tag:blogger.com,1999:blog-70770088172489970902024-03-05T10:23:05.814-08:00The Big BarnFinancial advice from a professional. No strings attached!Mario Montoyahttp://www.blogger.com/profile/05353565598118839374noreply@blogger.comBlogger170125tag:blogger.com,1999:blog-7077008817248997090.post-8378704717649116182014-01-13T11:21:00.000-08:002014-01-13T11:21:01.990-08:00Obviously, the low employment number last week was a negative. We will have to wait and see if there is confirmation one way or another. I'm betting on a weather related impact and that we see a bounce back.<br />
<br />
<br />
MRK!<br />
Nice surprise for MRK and I am taking this opportunity to sell.<br />
<br />
JCP<br />
I have sold my position as the Christmas season bump failed to be sustained. This will be a volatile stock this year.<br />
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<br />Mario Montoyahttp://www.blogger.com/profile/05353565598118839374noreply@blogger.com0tag:blogger.com,1999:blog-7077008817248997090.post-51399483050148540902014-01-09T09:11:00.001-08:002014-01-09T09:11:48.622-08:00Happy New Year!<br />
<br />
Updating the performance numbers...<br />
<br />
We are in an economic healing environment. It is important to make sure we look at how the market is actually trading versus how we think it should trade. Currently, the market is hitting anything with interest rate sensitivity - dividend payers for example like the telecoms, CLX, LO, GE. I believe this to be misplaced (at least with LO and VZ and GE) as better economic growth will help these companies as well and I don't see the interest rate sensitivity outweighing the good. But... it is expensive to "fight the tape". Better to wait until the market stops the activity and then jump in. So while I would like to buy more LO for example, I will wait.<br />
<br />
<br />
T,<br />
I am looking to pitch out ATT. I am no longer persuaded by it's yield and cheapness relative to VZ. The growth potential that I see is not really looking too likely and the landline forms too large a part of their business.<br />
<br />
VWO<br />
I have been buying this emerging market fund.<br />
<br />
VEA<br />
Developed Europe is looking interesting to me as a cyclical bet. They have been behind us on the mending front, so it may be interesting to add exposure there.<br />
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<br />Mario Montoyahttp://www.blogger.com/profile/05353565598118839374noreply@blogger.com0tag:blogger.com,1999:blog-7077008817248997090.post-84722759964691343162013-12-20T06:36:00.000-08:002013-12-20T06:36:04.372-08:00Reviewing the current state of valuation:<br />
<br />
10 yr Treasury: 2.94%<br />
S&P 500 PE 15 (forward earnings $120, index level around 1810)<br />
E/P is 6.66%<br />
<br />
<br />
S&P 600 (small cap) has a PE of around 18.<br />
E/P is 5.55%<br />
<br />
Small cap E/P tends to be smaller because the growth expectations are larger.<br />
<br />
So with the S&P 500 spread of earnings yield to 10 yr treasuries of 3.7%, that puts us in a favorable range for stocks going forward. Anything below 2.5% and I would increase my bond weighting. Right now, the indicator is pointing to increased equity, though it is now the lowest in the last few years. But still a huge positive versus where we saw the indicator in 2007 and 2008 (around 0% risk premium for stocks).Mario Montoyahttp://www.blogger.com/profile/05353565598118839374noreply@blogger.com0tag:blogger.com,1999:blog-7077008817248997090.post-2597160969742930452013-12-19T08:14:00.002-08:002013-12-19T08:14:39.308-08:00Today, I am buying some VWO. Emerging markets getting hit as investors reassess whether China will keep growing. That is always a question and we know that it is a managed economy, a monumental change and subject to many potential issues. But, that is why it is called investing.<br />
<br />
MHN has made some recovery, but it is still cheap. I was able to buy a bit more of the preferred stock ETF's but haven't sold anything yet.<br />
<br />
I am looking at the problem with a buy first and wait to sell mentality.<br />
<br />
Mario Montoyahttp://www.blogger.com/profile/05353565598118839374noreply@blogger.com0tag:blogger.com,1999:blog-7077008817248997090.post-73714278821571748882013-12-18T13:54:00.002-08:002013-12-18T13:54:24.398-08:00The Fed's decision to start reducing it's purchase rate, while notable, obscures the fact of the overall indebtedness being taken on in the name of trying to jump start the economy.<br />
<br />
