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No. of Recommendations: 4
Continuing this morning’s selling, I solicited three bids at Zions Direct for my 2 Cooper Tire’s 7.625’s of ‘27, 2 WeyCo’s 7.95’s of ’25, and 1 Goldman’s 6.45’s of ’36, where the inside-markets were 97.500 x 99.00, 112.65 x 113.558, and 95.753 x 96.350, resp. I got no bid for Cooper; a single, low-ball for WeyCo; and a single, but very decent bid for Goldman. I accepted both, because I’m serious about getting the trash out of my portfolio before markets blow up again. So, this morning’s score-card (net commish each direction) is 1 Win, 1 Loss, 2 Scratches.

Valmont’s 6.62’s of ’20. In on 01/28/11@104.250. Out today @110.071. Achieved YTM was a nominal 17.9%, vs. 6.0% nominal if held to maturity and what would have been an inflation-adjusted, negative 0.1%.

US West’s 7’s of ’14. In on 01/28/11 @106.000. Out today at 103.550. Achieved YTM was a nominal 1.8% nominal, vs. 4.9% nominal if held to maturity and what would have been an inflation-adjusted, negative 0.4%.

WeyCo’s 7.95’s of ’25. In on 04/10/03 at 116.486. Out today at 108.150. Achieved YTM was a nominal 6.7%, vs. 6.5% nominal if held to maturity and what would have been an inflation-adjusted, negative 1.4%.

Goldman’s 6.45’s of ’36. In on 04/10/10 @96.273. Out today @94.764. Achieved YTM was 6.7%, vs. a nominal 6.8% if held to maturity and what would have been an inflation-adjusted, negative 1.1%.


I own other issues and quantities of US West, WeyCo, and Goldman. So I was glad to trim my exposures. I disliked letting go of Valmont, because the company is doing will, and I don’t have much exposure to their industry. But the nominal YTM was low, and my inflation-adjusted YTM was negative. So, according to my newly-adopted investing rules (that all returns be positive on a 5% inflation-adjusted basis), the position had to be sold.

Like everyone else, I have no idea what lies ahead for markets. A deflationary depression? An inflationary one? A bit of both? I do know, as I argued with Lokicious and his fellow war-mongers ten years ago, that invading Afghanistan on the pretense of moral outrage and self-defense was not a good idea and that it would have a “blow-back” effect on the US and global economy, which it is currently doing. The CO projects that Federal revenues for 2011 will be $2.2 trillion, but that expenditures will be $3.8 trillion, or a shortfall of $1.6 trillion that both political parties want to cover from cuts to social spending. However, other sites project that actual military expenses for 2011 will be $1.2, which comes to a whopping 54% of all available revenues.

Currently, those expenditures are being covered by borrowing at historically-low interest- rates. In the short run, the price of anything can be suppressed. But, eventually, supply and demand come into equilibrium, meaning, though China et al are only too happy to lend money to the US as it defeats itself militarily by spending itself into bankruptcy fighting vanity wars begun by Bush and continued by Obama, nonetheless , they are, in effect, beginning to demand higher rates, as they decrease their purchases of Treasuries relative to former levels. Who’s going to make up the shortfall? The Fed though QE3 QE4, QE umpteen? US voters by paying a war tax? Who knows? But I do know this. Interest-rates will be going higher, as well as inflation-rates. The survivalists worry about Weimar-type hyper-inflation. That’s a possibility, but not my chief worry. My chief worry is holding debt that won’t offer a real rate of return if interest-rates and inflation rates continue to muddle along in their present trading-range. If rates do tend upward, then I’ll take a hit, but not as bad a one as if I did nothing to prepare for it. So I’m selling now what should be sold before I have to sell later what I can.
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No. of Recommendations: 5
Today’s selling was as follows.

On 04/23/10, I bought a single of Columbia Heathcare’s 7.5’s of ’95, at 83.250, for a projected, nominal YTM of 9.0%. But the inflation-adjusted YTM would have been a negative (3.4%). So I sold. The inside market was 80 x 82, or a fairly wide spread, and I received a single bid of 79.5, which I accepted for a realized, nominal YTM of 4.5% over my holding–period. One can call that a win, a loss, or a scratch as one chooses. But I’m now flat, which is what mattered to me.

On 05/26/09, I bought a single of Anheuser’s 6.45’s of ’37, at 83.000, for a projected, nominal YTM of 8.0%. But the inflation-adjusted YTM would have been a negative (0.2%). So I sold. The inside market was 116.024 x 116.546, or a fairly narrow spread, and I received a single bid of 115.787 which I accepted for a realized, nominal YTM of 22.5% over my holding-period. Definitely a win, and I’m now flat.

On 12/03/09, I bought a single of Ford’s 7.7’s of ‘97, at 74.298, for a projected, nominal YTM of 10.4%. But the inflation-adjusted YTM would have been a negative (3.2%). So I sold. The inside market was 96.393 x 98.350, or a fairly wide spread, and I received a single, low-ball bid of just 90 which I did accept for a realized, nominal YTM of 21.1% over my holding-period. I took a serious beating getting out, but now I’m flat, which is what mattered to me.

I also solicited bids for other bonds that I’m trying to sell, but either received no offers or rejected them. In all, over the last three weeks, I’ve been able to clean up 16 positions on reasonably favorable terms, in some cases doubling my YTM on a comparative basis, in some cases getting out only with only half of the nominal YTM that I would have received if I had held to maturity. On just one position did I take an actual loss. So I’m content.

Some of the sales were at E*Trade, some at Interactive Brokers, and some at Zions Direct. So, gradually, I’m accumulating selling-experience, instead of just buying-experience. Of the three brokers, IB is the easiest and best place to sell. If the bond is being quoted, you can hit the bid and get out at the inside market without having to solicit bids through what amounts to an email exchange as is done as E*Trade and Zions and suffer the indignity of being low-balled. Of the latter two brokers, I prefer to sell through E*Trade. Their quote-gathering time is 10 minutes, rather than Zion’s 20, and how they present the info is more intuitive. Also, Zions imposes a 48-hour subsequent “timeout” on any bond put out for bid. In other words, if you tried to sell on Monday, but got no bids or rejected them, you have to wait until Wednesday before for putting the bond out for bid again. Also, though I don’t yet have enough data to say this definitively, I think the bids I get at E*Trade are better than those offered by the (admittedly overlapping) network of dealers that Zions deals with. Also, though I haven’t tested this systematically, I suspect that time of day matters and that trying to sell during the “dead zone” of the Eastern lunch hour should be avoided.

Monday, I leave for a three-week, Western states, fishing trip. So further selling will have to wait until I’m home again. Enjoy the summer.
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