BUYING BONDS

 

BUYING BONDS Are For Conservative Investors


buying bonds BUYING BONDSBuying bonds is known as a strategy for conservative investors. However, there are many reasons why people buy individual fixed income ideas. I’ll go over a some of them below:

INCOME STREAM- All bonds, including Treasuries, Municipals, and Corporates have set dates when they mature and pay interest to bond holders. When buying bonds for clients, many financial advisors suggest that a laddered portfolio is the best way to go. This strategy not only reduces interest rate risk, but provides predictability of income from the portfolio as well.

TAXATION- Buying bonds for the wealthiest Americans is a little bit different than your standard diversified account. Many high net worth individuals seek the tax benefits that Municipal Bonds provide. For instance if you purchase a bond that is issued in your home state, they are exempt from state, local and federal taxes. U.S. Territory bonds like those issued from Puerto Rico or Guam for instance, also carry the same status. Also keep in mind that buying bonds in General Obligation issues is less risky than purchasing Revenue Bonds. Although most G.O’s carry a lower Yield to Maturity.

BUYING BONDS: Safe Investment


SAFETY and SAVINGS- Some investors tend to get involved in buying bonds for the first time because they have an upcoming event in their lives. Buying a home or paying future college tuition’s are two common examples. In these two instances, many investors simply set aside funds that are deemed to be super safe, and match the maturity of the bond to their time of purchase or payment.

DIVERSIFICATION- We touched on this above, but to give more detail, investors often use financial planning models in their approach to the markets. These models often differ depending on market conditions, or simply because of the brokerage firm, or newsletter that the client uses or reads. A standard approach for many who are buying bonds and looking to reduce stock market risk is owning 80% equity and 20% fixed income.

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STOCKS vs. BONDS

 

STOCKS vs. BONDS Debate Heats Up


stocks vs. bonds STOCKS vs. BONDSStocks vs. bonds has been a debate for the ages. Mainly because risk averse investors generally look for stability and yield and more speculative investors trend towards stocks and their potentially dynamic returns.

Well which asset class is better ? That depends on market conditions. Recently for instance, some retail investors and institutions have moved towards safety as the stock market imploded. Consequently, bond prices have been driven up and yields have gone lower.

At this point it remains extremely difficult for anyone who is seeking a reasonable dividend stream to obtain it unless they purchase fixed income products that are either very risky or have ridiculously long maturities.

Does this recent trend signal stock market capitulation ? Maybe not, but we might be close. Because of the reduced rates, income oriented buyers are being forced to look at investments on the equity side that they normally would stay away from. Utility stocks and proven Dow names with reliable dividends seem to be fashionable currently for these super conservative buyers.

Now there is an old market saying that states that selling begets selling. Common sense tells me that the inverse is true as well. If the stocks vs. bonds ratio is out of the norm for income investors, then bond buyers might have to bite the bullet and turn to income stocks. The money market rates have simply left them no other alternative.

STOCKS vs. BONDS Argument Continues


In times like these you have to ask yourself one question. Is it worth going out 25 or 30 years on a maturity basis to capture the returns you are used to in a corporate bond that is marginally investment grade ?

Well that is the decision that many are faced with, so don’t be surprised if you start to see Wall St. flood the market with new hybrid products that resemble balanced funds and are mixed with low yielding bonds and high paying dividend stocks. Believe me when I tell you, somebody as I speak, is figuring some marketing plan to take advantage of the current stocks vs. bonds debate.

If you are an income investor, better judgment is probably telling you not to rush funds heavily into either side of this argument. However, you probably have heard or read that the U.S. has been turning into Japan for the last 15 years as well. So it’s basically a tough decision right now. The best way to play this on an income orientated basis might be simply by watching Europe. I know I am stating the obvious, but panicking into a longer term bond, just because of uncertainty and lust for yield can cost you in the long run.

Owning a 30 year piece of paper in a rising interest rate environment isn’t pleasant. Even if takes 5 years to actually happen. So check back for more color on this situation, and monitor some different income bearing equities. The outcome is this stocks vs. bonds discussion is iffy, but I can guarantee you one thing, this debate will go on forever.

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LONE STAR GOLD – LSTG

 

LSTG Stock Rebounds


lone star gold lstg LONE STAR GOLD LSTGGold made a nice rebound today, and a further move higher could impact gold penny stocks like Lone Star Gold (LSTG:OB). LSTG is based in Albuequeque, New Mexico and is an exploration stage company that also is attempting to grow via acquisition.

