stagg, who said that I never lose money? I was responding to Gambler, not you, and I didn't say the strategy that Gambler attributes to you, didn't work. In fact, previously I paid you a compliment that you had been very successful recently buying the dips in many stocks in March and that they had gone up (although some are now giving back some of those gains). But the facts are that you said to buy the dips in many stocks and as Bayman reminded everyone last week, not all of them worked out so wonderful as your recent gains, so the strategy is not as perfect as Gambler suggests. The key is whether the divy is maintained and that is sometimes very difficult to predict, and almost everyone on this board has the scars of some stock that surprised them with a divy cut.
Stagg, this is what you said to me when I posted last week about BDCs and junk bonds.:
mark...I think the negative attitude on some of your message' is very strange'...it don't make any difference about anything that you just posted, because I am 'in the money' on PSEC and BDCL regardless if they raise interest rates are not...you also posted the same type of message about PSEC in the past 'before it when way up' in share price (maybe this time you will be right, ???)..
This is what you said to clrodrick: clrodrick...'it has not been my impression' that the BDC's are linked to junk bonds that are linked to energy...I really wish that you or somebody else 'will expand on this and explain why' you feel that way...! I do agree that there could be a percentage of investments in energy 'among some' BDC's companies, but I don't see it as a main driver in their investments...
Anyone can look at the chart of HYG, the high yield bond index, from last August and compare to the movement in BDCs and other high yield securities and look at the movement since Feb. In Feb, HYG bottomed at 74 and moved to a high over 84 last, week. That's 10 points (plus the monthly div) or about 15%. Obviously some high yield names increased much more than 15% because they are levered more to this increase. BTW, while HYG has declined recently to around 83, it is still sitting above its 50 dma and there's further support at just above 79, so the market decline won't accelerate until HYG is sold off. The question is whether HYG leads a decline or follows a decline.
I'm just trying to identify possible correlations between the overalll market and different sectors and many of the stocks of interest on this board. Those correlations are changing all the time and there's no guarantee that this will hold this time.
The bigger issue is what is going on with Credit Suisse and Deutsche Bank, both stocks of which have been weak. Is there something underlying those banks that the market fears?
Gambler, that strategy works IF the stock KEEPS paying the divy at the same rate. It did not work with SDRL, NMM and a host of others, at least until they became way oversold and the "buy the dip" strategy started up again. Even Stagg sells some of his winners sometimes for "portfolio balancing."
Well it turns out that the market decline coincided with another one of my vacations. Next time I will try to remember to give advance warning. I do have to chuckle at all the teeth gnashing. Did everyone think the market just goes up forever? I guess that is the problem with the current dynamics where fundamentals no longer matter. All that matters is the central banks and the correlation strategies that the big funds are using to play the current dynamic. Sure, some stocks did go up when they reported a good quarter (like FRO and SFL) but the recent action shows that that is secondary to the larger strategy of momentum chasing and volatility selling. The hard thing is that these strategies and the shifts are not captured in easy metrics. JPM's quant guy has a piece out describing this action.
A couple of other notes. To address Stagg's doubt about the correlation between high yield bonds and BDCs, just plot the charts to see the relationship. While Bob tried to look at the fundamentals of the holdings of one BDC, the overall strategy has been when the risk on trade is employed, most high yield instruments (junk bonds, high divy stocks etc) go up regardless of their individual fundamentals. The BDCs themselves will show better marks on the loans that they hold because the central banks have pushed up the prices of all bonds and that flows through to the marks on the bonds, including the CLOs, in their portfolio. So it looks like portfolio price improvement (i.e. fundamentals) but the source is central banks buying AND funds following (or front running) that trade. It typically runs out of gas at some point because funds have to sell to book a profit to get their bonuses paid because unlike many of us who like to brag about paper gains, funds have to have real booked profits to get paid their cash bonuses. In other words, this sounds like buy the dips and sell the rips except it is hard to know how high to sell and how low to buy.
William, while there are a number of retail investors in search of yield, I doubt they have the weight to keep the full market up. They also can end up on the wrong end of the stick when a stock ends up cutting their divy and we have seen that so many times. But the institutions and hedge funds can keep the market up since they have to chase performance and don't want to underperform going into their year-end in October when their bonuses are determined. They also have to book profits in order to get their bonuses paid. The big funds can pursue strategies that we can't even fathom. Last August, there were article about Ray Dalio's Bridgewater fund, which is the largest hedge fund ( I think in the world) and which also just got money to stay located in Connecticut (my home state). They were pursuing a strategy of selling volatility (one of the reasons why the VIX is held down) which worked for years until it stopped working last summer. That strategy is back and has been successful since the March bottom.
The greater fool theory of investing can work for awhile, but history shows that it eventually ends.
The 10 yr Treasury is breaking through the 1.70% level. This can't be a sign that the economy is getting better. I read that short positions in the 10 yr are at a 5 year high. Will have to check to see what happened to stocks the last time Treasury shorts were this high. If those shorts have to cover, Treasuries could be in for a big rally.
