August 1, 2007
July was another month of what I would call extreme volativity. We just couldn't catch a break. Since I started Income Planner on February 2 of this year we have had major swings in the markets (see below) along with spurts up and down in interest rates. The subprime mess continues to evolve and no one seems to know where or how it will end. Sadly, people who must sell their homes at this time are selling into a very weak market. For the rest of us, we have to have shelter of some sort. Typically when times are erratic, safety is usually found in fixed income investments but right now our bond funds along with anything having to do with real estate (REITs and REIT funds) are being severely punished. At some point the mess will clear up but it might take a year or two. There are hundreds of billions of $ in adjustable rate mortgages that are about to be reset this year and next and there will be a percentage of those that will go into foreclosure. At some point down the road, we will probably look back and realize how incredibly cheap some securities have become, like the homebuilders and wish that we had taken a small position in some of them. Is this the right time to do so, that's the question?
If any of you followed my suggestion that you look into taking a position in SRS, the ETF designed to give you twice the inverse of what the DOW real estate sector is doing, you made out very well. At the time I sent you the email, the price was $87.50. Today it is $108. So when real estate takes a pounding along with REITs, this ETF shines.
Looking back over the last six months, the DOW has had some really rough days on the downside. These included:
February 27 - (416.02)
March 13 - (242.66)
June 7 - (198.94)
June 22 - (193.79)
July 24 - (226.47)
July 26 - (311.50)
July 27 - (208.10)
July 31 - (146.32)
I guess if I was a good market timer, I would have started Income Planner this month instead of in February. We then could have bought all of our positions at a lower price. But who has a crystal ball? In the meantime, we collect our dividends and get the yield we were anticipating or a much higher yield if you started later in the year.
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I continue to update our original portfolios on a monthly basis. A financial planner would usually just send out a quarterly statement and thus show possibly much less volativity versus doing this from month-to-month. But I like to keep all of you more current.
This month we suffered from some real negative news with the housing market (Beazer, Lennar, DH Horton), interest rates (from the high 4% to the mid 5% back to the high 4%), hedge fund blowups (one of the best - Raptor fund lost 9% in July alone), mortgage lenders (especially those in the subprime market), etc. Our securities took a hit too.
Remember when you look at the table, I have continued in leave in HR (Healthcare Realty) for consistency (after our first 12 months I will take it out). We replaced this with NRI which has gotten creamed because it is a REIT fund. Neuberger Berman put out a press release indicating that they are reviewing what they can do to narrow the discount further. I think they have gotten penalized unfairly. By next week I will review all of our holdings and let you know if any should be replaced or if we will stay the course. Some of the yields have become so attractive (see my updated Current Status page under the Portfolios tab) that they are very hard to resist. I just don't know if we will be hit with a further downslide.
I know from many of your emails that many of you have selectively purchased some of the recommendations along the way. Your pricing is very probably lower than the prices I had at my start date. So it's very possible that you are doing better than what I can show here. Again, at any time that you have questions, please let me know. Thanks.
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| Portfolio |
Beginning Value
as of 2/02/07 |
Ending Value
as of 7/31/07 |
+ Cumulative
Dividends from
2/02 - 7/31/07
(6 Months) |
Total Value
as of 7/31/07 |
| |
|
|
|
|
| $ 20,000 Con |
$ 20,000 |
$ 18,288 |
$ 743 |
$ 19,031 |
| Mod |
20,000 |
17,281 |
833 |
18,114 |
| Agg |
20,000 |
17,037 |
820 |
17,857 |
| |
|
|
|
|
| $ 50,000 Con |
$ 50,000 |
$ 45,490 |
$ 1,882 |
$ 47,372 |
| Mod |
50,000 |
44,119 |
2,385 |
46,504 |
| Agg |
50,000 |
48,491 |
2,142 |
50,633 |
| |
|
|
|
|
| $100,000 Con |
$100,000 |
$ 86,531 |
$ 5,012 |
$ 91,543 |
| Mod |
100,000 |
87,640 |
4,862 |
92,502 |
| Agg |
100,000 |
96,981 |
4,362 |
101,343 |
As you can see, this past month many of our portfolios went down in price. That happens just like with all other kinds of stocks and bonds. August may continue this trend or stabilize or go back up. What's important is that we get our dividends and treat the money we have in these portfolios as if is was in a 3-5 year CD. We're still getting right in line with the yields we projected on our original investments. Eventually the pendulum will swing back again. I have been through this same scenario over the last six years and it has worked out very well.
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