A frequent topic of this blog is how the large reactionary forces in America prefer to be labelled "conservative" since that sounds far more appealing than an appropriate label for them. One such reactionary masquerading as a conservative is Mike Lee, the newly elected GOP senator from Utah. An article in the NYT summarizes some of Mr. Lee's views, which are unfortunately shared by the growing reactionary forces in the U.S., which may encompass as much as 25% of the voting population. Among his many extremist views, Lee proposes to phase out social security, and to abolish the Departments of Education and Housing and Urban Development based on his fringe and radical constitutional views. He wishes to repeal the 16 Amendment, which authorizes the income tax. He has called the 17th Amendment a mistake, since it required the people to elect U.S. Senators, rather than having them appointed by state legislatures. He believes in the right of the states to nullify federal legislation, a frequently heard argument by state's rights advocates in the Old South, in their effort to preserve slavery and later segregation. It is not surprising that Lee clerked for Justice Alito. CNN.com;
I go into more detail about the reasons for classifying the Mike Lee's of the world as reactionaries in prior posts. See, e.g., Item # 3 Conservative or Delusional Reactionaries?; Item # 3 Rand Paul-Reactionary Not Conservative; Conservative: Each to his Own Definition; What is the Appropriate Political Label; and Santayana: An Inability to Remember History or Just Creating Your Own Reality to Fit an Ideology.
I go into more detail about the reasons for classifying the Mike Lee's of the world as reactionaries in prior posts. See, e.g., Item # 3 Conservative or Delusional Reactionaries?; Item # 3 Rand Paul-Reactionary Not Conservative; Conservative: Each to his Own Definition; What is the Appropriate Political Label; and Santayana: An Inability to Remember History or Just Creating Your Own Reality to Fit an Ideology.
I do not believe that it is possible for any sensible person, which excludes all True Believers, to view Mr. Lee as anything other than a reactionary, just another GOP extremist wanting to turn back the clock on all progress made in the U.S., starting with legislation passed by the GOP administration of Theodore Roosevelt in the early 1900s. A typical rant against Teddy was made by the demagogue Glen Beck referred to politely as "daffy ravings" by a columnist at USNewsnews.com. (Item # 4 Stocks & Politics) What is this really about? The primary beneficiaries of turning back the clock 100 years or so want to be able to do whatever they please, regardless of the consequences to others or to the environment, to further enrich themselves. And they are the ones who already control most of the wealth of the country.
1. Bought 50 XFB at $25.50 (see disclaimer): I have lowered my standards on buying bonds in the third year of the Fed's Jihad against savers and responsible Americans. It is become harder to find suitable alternatives to near zero interest rates. Coping with the Federal Reserve's Jihad Against Savers & Responsible Americans
One previous criteria, which has been abandoned, is that I would not buy a bond trading over its par value. Another criteria that has found its way into the dustbin was a ban on buying bonds maturing after 2039, given my age. I at least want the option of holding the bond until maturity, which assumes that I will still be around when that occurs. At least in the few instances when I abandon those criteria, I do it only gingerly and without any gusto. The Trust Certificate XFB and its underlying bond mature on 12/01/2045, and I paid fifty cents over the $25 par value for this TC. I would simply emphasize that I only bought 50 shares, and that this investment is consequently immaterial to me. However, when I group all of my income producing securities together, it is very significant and their cash flow is a critical part of my investment approach.
One previous criteria, which has been abandoned, is that I would not buy a bond trading over its par value. Another criteria that has found its way into the dustbin was a ban on buying bonds maturing after 2039, given my age. I at least want the option of holding the bond until maturity, which assumes that I will still be around when that occurs. At least in the few instances when I abandon those criteria, I do it only gingerly and without any gusto. The Trust Certificate XFB and its underlying bond mature on 12/01/2045, and I paid fifty cents over the $25 par value for this TC. I would simply emphasize that I only bought 50 shares, and that this investment is consequently immaterial to me. However, when I group all of my income producing securities together, it is very significant and their cash flow is a critical part of my investment approach.
The underlying security in XFB is an investment grade senior bond issued by News America, a wholly owned subsidiary of News Corporation. The TC has a greater coupon at 8.125%, compared to the underlying bond's coupon of 7.75%. www.sec.gov The underlying bond is selling at a significant premium to its par value. FINRA I suspect that XFB would be selling at a higher price now without the call warrant attached to the TC.
As discussed in many earlier posts, the owner of the call warrant has the option, not the obligation, to redeem the trust certificate, pay par value plus accrued interest to the TC's owners, and take possession of the bonds. When the underlying bond trades at a premium to its par value, as is the case with the News America bond, it would be profitable for the owner to exercise this option. The mere existence of that option, in my judgment, will restrain the price appreciation potential of XFB above its par value plus accrued interest. Since XFB just went ex interest, it is really not carrying any meaningful accrued interest at the current time. That is another reason for limiting my purchase now to just 50 shares. I would not fool with buying even 50 shares of this TC, particularly at above par value, unless I had just run out of alternatives.
As discussed in many earlier posts, the owner of the call warrant has the option, not the obligation, to redeem the trust certificate, pay par value plus accrued interest to the TC's owners, and take possession of the bonds. When the underlying bond trades at a premium to its par value, as is the case with the News America bond, it would be profitable for the owner to exercise this option. The mere existence of that option, in my judgment, will restrain the price appreciation potential of XFB above its par value plus accrued interest. Since XFB just went ex interest, it is really not carrying any meaningful accrued interest at the current time. That is another reason for limiting my purchase now to just 50 shares. I would not fool with buying even 50 shares of this TC, particularly at above par value, unless I had just run out of alternatives.
