Payback, here is a great example of the high yield versus low yield debate. Pull up comparison charts of WIN, FTR and VZ (or use T if you prefer). WIN and FTR (and there maybe a couple of others) are in the rural telecom service. They each have bought many systems from VZ and the other Bell spinoffs over the years. Lots of people were attracted to them because of their high yields. But looking at their charts versus VZ, you can see that VZ has outperformed them by huge amounts. The reason is that they are dependent on huge amounts of debt and pay out most of their cashflow in dividends, whereas VZ pays out so much less and has capital to grow into other areas, like wireless and FIOS TV, even when their landline business shrunk. This doesn't mean that it was always a better time to buy VZ or T versus WIN or FTR, but it proves that you can get long-term outperformance and grow your capital with slow, steady companies.
There has been a lot of commentary on these matters. As to the direction of interest rates, it is doubtful that the Fed funds rate will rise as long as the banks have excess reserves as a result of QE that they are not lending out. The Fed's target for Fed funds is 0-0.25 yet the rate trades around 0.12, meaning that there is no demand for Fed Funds. Just because they raise their target does not mean that banks demand for Fed funds will increase. Since the steps that the Fed took to address the crisis was to lower rates to 0 and then do QE, you would think they would have to reverse them in that order, i.e. withdraw the excess reserves and then hike the target.
On the possible collapse of the dollar, I'm sure you have seen those articles on all the countries that used to have the reserve currency -- Spain, England. Usually lasts about 100 years before they debase. Probably doesn't happen in our lifetime.
The debate is why those excess reserves have not flowed into the economy and resulted in inflation and how the Fed can remove them before they can cause inflation. History does show that eventually inflation comes from monetary expansion.
As I said before, why would they convert. The common units are probably underwater. However, trying to think of reasons for the S-3. I mentioned sometimes these are contractually mandated in the arrangement by which they purchased the preferred. But it also occurred to me that the preferreds are not freely tradeable being private and maybe they did the S3 so that they are able to pledge them in a borrowing deal. Just guessing.
Stagg, I'm not that young. Glad you are happy with what you do. Keep it to yourself. Us (somewhat) younger guys don't need to hear how you older guys are threatened by us.
So you got 3 calls right. But wrong on SDRL, wrong on AWLCF and who knows how many others that had "good color" because "keeping the faith" works for "high yield stocks".
Once again STagg, you miss the point. It's about measuring risk and comparing to reward. Different stocks have different risks. There are risks associated with their movement compared to the market, there is risk associated with the liquidity of their stock, there is risk based on how much debt that owe. Most high yield stocks have large amounts of debt because it is that debt that provides the leverage that allows them to pay such high yields.. mREITs are using 6 times debt to equity or more. That means a small decline can wipe out their equity. You've proved my point with your profits in LINE, EVEP and FRO, all high yield stocks that stumbled. The reason they stumbled was because the amount of debt that they had threatened their ability to pay their high yields. When a high yield gets cut, the stock price follows down. This is really textbook stuff. Again, SDRL (and many of the MLPs) have fallen 75% in less than a year. That's the definition of risky (not whether you were able to get out with a profit).
Bayman, I think you are playing both NYMT and WMC correctly (even though I still own WMC). Many of the mREITs are in trading ranges. One can either hold them and just collect the dividends or one can move opportunistically when they move between the top and bottom of their ranges. You just disproved one of Stagg's assumptions (posted on the SFL board) that people are not selling high yield stocks because they have high yields. You just proved that an alternative to buy and hold is to trade opportunistically, but that doesn't make you a daytrader.
WMC should announce their next divy either after today's close or tomorrow and also announce their book value as of the end of February. There is usually a lot of movement when they announce, because some investors chase the divy and bid the stock up, while others are reacting to the book value number which can sometimes disappoint. For now, I am holding WMC, but I am close to selling it, even if it means losing the div. I have a batch in the low $13's. I note the RSI is getting close to being overbought as it just took out a previous high. The great thing with mREITS is that they usually give you a chance to buy back at another time.
