dutch government would step up to the plate, if necessary, just like every government in the western world if the firm was too big to fail. Ditto for Barclays, Duetsche Bank, Aegon, and half a dozen others that I had U.S. debts listed here. Like everyone else, I didn't think it likely that EVERYTHING would wind up in free fall.
Thank goodness for Barron's and skeptical eye on the prognosis for FNM and FRE, and looked a game changer was in the works so sold SLM issues at a considerable loss, as well as a lot of weaker reit preferreds, various GMs, a couple MLPs, and everything else I thought might not survive without a 12 to 24 deep freeze. But being a self-taught market junkie meant that the "babies were being thrown out with bath water" and since last fall the opportunities were almost endless if I were willing to hold my breath and take whats left of very dwindling retirement money. New positions in LOTS of various-rate debt issues with 4% minimum floors, new positions in reit preffereds, and anything survivable while 70% off. AGO was one of the first.
I guess I'm rambling, sorry 'bout that, but I would have bought more of the ING debt but I already had 6000+, still under water, but paying the bills. At the time I don't think I dug up the difference between the perpetual and the hybrid. I have not yet reconsidered looking into SLM, but filled up with outsized positions in AGO & AIG subsidiaries.
I haven't read John Mauldin's email in some time. I used to read it, but had a hard time using it for investment ideas. He's pretty much the "big picture" kind of guy. I wish he had been more specific about the European banking problem. I'd like to have seen him name the banks that were the most problematic. If he had said something negative about HSBC, for instance, I might have sold some or all of HTB and HTN.
Tony, Rusty, and Jim:
I have read quite a bit about Europe in general and more specifically the European banks being in worse shape than their US counterparts. It just so happens that John Mauldin touched on this issue in this past Friday's issue of Thoughts From the Front Line. If you invest in European bank bonds, I think it might be worth your time to read.
Thanks for your thoughts. I too have done well with ING bonds. I over-allocated to them and will have to sell some of them in the near future. They equal 13% of my total portfolio which is far too high. Yeah, I know, I over did it, but I saw ING as a good way to make up for the losses I had last year. I gambled and it paid off. I really hope I never find myself in these circumstances again.
Tony- I made very good gains in the ING perpetuals which along with the AEG issues were largely responsible fo my rally from last years depths. I have sold all these to offset all tax losses from 2008 not because of worry about the safety of these issues. In fact I found myself here as I was looking for a place to park some of these sale proceeds.
I always felt the selloff in ING was overdone. The stock has been rising and the last I checked Goldman had issued an opinion saying they now had a good capital base and should be able to repay the massive loan from the Dutch government. I don't think it matters what debt issue you are talking about- they will pay these. I know technically they can defer payment but they would never do that short of being insolvent because their credit rating would get killed and that is their lifesblood. If they were insolvent all these US perpetual issues would be worthless anyhow as they are just about as junior debt as you can get. The issues I bought specically provided they were cumulative so I suppose that is a theoretical safety factor. I never considered them the equivalent of PET bonds at least in theory because of the right to defer but as L said if things went that far they would probably be headed for bankruptcy. An additional safety factor is that the Dutch Government will simply not let ING go down. I would sure consider rebuying on any dip.Good Luck RRW
Jim and Rusty,
One or both of you I think said you owned ING retail bonds. I own the 3 perpetual ones (IND, ISG, and ISP). I do not own, however, any of the perpetual hybrid ones(ISF, IDG, or IGK). My take on the difference between the two groups is that is more risk in the hybrids than in the others. Both, however, can have payments suspended under certain circumstances. IND, ISG, and ISP are risker than most other retail bonds because they are junior subordinated issues. I feel this is less of a risk at this time since the common stock has stopped receiving dividends. As I recall the Dutch government has also intervened to bolster ING's capital structure so that is a plus. I'd like to get your thoughts on what I've said.
Well his GM bond call was dead wrong fortunately I did not bite on that. I took a hit on his AIG recommendation. His Fannie and Freddies were also a wipeout which I luckily dodged. On the otherhand, he has made me more than he has cost me. Also he is at least a source of info on these where info is often hard to find.I agree you should not automatically follow his recommendations- as always DOD. His Quantumonline is essential to doing that . RRW
Tony & Rusty, I know you two are REALLY good and both know what you are doing, but for the casual observer SeekingAlpha has a tendency to gloss over the reason why things are priced the way they are, or worse, not knowing what they writing about. I stopped using them except for transcripts, of which they are very good.
Most of these exchange-traded debt traded on NYSE are based on various grades of subordinated debt and found down at the bottom debt food chain. Its no big deal as long you as understand what you are buying and why the particular issue is not at $25. Most of the various utility issues don't move much, unless portfolio managers have to sell at ant price to meet redemptions, while some issues are all over the map. For the average income investor, be sure you know WHAT and WHY you are buying.
The author notes that the issuer of AAR--CCC rated and American Airlines-- is still paying its bills, but the casual observer can note the common stock price and all's not well in airline land. Same for PKH and Quest Communications awash in debt and single B rating. Or try AKF, sounds good enough with BBB, but you don't know when you suddenly had the last payment before chap 11.
Which brings us to AGO and its new subsidiary, FSA and their 3 FSEs. Still hanging in there with A+ and some new very smart investors, draw your own conclusions.
For the small investor like me, ALWAY, ALWAYS, & ALWAYS run your findings through Quantumonline, then then look look at parent company, and look at stock charts and look where they've been and why. Probably 90% of my net worth is down in subordinated exchanged debt, but I bail when get dramatically worse, like GM or Ambac, and buy something that has sold off but improving future and smart $... ... like Wilbur or Bill.
I agree it's important to monitor the baby bonds you own on a regular basis at quantumonline. Additionally, I go a step further and verify the ratings are current by checking out the issue's CUSIP on Moody's website. I wouldn't touch the AMR baby bond with a ten foot pole. It's offering a 16% but it's junk plain and simple. I like the sorting feature of quantumonline and always sort by credit rating to see what's new in the investment grade issues. I have one that's barely investment grade, JSM, a Sallie Mae issue, and I've been selling it off whenever it gets to a price target that matches my purchase price. Now I what I own of JSM is less than 3% of the total.