We’re now fully leveraged, in mostly high-dividend stocks

Author: Vivian Lewis

Covestor model: International Yield

After global markets fell hard in September, the outlook did not improve with the new month of October. On October 3 the S&P 500 hit a new 2011 low and our portfolio did not break from the trend. We invest in the same market as everyone else does.

Our Covestor portfolio now shows something that may be unique to me, however: We are now nearly fully leveraged. That means we have borrowed from Interactive Brokers at pretty juicy rates (1.18% per annum) nearly as much money as we put up ourselves. And most of our shares pay dividends higher than the vigorish we are paying IB.

This is a sign that I think the sell-off is ridiculously overdone for a dividend-seeking portfolio. One reason is the official causes I’ve previously cited. Despite taking on the unions and the bureaucrats, Greece is unable to cut its deficit as much as required by the European bailout plan, because of slower growth resulting from the austerity measure imposed. Shock, horror. This makes me think of what President Nixon said on the famous tapes when an advisor rattled on about the problems of Italy’s currency back in the 1970s. Nixon said (I paraphrase): “I don’t give a f**k about Italy.” Well, I don’t give a fig about Greece’s currency woes. If it defaults, it will not affect the Acropolis and the antiquities a whit and the islands will still be beautiful.

Then too, the self-promoters of the Economic Cycle Research Institute announced that they expect a double dip recession, which they have the right to say. But they claimed in their announcement that they had forecast the last three economic recessions in the USA and never forecast falsely, which happens to be tosh. They were upbeat in 2008 when they should have been calling for a recession, which just may mean that their being downbeat in 2011 means nothing either.

Before you decide to sell all your shares and buy Treasury bonds, read this from Jim Slater, the British accountant, journalist, and discredited fund manager writing on his website. Very few famous investing gurus have a website where they blog. Being a grandmother, I am old enough to remember Slater Walker from its days of glory. Slater has smart commentary on when he sells out of stocks.
There is a famous Wall Street adage: Stocks climb a wall of worry. If you have nothing to worry about except the likely default of Greece and a prediction by the ECRI, you will probably reverse course and start to buy soon.

Every single one of our Covestor positions was down in September save one, a gold mining share I bought for ballast. That is Canada’s IAM Gold. Happily, the share we have doubled up on, Banco Santander of Spain,  is down less than the others. And the share we sold half of performed worst of all for the month: Fushi Copperweld of China and Belgium. Copper is supposed to be a special commodity, indicating clearly the trend of the economy as a whole, and copper prices have fallen of late. But a producer of bi-metal and copper wires is not actually dependent on the price of the raw material for profit, but rather on what it does with the copper.

I’m sticking to my strategy, at least until I get a margin call.