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Preferred Stock Investing-The Good , The Bad and The In Between
Old 09-04-2016, 08:27 AM   #1181
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Preferred Stock Investing-The Good , The Bad and The In Between

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Originally Posted by alaska55 View Post
HPF is a perferred closed end fund by John Hancock. If you go back and look at the perferred stock it holds on their web site, guess what they are slowly being called. In fact a lot of the same ones held all of us. I have a feeling the distributions are going to get cut. I sold my 1000 shares last week after holding for about a year. Time to find something else.


Alaska, you bring up a good point, I have read people are worried about the "call tsunami's" could really effect performance and yield both of some funds, as cap losses will occur. I personally have never owned a fund. I suspect I just like to "horse trade" too much to put money into a fund.


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Old 09-04-2016, 10:01 AM   #1182
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To briefly touch on the CVB topic again:

On the QuantumOnline site, it says this (bolding is mine):

Quote:
Notes: Mar 14, 2008 -- U.S. Bank Trust National Association serves as trustee (the "Trustee") for the above-referenced Trust formed pursuant to the terms of the Standard Terms for Trust Agreements dated as of January 16, 2001, as supplemented by a Series Supplement with respect to the Kinder Morgan Debenture-Backed Series 2002-6 Trust dated as of April 16, 2002 (collectively, as amended, the "Trust Agreement"), by and between Lehman ABS Corporation as Depositor (the "Depositor") and the Trustee. The assets of the Trust consist solely of $11,000,000 principal amount 7.45% Senior Debentures due March 1, 2098 CUSIP No. 482620AX9* (the "Underlying Securities") issued by Kinder Morgan, Inc., now known as Knight Inc. (the "Underlying Securities Issuer"). Knight Inc. launched a tender offer (the "Tender Offer") that relates to the Underlying Securities. A tender of the Underlying Securities would entail an exchange of such Underlying Securities for a payment. Pursuant to terms of the Trust Agreement, the Trustee is required to obtain the consent of 100% of the holders of the Corporate Backed Trust Certificates, Kinder Morgan Debenture-Backed Series 2002-6 Trust Class A-1 Certificates (the "Trust Certificates") before it can participate in the Tender Offer. A request for instructions from the Certificateholders with respect to the Tender Offer was disseminated by the Trustee in a Notice dated February 28, 2008, along with a form of Written Direction. Subsequently the Trustee received back notification from certain of the Certificateholders that such Certificateholders would not tender the Underlying Securities. As a result, the Trustee shall not tender the Underlying Securities and the Kinder Morgan Debenture-Backed Series 2002-6 Trust will continue to remain outstanding in full force and effect. This press release is being issued by U.S. Bank Trust National Association as trustee of the Trust. For more information, please contact David J. Kolibachuk of U.S. Bank Trust National Association at 212-361-2459.
In the above quote, it sounds as though in order for the underlying certificate to be redeemed, they have to have 100% of the CVB owners agreeing with it? I tried wading through the prospectus of the original issue, but can't find this suggestion - but I read the above excerpt as there having to be a unanimous consent among the CVB holders for a call.

I realize you don't make all of your investment decisions off of a 3rd party website that doesn't guarantee its info - but I find the above statement very interesting (and unusual!).
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Old 09-04-2016, 10:20 AM   #1183
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Quote:
Originally Posted by MooreBonds View Post
To briefly touch on the CVB topic again:



On the QuantumOnline site, it says this (bolding is mine):







In the above quote, it sounds as though in order for the underlying certificate to be redeemed, they have to have 100% of the CVB owners agreeing with it? I tried wading through the prospectus of the original issue, but can't find this suggestion - but I read the above excerpt as there having to be a unanimous consent among the CVB holders for a call.



I realize you don't make all of your investment decisions off of a 3rd party website that doesn't guarantee its info - but I find the above statement very interesting (and unusual!).