On a separate note, over 2/3's of German bunds now trade with a negative yield, which means that the ECB can't buy them and has to buy other bonds. Several months ago, a commentator posted a chart comparing the relationship of Treasuries to German bunds, in which he predicted that the 10 yr would see a 1% rate based on this historical relationship. So it looks like this bond bubble is poised to continue.
Sarge has posted on SUN and mentioned WNR. WNR is trading down near its 5 year lows. I haven't played the refinery stocks in a very long time, but I remember once owning WNR back when they bought a different refinery and they did a good job with that acquisition. Thoughts?
An alternative instead of doubling down on the preferreds could be to look at their bonds which might still be paying interest. Don't know if they have already bounced back. The VNR board and some of the other e&p boards are good sources for info on all of the different e&p's (I know you already know that) and sometimes they talk about other bonds. I could have this wrong, but didn't VNR buy a couple of other e&p companies and those bonds trade separately from VNR issues, but may have been dragged down by VNR's problems.
william, there is a correlation between high yield bond prices and BDC performance since many, but not all, of the BDCs engage in this activity. Some posters just don't want to understand how a company makes money and prefer the "blind squirrel" approach. The blind squirrels can make money when the nuts are falling from the sky, but if they don't understand how the nuts grow, they are vulnerable to waking up one morning and finding no nuts. In a bull market, everyone is a genius.
Kee, I have not been following TRGP that closely other than your posts on it. It was one of many that I should have done some bottom fishing on. It's almost a triple from its Feb bottom. I have TEGP and WGP and didn't even add to them when they sold off big. I would think that the big gains in any earnings increases would now be priced into TRGP, but who knows if there is still room to move up with the yield still a relatively high 8%.
I'm looking forward to having a tax year with only a one or two MLPs to deal with, down from 12 or so last year.
Stagg, it seems we have this debate about the potential for rate hikes about every 3 or 4 months. I mentioned in a different post that the Fed has a Labor Statistic that has declined for about 4 or 5 months in a row and reminded Palestone that Yellen was a labor economist. The last time this particular labor index declined this quickly was back in 2008. So given that, I remain dubious that a rate hike is coming.
As for the BDCs, their analysis is not just as easy as looking at their interest rate exposure. Many of them, and particularly PSEC, are engaged in issuing collataralized loan obligations (CLOs) which is a way they securitize their loans and earn a spread. The value of those CLOs seems to be highly correlated with high yield bonds, which I follow in the HYG ETF. As clrodirck mentioned, money flows have increased again into HYG, so BDCs should be ok as long as HYG holds up. HYG has gone on to new highs and is now overbought with an RSI of 74. The ECB is buying European corporate bonds so that may also be having a positive effect on all bond prices.
this is just more nonsense talk from DH. How does one talk about "odds" and at the same time with a straight face, say that the odds of the market continuing to advance when the valuation ratios are all near their high. Of course the "odds" of the market going up increase when the valuations come down, but that is not a good reason to invest right now at current levels. In a previous post, DH mentioned how it took 17 years (from 1966 to 1983) for the market to start a new bull market, so the quick bounce that we got out of the 2008 plunge may not be the normal.
Don't get me wrong. DH is a good investor and is nimble and very good with understanding the technical underpinnings of stocks. But here he is criticizing people for being too much in cash, when he himself has acknowledged his own cash position and his position in TIPs that he has held since the 2009 bottom. So clearly his talk is different from his actions. Finally, investing is not gambling. While there are some similarities, and while computerized algos may be tipping the scales toward something else, I would like to think that investing is not gambling.
Pale, also check out the Fed's Labor Market index. It has been declining for several months in a row. Remember, Yellen is a labor economist and I doubt she is going to raise rates with that index falling.
I don't think there are any set timetables or even valuation metrics that measure tops. The blowoff top concept that I have mentioned is sometimes easier to see on a chart and can occur when the indices move above the channel that they were in , but again, it doesn't tell you how long they are going to last. Sometimes you have to look at broader indices like the NYSE, which unlike the other averages, has already broken the uptrend channel and is trying to regain it. The NYSE could rally another 600 points or close to 6% and still not regain the upward channel. It's always much easier to find similarities in different market cycles after the fact. We can only look at past cycles to understand what the possibilities might be.
I think 1400 on the S&P would be a 50% Fibonnaci retracement level. But I still say that this market doesn't start to decline until HYG starts to crack and it hasn't yet. In fact it is up.
bob, it is slightly overbought. Is there any level in the near term that you would consider trimming some? Tough to give up that yield which I think is more secure than many other high yield names. I have not looked at whether it makes sense to sell covered calls or sell some stock and sell put options as a divy replacement strategy on this. Sometimes it is best to just leave winning positions alone.
Well it is slightly overbought with an RSI of 75, but it looks like that didn't stop it earlier in the year when it hit those RSI levels.
Who knows what could happen if the Fed doesn't raise rates, which is looking more likely. Maybe the market gets that "blowoff top" to coincide in time for the summer rally, which could set it up for one big tumble in the Fall.