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OI Technical Staff : 2/9/2008 9:59:59 PM

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Jeff Bailey : 2/9/2008 5:12:20 AM

Good gravy!

Jeff Bailey : 2/9/2008 5:11:45 AM

Pacholder High Yield (PHF) went out at $8.40. At tonight's close, its SEC Yield would be 10.71%.

Assuming VCVSX were to pay $0.52/share in dividend again in 2008 (3.79% of $13.76 = $0.52/share) then its SEC Yield would be about 3.89% at tonight's close.

VCVSX pays dividends quarterly and I would have to think, based on observation and news, that convertible offerings are having to be priced at HIGHER yield levels under current market conditions.

Still, we could maybe think that "junk bonds" are currently deemed 2.75 times "safer" than convertibles.

If you believe (as do I) that a market tends to SELL RISK and BUY the safest security given potential reward, then we want to monitor this from time-to-time.

Remember how PHF traded sideways between $10.00 and $10.50 for MONTHS (Sep'06 to July'07) but kicked off $0.075/month, or $0.90 for the year? That wasn't all that bad, about 9% yield.

Now look at the 30-year Treasury YIELD as it traded up to 5.4% on 6/13/07.

Think about that day in time compared to buying a "junk bond" that paid just 9%.

That was a "yield spread" of just 3.6%.

30-year went out at 4.439% today.

Better slap a retracement on the RISKIEST of the U.S. Treasuries too.

Jeff Bailey : 2/9/2008 4:52:28 AM

Vanguard Convertible Securities Fund (VCVSX) $13.37 was tonight's NAV (see Friday's MM) Link

Even a mutual fund that holds a basket of various convertibles can be useful and informative.

You can see how it tends to track stocks

See how VCVSX "peaked" on 10/31/07. The SPX "peaked" on 10/11/07. Not that much of a lag, but a lag.

I marked the 8/16/07 low on the VCVSX. Remember that day?

Now, on 12/28/07 the VCVSX distributed $1.05 in dividend, st cap gain and lt cap gain, so NAV was $13.76 on 12/28/07.

I can "adjust" the recent 01/228/08 low, or normalize it by adding back in the $1.05 distribution.

That brings the VCVSX recent "low" back up to $14.20, which would still be ABOVE its 8/16/07 inflection low of 1,371!

Now look at your SPX chart. Even a RUT.X chart.

This is one way to check the "market is undervalued/overvalued" theory.

One of the BEST ways to avoid the "valuation trap" is to check an equity against a FIXED INCOME.

Then of course, you have to believe that the MARKET is all knowing, and it is thinking AHEAD 6 to 9 months.

If you're a "buy and hold" Treasury bond investor, you're thinking up to 30-years ahead!

Disclaimer: I'm using the VCVSX only as an observation of "convertible" securities prices.

Jeff Bailey : 2/9/2008 4:02:59 AM

MBIA Inc (MBI) $14.60 +2.81% ... a two chart montage. Upper is just a "big picture" with a high close to low close conventional retracement. Even has stock was falling to "unknown" levels, this retracement matches many of the levels that found pause.

Lower chart is also a daily interval, but now a much tighter retracement, which also "makes sense" as stock fell in this tighter range.

Warburg does the deal at $12.15 a discount to Thursday's close, so that gives some cushion. Warburg gets a "kicker" and is able to get Warrants above $16.20, so that becomes an "upper" collar near term.

IF MBI is going bankrupt, would you exercise warrants at $16.20. IF not, then MBI shouldn't see much above $16.20. However, if all is going to be good, then above $16.20 and SHORT SQUEEZE potential above $20-ish.

Trouble al_rt below $12.15 should bring in some shorting, and you'd think Warburg one of them. Below $8.55 will NOT go unnoticed by broader market as to what it could say about mortgage insurers. Link

What we "know" regarding MBI is they are trying to stay AAA and generating cash by selling convertible (eventually dillutive, but staying solvent).

The unkowns are "is it enough to keep Fitch and Moody's from downgrading," but there are also rumors/reports circulating that the INSURANCE industry is going to bail out the insurers.

If the INSURANCE industry does "bail out" then at some point, we (you and I) end up paying for it. If the INSURANCE industry doesn't "bail out" then MBI and perhaps U.S. and global economy likely suffers to.

As in the past, this too shall pass. For now, we've got some levels.

Here's the 8-K filing Link

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