Well, Moorebonds, that was the rabbit hole I went down..What you posted was accurate...But unrelated...I tried to connect was two different situations as one...Your above post, was actually referencing Kinder Morgan trying to call the bonds. The KMI debenture was issued uncallable. But at the time period you referenced Kinder issued a "tender offer" to all debentures...They wanted them called. They got quite a few off the market...The actual bonds themselves. They made some kind of offer to the trust to snag those...
Im sure they made a par offer to bonds that were trading a bit under par at that time...That is why some accepted who owned the bonds... However the call warrant holders work on completely opposite side of equation...They would never call a trust issue that underlying bonds were trading below par. They would lose money on that. Kinder had no right to take the bonds in trust, that is why they tried a tender offer as they have no right to call. That debenture was a rather huge issue. They did get a chunk of them off the market back then.
My guess is the only reason CVB is still around now with the underlying bond trading so high, is it is just such a tiny issue...PJS had 45 million of the 125 million original bond in trust. All but 15 million of the other outstanding bonds outside of the trust got tendered and accepted. So 45 of the 60 is in that trust. Institutions are scrambling for yield, and I suspect Merrill found a suitor quite easily willing to pay up for its 10 year call dated issue still trading over 6%.


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Old 09-04-2016, 10:37 AM   #1184
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And there could be a possible second explanation to as why it has not been called. Lehman who was the originator ( and the call warrant holders) went bankrupt after all this happened during 08-09 crisis. Another investment banking firm ( forgot now which one) took over Lehman ABS's assets.. It may just have got lost in the shuffle with other firm taking over the ownership. They may not know or even care about the warrants. And as mentioned at $10 million, this is a tiny issue. So not a lot of built in easy profit. I suspect when they originated this issue it didn't generate the retail interest they assumed it would and that is why it is so small. Not a lot of money made on this one I assume when it originated.


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Old 09-05-2016, 10:04 AM   #1185
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CBB-B (Preferred stock)... A few of us have owned this and I wanted to give an example to better clarify risks of such issues... I have went down the risk ladder on a few, and one does so at its own risk. With rates at low levels risk could be higher than one knows... One should almost always check bond prices of companies when owning preferreds of same company. It was easy for me with the utilities but access was harder until recently when I found a web site. I want to use CBB-B as an example to prove it may not being a good investment as it must be compared to its bonds which have protections.
CBB-B is trading at par 6.75%, with no rating...
One of their bonds I will use as an example.... Cuspid 171870AK4. This is an unsecured 30 year note maturing in 2023. Its par yield is 7.25%. Currently traded last at 102.10. For a current 6.855% yield. It is Ba3 rated which is lower non investment grade. It matures in 7 years...
Now compare that to CBB-B which is perpetual (if conversion price is not met) and yields 6.75%. Even though it is not rated, one has to assume now its B2 range or "highly speculative".
One then must determine if "highly speculative" mets ones needs for a 6.75% coupon.
Now clearly looking at the debenture vs the preferred, the debenture is a clear better value in risk and reward. That 7 year backstop helps provide a rate floor if rates go up as it will be treated as a shorter term issue.. The preferred would get hit harder as it is an "indefinite maturity". Plus it has debt covenant protections a preferred does not, though it is only a debenture.
Now that I have found this website, I have been bit more thorough in evaluating preferreds. Now I knew CBB-B was a dog with fleas from beginning, but it was only anecdotal that I knew that. By checking the bonds and their pricing and ratings one can get a truer reflection of the preferred rating even if it wasnt actually rated.
Clearly to me, if I were to own a CBB issue, I would much rather purchase the 7.25% par issued bond maturing in 2023 (Issued in 1993) than owning the preferred. The only benefit the preferred has is the QDI. But the risk reward of this specific company based on bond comparison doesnt appear to be worth the risk if one is a more conservative investor.


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Old 09-05-2016, 10:54 AM   #1186
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Quote:
Originally Posted by Mulligan View Post
Clearly to me, if I were to own a CBB issue, I would much rather purchase the 7.25% par issued bond maturing in 2023 (Issued in 1993) than owning the preferred. The only benefit the preferred has is the QDI. But the risk reward of this specific company based on bond comparison doesnt appear to be worth the risk if one is a more conservative investor.
You have a good overall analysis, but two major items that you didn't factor in:

