Wednesday, April 18, 2012
Chesapeake Energy Needs To Be Sold
Aubrey McClendon Should Find His Own SandRidge To Play In
Chesapeake Energy (CHK) dropped as much as 10% today after a number of weeks of downward movement. The drop today was occasioned by the revelation by Reuters that Mr. McClendon has borrowed as much as $1.1 billion (with a B) against his minority interest in CHK's wells. CHK has always had a poor governance record and a "colorful" CEO in Mr. McClendon, but for some reason investors tolerated these shortcomings. Mr. McClendon did after all start the company from nothing and build it to one of the largest natural gas producers in the world. However, it is increasingly clear that CHK is still being run like a small wildcat driller rather than a large public company. It is time for CHK to clean up its act, put Mr. McClendon out to pasture, and stop treating public shareholders like chumps. In the process, there is money to be made.
Friday, April 13, 2012
Numbers Are In - You Can Get 2.7% Risk Free For 1 Year Money
Buy I Bonds Before The End Of April To Lock In More Than Double Equivalent CD Yields
As I detailed in an earlier post (http://www.lifeinvestmentseverything.blogspot.com/2012/03/if-you-want-to-earn-3-risk-free-on-your.html), I bonds offered through www.treasurydirect.gov offer a tax deferred yield that beats the pants off why you can earn on a 1 year CD. With the release of the March consumer price index (CPI) data this morning (http://www.bloomberg.com/news/2012-04-13/consumer-prices-in-u-s-increased-at-a-slower-pace-in-march.html), we now know that the CPI rose 2.7% over the last twelve months. Newsflash: inflation is way above currently available CD rates (about1%), even before taxes. Because I bonds pay interest currently equal to the CPI, you can buy up to $10,000 per person (husband, wife, kids, etc.) in these bonds annually and shift low yielding savings to more generous I bond rates. In addition to keeping up with inflation automatically, I bonds are tax deferred until you cash them in. For more details, read my earlier post linked above. But if you want to grab a 2.7% yield over the next year, don't procrastinate. You only have until the end of April to lock in this yield. If you wait until May you will get a bit over 2% for the first six months and an as yet undetermined rate (possibly as low as zero) the next 6 months.
As always, do your own due diligence, consult your advisor, and be careful. Please do not consider the above as investment advice. Note that I bonds cannot be surrendered before 1 year and carry a penalty of 3 months' interest if you surrender them before 5 years have passed.
As I detailed in an earlier post (http://www.lifeinvestmentseverything.blogspot.com/2012/03/if-you-want-to-earn-3-risk-free-on-your.html), I bonds offered through www.treasurydirect.gov offer a tax deferred yield that beats the pants off why you can earn on a 1 year CD. With the release of the March consumer price index (CPI) data this morning (http://www.bloomberg.com/news/2012-04-13/consumer-prices-in-u-s-increased-at-a-slower-pace-in-march.html), we now know that the CPI rose 2.7% over the last twelve months. Newsflash: inflation is way above currently available CD rates (about1%), even before taxes. Because I bonds pay interest currently equal to the CPI, you can buy up to $10,000 per person (husband, wife, kids, etc.) in these bonds annually and shift low yielding savings to more generous I bond rates. In addition to keeping up with inflation automatically, I bonds are tax deferred until you cash them in. For more details, read my earlier post linked above. But if you want to grab a 2.7% yield over the next year, don't procrastinate. You only have until the end of April to lock in this yield. If you wait until May you will get a bit over 2% for the first six months and an as yet undetermined rate (possibly as low as zero) the next 6 months.
As always, do your own due diligence, consult your advisor, and be careful. Please do not consider the above as investment advice. Note that I bonds cannot be surrendered before 1 year and carry a penalty of 3 months' interest if you surrender them before 5 years have passed.
