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Yield is Still King

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August 13, 2013 – Comments (11) | RELATED TICKERS: Y , I , ELD

When Bernanke first used the words that he will keep interest rates low for an extended period of time back in 2009, nearly everyone was arguing that meant months not years.  I argued that it meant exactly that, extended as in years.  Eventually Bernanke was forced to actually put a minimum target date to stop all the bantering.

Now he has mentioned that eventually the Fed will scale back on the QE (I purposefully avoided using the term tapering).  He, mistakenly, gave a "for instance" which threw all the modeling by others out the window. So now all we hear every single darn day is "so what do you think tapering will begin?"  Yet "tapering" only means a withdrawal by the Fed from buying 2 asset classes (MBSs and TBills) over a period of time which is data dependent.

There is the rub.  Data dependent.  So if things suck purchases will continue and if things improve on a sustainable level, no need for the purchases. This does not mean that interest rates will rise dramatically. They have short term as a result of over reaction to Bernanke's comments, but they aren't going double digits.

I submit that "tapering" has now been baked into interest rates.  New models have now been put in place.  Real Estate is about three words: location, location, location.  Interest rates are about three words now: demographics, demographics, demographics.

First, retiring boomers will buy bonds more than any other asset class.  They will do so because they simply cannot afford to lose money since they are too old to make up the losses.  

Second, retiring boomers will spend less.  Since odds are they will now be on fixed budgets, discretionary spending will be curtailed.

Third, since spending is 70% of GDP that means downward pressure on it.

Aside from possibly Larry Summers and die hard Kludlowites, who in their right mind would want to raise interest rates in any earnest in light of the preceding. The Fed rate isn't going up anytime soon.

Tbills will still be bought in earnest.  Banks will start giving mortgages because Dodd-Frank is limiting how they can make money.

So if you can buy equities that yield 5%+ they will still be worth buying.  Buy those dips on yield because yield is still king.

 

11 Comments – Post Your Own

#1) On August 15, 2013 at 12:43 AM, awallejr (83.92) wrote:

Ah well seems pointless blogging here if no one reads it.

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#2) On August 15, 2013 at 1:00 AM, awallejr (83.92) wrote:

And Cisco cutting 5% of its workforce.  Yup lets taper in September.

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#3) On August 15, 2013 at 1:54 AM, samuel1chandel wrote:

what Maria answered I cannot believe that a mom able to get paid $5268 in 1 month on the internet. have you read this web link work25ℂom

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#4) On August 15, 2013 at 12:53 PM, lemoneater (79.19) wrote:

I read it! I have been looking for mid cap stocks with dividend 3% yield or greater. At least stocks are down today so perhaps I'll find a buy.

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#5) On August 15, 2013 at 8:06 PM, awallejr (83.92) wrote:

Thanks for responding Lemon.  Would have been said if a website virus spammer would have been the only one.

You might want to check out AINV.  It is a BDC which has really turned itself around.  The CEO bought around 20,000 shares  not too long ago for just under $8 on the open market.  It pays 80 cents a year in distributions and I suspect that will start to grow higher.  Closed today at $7.83.  I have been accumulating shares for awhile now.

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#6) On August 15, 2013 at 8:09 PM, awallejr (83.92) wrote:

said=sad

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#7) On August 16, 2013 at 8:15 AM, lemoneater (79.19) wrote:

Thanks, I will check out AINV :). Many of my real life stock picks I've learned about from others on here.

Yes, the Fed seems static rather than dynamic when it comes to interest rates. I think the days of high yield checking with 5% interest is a thing of the deep past.

Have a great weekend! At least the weather in the Carolinas is nice and cool right now. A "cold" snap is welcome.

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#8) On August 19, 2013 at 10:35 AM, anchak (99.85) wrote:

Nice choice of tickers~

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#9) On August 20, 2013 at 1:56 AM, awallejr (83.92) wrote:

Thanks.  I try to have fun with them.  I noticed others have started too like DragonZ.

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#10) On September 11, 2013 at 8:36 PM, awallejr (83.92) wrote:

Hope you listened to me Lemon. AINV closed today at 8.47.  And I still consider it a buy. NCT too.

NCT is a stock that took a licking but it keeps on giving.  It was my Chipcontest pick.  They yield about 12%.  They spun off NRZ share for share so you really have a $12 stock selling for under $6.  They will spin off another company, a small town newspaper company with expected dividends paying $1.  Not sure if it will be share for share.  Finally they are concentrating on senior living, a great sector to invest in now.

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#11) On September 11, 2013 at 8:42 PM, awallejr (83.92) wrote:

chipcontest = chimpcontest

 http://caps.fool.com/player/chimpcontest.aspx

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