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Wells Fargo Advantage Income Op Message Board

  • brucebob13207 brucebob13207 Sep 16, 2008 9:51 AM Flag

    Why I sold $9.96. Both I + MM thought

    it was a fair price....

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    • Scary stuff...

      • 1 Reply to jing_sun01
      • The market is apprently telling us it is a horrible time to be leveraged in junk bonds.

        Will defaults destroy the junk bond market? I don't personally believe so, but WTFDIK.

        I think some fear is justified, but I'm not sure how terrified we should be.

        As of 6/30/08, EAD's holdings had a market value of $1,300M. Approximately 14% was financial related, and 11% energy related. Those two sectors are getting hit hard.

        From 6/30 to 9/15, EAD's NAV has dropped about 8%, and the market price has dropped 12%, to a current discount of 15%.

        Either the market is overreacting, or there will soon be a significant dividend cut. Announcement of something is due about now. Also, we will get updated holdings after 9/30.

        The last dividend reduction was 5%. Will the next cut be worse? At a 10% yield, here is what shares should be worth at various dividend reductions:

        Reduction.......Share Price
        15%.............$11.16
        20%.............$10.50
        25%..............$9.84
        30%..............$9.19
        35%..............$8.53

        The market has priced a very scary dividend reduction.

        JMO.

 
EAD
8.11Jul 31 4:05 PMEDT