LSTG has properties here in the United States and also in Mexico. The company’s signature property is the La Candelaria project. LSTG owns 70% of the gold and silver project. The property is almost 2000 acres and by some accounts, has massive potential. Some have stated that the potential value of the underlying gold and silver is in the billions.

Shares of LSTG are currently a promo play, and the stock closed up at $1.12, which was a little under a 3% gain on volume of a little over 626K. The activity was better than normal, but no records were set.

LSTG Stock Risky Investment


On a technical basis, LSTG faces strong resistance at the $1.35 level, but has decent short term support around the “psyche level” of $1.

At this point, a wise speculative trader should be keeping his eye on PR’s, volume and the direction the underlying commodities of gold and silver. Also, forget the lofty valuation comparisons to mid cap and large cap gold names. LSTG is just too unproven at this point. The company has a market cap of roughly $129 million and just 12k in cash.

However, as many of you have read in our alerts, there is money to be made in hot penny stocks if you view them solely as trading vehicles.

Now if you are into speculative gold related spec names, add the company to your penny stock list. Just keep in mind that history tells us that Lone Star Gold (LSTG:OB) LSTG is risky and probably won’t be a blue chip stock by next year.

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STOCKS IN PLAY – RIMM, WAMUQ

 

RIMM, NEM, IR, EQY, WAMUQ


Research in Motion (RIMM:NASDAQ) Shares are up sharply on the rumor of an Icahn stake. We have highlighted RIMM frequently for a while, and also mentioned that some felt the $20 handle was in play. Well last week RIMM came very close. But are shorts throwing in the towel ? Well if Carl Icahn buys they might. At this point there does seem to be some short term support in the $22 range.

Newmont Mining (NEM:NYSE) Some gutsy traders stepped into gold stocks for a taste on the recent slide, but have seen mixed results. NEM is currently trading lower despite in a nice move in the precious yellow metal. Keep in mind that NEM sometimes lags the underlying commodity for a day or so. There is also an upside gap to fill at $67.58.

Ingersoll Rand (IR:NYSE) IR is a nice liquid, listed trading stock that isn’t mentioned often. Shares have recently formed a nice rally of a short term bottom. However, that could be reversed if IR rallies to the $35 level, which may give some shorts a tasty short term signal.

Equity One (EQY:NYSE) Shares of the REIT ripped today after a sale of some of the company’s properties. EON was talked up by analysts and might be attractive to some who can’t find a decent yield in this bond market. Just watch $17.49 as a resistance level.

Washington Mutual (WAMUQ:PK) The king of zombie penny stocks is having a nice day so far. The volume isn’t quite there to confirm a rally, and some longs might be eyeing the upside gap fill number of .087 as an exit point. Always have WAMUQ on your penny stock list. Especially if you are a scalper.

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ARR WARRANTS

 

ARR WARRANTS Has Investors Watching


ARR WARRANTS ARR WARRANTSWith the 30-Year Treasury near the 3% range, it’s not much of a surprise that speculative plays like Armour Residential (ARR:NYSE) ARR Warrants peak the interest of some investors. Despite the fact that ARR common stock does pay a handsome monthly dividend, with a yield of over 19%. However, the shares have been under a little bit of pressure lately due to recent headwinds on the sector from the Obama Administration.

Now let us keep in mind that with such a high return, only a fool would think that there is no risk involved. So why should we look at an even more risky asset like ARR Warrants ? Especially when it’s seems easier to just buy the common shares with a nice yield.

Well the answer is pretty simple. It’s because speculative investors tend to flock to low priced warrants. Even if they are deeply out of the money like the above mentioned ARR Warrants. The common stock also plays a part because it is very liquid, and has a 3 month average volume of roughly 3 million shares.

The common shares of ARR have been an excellent short term trading vehicle. Mainly because volatility tends to come into the name prior to the ex dividend date, and like many Agency Reits, ARR tends to be involved in frequent stock offerings. The anticipation of these offerings frequently bring in buy side hedge funds to the short side not only for a quick trade, but to hedge their potential position in the upcoming deal as well.

ARR WARRANTS Can Be Risky


As far as the technicals are concerned on the common shares, ARR is currently coming off a short term downtrend. There is some resistance near $7 and longer term support slightly above the $6 range.

Now how do these short term movements factor into the performance of ARR Warrants ? Well they don’t, and probably won’t unless there is a massive rotation into high yielding stocks. Basically, ARR Warrants are way to far out of the money to play for anything other than a momentum scalp.

However, it’s not unusual for retail investors to go long securities like ARR Warrants on a lottery ticket basis. Usually risking a token investment with hopes of a grand slam like return.

In closing the terms are pretty vanilla. ARR Warrants have a strike price is $11 and they expire on 11/17/2013.

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