1) Minimum bet sizes - Just like food or any other items, you typically pay for convenience. Corporate bonds are traded in increments of $1,000 par value. For many thinly traded issues (like CBB's debt likely is), you might have 1 or 2 current bid/ask offers. It is common in the bond world for buyers/sellers to have minimum lot sizes, so if someone has a bid at $1020 per bond, they might be willing to buy up to $50,000 in face value, but have a minimum lot size of 10 bonds or 25 bonds. Same with the ask - you might have a seller who has $30,000 face value to sell, but the minimum they are willing to part with in one transaction might be $5,000 face value, or maybe they even have the entire $30,000 face value in one block that they don't want to break up. Contrast this to preferred stocks (and other 'baby bonds' traded on exchanges with $25 liquidation value). It's far easier, more liquid, and much more inexpensive to obtain exposure to a company via a preferred stock for many investors. And this access comes with a price. Granted, with technology, it's not a big cost for market makers and brokers, but there is some cost involved, in the form of lower yields.

2) Corporate bond spreads - Despite the world of technology, the last bastion of getting thrown over a barrel and having a market maker have their way with you is the corporate bond world. It's still common to have spreads of 1.5%, 2%, hell even 5%, on many issues other than the most liquid of the megacorps. I remember selling two corporate bonds (Fairfax Financial investment-grade bond and a Union Carbide bond) back in the 00s with spreads of about 4 to 5 points, or almost 5%! So while the last trade on a CBB bond might show $102, the person who bought it might have paid a price of $107, while the seller only received $102. Which can have a noticeable effect on the yields. Mulligan's analysis is still valid - but you have to remember to look at the actual prices you would receive/pay if you entered the corporate bond side of things, and not necessarily just using the "last", because it can have a large impact on your analysis.
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Old 09-05-2016, 11:10 AM   #1187
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Yes, that is very important to consider. I was really only discussing value, not trading, but that part should have been mentioned. Thanks for the clarity. The trust preferred underlying debts that I mentioned earlier have been available in $1k increments at 2k initial purchase (havent looked at CBB debt). And yes, if one buys a bond I call it a marriage....Bid/spreads too wide for anything else...WAY TO WIDE...
I personally am not willing to get married, so I do not own bonds...In fact I really never even finished my point out in relation to what I was posting, so thanks for waking me up, Moorebonds!
In relation to CBB, no I dont want the bonds...But I also do not want the preferred now...Is it fine? Probably no different than its ever been and it has paid consistently...What has been changing is me! I have been creeping lower on debt ratings "chasing yield" to recover what the safer yielders have been losing in yield.
I am "arresting" this behavior... I havent been hurt by it, but am not continuing the behavior. I didnt get into preferreds to "chase yield". So going forward, I am changing strategies if I need to buy any more...


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Old 09-05-2016, 11:12 AM   #1188
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To support your point Moorebonds, I will use the KMI bond that underlies the CVB issue... It trades around $108 to buy and $103 to sell... Yes, those bonds are not trading vehicles!


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Old 09-05-2016, 12:01 PM   #1189
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I have been trading corporate bonds for several years, and can attest to what MooreBonds and Mulligan have mentioned. There is almost like a "take it or leave it" attitude in the bid/ask quotes.

And the minimum quantities asked or offered kill many potential deals for me, they could be for $10K or more face value - and I might not wish to be exposed that much for a particular company/sector.

At this time of ultra-low rates, bonds have become a less attractive investment alternative. As bonds mature ( one is maturing in 2 weeks ), I am faced with the problem of replacing an investment grade 5.9% yield with whatever is out there - nowhere near what I'm losing....

If anyone is contemplating bond trading, be aware that brokers quotes can be very different - for example, Vanguard Bond quotes/spreads are more attractive than many large discount brokers.
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Old 09-06-2016, 10:38 AM   #1190
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From this thread on July 31, 2016:
RM:
Quote:
When to sell is a tough question as the interest rate market outlook as shown by market prices are now where Mulligan thoughts were last December so pricing is now equivalent to the thinking at that time and current prices no longer hold a premium on new purchases.

The question I try to satisfy myself with is how long and far will the low interest rate environment hold? An indicator I keep my eye on in the absence of interest rate hikes (which I don’t see in the next 6 months as of now) is gold -- if informed sources and governments become very concerned about future inflation they will purchase gold and force it’s price up. If gold were to break $1800 or $1900 per ounce that would be very concerning to me on holding fixed income. I would use this as an indicator to take a hard look at my fixed income holdings. As of right now I do not see anything that indicates I should sell these holdings as I do not have a good alternative investment. Of interest to me is that gold prices bottomed at $1,060, the same time that Mulligan/Collius became interested in the CHSCM/WFCPL issues as issues that held a very good interest rate that would not be called for years.