Wednesday, April 11, 2012
Picking Up Nickels In Front Of A Steamroller
How Merger Arbitrage Funds Work
For many investors, finding new ways to diversify their portfolio and reduce risk while still making an adequate return is a constant struggle. As trading costs and barriers to capital flows have come down, markets have become more integrated over time reducing the benefits of diversification. Worse, in times of market stress in the past several years correlations between different types of assets have approached totality (with the exception of now very low return treasury bonds). So the hunt is always on for assets with low correlation and positive return. One of the options available to retail investors are merger arbitrage funds, such as the Merger Fund (MERFX) and the Arbitrage Fund (ARBFX). These specialized funds offer positive (if modest) returns, very low correlations to most other asset classes, and very low volatility (its like watching paint dry). But before running out and clicking "buy" investors should understand how these funds work and what the risks are.
For many investors, finding new ways to diversify their portfolio and reduce risk while still making an adequate return is a constant struggle. As trading costs and barriers to capital flows have come down, markets have become more integrated over time reducing the benefits of diversification. Worse, in times of market stress in the past several years correlations between different types of assets have approached totality (with the exception of now very low return treasury bonds). So the hunt is always on for assets with low correlation and positive return. One of the options available to retail investors are merger arbitrage funds, such as the Merger Fund (MERFX) and the Arbitrage Fund (ARBFX). These specialized funds offer positive (if modest) returns, very low correlations to most other asset classes, and very low volatility (its like watching paint dry). But before running out and clicking "buy" investors should understand how these funds work and what the risks are.
Tuesday, April 10, 2012
Prosper By Ignoring The Financial Press
Why The Financial Media Is Worse Than Useless And How You Can Profit By Shutting Off The Television
Pretty much every day when the equity market moves - be it up, down, or barely at all - the financial media feels compelled to come up with some explanation as to why the market did what it did. Explanations can be fairly direct, such as attributing a move to economic data, or they can be (to be polite) rather esoteric, as is often the case when the market moves significantly in the absence of a clear driver. On days like today when there are big moves in the market the financial media usually ups the ante by shrieking about the big move, interviewing guests with a series of panicky questions, and even going so far as to highlight the equity ticker they flash on the screen with highway safety yellow just in case you failed to notice the big move. Yes, CNBC and Bloomberg, I am talking about you. All of this is quite laughable. The media generally has very little idea of what is driving markets and all the histrionics on days of big up and down moves simply serves to help make the more impressionable investors more enthusiastic on the up days and more pessimistic on the down days. I think wise investors will make limited use of the financial media and can actually profit by largely ignoring it.
Tuesday, April 3, 2012
Slim Pickings
Junk Bond Market Is Looking Pretty Picked Over
Every day I do essentially the same screen on the bond market. I search for all junk rated bonds that are at least B3/B- rated across all maturities (junk rarely goes out more than 10 years) with a lot size of 10 bonds ($10,000 face amount). I then sort the search results by yield to maturity, highest to lowest. I am then presented with a list of the highest yielding bonds I can buy online through Schwab and can scroll down through the offerings until the yields drop below my minimum requirement (10%). When I see a name I have not seen before, I usually do some preliminary due diligence and if the bond looks promising I will do more digging and possibly purchase some of the bonds. Most things I look at do not meet my credit quality standards, but in most market environments I end up buying a bond here and a bond there. However, lately the pickings have been extremely thin to non-existant. It is becoming clear that the junk bond market is becoming less attractive and may be approaching the point where prudent investors do not buy bonds.
Every day I do essentially the same screen on the bond market. I search for all junk rated bonds that are at least B3/B- rated across all maturities (junk rarely goes out more than 10 years) with a lot size of 10 bonds ($10,000 face amount). I then sort the search results by yield to maturity, highest to lowest. I am then presented with a list of the highest yielding bonds I can buy online through Schwab and can scroll down through the offerings until the yields drop below my minimum requirement (10%). When I see a name I have not seen before, I usually do some preliminary due diligence and if the bond looks promising I will do more digging and possibly purchase some of the bonds. Most things I look at do not meet my credit quality standards, but in most market environments I end up buying a bond here and a bond there. However, lately the pickings have been extremely thin to non-existant. It is becoming clear that the junk bond market is becoming less attractive and may be approaching the point where prudent investors do not buy bonds.
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