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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Stock of the Week

Pimco bond funds

January 9th 2009 Pimco Corporate Income Fund
NYSE symbol: PCN
Industry: Bond fund.
Stock Price as of 1/9: $12.10

There is one constant in this market. The bad news keeps coming and it's only getting worse. Like I've said, there's no sugar coating the economic news, it's bad. This week we learned that unemployment jumped to 7.2% and nonfarm payrolls lost over 500,000 jobs. For the full year, the U.S. lost 2.6 million jobs and many economists believe we'll lose just as many if not more over the next several years. The one bright spot recently is mortgage rates are coming down. Rates have dropped to 5% for a 30 year fixed. Some banks are below 5% for less than 30 years and of course a good FICO score. Unless you refinanced at the lows in June of 2003, you seriously need to call your bank and look at refinancing. Even if you have a bad FICO number, it doesn't hurt to call. This is the best advice I can give anyone. If the whole country could refinance their mortgages lower, this could be the best stimulus package THE GOVERNMENT WOULDN'T HAVE TO PAY FOR.
For the income investor, it's getting tougher and tougher. Interest rates are at or near zero, so what is the investor to do? The question has been posed to Bill Gross, the leader and founder of the worlds largest bond fund company, PIMCO. Mr. Gross has said a number of times over the last several months that he is simply buying what the government is buying. So Pimco is buying agency mortgages along with the Treasury and the Fed. Pimco is also buying bank preferred shares along with the Treasury. As Mr. Gross said, we as investors can buy bank preferred shares, trading at similar senior levels as the government preferred, yet while the government is only receiving 5%, we as investors can get 10-14%. The best way to invest in this sector is with Pimco funds. Two closed end funds I like are the Pimco Corporate Opportunity Fund yielding 12% and the Pimco Corp Income Fund yielding 11%. The corporate and muni bond markets have performed much better of late. They were also recommended in Barrons last week. Another bond fund firm I like includes Blackrock. A big asterisk with these closed-end bond funds is they do use leverage. The dividends can be postponed if the funds asset value drops too much thanks to leverage. So far it hasn't been a problem. But in this market, the unthinkable is now thinkable.
For investors looking for growth, it's best to wait and see what earnings look like over the next several weeks. The news will not be good. Hopefully, most of the bad news is priced into the markets.