Stagg always says that I don't offer any real-time data so here it goes. I mentioned IRM (Iron Mountain) sometime last summer. The company had converted to a REIT and had declared that they were going to pay a much higher dividend as a result of that status, including a special catch-up dividend and an increase in their quarterly. I thought the stock would move up as investors reacted positively to the higher dividend and that they would price the stock more in line with other REIT's yields even though IRM was in a different subsector. Plus, the stock would have to be added to the REIT indices which would get more funds buying. I bought some in the summer in the low $30's. Part of the special divy was paid in stock. The stock recently hit over $40, but as Vin posted, they reported a lower quarter and the stock dropped, breaking through the 50 dma, but holding support at around $36. The stock then bounced and retested the 50 dma, poking its head just above the 50 dma. It's now sitting right on the 50 dma. I was looking for more follow through after the Fed's decision. But if it breaks below the 50 dma, it will be a failed retest and I will l sell.
This is an example of a position where one has a good gain that is slowly eroded. The stock has a good yield and so you become complacent while the stock price slowly erodes. I missed the gap down reaction to the earnings miss, and I could have panicked and sold just as it hit support. Maybe I am wrong and the stock will power through the 50 dma on another attempt, but I have seen too many go the other way.
Agreed that simplification has its purpose. But if you look back at the main post by Gambler, the topic that DH was commenting on was Gambler gambling with TVIX for a short term hedge. In other words, Gambler was trying to protect his portfolio by hedging, which is what Big money investors do. It may not have been the best vehicle, but since the market rose, Gambler's portfolio increase should have offset the loss on the hedge. DH seems to imply that the way he chooses to hedge is to hold a bunch of cash for if a correction comes. Someone could say that isn't the best use of funds because he's getting little or no return on that cash. So my objection to DH's post is that he's critical of Gambler's hedge, but his own "hedge" can't be critiqued.
Over the years, this board has frequently discussed possible market corrections and there have been plenty of us (me included) who have tried to determine when they will come. In my opinion, this is frequently misunderstood as "daytrading" or being a doom and gloomer, but really what it is is market allocation. It is an attempt at rebalancing, but instead of using your own portfolio value to rebalance, it is an attempt to use both the market's valuation and technicals. The funny thing about DH's posts, is that he often uses technicals to trade in and out of stocks (his recent sale of Apple which he posted about a few weeks back) but then tells everyone that they can't predict corrections. The difference is that he is making tactical trades versus change in overall strategy. That's what the oversimplification misses.
stagg, the point is about risk. The concept is risk and return and optimizing it. Higher yields imply higher risks. That's great when things are going in the right direction, but we have seen that they change quickly. So quickly that you can still think a high yield stock has good color and bamm, it cuts its dividend and all the high dividend investors flee, resulting in a huge price drop. The point is that high yields can obscure this trend change, because investors get a false sense of security that the high yield will protect the share price from dropping precipitously. Look at the long term charts of NYMT (down from 200). Some of the others are too new to have a good long term record. For the record, some high yield stocks, like NLY, have good total returns, but there have been cycles were it was better to be out of that name.
You say how many investors are going to sell NYMT etc because they have high yields. I would flip the statement around. How many investors would have sold (fill in your favorite high yield stock that plunged, SDRL, EVEP, LINE) if they knew the bottom was going to drop out and their divies eliminated. The answer is a lot and that is what happened to those stocks.
Finally, I note you mentioned KCAP. A few weeks back, I mentioned that it had a bad chart and that while it was bouncing up, it was going to run into resistance. KCAP hit $7.60 and is now down to $6.83, almost the same level that it started its run up. Those who bought as the stock ran up, probably are stuck in it now. Great if you played it for a bounce and minded the technicals to take your profit. Bad, if you didn't.
Selective disclosure? Don't know what you own, but some of the names you mentioned yesterday are down: DVHL down, MLPL down, BDCL down, BERY down.
