Sold 50 PJI at 23.52/Aegon/Children and Illegal Immigration/Proceeds Received from Calls of JZE and JZJ

It is hardly surprising to learn that homeowners in the U.S. borrowed a trillion dollars against the "equity" in their homes created during the real estate bubble. Many used the funds to buy new cars, boats or other amenities that would otherwise be beyond their means. The banks lent the money against phantom home equity, defined by me to mean increases in a home's value in excess of 5% per year. As you would expect, many of those borrowers are defaulting on those loans and are refusing to make any effort to pay the lenders back. NYT The banks are finding that they have no means to collect on the debt that would be worth the expense in many cases.

In short, as with the Masters of Disaster, it paid for those homeowners to be irresponsible. Now, of course, it is not the homeowners fault that they borrowed too much money, and spent it unwisely, but instead many of them blame "predatory" lenders for tempting them with the money. In the U.S. it is almost a rarity to find anyone willing to take responsibility for their own actions. Freedom from responsibility is one of the most important "rights" of all Americans.

Hopefully, the banks will eventually learn that a large number of individuals will borrow whatever a bank is willing to give them and are not exactly staying up at night worrying about how to pay it back. In the future, it would be advisable for the banks to extend credit to no more than 95% of the home's value and to cap the maximum appreciation of that value to no more than 5% per year. There was nothing prudent about lenders extending credit based on a compounded 20+% increase in value during the real estate bubble and consequently those lenders deserve to suffer the consequences of their imprudence.

The GOP candidate for Governor Colorado, Dan Maes, claims that Denver's campaign to encourage bike riding was a plot to "threaten our personal freedoms".  Mr. Maes reminds me of General Jack D. Ripper in the movie Dr. Strangelove who believed that fluoridation of the water was a commie conspiracy to pollute everyone's precious bodily fluids.

The coupon yield on the five year TIP has fallen to zero. St. Louis Fed: Series: DFII5, 5-Year Treasury Inflation-Indexed Security, Constant Maturity The 10 year is hovering at around 1%. St. Louis Fed: Series: DFII10, 10-Year Treasury Inflation-Indexed Security, Constant Maturity The average 30 year mortgage rate just hit 4.44%.

The Pew Foundation studied U.S. Census records and found that about 8% of the babies born in the U.S. are offspring of "unauthorized immigrants". Unauthorized Immigrants and Their U.S.-Born Children - Pew Hispanic Center About 4 million U.S. born children of unauthorized immigrants are currently living in the U.S., along with 1.1 million children of unauthorized immigrants born outside the U.S. Any child born in the U.S. is automatically a bona fide citizen under the 14th Amendment to the Constitution, intended to grant citizenship rights to freed slaves after the Civil War. In pertinent part, section 1 of the 14th Amendment provides that "(a)ll persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside." A number of GOP politicians are pushing an amendment to the 14th Amendment which would deny citizenship to children born in the U.S. from illegal immigrants. ABC News

Sharron Angle, the GOP candidate for the U.S. Senate seat in Nevada, has a new ad out saying that she want to protect Social Security. Prior to winning the GOP nomination, she was very clear on her desire to phase out both medicare and social security: YouTube - Sharron Angle says eliminate Social Security She now is a big supporter of social security and medicare, wanting to put it in the same lock box that Al Gore made famous in a presidential debate with George Junior.

1. Proceeds Received from Call Warrant Owner for Redemption of the TCs JZE and JZJ: 

Profit 100 JZE $1,242  /Profit 82 JZJ=$567.44

I mentioned yesterday that I had already received the proceeds from JZE's redemption, $25 per share plus accrued interest. Bought JZE at 12.5 JZJ was partially called, resulting in the redemption of 82 out of my 200 shares. Call Warrant Exercised on JZE and JZJ I received the proceeds for that redemption yesterday afternoon. Since I use FIFO accounting, I will use the cost of the 82 shares from the 100 share lot bought in September 2008 at a total cost of $1,808. I later bought 50 shares in December 2008 at a total cost of $17.76 (Bought JZJ at 17.5) and another 50 earlier this month. Added 50 JZJ at 24.75 The redemption was at par value plus accrued interest. The presence of the call warrant needs to be kept in mind when considering a purchase of a TC in excess of its par value when the underlying security is selling at a premium to its par value. This is also relevant to a decision whether or not to sell a TC already owned in such circumstances, where the TC is selling at a premium to its par value and accrued interest. More on the Call Warrant in TCs Call Warrants and Trust Certificates It would not surprise me to learn at anytime a call of PJL by the call warrant owner since the underlying Verizon bond is selling at close to a 27% premium to its par value. FINRA Another TC (XFL) with the same Verizon bond has already been called by the call warrant owner.

2. Aegon (own hybrids AEH, AEF and AEF only-see Aegon Hybrids): AEGON reported that underlying pretax profit, which excludes gains and losses on investments, increased 26% to €522 million, ahead of the consensus forecast of €515 million. The net profit was 413 Euros for the quarter.

Aegon reported a drop in its excess capital, and still owes the Dutch government 2 billion Euros. The EU still has not approved Aegon's viability plan that is tied to Aegon's receipt of the 3 billion Euros in state aid back in 2008. This earnings report is discussed in this article from MarketWatch.

Aegon is attempting to sell its Transamerica reinsurance unit which may fetch 1 to 1.5 billion Euros according to some analysts. Reuters

The Aegon and ING hybrids that I own declared their regular quarterly dividends, with 8/30 ex dates. Dividends - Markets Data Center - WSJ.com (information on that page is changed every business day)

3. Sold 50 of the TC PJI at $23.52 (see disclaimer): Using FIFO accounting, this 50 shares was bought at 20.17 in May 2010. PJI went ex interest for its semi-annual payment on 8/11 and recovered most of the diminution in share value caused by the interest distribution. I large number of TCs went ex interest on 8/11 and will be paying their distributions next Monday. I mention several of them in Item # 8 Dividends and Interest PJI contains a senior bond from GS that matures in 2033. The TC has a 6% coupon and a $25 par value. In other words, besides the credit risk issue, there is a lot of interest rate risk and possibly immaterial upside potential at the current price unless the long term deflation (or negligible inflation) scenario unfolds.

I may be the only investor in the world now who sees risks in bonds. This is how a long term secular bull market ends, not how one starts.