I guess any movement towards a more normal policy is welcome but I still come away with a lot of uneasiness. Jim Grant, most lately, and others have been discussing the asset inflation that is the result of the Fed's activities. If a small percentage own the lion's share of the assets and the fed is trying to push asset values up by lowering the rate at which cash flows are discounted then it stands to reason that the wealthy are obviously getting more so. He points out that records are being set in purchases of rare automobiles and art. All true, and all signs that inequality in economic outcomes is increasing and to me this is depressing. I would hope that the rising tide lifts all boats, but I fear that many are left behind.<br />
<br />
But, as investors, we need to invest based on the information in front of us and not what we might hope it would be. I do not see anything currently standing in the way of asset prices continuing to go up. My equity allocations are going to be going up. But, and I think this is important, I will be reducing my corporate fixed income exposure. I have written about PFF recently and it is clear to me that these instruments are sub-optimal for a growth portfolio and even for an income portfolio as I have been trying to build. Right now, we need to invest for growth and that means equities.<br />
<br />
But hold your horses! We do need some balance. Usually fixed income is the way to balance a portfolio, but I would posit that we should only consider government bonds. Further, because of the future potential dangers of the Fed's path and it's implications for the US dollar, it will be important to mix in global equities and perhaps global government bonds (the only real alternative in my eyes are German or Swiss bonds).<br />
<br />
For now, enjoy the upswell and use it to sell any positions that are not your favorites in particular on the fixed income side. I still like JPS, MHN and VTA but largely because they are at such massive discounts to net asset value (NAV). But, reviewing my holdings, while I think T is a bit cheap versus VZ, it is not a favorite and I would rather hold a bit more emerging markets equity VWO.Mario Montoyahttp://www.blogger.com/profile/05353565598118839374noreply@blogger.com0tag:blogger.com,1999:blog-7077008817248997090.post-62850004291601056322013-12-12T06:58:00.002-08:002013-12-12T06:58:29.550-08:00A lot of good thoughts here in this article:<br />
<br />
http://seekingalpha.com/article/1894091-why-its-a-mistake-to-hold-cash-in-this-market?source=intbrokers_regular<br />
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<br />
In particular the thinking behind not holding cash. In practice of course, we should hold at least some percentage in order to be able to react to any bargains out there. That said, there should always be a competition in one's portfolio. No investment should have a locked spot. Of course, there can (and should) be factors other than pure value (diversification is an obvious one).<br />
<br />
I do like the idea of not getting caught being too macro in thinking. The reality is that none of us know the future, so we make the best decision we can with the information we have. Solid companies that are managed well, in a growing market are probably good long term bets and short run swings should not dissuade us. As I've said before, we can't invest for the end of the world (well, you can, but it's a bit extreme IMHO). I fall prey to this thinking as well, but playing too defensively is not a good long term recipe for success.<br />
<br />
MHN has gotten to a fairly large discount to NAV (-10%). I am buying some more here. Even with Puerto Rico and other muni risk, I think it's a good reward/risk ratio.<br />
<br />
I ave also bought some TLT using Jan 2015 options (a 1x3 risk reversal if you care). This will give me some exposure if we get a downdraft in growth expectations.<br />
<br />
In addition, I am buying some VWO and other international exposure. Emerging markets have not done well this year , but if growth prospects improve globally, they should reward investors handsomely.<br />
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<br />Mario Montoyahttp://www.blogger.com/profile/05353565598118839374noreply@blogger.com0tag:blogger.com,1999:blog-7077008817248997090.post-79104476959783890122013-12-11T06:55:00.001-08:002013-12-11T06:55:14.266-08:00I think this is an excellent synopsis of the "risk" case to the current market.<br />
<br />
http://seekingalpha.com/article/1890111-qe-is-not-stimulus-and-must-end-it-might-end-badly?source=intbrokers_regular<br />
<br />
<br />
In particular, there are 2 graphs that I find telling - the job #'s from Russell 2000 companies and the the gap in loans versus bank assets. It is frustrating to say the least that the stimulus is not finding it's way into the economy.<br />
<br />
To me, it is clear it is pushing up asset prices - and here I am not talking about only the bond purchases, but the low rate environment.<br />
