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Old 07-07-2007, 11:47 AM   #21
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Do the individual stocks you guys mentioned pay dividends that qualify for the low 15% federal tax rate?
I own TMA off of Brewer's list...and would also look to add at lower price...it is a financial REIT, so not qualified dividends...
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Old 07-07-2007, 11:49 AM   #22
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ERD50,

With junk you also have to keep in mind that you're going to lose some return due to defaults. For example, from 1984-2006, the return for Vanguard's HY fund [VWEHX], LT Corp [VWESX], and GNMA [VFIIX] can be broken down into Capital Return, Income Return, and Total Return:

VWEHX:

Capital: -1.48%
Income: 10.20%
Total: 8.72%

VWESX:

Capital: 1.24%
Income: 8.22%
Total: 9.44%

VFIIX:

Capital: 0.51%
Income: 7.81%
Total: 8.29%

So, even in an era of declining interest rates, where VWESX and VFIIX gained 1.24% and 0.51% respectively, VWEHX lost 1.48%. I'm certainly no bond expert here, but I suspect that VWEHX would've showed similar capital return if it was not for defaults. Hence my theory that VWEGX lost more than 1.48% due to defaults [probably around 2-2.5% given its intermediate term duration over that time period].

So, that 2% more in yield of VWEHX over VFICX doesn't seem all that comforting to me.

- Alec
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Old 07-07-2007, 11:52 AM   #23
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I know the usual statement is 'junk isn't paying enough premium compared to investment grade'. I won't disagree, but in a way it is not Apples-to-Apples. So let me turn it around a bit and ask, where can I get a safer 7.6% yield?

-ERD50
I don't know becaue I don't try to make those judgments. To me there is safe-treasuries- and then there is stuff with various degrees of speculative appeal and risk. I know that in a very short while I have a 4% gain on AFBIX and I expect much more.

Again to me and possibly only to me, junk is for trading not holding. The trades may be very long term term-5+ years- but conceptually I see them as trades.

Ha
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Old 07-07-2007, 04:22 PM   #24
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perhaps too junky for some, but i've been happy with fidelity capital and income for along time...up about 130% over the last 10years...still only represents <5% of aa
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Old 07-10-2007, 01:39 PM   #25
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No high yield funds for me, but I do own individual securities that barf out a lot of cash. EGLE, DSX, STON, starting to buy AFN, although I am probably early. Sniffing over TMA, although I am not really interested until 24 or so.
Brewer, AFN now around $7.80. Good entry point?
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Old 07-10-2007, 01:49 PM   #26
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I was a holder in vanguard high yield. Pretty appealing to get >7% when cash and cd's were paying lousy rates.

Its junk wasnt that junky.

But with an armload of 6.25% 5 and 7 year cd's, I cant see taking on that risk for a percentage point of return.

Anything junkier than vanguards fund? I'd have to head over to home depot and special order a 51 foot pole with an electrically isolated handgrip and a welders mask.
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Old 07-10-2007, 02:31 PM   #27
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Brewer, AFN now around $7.80. Good entry point?
Maybe for a small bit. I think it is possible that it gets dragged down significantly further if the market panics enough. They have only a modest piece of their portfolio in mezzanine MBS, but with S&P announcing that they might downgrade a whole bunch of this paper, the market may take it out on the likes of AFN. Book value is a touch over 7 IIRC, so around there I would be a little more aggressive. But this is risky stuff.
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Old 07-11-2007, 11:34 AM   #28
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Maybe for a small bit. I think it is possible that it gets dragged down significantly further if the market panics enough. They have only a modest piece of their portfolio in mezzanine MBS, but with S&P announcing that they might downgrade a whole bunch of this paper, the market may take it out on the likes of AFN. Book value is a touch over 7 IIRC, so around there I would be a little more aggressive. But this is risky stuff.
Uhhhh........ your were right. Dropping like a rock.
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Old 07-11-2007, 12:33 PM   #29
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Uhhhh........ your were right. Dropping like a rock.
But now sporting an indicated yield of 17+%, assuming they are around to actually pay it. You did say "high" yield, didn't you?
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Old 07-11-2007, 01:04 PM   #30
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But now sporting an indicated yield of 17+%, assuming they are around to actually pay it. You did say "high" yield, didn't you?
Yup. Looks like some nibbling took place when it got below $7. Off it's low. I didn't have the b*lls to buy anymore.
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Old 07-11-2007, 01:25 PM   #31
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Yup. Looks like some nibbling took place when it got below $7. Off it's low. I didn't have the b*lls to buy anymore.


I wouldn't say this is a gonadal matter- more just capital preservation. We are really in uncharted territory here. Like Soros says, things can happen in markets which change the realities on Main Street on which our original commitments were based.

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Old 07-11-2007, 02:01 PM   #32
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Yup. Looks like some nibbling took place when it got below $7. Off it's low. I didn't have the b*lls to buy anymore.
The funny thing is that their exposure to subprime is pretty limited. The majority of their assets are trust preferreds issued by smallish banks. They also have high grade MBS, high grade mortgages, small commercial loans, and, yes, some subprime. But they have been absolutely crushed by the market. Tempting...

If it dumps under 7 again, I may pick up some call options struck at $7.50.
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