Judging solely by the posts on some of these boards, I'm not sure many retail investors can even do the numbers (and I'll put myself in that category). They depend on analyst reports and seeking alpha and posters like you to do the heavy lifting. Before everyone gives me the thumbs down, I am sure there are many exceptions. But there are a lot of yield hogs who just follow someone on TV. How many people would be in ATLS or ARP if not for Cooperman's multiple appearances on CNBC? I don't keep track but how many other e&p MLPs have been mentioned on CNBC as many times as Cooperman mentioned ARP and ATLS? Then you get all the posters saying to "buy when there is blood in the stree thinking the decline in October was the blood. Blood is when all of these names have eliminated their distributions and are selling for under $5 and people are driving Hummer's again.
Sarge, of course I knew you would be back. You and Stagg don't have that much to talk about, and without other posters interjecting other comments, I knew you would be bored just patting each other on the back. Stagg is not going to engage you in discussing Apple. He's just going to say "good for you Sarge" and then remind you (for the 100th time) that he doesn't invest in tech stocks. Then he's going to be back to his usually messages about Total Returns and reinvesting dividends and keeping the faith (how did that work out with SDRL?). While he has a new trick in bombarding us with his technical info, he hasn't described how HE would use this info, and I'm sure that info is of no use to you. So welcome back.
We've had a couple of good discussions on the SFL board without you, including a good one on when to sell a stock that has turned down, something you could have used for SDRL. It appears there's just not a lot of discussion on the TSM board.
And for the record, I just told you to stop pumping Apple every day (or any of your other stocks constantly). I didn't call you names. We know what you own. Tell us why you own them (but leave out references to Cramer or Karen Finerman) otherwise you will be eaten alive by others. You're lucky DH is going on vacation and has left the skewering to me. Dont' just tell us IBD's rating, but tell us if there is any correlation between their high rating and outperformance. In other words, think, analyze, try to bring up a point that someone is missing. It's not just about you and how good or bad you are doing, but how it is relevant to others.
Or you can continue to update us on Cramer and your current holdings (which can't be verified on a message board).
Stagg, I think we can agree that higher Total Returns are better than lower Total Returns. That is not in doubt. What is in doubt is the part that is not mentioned and this is whether investing in high yield stocks and reinvesting your dividends results in higher Total Returns versus if you invested in lower yielding stocks and reinvested those dividends. Again, none of the studies show that investing in high yield stocks produces better Total Returns.
I bet some of the highest Total Returns are in boring stocks like utilities and the consumer staple stocks like Coke and Colgate, the drug companies, and the tobacco companies. Of course, anyone who picks something to compare can pick which dates to use. in any comparison that you make, you have to be sure the time period goes through multiple bull and bear cycles.
The other thing is that not all investors have the luxury of having other sources of income so that they can reinvest dividends. Some older people live off the dividends. So your preaching is somewhat offensive to those investors who don't have a second source of income.
Anyway, the purpose of this post was not to get you defensive (as you are prone to do) but rather to point out that these bounces in response to the Fed action are likely not long-lived for weaker stocks.
Gambler, rates were down today. The 10 yr is back under 2% and the Fed saying growth is slowing is going to keep rates down. I do however agree with you about the bounce in some of the weak stocks. That had to be short-covering as many of those stocks have been getting killed. There might be another day or so of those rallies in beaten up stocks, but this is where you have to look at technical levels to see if there is resistance levels ahead. Every short that covered his short is looking to put the same play on again at a higher level. This is a mistake that many keep making thinking a market wide rally means that everything is ok for weak stocks. It is not about "keeping the faith." In fact, keeping the faith can get you killed. Dollar cost averaging only works if you sell the shares that you bought at a lower price.
You and me both.
I think this is the second bull cycle in which I have played with various high yield names. It never works out in the end.
Hilsenrath is saying they are taking out the word patient in an attempt to inject uncertainty into the market. Jim Grant is saying they won't Plenty of articles saying the Atlanta Fed GDP number is going down to 0.3%. Don't you want to play some options for fun? Gambler-lite style.