<br />
It is a very thorny problem. Does one go to cash to protect their position and potentially miss out on a continuation of the bull market? It is very difficult to stand on the sidelines and watch the market go up every day and not participate.<br />
<br />
No easy answer here. I am uneasy, but also look at the objective numbers and find nothing wrong about the valuations, but that is relative to where interest rates are. Recall that I look at earnings yield relative to 10 year bonds. Right now, we stand at about 6.25% versus the 10 year at 2.75, so the spread at 3.5% would have me in stocks. But, what if rates were at a more "normal" level? say 4% (growth of 2% plus inflation 2%). Well, that would put stocks at a not so cheap level. To normalize to the current 3.5% spread, that would put the multiple at 13.33 and with earnings around 110, then the index at 1466 (or about 20% lower).<br />
<br />
Unfortunately, this type of analysis can make one a chicken little. Markets can stay irrational longer than one thinks.<br />
<br />
So do we ride the wave? Or batten down the hatches? Mario Montoyahttp://www.blogger.com/profile/05353565598118839374noreply@blogger.com0tag:blogger.com,1999:blog-7077008817248997090.post-35371626523916478572013-12-05T06:35:00.000-08:002013-12-05T06:35:34.213-08:00Great growth number today. Yet, the market is down. Perhaps the market is looking through and seeing that the big growth is mainly from a growth in inventories and if the final consumption doesn't come through then it won't create a virtuous cycle.<br />
<br />
I think that is trying to get a bit too cute. I would look at it as a positive sign of optimism from businesses. I will buy some equities here.<br />
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<br />Mario Montoyahttp://www.blogger.com/profile/05353565598118839374noreply@blogger.com0tag:blogger.com,1999:blog-7077008817248997090.post-38658186361203331552013-12-04T11:51:00.000-08:002013-12-04T11:51:15.553-08:00KMI<br />
Is down about 5% today. I think it's because they own about 41% of El Paso which is down about 10%.<br />
<br />
EPB is down about 10% because it has guided dividend growth of about 2% which is apparently too low for MLP's.<br />
<br />
I don't know about EPB, but it's not too terrible in my eyes and KMI has indicated about 10% dividend growth for 2014 - and given that they own 41% of EPB I would assume they knew that EPB was going to guide lower. So, I think KMI is taking this into account in it's numbers. I think this is a great story - yes they are leveraged, but I love the energy story and if we happen to start growing, we will need more energy.<br />
<br />
I am buying a little more here.<br />
<br />
VWO<br />
here is a new entry for me. I am liking emerging markets for a long term play and so I am buying some.Mario Montoyahttp://www.blogger.com/profile/05353565598118839374noreply@blogger.com0tag:blogger.com,1999:blog-7077008817248997090.post-24932613699460853162013-12-02T12:50:00.002-08:002013-12-02T12:50:35.664-08:00Update on PFF<br />
I noticed that this month the dividend payout was quite a bit larger than the trend. This bears watching. I am holding off selling right now, but I did buy some 10 year treasury notes this morning. In addition, I sold off my HYG and BKLN both of which were subject to the reasoning from this morning.Mario Montoyahttp://www.blogger.com/profile/05353565598118839374noreply@blogger.com0tag:blogger.com,1999:blog-7077008817248997090.post-72270175727015393802013-12-02T11:06:00.001-08:002013-12-02T11:06:55.056-08:00Performance is updated! Sorry for the lag on October.Mario Montoyahttp://www.blogger.com/profile/05353565598118839374noreply@blogger.com0tag:blogger.com,1999:blog-7077008817248997090.post-23683875828108818522013-12-02T06:45:00.002-08:002013-12-02T06:45:15.285-08:00Lately (it probably has something to do with the new year, resolutions and all that), I have been thinking about asset allocation.<br />
<br />
I've had some good discussion with a friend who has a few nifty ideas on the subject which dovetail nicely with my ultimate goal of having a portfolio that didn't require too much maintenance and, importantly, I could consider in it's entirety. What I mean by that is that I want to have one portfolio to think about rather than a collection of strategies.<br />