The fear of negative interest rates is certainly forcing people to rush into these yield investments but that in and of itself is not a reason to sell. In 2009 government bond purchases pushed people in stocks and likewise that was not a reason to sell stocks at that point either. If interest rates are pushed into the negative yield continuum along the US government curve these fixed income holding would rise even further in price.

For my own holdings then, based on my thinking as above I am in a hold pattern, not seeing a sufficient alternative investment and not willing to hold any more assets than I presently own at near zero percent interest rates.
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RM, I disagree with your premise that interest rates will not go up for awhile and in fact go negative....

From what I see on the TV, they have priced in a 40% ish chance of a rate rise in Sept and IIRC a 70% (or more) in Dec... I think we will get a 25bp rise sometime this year....
After today’s ISM report the odds on a increase in September have dropped to 15% keeping a lid on interest rates at least in the short term and the 5 year bond dropped from 1.2 to 1.15 percent.

I think it is important when dealing with preferred stock investments to keep an eye on interest rate trends, not on a daily basis but on what one believes can be a change in trend over the next 6-12 months and what that would mean to this type of investing. Texas Proud was in agreement with the consensus view in late July that certainly interest rates would begin moving up again and not lower.

In my view the FED needs to keep that threat believable in order to not allow rampant stock bubblization, and uses the financial media in order to continue the fallacy that has been in the financial media on interest rates since 2013. Presently based on the 10 year bond yield and the stock market yield stocks would need to go up 60% to get to the historical relative value of yields, which if that were allowed to rise that 60% then an interest rate increase would devastate stocks and by extension the economy so the FED needs the stock market to not go up too fast, yet not fall in order to be able to actually increase interest rates if inflation were to start to be seen.

But they need low interest rates to support spending and the debt levels of the economy in the absence of inflation, and actually based on the debt and economic activity their economic models call for potential of negative 2 percent rates if the economy goes into recession, which would mean lower interest rates and the calling of preferred stock and re-issuance at lower rates, effecting the yield of the “Mulligan strategy”, masterfully engineered over the past years.

So I continue to view gold as a better and more informed indicator on the future of interest rate increases than rumors established by Fed officials for the purpose of blocking market bubbles in the short term. Terrific pressure is building behind this blockage and the FED like Willy Wonka, is thinking “the suspense is terrible…. I hope it will last."
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Old 09-06-2016, 11:40 AM   #1191
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It is official now on MNR-A...
Monmouth Real Estate Investment Corporation (NYSE:MNR) (the "Company"), a real estate investment trust (REIT) specializing in single-tenant, net-leased industrial properties, today announced that it has commenced an underwritten public offering of its Series C Cumulative Redeemable Preferred Stock (the "Series C Preferred Stock"). The Company intends to apply to list the Series C Preferred Stock on the New York Stock Exchange under the symbol "MNRprC."
The Company intends to use the net proceeds from this offering to redeem outstanding shares of its 7.625% Series A Cumulative Redeemable Preferred Stock. Any remaining proceeds will be used to repay borrowings outstanding under its unsecured revolving credit facility, to purchase properties and fund expansions of existing properties in the ordinary course of its business and for general corporate purposes

Monmouth Real Estate Investment Corporation Announces Public Offering Of Preferred Stock
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Old 09-06-2016, 01:56 PM   #1192
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How long might it take before mnr-a redeems? Perhaps we get the Dec 15 div?
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Old 09-06-2016, 01:57 PM   #1193
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Interesting Texas, I was hoping for a yield price... Probably sub 6%.


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Old 09-06-2016, 02:00 PM   #1194
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Running Man, You may find the below numbers and info interesting...This comes from South Gent who posts a blog on SA. A very informed man and I enjoy his writings.
Authorís reply Ľ G: The 1945-1951 period is instructive on two points.

