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Strategies & Market Trends : Dividend investing for retirement -- Ignore unavailable to you. Want to Upgrade?

To: E_K_S who wrote (24126)	12/26/2015 9:21:45 PM
From: Elroy	Respond to of 34328

It's just not worth the risk especially for an IRA and/or ROTH account. I take a completely different view. The leverage in the 2x leveraged ETNs are achieved at bank level borrowing rates, lets say 1.5% or less. Then you assume some of the time the underlying will go up, sometimes it will go down and sometimes it will go nowhere. When it goes up you make 2x the return minus the 1.5% cost, when it goes down you make 2x the loss and also lose 1.5% cost. In both of those cases, and when nothing happens, you earn the distribution, which for BDCL is about 20% per year. ========== That sounds great to me. Its great in an IRA or Roth because you pay zero taxes on the 20% distribution. For BDCs in particular, the industry is currently trading a a discount to reported NAV. In some specific cases (PSEC, FSC) a BIG discount to reported NAV. I have no evidence, but I would guess the 50-50 likelihood says the BDC share prices - all else being equal - are more likely to head up toward NAV than go the other direction. So right now, you are likely to get share price appreciation x2 + 20% distribution yield. It may not happen, but it seems the most likely outcome compared to other possible outcomes. How does it all go wrong? 1. Maybe the BDCs are going to decline in perpetuity. If one holds this view, I would like to hear why. 2. Maybe the assumptions above are wrong. Again, if one holds this view, I would like to hear why. == All the talk about PSEC's high management fees and questions about spinoffs and the SEC investigating and determining PSEC is doing the right thing and the noise have NOTHING to do with the reason for investing in PSEC or BDCL. The main things that matter are defaults and other things that will affect the earnings power of the various BDC assets. The KILLER for BDCs is, I think, a major general economic decline (like what has happened to energy in the past 18 months) which would cause defaults to increase.