to $4. Why would anybody want a 6% taxable yield when they can get a 6% tax free yield. In fact, the yields on most muni's are already higher than Fax.
On a yield adjusted basis to the Nuveen NY tax free, $4 would be the yield adjusted price of a 9.3% tax free! If muni yields got to where they were in the collapse, fax would fall to $3 on a yield adjusted basis.
This is the problem with the feds strategy of keeping rates low. They can't do it. WE are on the cusp of a blowout to the exits. Bond investors are very very loss sensitive,. That's why David Temper has a 40% annualized return on his hedge fund.
It's hard to imagine a bottom here because we NEVER EVER EVER in US history had a bond bubble of these proportions combined with such utterly horrible fundamentals. In the environment, it's not inconceivable to have California muni's at 20%.
As you so nicely put it in this thread, the basic premise of FAX is liquidity in the market. All the fundamentals aside, there is no law against 25% discount to NAV on a rainy day. And there is no law forbidding the AU$ from a sudden drop when markets dry up.
Looking at a FAX multi-year weekly chart, with Bollinger Bands etc., it looks to me we are looking at the abyss here.
Good trade to everyone here.
Fax was $5.50 last year. It was below $4, 4 times in 2008 and below $5 once in 2007 and once in 2006.
There have been 6 buying opportunities for this stock when it has crashed in the last 4 years alone. This thing is trading for about half it's IPO price.
My returns on FAX average about 25-40% and I hold it about 3-6 months a year. If you stay in cash until it tanks you can make more money than if you sit on it.
Fundamental analysis on FAX would give you a price where it is now, but market analysis allows you to buy it every year for $5. It's a beautiful think. FAX is always the top stock on my board. I watch it every single day.
Cash as an "investment"?
It can just as easily have a negative return. Inflation is the danger, and even if the Feds printing press doesn't bother you, oil over $90 will affect the cost of everything we consume.
I feel that FAX can provide some hedge against it, if the bond portfolio is not long term. I haven't looked lately, but I suspect not.
I think TLT is a flight to safety. I've traded it a few times for that.
If you look at FAX, it's trading for half it's IPO price. Aside from a long term decline in a decade where the best investment was BONDS!! haha, it had about 15 short term collapses.
Clearly you have to be a total, complete, incoherent, brainless, waste product to hold pretty much any bond etf long term, I really like fax. It works for me. It's collapses are so abrupt it's easy to distinguish them from bear markets.
The really talented hedge guys specialize in bonds. I made 40% during the tech crash in bonds. You just have to be patient.