The FED was able to peg the ten year treasury yield near 2.5% when inflation was running hot in the 1940s. That is just a fact.

http://bit.ly/yqwPit

And, the intervention now is more pervasive and substantial than that earlier time and has been aided and abetted by similar or more market manipulative policies by other major CBs.

The second point is that a long term bear market in bonds started when the FED ceased its intervention. That is another fact which can not be disputed. The bear market ended up being 32 or so years in duration:

"A Quick Look At The 10-Year Treasury Yield Since George Washington Was In The White House"
http://read.bi/UIAK2g

Fearful Symmetry: Six Decades of Treasury Yields
http://bit.ly/29yI64S

Once the CB intervention ceases, and the market starts to set rates again based on traditional and well understood criteria like credit and inflation risks, interest rates normalize even with benign inflation numbers continuing during the normalization process.

The rise in rates could be made worse when the normalization process is accompanied by a rise in inflation and inflation expectations which are currently abnormally low as well.

Even with benign inflation between 1952-1966, compared to the 1945-1951 period, the ten year treasury yield jumped to a series of new and higher ranges after the FED ceased its intervention. The jump was from a 2.2%-2.5% range to higher ranges before tipping over 4% in 1959.

I would call the gradual rise from 2.2%-2.5% to a 4.6% ten year yield by 1966 to be part of a rate normalization process occurring during a transition from CB manipulated rates to abnormally low levels to market set rates at traditional spreads to inflation and inflation expectations.

A normal spread to inflation would inevitably cause significant price deterioration in the artificially low vintage yields which happened throughout the 1950s.

Later on, the problems morphed into a far more deadly bear market for bonds when inflation started to turn up in the late 1960s and then quickly moved into clearly problematic levels for both stock and bonds.

The first leg of a bond bear market does not have to be caused by a persistent rise in inflation and an upward change in inflation expectations.

The bear market can be a CB created phenomenon resulting from keeping rates artificially low for too long which describes what has already happened IMO.

Rather than this practice being limited to one or two CBs, it has now spread worldwide and has resulted in something truly unprecedented in history-the creation of over $12 trillion in negative yields where lenders pay borrowers to accept a loan. The world has literally been turned upside down by the collective actions of CBs and they should bear the blame for the potential adverse consequences.

Ten Year Treasury 1942-1950
Jan 1, 19502.32%
Jan 1, 19492.31%
Jan 1, 19482.44%
Jan 1, 19472.25%
Jan 1, 19462.19%
Jan 1, 19452.37%
Jan 1, 19442.48%
Jan 1, 19432.47%
Jan 1, 19422.46%

Those are annual numbers, but can be broken down into months:

http://bit.ly/2ceL9Qg

Inflation: 1942 to 1952:

Jan 1, 19524.33%
Jan 1, 19518.09%
Jan 1, 1950-2.08%
Jan 1, 19491.27%
Jan 1, 194810.23%
Jan 1, 194718.13%
Jan 1, 19462.25%
Jan 1, 19452.30%
Jan 1, 19442.96%
Jan 1, 19437.64%
Jan 1, 194211.35%

Inflation 1952 through 1965:

Jan 1, 19650.97%
Jan 1, 19641.64%
Jan 1, 19631.33%
Jan 1, 19620.67%
Jan 1, 19611.71%
Jan 1, 19601.03%
Jan 1, 19591.40%
Jan 1, 19583.62%
Jan 1, 19572.99%
Jan 1, 19560.37%
Jan 1, 1955-0.74%
Jan 1, 19541.13%
Jan 1, 19530.38%
Jan 1, 19524.33%

Compare with

Ten Year Treasury 1952-1966:

Jan 1, 19654.19%
Jan 1, 19644.17%
Jan 1, 19633.83%
Jan 1, 19624.08%
Jan 1, 19613.84%
Jan 1, 19604.72%
Jan 1, 19594.02%
Jan 1, 19583.09%
Jan 1, 19573.46%
Jan 1, 19562.90%
Jan 1, 19552.61%
Jan 1, 19542.48%
Jan 1, 19532.83%
Jan 1, 19522.68%

When a ball is held under water and is then allowed to act on its own, it will rise to the surface. The differences in the ten year yields for these two distinct earlier periods is not explained by inflation but by the FED's starting and then stopping CB created interest rates. Inflation went down and bond yields rose! So the piper gets paid in the end.


