1. FBI Director Mueller: I would like to thank the FBI Director for what he has done during his tenure. I certainly agree with his recent letter to Scottish Justice Secretary Kenny MacAskill. FBI chief: Bomber's release 'a mockery' - CNN.com After murdering 270 people by blowing up Pam Am Flight 103 over Scotland, and serving a mere seven years in prison, Al Megrahi was released by the Scots and returned to Libya for a hero's welcome. Mueller was the only official from the U.S. government who directly castigated the Scot's for this inexplicable decision to release a mass murderer. Mueller said the Scots have rewarded a terrorist and made a mockery of the pathos experienced by those who suffered from the actions of Megrahi and the Libyan government. There was also some suggestion by Libyan officials that there was a commercial quid pro quo for the release. That would not surprise me. It is always best to remain suspicious of what you are being told by the government, and ours is no exception.
Mueller also stood in the way of the Bush administration using the U.S. military to seize U.S. citizens on U.S. soil and to incarcerate them indefinitely without charges, access to an attorney, and a trial. What is a Birther? /Using the Military to Arrest and Imprison U.S. Citizens Without A Trial-Viewed as Conservative?
It was also Mueller who objected to use of torture approved by the Bush Administration, and pulled the FBI interrogators out when it became apparent that torture was going to be used by Bush. Is Conservatism Consistent with Support of Bush's Enhanced Interrogation Techniques/NVS, EBAY, COP, Nestle, JNJ, EMC
I am just grateful that there is a high ranking American official ready to stand up for the law and basic American values, none of which are advocated by the false conservatives that I call the True Believers.
Sometimes I am confused with a liberal, since I am a hawk of the conservative values embodied in the Bill of Rights. In reality, I view myself as a True Conservative, and a very strong fiscal conservative.
As to the Scots decision to release a terrorist who was convicted of murdering 270 people, I would boycott products from Scotland, and maybe England, for at least a year. Boycott Scotland and the United Kingdom Unfortunately, I am not much of a consumer, almost entirely a saver. I have no debt, and already own everything that I need.
2. European Commission: I mentioned that my ownership of ING and Aegon hybrids is not material to me in a comment to this Post: Priority of ING Hybrids vs. Shares Issued to Dutch Government In fact, I manage my portfolio with an extreme level of diversification, buying all kinds of assets, and currently have over 300 individual positions. I would never risk more than I could afford to lose in any single security or group of securities, such as European hybrid junior bonds/equity preferred. And, by loss, I mean a total wipeout. The European hybrid position in its totality is not material even as part of my bond portfolio.
Since I am receiving a lot of interest on the subject, I have decided to delve into it further and have written a number of posts about what I have learned and my opinions on the EC "burden sharing" policy as applied to junior debt. Based on what I have read about the EC policy to date, it is more important to me as a factor to consider about future decisions to buy European debt. The mere enunciation of this kind of policy at the highest level of government would, in itself, warrant a permanent downgrade in all junior debt issues from European firms by one notch if I was doing the ratings. It indicates a mind set of the Europeans that is foreign to a U.S. citizen, a worldview that social and political policies can factor into decisions about the payment of a debt obligation by those capable of making the payments. Even the Democratic Party and the current administration have not gone as far as the EC on this issue. Just think about how the junior debt holders of Citigroup have been treated by both the prior Republican and the current Democratic Administrations. Citigroup has become in effect a ward of the U.S. government, receiving a ton of aid, and is still paying interest on its junior debt. The Citigroup equity holders (equity preferred and common stock) are in a different boat, as you would expect under the circumstances.
So, my take away is to be very circumspect about buying any European debt in the future. And, that means from now on until I can no longer buy anything. Currently, I own AEB, AEH, INZ, IND, IGK, and AZM. Those who have been reading my posts for some time know that the ING and Aegon hybrids were mostly bought at very low prices during meltdowns and my exposure is consequently small due to both the prices paid and the number of shares bought. I am not likely to add to those positions now even if there is no deferral.
I will react negatively to any action taken which I view as an act of bad faith. The European policy lends itself to acts of bad faith such as deferring a dividend and then offering to buy the shares at a huge discount. Another act of bad faith would be for a local government and firm to change their prior bargain in such a way as to avoid the Stopper provisions. Now, if the government agrees to take a hit on its shares and agrees to "burden share", then it would not be hard to predict what will happen to the private investors.