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During this review process, I have thought long and hard about the role of certain asset classes in my portfolio. I will take preferred stocks as a prime example. These are represented with the ETF's PFF, JTP and JPS in my portfolio. JTP and JPS are trading at steep discounts and so they represent some value to me. PFF is different. PFF's yield is down to about 4.8%. This is still a decent yield and I think this asset class still deserves consideration for a place in the portfolio. However, I do not believe there is a lot of upside in Preferred stocks as a while. We have recovered all of the steep discounts in the securities that was created in the 2007 debacle. So what we are left with is yield. As we have all witnessed, the media is trying to warn us that rates are going up sometime soon. While I have difficulty with this given that we have not seen the growth, I still must agree that the pressure is to the upside and all it would take is one surprisingly good economic number (or a high inflation number) and rates would be off to the races on the upside. <br />
<br />
Bonds (and bond like securities like preferred stock tends to cushion a portfolio when stocks have a rough go. However, the correlation at this point between preferred and common stock is rising (on the downside) and falling on the upside. When stocks do well, preferreds will earn their yield but not much more. If we have a bad earnings spell or bad economic news stocks and preferred stock will go down. Preferred will go down less, but I believe they will still suffer. <br />
<br />
So, I have concluded that I should replace PFF with bonds which should go up if stocks falter. Treasuries have the highest probability to exhibit this behavior. I am still deciding which to go with - a fund, or actual bonds or even TIPS.<br />
<br />
Actual bonds have the advantage that if I am wrong, they will go down in value in the near term, but ultimately, I will get my money back. Bond funds do not have this characteristics as they are managing to a duration/maturity benchmark and the portfolio is turning over.<br />
<br />
I will look to implement this in the coming weeks.Mario Montoyahttp://www.blogger.com/profile/05353565598118839374noreply@blogger.com0tag:blogger.com,1999:blog-7077008817248997090.post-20829071396158763852013-11-20T08:53:00.002-08:002013-11-20T08:53:54.548-08:00http://www.bloomberg.com/news/2013-11-18/buying-low-thwarted-by-narrowest-stock-valuation-gap-on-record.html<br />
<br />
This is an interesting article. It points out a fairly subtle point, but an important one nonetheless.<br />
<br />
Dispersion is a measure of how varied a sample population is on a given measure. In this case, the article talks about PE ratios. Dispersion goes down when the market stops distinguishing between companies. Typically this happens when markets are saturated with money. The bears point to the Fed actions and say that the market is being flooded with cheap money. However, this conclusion flies in the face of the evidence that leverage has been going down.<br />
<br />
So, what is the truth? Maybe, as Jack Nicholson might say, "we can't handle the truth!" The market is getting more streamlined and efficient and as such, there is no place to hide. No cheap valuation cushioning the blow if earnings don't come through. If there is a cheap company out there, the readily available flow of information ensures that everyone knows about it.<br />
<br />
So what we are left with is...economic growth (for most) and innovation for some. Of course there will always be new products disrupting the current market, but the prices won't be cheap. Imagine, a casino (I know, this is a dangerous analogy for the markets, but stay with me) with many games, each with very attractive (for the casino) payout rations. That is to say, better than statistically fair. The casino does well as it has customers that are willing to come and be entertained. As new casinos see the success, they open up with more statistically fair games which attract the original casinos customers. Of course, over time, the first casino has to make it's games more fair (margins/probability of success for the casino come down). Eventually, the market gets to a point where all the players are at the payout ratios that allow them to stay in business with some probability. But that probability is not 100%.<br />
<br />
I think that is where we are approaching with the stock market. Information is available like never before and access to trading is cheap and high quality.<br />
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We are getting closer to truly efficient markets! This is a good thing, but not always comforting. It would be nice to imagine that there is a crystal ball out there and someone has the key to successful investing. I do not believe there is such a thing, but there are prudent management strategies, ie: diversification, position management (not letting positions get too big), keeping speculation small in proportion, and others rules.<br />
<br />