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Old 09-06-2016, 03:03 PM   #1195
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Ok, I couldnt help myself... Just a tiny trade for the heck of it... Vanguard had a 3 Cincinnati Bell senior unsecured bonds available as stragglers by themselves so I bought them at 95.87. Uncallable issued in 1998 and mature 2028, with yield to worst 6.78%.


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Old 09-06-2016, 03:31 PM   #1196
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Running Man here is another useless but interesting stat... If all the negative purchased bonds by world Central Bankers return to a value of just ZERO percent, they will be on the hook for an unrealized loss of 3.4 Trillion dollars....Holy Smokes...and that is just a zero percent...


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Old 09-06-2016, 03:45 PM   #1197
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Quote:
Originally Posted by youbet View Post
How long might it take before mnr-a redeems? Perhaps we get the Dec 15 div?


If a gun was to my head, and I had to go over or under, Im going under... These things can move quick They are knee deep into underwriting process it appears... Lets say 30 days to complete and issue the new series... It could be gone in 45-60 days...


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Old 09-06-2016, 04:17 PM   #1198
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Originally Posted by Mulligan View Post
Ok, I couldnt help myself... Just a tiny trade for the heck of it... Vanguard had a 3 Cincinnati Bell senior unsecured bonds available as stragglers by themselves so I bought them at 95.87. Uncallable issued in 1998 and mature 2028, with yield to worst 6.78%.
Hope you don't mind, but what does the bold line mean ?

Cincinnati Bell Tel Co Deb 6.3%28, Make Whole Call
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Old 09-06-2016, 04:25 PM   #1199
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Interesting Texas, I was hoping for a yield price... Probably sub 6%.


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Yes, I was also... I would bet sub 6% also... why do it is you do not get good bang for the buck...
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Old 09-06-2016, 04:36 PM   #1200
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Mully:
I do look quite a bit at interest rates and long term rates and the correlation to inflation: I like to look at the 30 year bond yield versus the average inflation over the next 30 years. Not for a look at the coming year or two inflation but long term expectations.

In 1946 with inflation at 18% followed by 8.8% inflation in 1947 the 30 year bond yield in 1946 at 2.19% was short of inflation by 1.23% per year on average over the next 30 years. This started a long string of years where buying the 30 year bond would not equal inflation however starting in 1968 this reverses and by 1981 the 30 year treasury was so far ahead of the inflation rate that you could have earned 10.73% over inflation on average for the next 30 years. What is amazing though is from 1927 to 1972 the difference between inflation and the 30 year treasury bond over 30 years was within +- 2 percent. The last 30 years (since 1985) have had average inflation of 2.61% December over December CPI. In between 1972 and 1985 was the years of investment nirvana where everyone is smart and 30 year treasuries got as much as 10.8% over inflation on average for 30 years.

What should scare people if there is any predictive value in the 30 year bond is that at present the 30 year rate at 2.23% is down .75% since the start of the year and the trend of the rates, even with the FED and most financial outlets stating that the economy is strongly recovering, is decidedly that inflation risk is falling fast over the long term.

The action in interest rates, while certainly being manipulated by Central Banks, is showing a severe deflationary risk both in short term number and in long term numbers as well (present 10 year average of inflation is 1.86% down from prior 10 year average of 2.13% with 4 sequential years of falling 10 yr average inflation——

Longer term there has been 20 straight years of falling 30 year average inflation, and this is showing no signs of abating, which the Central Banks obviously are fearing as well and the cause of their intervention. There is no sign of an inflation uptick and as such pressure on rates continues down, which creates the stress of reinvestment risk for average retirees like you and me. The Central Banks need inflation to pick up or the debt will strangle the economy like a small mammal in the grips of a python. This is why I think the chance of a FED hike in the next 6-12 months is near zero and if they do raise again to show they can expect long to rates to fall even further as they have this year. This is really the same look of data I saw last December when I purchased the 3 preferred that cannot be called in the coming years and nothing has occurred to change this view, actually it is accelerating to the downside.

All of this data is consistent with long term expectations of market participants who vote with their financial dollars that low rates are here for a long time, even while most financial news talks of increases in inflation rates.
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