Wednesday, September 14, 2011

Learning the Value of a Dollar/Sold 1 MeadWestvaco 6.8% Senior Bond at 96.237/Sold 50 of 200 GFW at $25.48

I was away from HQ yesterday. LB was working all day on another matter in downtown Nashville. And, after an arduous day of mental labor, the Saturn would not start. "RB is embarrassed to be seen in that Saturn. Maybe the Nerd Machine needs to trade that aging Saturn for a new Lexus convertible, the RB has one picked out, not that the RB knows much about it except that it looks cool and the color matches the OG's eyes".

I thought this was an interesting statistic compiled by the Pentagon. Approximately 75% of Americans between the ages of 17 to 24 are unfit for military service because they have a criminal record, failed to graduate from high school or are too physically unfit. NYT  From the same article, it is noted that 1% of Americans now control 40% of the wealth and take in 25% of the nation's annual income. In the parlance of the GOP, these are the "Job Creators" in need of more tax breaks.

When I was in that age bracket, more than a few moons ago, I was in the best shape of my life, due in no small part to working for my father during my summer "vacation". After my sophomore year at Tulane, due to my hard work, always being on time, never taking more than a 30 minute lunch break, and my attention to detail, I had worked myself up to $2 per hour:




I do recall asking my Dad for a quarter an hour raise. He just looked at me, as if I had lost my mind, and then said he "was already paying me more than I was worth". (My father had met his business partner before WWII in the championship round of the southern Golden Gloves tournament, and both thought that was a good introduction for a business partnership lasting until the business was sold in the late 1980s to Beazer: Stocks & Politics: Left Brain & Right Brain Decision Making)

While some may say that the boss's son would be drinking piƱa coladas  for this kind of money, that would be a false assumption. I will describe a typical day. The work day started at 6:00 A.M. For this typical day, I was assigned to work with another unfortunate soul to "batter board". While I would not purport to know how this is done now, I can describe based on considerable personal experience how it was done in 1971. The purpose of the exercise is to lay out the foundation plan of a home. My father was a homebuilder. To accomplish that task, a number of wooden stakes would have to be driven into the ground. So picture this scene. It is about 95 decrees in July, very humid, and the OG is in a mostly uncleared field, whose other inhabitants are mostly snakes and other small critters. There has been no rain for about a week and no moisture in the soil. As the OG's co-worker holds the stake, praying no doubt, the OG swings a sledgehammer as hard as possible to drive the stake into the ground. Now, back in July 1971, the OG was a fine specimen. A thud is heard, and the OG looks down at the ground to see a few flakes of Tennessee clay scattered around the tip of the stake which is still sitting on the top of the ground. Several stakes had to be driven into the ground for just one house, and then string would be strung to provide instructions for the foundation, Batter Boarding .pdf.

Besides the free suntan and workout, that experience at least taught me the value of a $1.

And, I made every dollar count with my investments, including taking every silver U.S. mint coin out of circulation that came my way during the 1960s and buying my first stock, HCA, soon after its IPO when it had one hospital located near Vanderbilt.

Referring back to the fitness of the current generation to serve in the military, I was probably fit enough to join the Navy Seals, had no criminal record of course, and had more than a high school education. I was not, however, going to volunteer to fight in the Vietnam War, having the same opinion then as I do now about that conflict. I view all of those who are responsible for America's involvement in that conflict as recklessly negligent idiots, who are responsible for the deaths of almost 60 thousand young Americans (Vietnam War casualties), countless Vietnamese civilians, the maiming of tens of thousands,  the onset and acceleration of inflation in the U.S., and the loss of around 700 billion dollars in 2008 Dollars (CBS News)

Brian Williams asked Governor Perry whether he was concerned about an innocent man being among the 234 executed during his tenure. The crowd erupted in applause and whistling at the mere asking of that question. NYT

The BAC technical analyst believes there is a chance that the S & P will hold in the 1100 to 1120 range, but she believes there is a 50% chance of a test between 910-985. CNBC My downside target for serious buying would be in the 950 neighborhood.  While nothing about the market is certain, I feel that there is real risk to the downside, so I am not being brave with my cash stash.