While I think it is too difficult to pick the winners and losers, it is much easier to consider (and forecast) economic growth. In the US, without too much intervention, it happens. Sometimes we have recessions and that will cause profits to fall and stocks to decline. More times than not, we will turn around and stocks will recover in aggregate.<br />
<br />
Right now, we are toeing a fine line. I could easily see us dip into recession territory, but I can see us accelerating as well and that is why my equity exposure is very low (around 15%), but I am probably being too bearish. Long term, I see positive growth and as such, stocks should be a healthy portion of one's portfolio in order to participate.<br />
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I like this one as well:<br />
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http://seekingalpha.com/article/1836862-trying-to-call-a-top-dont-bother-just-manage-your-risk-instead?source=intbrokers_regular<br />
<br />Mario Montoyahttp://www.blogger.com/profile/05353565598118839374noreply@blogger.com0tag:blogger.com,1999:blog-7077008817248997090.post-30040489146240168512013-11-14T13:03:00.002-08:002013-11-14T13:03:38.301-08:00I have entered into a small GLD position @124.18. I am persuaded by the very public position dumping by big hedge funds. At some point in the future, there will be an inflation scare (and perhaps more than a scare). I'm not much of a chart person, but it seems to me that the pullback has brought gold to it's previous trend line. So, to me, it seems a reasonable buy. I will start small and look to build a position. I have not decided on a percentage weight yet.<br />
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Those who know me will recognize this as a big departure from my usual stance. I have not been a fan of gold. However, the market works in "mysterious ways" and who am I to judge? I often find myself "fighting the tape" in Wall Street parlance and it tends to cost me money.<br />
<br />
I am resolving to be better about that.<br />
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I have also sold a bit more S&P futures which brings my exposure down to about 21%. I have been losing this month as stocks are up over 2%. I think there will be a pullback where I can buy back the hedge, having protected gains in the meantime.<br />
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<br />Mario Montoyahttp://www.blogger.com/profile/05353565598118839374noreply@blogger.com0tag:blogger.com,1999:blog-7077008817248997090.post-73397492351913969612013-11-08T05:57:00.002-08:002013-11-08T05:57:20.415-08:00Puzzled. I think the market is trying to get a bit too cute in pricing. Economic growth is close to ideal level of around 3%, inflation is low, employment improving. Yes, the improving economy means that the Fed will reduce it's activities in the future, but not yet and in any case they would pull back in the face of a better economy. So, there may be more of a pullback, but I will buy some more into the sell off.<br />
<br />Mario Montoyahttp://www.blogger.com/profile/05353565598118839374noreply@blogger.com0tag:blogger.com,1999:blog-7077008817248997090.post-23835569426093397662013-11-07T11:30:00.001-08:002013-11-07T11:30:37.941-08:00Nice result for JCP<br />
<br />
Very nice jump in economic growth up to 2.8% (annualized). <br />
<br />
QCOM is being hammered because it is predicting slower growth than some on Wall Street predicted. I see no cause for alarm This company is strong and worth buying more here at 66.52<br />
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COP and the other energies getting hit perhaps because the beginning of tapering (augured by the stronger economic growth) would potentially hit growth. I find this argument a bit chicken and egg. If we get growth that is good and the cyclicals will do well. If we taper...it's because we are getting growth! I like buying more.<br />
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I am maintaining a low equity exposure because I do feel that overall, things are a bit fluffy, but I am getting more positive if we get any more confirmation on growth.<br />
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<br />Mario Montoyahttp://www.blogger.com/profile/05353565598118839374noreply@blogger.com0tag:blogger.com,1999:blog-7077008817248997090.post-10732002379361635432013-11-06T11:42:00.001-08:002013-11-06T11:51:09.599-08:00What can I say...I am a sucker for downtrodden companies.<br />
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JCP<br />
CHK<br />
CLMT<br />
<br />
All of these qualify. CHK ($26.23) and CLMT ($28.08) actually did ok on the revenue side which is rare these days. I'm buying CHK and not selling CLMT. JCP ($7.80) we know is a long shot, but they do still have a (albeit damaged) brand and prime retail space. I think all of these are worth speculative positions.<br />
