|
I thought that I might make a few comments about the market today. When everything crashes and burns (Dow, S&P, Nasdaq) there's just no place to hide. The old saying "throw the baby out with the bathwater" certainly was true today. Will it continue to be, I guess we'll just have to wait and see.
Although none of you have emailed me in regard to your positions in Income Planner, I just wanted you to know that I am also personally impacted by this and we as a group, are just not immune to what is occurring in the marketplace.
The day was really defined by Countrywide Financial (CFC), the biggest U.S. mortgage lender. CFC reported a 3rd straight decline in quarterly earnings and cut its 2007 forecast of reduced payments from borrowers with strong credit. Second quarter earnings fell 33%. The stock, not surprisingly, dropped over 10%. CFC's CEO, Angelo Mozilo said in a press release that "the company incurred increased credit-related costs in the quarter, primarily related to its investments in prime home-equity loans". These concerns pressured the market because investors have been waiting to see if credit problems in the subprime-mortgage sector would spill over into higher-rated or "prime" home loans. This now adds to the email I sent out to you in the last week or so in regard to the commercial real estate sector that also starting to crack.
As such, many of our selections can't escape even if they have minimal or no exposure to the subprime mess. The value of the $ and the yen carry-trade is also of major concern to investors who can find safer havens outside the U.S.
So what does that mean for us going forward. As everything tumbles around us (and this includes all of my gas and oil holdings, regular non-dividend paying stocks, mutual funds and even my overseas securities), our securities at the least will continue to pay us our regular dividends. I have been through this up and down turmoil several times over the last few years and given time, the pendulum always swings from one extreme to the other. If you have read through some of the pages in Income Planner, you know just how well the income oriented securities have done over time.
I have always recommended that you need not invest all the $ you have in mind for income investing at one time. That perhaps you split it apart in half or thirds and move in gradually. At a discount broker, the trading costs are usually less than $10, so we aren't severely penalized. Now that our share prices have come down 5%-25% from our start date on February 2 (and many of you have bought at lower prices than my start date) the yields have gone up appreciably.
Could the dividends be cut. Yes, but that's always the case. They can just as well go up. I am waiting a while longer before purchasing additional shares in the CEFs that I own. I've known from the past that dividends are just not cut because of any short term downdraft. As the yields become higher and higher, it becomes more and more difficult to ignore. It is exactly because of events like these that allowed me to realize many 10%-15% yields on the positions that I own.
I know that it's never pleasant to see the value of our holdings go down, but in this case a bottom will eventually be found and gradually our share prices will normalize.
If you have any concerns that you would like to run by me, please let me know. I will be updating the portfolios at the end of the month.
Thanks and have a good day tomorrow.
Pete Lipke
7/24/07 |