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Author: trader2012 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35357  
Subject: Re: Your Best Pal, Ben? Date: 9/15/2012 1:57 PM
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Howard,

Permit me, if you would, to respond serially.

There are many ways to diversify that can offer protection if you want or need it... One way is to do it the way Taleb does it (many small highly leveraged bets).
The bets Taleb makes aren’t ‘highly leveraged’, but have asymmetrical payoffs. There’s a crucial difference. Supposedly, he runs 95% cash and uses the remainder to buy mis-priced, OTM options on which he bleeds until one plays off humongously. Financially, I’m in a position to play that game (or a variant, such as scaling commodities as described by Weist), but not emotionally. I don’t like draw-downs. I expect losses, and I’m comfortable with losing a steady 2%-5% of my positions to Chapter 11 filings. But more freaks me out. I need a casino in which I know I have an edge, and reward occurs frequently. Bonds, as I play the game, offer that, but nothing else I’ve looked at so far.

I personally think that betting with the Fed (instead of against the Fed) will be much more rewarding in the next few years, and once you have made a good profit, then one can use the profit as insurance for whatever economic calamities one worries about.
I agree that’s the conventional wisdom. “Don’t fight the Fed.” But that saying arose in the days when Fed chairmen actually knew something worth knowing about economics, not just the fairy tale of Neo-Keynesism. Bernanke is hoping that his easy money policies will give the economy enough time to grow out of it problems. But the problems are fiscal, and until spending is less than revenues, the economy will struggle, if not collapse.

I doubt anything worse than 2008/2009 is going to happen. As long as everyone worries about it, it ain’t going to happen! The really bad surprises occur “out of the blue” when nobody expects them (Black Swans).
But ‘everyone’ isn’t worried. Complacency is rampant. Even the gold bugs aren't as panicked as they should be.

… I’m still adding junk but it’s getting harder and harder and I’m taking greater risks for lower rewards (yields).
I’ll confess to resembling that remark as well. FWIW, below are my YTD buys.

Charlie
--------------------------


Traded YTM P/L Issuer
01/05/12 8.7% 7% GMAC
01/05/12 9.1% 6% GMAC
01/06/12 19.0% 36% SHLD
01/20/12 8.4% 13% NRG
01/23/12 19.3% -2% Colt
01/23/12 8.4% -21% Thompson
01/24/12 12.3% 15% Cemex
01/24/12 11.0% 27% Chesapeake
01/24/12 12.5% -21% Hutchinson
01/30/12 9.8% 4% Sunpower
01/31/12 14.5% 25% NNA
02/01/12 14.0% -19% James
02/01/12 44.3% -34% Suntech
02/03/12 53.9% 26% Travelport
02/07/12 9.4% -3% Stewart
02/07/12 8.5% 1% SFL
02/07/12 7.7% 4% Exterran
02/09/12 12.4% -15% Ultrapetrol
02/10/12 9.8% 19% Sprint
02/14/12 16.5% -36% Genco
02/16/12 8.1% 9% Abbey Natl
02/17/12 7.4% -2% GMAC
02/23/12 13.5% -16% Sears
02/27/12 10.3% -6% Callon
02/28/12 8.0% 2% Capella
02/29/12 9.6% -3% Good Sam
03/01/12 12.5% -20% Radio Shack
03/01/12 11.2% -4% Venezuela
03/05/12 19.2% -24% Harrahs
03/07/12 7.9% 8% NRG
03/08/12 9.0% -6% Toys
03/09/12 15.8% 14% AGF
03/09/12 7.7% 1% SLMA
03/12/12 8.0% 6% Chrysler
03/14/12 11.2% 4% Stonemor
03/16/12 9.8% -10% Global
03/28/12 10.1% -4% GGS
04/24/12 8.0% -2% Nokia
04/24/12 7.9% 2% SLM
04/25/12 47.6% 6% Travelport
04/26/12 9.7% -3% Toys
04/27/12 46.7% -61% Suntech
05/02/12 10.8% -3% MBIA
05/07/12 8.2% -21% Dendreon
05/09/12 14.0% -14% OSG
05/15/12 7.8% 12% CHK
05/15/12 7.3% 0% Tutor
05/16/12 32.9% -59% ATPG
05/16/12 20.0% 3% CCU
05/16/12 17.1% -17% Caesars
05/16/12 25.7% -20% Genco
05/17/12 10.0% -4% KWK
05/21/12 40.0% -11% KWD
06/04/12 70.4% 126% Network
06/07/12 15.0% 0% Accellent
06/07/12 11.0% 8% EXCO
06/07/12 10.8% 2% Toys
06/08/12 8.1% -2% Taseko
06/08/12 21.5% 31% Hovnanian
06/11/12 15.0% 2% Accellent
06/15/12 10.0% 9% Nokia
06/20/12 8.8% 1% CNL
06/20/12 21.7% -20% Harrahs
06/22/12 10.8% -4% Lucent
06/25/12 7.7% -7% Ferro
06/26/12 11.4% 7% MBIA
06/27/12 13.7% 2% Exide
07/17/12 9.1% -37% Albertsons
07/17/12 8.9% 0% Kindred
07/24/12 11.6% -12% Millar
08/06/12 5.3% -1% Puerto Rico
08/06/12 6.9% -3% AMD
08/16/12 10.5% 0% Chiquita
08/16/12 25.2% -11% Harrahs
08/20/12 11.6% 6% Xerium
08/22/12 10.1% 2% Jones
08/23/12 8.3% -1% CNL
08/23/12 9.6% -3% Norcraft
08/24/12 14.6% 39% Albertsons
08/29/12 13.1% -1% Exide
08/30/12 7.6% -1% Williams
09/04/12 6.9% 0% Best Buy
09/05/12 7.3% -1% Desarrolla
09/07/12 8.1% 1% StarGas
09/10/12 10.9% -3% Lucent
09/10/12 9.3% -3% Penn Va
09/12/12 7.2% -1% Omnova
09/13/12 7.8% -5% Calumet

Except for July, when I was fishing and camping with my daughter (and early April when I was playing pre-season boat mechanic at a friend's marina), the buying has been steady and on a pace to match what I've done previous years. YTD, I've spent $135k to buy $162 face, offering an average CY of 9.1% (your threshold for junk) and an average YTM of 13.5% (which is mine). So I'm making things happen rather than sit in cash. But it's not a sustainable gig at current prices, which is why I'm scrambling to find something else.
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