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FCX I'm buying more<br />
COP Buying more solid company with room to go relative to it's larger peers.<br />
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VZ Not selling. Very solid numbers here. Telecom is a main theme of mine and it does not make sense to sell any. I like ATT slightly better from a value perspective, but VZ is still a solid hold.Mario Montoyahttp://www.blogger.com/profile/05353565598118839374noreply@blogger.com0tag:blogger.com,1999:blog-7077008817248997090.post-79849239391899888662013-10-29T06:19:00.001-07:002013-10-29T06:19:31.820-07:00test post, please disregardMario Montoyahttp://www.blogger.com/profile/05353565598118839374noreply@blogger.com0tag:blogger.com,1999:blog-7077008817248997090.post-71719007587147085132013-10-28T08:14:00.000-07:002013-10-28T08:14:19.292-07:00Also,<br />
<br />
IWM<br />
Small caps have also seen PE expansion. The level for the Russell 2000 is at 27+. While the numbers can get a lot higher with these stocks, it is a trouble sign.<br />
<br />
T, VZ, S<br />
I really like T versus VZ. If I were a pairs trader, I would buy T and short VZ. But, I love this space long term. It is an area of true growth (wireless) and these two are the best in town. Maybe S can make some inroads. It may be worth a spec buy. I don't see much downside but upside may be a long time from now. I am adding to my position in T and MAY sell some of my VZ, but probably not.<br />
<br />
MRK<br />
I like this company. They are having some trouble with patent roll offs, but I still think it is well run and will be a part of an expanding health care market.<br />
<br />
<br />
Mario Montoyahttp://www.blogger.com/profile/05353565598118839374noreply@blogger.com0tag:blogger.com,1999:blog-7077008817248997090.post-1083845414567715922013-10-28T08:07:00.001-07:002013-10-28T08:07:09.806-07:00I updated my portfolio page.<br />
<br />
In summary, I am increasingly concerned with valuations and revenues. I have no doubt that companies can continue to squeeze efficiency, but I do think there will be bouts of concern in the market and so there will be volatility. We are priced, not for perfection, but not too far from that, I fear.<br />
<br />
The PE expansion has been dramatic and I suspect we don't have much to add from that source. So, it will have to come from earnings.<br />
<br />
<br />
KMB<br />
I missed the boat selling KMB too early as it led the consumer pack with PE expansion. Since September 5, the PE went from 16.2 to 18.5.<br />
<br />
CLX, LO<br />
As with KMI, the PE expansion has been significant. I have taken them off of Buy on Dip and just left them at hold. I could easily be swayed to sell these.<br />
<br />
COP is at it's high and while I am a bit nervous, there really is no reason to sell. The PE stands at 12.4 which is a bump from 11.7 in September, but not alarming.<br />
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CLMT<br />
I think everyone is waiting for the shoe to drop on this one. The dividend is about to be paid. I suspect it will drop from the current level. The question is, since everyone expects it, will the stock goes up once we see the "bogeyman". We just don't know how much the drop is going to be and so there is fear. I don't have a big position here, but I may exit nonetheless as the volatility can be high. There has been some positive legal developments and that may provide some upside potential.<br />
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<br />Mario Montoyahttp://www.blogger.com/profile/05353565598118839374noreply@blogger.com0tag:blogger.com,1999:blog-7077008817248997090.post-21289330513070480082013-10-24T07:47:00.002-07:002013-10-24T07:47:27.018-07:00T<br />
ATT posted good results and is suffering a bit today. It has lagged VZ over the last 1-5 years, but it still delivers solid results and pays an excellent dividend (5.2%). I am adding to my position today around 34.60<br />
<br />
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<br />Mario Montoyahttp://www.blogger.com/profile/05353565598118839374noreply@blogger.com0tag:blogger.com,1999:blog-7077008817248997090.post-66778738212488853122013-10-22T12:37:00.001-07:002013-10-22T12:37:52.887-07:00HYG,<br />
<br />
High yield bonds have had a great run. Normally, the low yields would give me pause. One thing to consider, though is that HYG, for example, has seen it's duration come down from the 9 year area (not sure of the exact number) down to 4 years.<br />
<br />
That is short enough that it offers a bit of protection in case yields spike up again. I would still rather own preferred stocks yielding over 6% but, the high yield market is offering a reasonable alternative.<br />