I have raised, mostly with a reduction in my stock allocation, my cash stash to around 25% of investable assets.  The last sales occurred in the later part of July. SOLD: 100 EXC @ 44.67, 100 APF @ 17.47, 50 DLN @ 49.38, 100 PEO @ 30.62, 100 MSFT @ 27.9 (7/27/11 Post) Sold 103+ of the Stock ETF OEF at $59.98 (7/25/2011 Post);  Sold 50 UNB at 19.5/ Pared JSN-Sold 100 at 12.38 in ROTH IRA (7/26/11 Post) I have been trimming the stock allocation since early March. Sold 100 VEU at 49.19 (3/3/11);  Sold 100 of the stock ETF VV at $60.69 (3/1/11 Post); SOLD 100 CIZN @ 20.56 (3/2/11); Sold 100 of the Stock CEF IDE at 20.3.  I will frequently start a pare by selling stock ETFs and CEFs.  Some funds may be devoted to short term trading opportunities or to more defensive individual names, but the overall trend will be to reduce my stock exposure.

The reasoning has been explained in numerous discussions and involve the weakening economy and other macro issues. I always make allocation decisions based on my judgments about big picture issues and relative valuation/risks of asset classes. Another reason has to do with the identification of the market as being in an Unstable Vix Pattern within the context of a long term bear market. A cyclical bull move, off a catastrophic low, may last about two years, as shown by the move off the catastrophic low in 1974. I have drawn that analogy in many posts, and my views are well know to readers of this blog.  The Roller Coaster Ride of the Long Term Secular Bear Market 1974 or 1982: Start of Cyclical Bull in a Long Term Secular Bear Market or the Start of Secular Bull Market? More on 1982 or 1974 The Importance of Identifying the Underlying Causes of Long Term Bull and Bear Markets The Big Picture Questions Static v. Dynamic Asset Allocation

My investable assets do not include "safe" money that would not be invested in any security that fluctuates in value.  I would not include either my "hard" assets, all owned free and clear of any debt. Investable assets includes only those funds held in a brokerage account and invested in a  money market fund.  If I could earn 4% on that cash now, I would be at a 35% cash allocation. Since money market funds are paying nothing, I am attempting to plough some funds into risk assets, primarily bonds, in search of a higher yield. The recent purchases of several municipal bond CEFs are part of that strategy. I define a "risk" asset as anything that fluctuates in value. And, there are of course various decrees of risk to different securities. The highest risk strategy currently being pursued is the junk bond ladder strategy.    

Bank of America is going to cut 30,000 more jobs over the next few years. USATODAY.com

Moody's downgraded Credit Agricole and Societe Generale ratings earlier today based on its exposure to Greece.  An article in yesterday's  NYT provided some interesting details about how investors are reducing their credit exposure to European banks. For example, U.S. money market funds did not refinance 50 billion in short term that came due in August.

HSBC's Managing Director of Investment Strategy Asia believes there will be a relief rally in October, taking world equities up 10-15%. CNBC


I am busy on other matters this week.

1. Sold 1 MeadWestvaco 6.8% Senior Bond Maturing in 2032 at 96.237 Last Monday (Junk Bond Ladder Strategy)(see Disclaimer):  I intend to use the proceeds from this transaction to buy a higher yielding junk bond.  Given the volatility and uncertainty prevailing today, plus the heightened risk of a recession in the U.S. and particularly in Europe, I am currently anticipating that junk bonds will fall in price and rise in yield. By selling the MWV bond, I will not have to dip into my cash stash to buy my next junk bond.

I made a small profit on the bond, plus 1 interest payment and accrued interest paid to me by the seller:  Bought 1 MeadWestvaco 6.8% Senior Bond Maturing 2032 at 92.926

The MWV bond had the longest maturity in my junk bond ladder, so its sale will reduce my average maturity a tad.

Realized Gains Junk Bond Ladder Strategy

2. Sold 50 of 200 GFW Last Monday at $25.48 (see Disclaimer):  This security pays quarterly distributions taxed as interest. I still own 150 shares in IRAs. I sold the 50 shares bought in a taxable account at a small profit after collecting a few interest payments. Bought 50 GFW at $24.82 This baby bond just went ex interest.  Par value is $25.  Final Prospectus Supplement

The shares currently in the ROTH and Regular IRAs were bought at the following prices: Bought 50 GFW at 22.63 (Feb 2010 Post); Bought 50 GFW @25.04Added 50 GFW at 24.9 in the Regular IRA (Dec 2010 Post)

I previously sold shares at $25.13 bought at $22.76.

AAG Holding Company Inc. 7.50% closed at $25.09 yesterday, down 1 cent for the day.  I may buy those shares back at some point in an IRA.

Exchange Traded Bonds 

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