Is It Just Me, Or Is Mass Yield Chasing Happening?

[brewer12345]

It seems of late that virtually any security with a decent coupon or high dividend is being bought. Everything for plain vanilla corporate bonds (LQD is peakind, for example), to agency RMBS, to MLPs, to mortgage REITs is being hoovered up regardless of risk or value. Even some of my random CEFs that have traded at big discounts to NAV (BKT, etc.) are catching a bid. I presume that treasury and CD yields of bupkis are pressing people to search out yield, yet the public seems to remain terrified of even cheap, well run equities with strong balance sheets.

Thoughts? I am not seeing much in the way of attractive yield opportunities any more. I will buy cheap stocks to a certain point, but otherwise I guess I will just accumulate cash/CDs.

 

[LARS]

All part of the FED's plan...

 

[MasterBlaster]

Are you suggesting we have yet another bubble going...

"It's not the return ON my money, it's the return OF my money." - Will Rogers

 

[frequenttraveler]

Yes, probably is a lot of chasing going on.

But what if...

What if we are in a deflationary period? What if 30 year Treasuries go from the current ridiculous 4% to an absurd 2%?

Think Japan, for instance...

I do think we are in a deflationary period, but with the Fed trying furiously to inflate, we will see what happens.

Anyway, just wanted to offer an alternative view.

I do have some 30 year T's in my portfolio, so I am putting my $ where my mouth is.

 

[ESRwannabe]

It does seem like people are avoiding US large caps. Corporate bond funds still seem reasonable to me, investment grade and junk. REITs look very overpriced.

 

[Nords]

It seems of late that virtually any security with a decent coupon or high dividend is being bought.
I presume that treasury and CD yields of bupkis are pressing people to search out yield, yet the public seems to remain terrified of even cheap, well run equities with strong balance sheets.
Thoughts? I am not seeing much in the way of attractive yield opportunities any more. I will buy cheap stocks to a certain point, but otherwise I guess I will just accumulate cash/CDs.

You're coming at the question from a different direction than mine, but I think you're right. TIPS and I bonds are particularly pathetic.

Yields have been beaten down so low that we're considering yet another refinance. Because this time rates can't possibly get any lower, this time it's really different, and this time I really really mean it.

We'll know that the bubble is really growing fast when the Dow Dividend ETF (DVY) starts taking off again.

 

[CaseInPoint]

Thoughts? I am not seeing much in the way of attractive yield opportunities any more. I will buy cheap stocks to a certain point, but otherwise I guess I will just accumulate cash/CDs.

That's exactly my situation as well. Problem is that after a while, cash starts building up in next-to-zero yield accounts, and it's very frustrating to see valuable time being wasted without moving closer to one's financial goals.

 

[Pete]

It seems of late that virtually any security with a decent coupon or high dividend is being bought.

Agreed. Perhaps it's why GE chose to raise their dividend even though you could argue that money could have been used more wisely. I've noticed payout ratios have risen in many companies. Are troubled companies trying to attract buyers with nice looking yields?

I like Verizon's 6.8% dividend. How can a company make .85 per share and payout 1.80 for a payout ratio of 220%? Does it make sense? Am I reading it wrong? Are they cannabalizing or going into debt? Or is my math just bad?

 

[Zathras]

I'm just happy to see people avoiding large cap dividend payers.
You guys keep discussing t-bonds and cash. I'll be growing my income stream

 

[jayc]

Having an active CD ladder will reduce the need to have any money in money markets or long term low yielding bonds. Current base is 3% for 4/5 year maturity. I also trade CEF, oil trust, and utilities in IRA account to capture dividends plus a little appreciation.

 

[ESRwannabe]

It does seem like people are avoiding US large caps. Corporate bond funds still seem reasonable to me, investment grade and junk. REITs look very overpriced.

I hadn't checked in a while, but looking now I think investment grade corporates are also overpriced. I still think junk is reasonable.

The best deals right now are blue chip US stocks. Unfortunately it looks like a mild rally has started. The current good deals will probably be only mediocre deals by the end of August. However, I'm sure they will still be better than the alternatives.

 

[CyclingInvestor]

I like Verizon's 6.8% dividend. How can a company make .85 per share and payout 1.80 for a payout ratio of 220%? Does it make sense? Am I reading it wrong? Are they cannabalizing or going into debt? Or is my math just bad?

Verizon earned $2.40 in 2009, and is projected to earn $2.20 in 2010 and $2.28 in 2011,

VZ: Analyst Estimates for Verizon Communications Inc. Com - Yahoo! Finance

narrowly covering their $1.90 dividend. This excludes their "one-time-charge" (estimated at $2.3 billion) to pay 11000 employees to retire.

UPDATE 4-Verizon posts loss but margins, mobile impress | Reuters

 

[CaseInPoint]

I'm just happy to see people avoiding large cap dividend payers.

Such as??

 

[Zathras]

Such as??

Perhaps I should have added some smilies
My comment was spurred by ERSwannabe's comment:

It does seem like people are avoiding US large caps.

.
Basically all I was trying to say is that I am more than happy to take the 3-5% yields being offered.
Add to that the stock growth and dividend increases and I am a very happy camper.

 

[FinanceDude]

Are you suggesting we have yet another bubble going...

"It's not the return ON my money, it's the return OF my money." - Will Rogers

Tech Stock Bubble
Real Estate Bubble
Credit Bubble
Yield Bubble?

 

[ziggy29]

Tech Stock Bubble
Real Estate Bubble
Credit Bubble
Yield Bubble?

There's always a bubble somewhere. You can always count on the herd to be disproportionately chasing after something.

To your list I could probably also add a "safety bubble" between the "credit bubble" and the "yield bubble" as well, which is what tanked the yields of anything perceived as "safe."

 

[brewer12345]

I just saw a press release indicating a billion dollar CEF is being launched to buy MLPs. Shark jumping time?

 

[FIREd]

Add that to the couple of MLP ETFs launched earlier this year by UBS and Credit Swiss, plus a 2x leveraged MLP ETF launched earlier this month by UBS...

 

[ziggy29]

Add that to the couple of MLP ETFs launched earlier this year by UBS and Credit Swiss, plus a 2x leveraged MLP ETF launched earlier this month by UBS...

Frankly, one thing I wished to see in the recent financial reform bill was the banning of leveraged and short ETFs. I think they are toxic instruments that undermine confidence by increasing volatility.