<br />
The key counter to this, is that default rates have been at lifetime lows (below 2%, I believe). So, in a sense, the high yield market is priced for perfection, and that should always make us a bit worried.<br />
<br />
In my portfolio, high yield is present but fairly small.<br />
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<br />Mario Montoyahttp://www.blogger.com/profile/05353565598118839374noreply@blogger.com0tag:blogger.com,1999:blog-7077008817248997090.post-51657518275837488902013-10-22T07:49:00.000-07:002013-10-22T07:49:06.450-07:00When bad news is good news, it is definitely a strong market. A weak employment number, once a cause for concern, now gets the market going up. Investing truly is a strange activity.<br />
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I'm not buying it. This is overdone and I am going to sell here and wait for some sort of pullback. I am back down to about 10% equity exposure.<br />
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<br />Mario Montoyahttp://www.blogger.com/profile/05353565598118839374noreply@blogger.com0tag:blogger.com,1999:blog-7077008817248997090.post-67515727197605621772013-10-17T08:42:00.000-07:002013-10-17T08:42:04.835-07:00KMI<br />
This is a strong buy for me and the fact that it is getting hit is an opportunity to buy it a bit cheaper. The company delivered good earnings (if a bit lower than expectations) and VERY strong revenue growth. Any company that is finding a way to grow revenues is a big hit with me.<br />
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<br />Mario Montoyahttp://www.blogger.com/profile/05353565598118839374noreply@blogger.com0tag:blogger.com,1999:blog-7077008817248997090.post-1640720947608832382013-10-17T06:54:00.004-07:002013-10-17T06:54:44.939-07:00OK, well we got that out of the way, no, sort of, maybe...<br />
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The truth is the discussion is just postponed until the beginning of the year. Perhaps that will give them time to actually negotiate and come up with a pro-growth solution that also doesn't include the country being held up at "bond" point.<br />
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Speaking of bonds, I think it is pretty safe to say that tapering discussion are going to be put on hold, officially. What I find interesting, and perhaps telling, is that bonds have not recovered ANY of the ground lost when the tapering talk started. I find it hard to believe everyone expected it to go on forever, so given that it was going to stop, it was just a matter of timing. Should there really be a 1% move in the 10 year area because the tapering is starting a bit earlier than expected?<br />
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Given that it has not recovered, perhaps there is something else going on. Is the market trying to price in increased growth prospects? Risk of inflation? Well the inflation can be seen comparing the TIPS pricing to the regular bonds. The "breakeven" inflation rate as it is called is around 2.3% (3.7% 30 yr bonds-1.4% for TIPS) which is not much different than the 2.2% in May before the taper talks. Also it is still low by historical 3% standards. Growth prospects may be better, but we still have not seen it come through in the numbers.<br />
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Perhaps the real culprit is a change in the risk profile of the US. If market participants expect more volatility in US rates, then more return is required. In addition, there is the problem of potential loss in credibility (reserve currency status). Probably there is some mix between these factors. But, the fact that bonds have not rallied means that barring some crisis in other parts of the world, there is limited upside in bond prices and the risk is to the downside.<br />
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That said, it still makes sense to me to find what are compelling opportunities in preferred stocks and corporate bonds. With 10 yr government at 2.7 and corporates around 3.8 (LQD) for just a bit longer, I think there can be more reward going out a bit on the risk spectrum, given that I think corporate profits will continue to be strong, if not growing slowly.<br />
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There is probably not a lot of benefit gained by adding yield by moving duration out, though. Given the overall risk for bond yields to the upside (prices lower) that I just highlighted, it probably makes more sense staying under 10 years.<br />
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More later...Mario Montoyahttp://www.blogger.com/profile/05353565598118839374noreply@blogger.com0