The underlying bond in XFB was originally issued in 1995, and I could not find any filings at the SEC's web site for either News Corp or News America that far back. I therefore could not read the guarantee reportedly given by News Corp in that original indenture for this News America bond. As described in the prospectus for XFB, News Corp and certain of its subsidiaries guarantee News America's obligations. The News America bonds are listed by Finra under the News Corp bonds in the Search Results.
This is a link to the trustee's last filed distribution statement, Trustee's Distribution Statement, and to all of the SEC filings for XFB.
Trust Certificates: Links in One Post
This is a link to the trustee's last filed distribution statement, Trustee's Distribution Statement, and to all of the SEC filings for XFB.
Trust Certificates: Links in One Post
2. BOUGHT BACK 100 GGN at $17.85 AND 100 MSF AT $15.69 (see Disclaimer): These two stock CEFs were recently sold. I sold 100 shares of MSF at 17.02 earlier this November, and simply view the recent buy back as saving me about $120 in lost appreciation. Those shares were bought at $13.57 in June, and I also had a prior profitable trade in this CEF. Sold 100 MSF at 15.3 This CEF invests in emerging market stocks. The net expense ratio is 1.55%, and the gross expense ratio is shown at 1.59% at the sponsor's web site: Fund Details MSF- Morgan Stanley InvestmentManagement The last semi-annual report can be accessed in PDF format at the sponsor's web site, morganstanley.com .pdf, or at the SEC. I am considerably underweight emerging market stocks, viewing them now has having a strong positive correlation with U.S. stocks with a higher beta.
Net asset value information for MSF can be found at the WSJ.com. Last Friday, MSF closed at $15.80 per share and had a net asset value of $15.8, creating a discount to NAV of -5.9 at that time. That is below its three year average discount by almost 2%. Morningstar The discount expanded on Monday, 11/29, to -6.48%, based on a market close of $15.74 and a net asset value of $16.83. So the net asset value rose some on Monday as the market price declined by a few cents, thereby expanding the discount from Friday's close.
I just sold the stock CEF GGN at 18.13. I would prefer a CEF that invests in gold stocks that sold at a discount to net asset value. GGN sells at a small premium. NAV information for this fund can be found at the Closed-End Fund Association web site, at the fund sponsor's web site or at the WSJ.com. I would just copy my previous comments about this CEF:
"Another issue that I do not like is that a significant part of the dividend distribution represents a return of capital. GAMCO Investors, Inc. The current dividend rate is 14 cents per month. If that was actually earned, through dividends and security gains, it would certainly be a plus since the yield at that rate would be 9.65%. The current data at the GAMCO website shows that around 46% of the monthly dividend is not being earned and represents a return of capital. Those figures could change by year end. With improving markets for the securities owned and more optimal conditions for the fund's option writing strategy, the fund could return to earning that dividend. If this does not happen soon, it needs to be cut in my opinion.
The last shareholder report is available at the SEC's web site. This fund invests in natural resource stocks. For the period ending in June 2010, the fund had a 28.4% allocation to energy and energy service stocks and 53.2% to mining.
Morningstar does not care for this fund, rating it just two stars. And the expense ratio is high. So why buy it at all with all of these negatives.
I really have almost no exposure to gold stocks. This purchase was just a quick way to gain exposure, and possibly Paulson may end up being more right about gold's future prospects than me.
I have been increasing my exposure some to commodity stocks. One plausible scenario for the future is a replay of the 1970s, a decade where stocks and bonds failed and commodities shined. Between 1/1/1970 to 12/31/1981, the annualized inflation adjusted return of the S & P 500, with dividends invested, was -1%. Between 1970 thru 1982, inflation averaged 7.88%. Consumer Price Index, 1913- | The Federal Reserve Bank of Minneapolis The ten year treasury had an average rate for those years of 8.36%, using annual data from the FED:www.federalreserve.gov" Stocks & Politics: Sold 200 HTD at 15.42/Bought 300 MMT at 6.95/Bought 50 DKI at 24.95/Bought 100 BDSI as LT at 2.93/Sold 100 JTD at 12.38/Bought 100 GGN at 17.41 (Oct 2010 Post).
I previously bought GGN in an IRA but I do not have sufficient funds in those accounts now to buy 100 shares. I am currently waiting to receive the proceeds of two bond redemptions in the Roth IRA (DFY and DKK).
GGN closed at $17.83 on Monday, with a net asset value of $17.31 per share, creating a premium to net asset value of 3%. At a total cost of $17.85, the posted dividend yield is about 9.41% at the current monthly 14 cent per share, but I would exclude from that yield calculation any portion of the dividend later classified as return of capital. A return of capital creates an illusion of yield which unfortunately deludes many individual investors.
The ING and Aegon hybrids that I own went ex dividend yesterday.
GGN closed at $17.83 on Monday, with a net asset value of $17.31 per share, creating a premium to net asset value of 3%. At a total cost of $17.85, the posted dividend yield is about 9.41% at the current monthly 14 cent per share, but I would exclude from that yield calculation any portion of the dividend later classified as return of capital. A return of capital creates an illusion of yield which unfortunately deludes many individual investors.
The ING and Aegon hybrids that I own went ex dividend yesterday.
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