Thanks for your continuing analysis of the ING/Aegon hybrid debt situation. My experience with European equities, and now debt, has not been great.
ReplyDeleteI used to own shares of E.ON AG, a large energy company based in Germany. It paid a pretty good dividend, subject to a 21% foreign tax. But the real problem was the constant uncertainty caused by the EC having its regulatory hand in every deal the company was involved in, from asset sales to potential acquisitions.
I sold it and bought Enel, an Italian electric company. It pays a higher dividend, but the tax rate there is 27%. (Dumb move? Maybe.)
After I'd owned Enel for a while, they decided to terminate their ADR and delist from the NYSE. American shareholders were given the choice of exchanging their ADR shares for the common shares (trading on the Milan exchange), or selling their ADR shares. I exchanged, since I saw no reason not to own the stock. The dividend seemed secure (as much as anything can be judged to be secure these days), the company seemed sound, and it fills three important niches in my portfolio ecology: foreign company, large cap, and dividend-paying utility. At least the EC seems to be leaving it alone. So far.
Now comes this Aegon conundrum. All things considered, I'm not too worried about them suspending the interest payment on the hybrid preferreds, but the fact that it's even a question unsettles my faith in the order of things.
As for the Scot boycott, like you I already own everything I need. But that bottle of Glenfiddich I was planning to buy my dad for Christmas? It might not be in the cards this year.
Cathie: I write my posts in a stream of consciousness. So I am basically thinking out loud. And I would make a good secretary for anyone in need of a fast typist.
ReplyDeleteI have finally reached a comfort level on Aegon, but not so muchon ING, which is my larger position. It looks to me like AEGON will have to pay the four quarterly payments due after it buys back the securities issued to its majority shareholder who will then pay back part of the loan to the Dutch government. The same result would be reached if Aegon made any payment to a junior security holder. Do not hold me to that, but I am comfortable with that opinion at least for now. It looks like those conclusions are supported by the language in the Aegon prospectuses. http://tennesseeindependent.blogspot.com/2009/08/more-on-stoppers.html
I use Turbo Tax and that program always allows me to take an income tax credit for the foreign taxes I paid on dividend income. The highest that I have however is a 15% withholding. It would seem to me that the exchange rate would be more of an issue given the tax credit for the actual tax paid. If the Euro gains strength against the dollar, then you will buy more dollars with the dividend and less if the dollar gains strength. I view foreign dividend paying stocks as one form of hedge against a depreciating dollar. Most of my individual foreign holding are in Canada. In other words, if the dollar continues to lose value, the dividend stream payable in a currency gaining value against the dollar will increase in value even if the dividend remains constant.
"I view foreign dividend paying stocks as one form of hedge against a depreciating dollar."
ReplyDeleteRight, thanks for reminding me. That's another reason I like them.
Another thing I like about the Aegon hybrid preferreds is that no taxes are withheld from the interest payments.
As for the 27% dividend-taxed Italian electric company Enel, it is in my Roth IRA. The credit for foreign taxes paid doesn't benefit me in this case, I don't think. Correct me if I'm wrong about that.
Cathie: You lose the foreign tax credit if the security is held in a retirement account. You also do not receive the benefit of a lower tax rate, such as the current 15% max rate for qualified dividends and long term capital gains. When you take that money out of the retirement account, it is taxed at the regular tax rate, irrespective of whether it was a capital gain or a qualified dividend when it was paid into the Roth.
ReplyDeleteGenerally, I try to hold most of the securities that pay capital gains, qualified dividends and are subject to foreign taxes in a taxable account. Similarly, if the foreign issuer pays qualified dividends, I would try to put that security in a taxable account and use the funds available in a retirement account to buy a bond whose payments are taxed at the highest marginal rate. This later issue makes less difference as you move down in the tax brackets. But would be applicable in the event you are in a high tax bracket, and have funds available for investment in both taxable and tax deferred accounts.
Similarly, I have put most of European hybrids and the U.S. non-REIT equity preferred stocks in a taxable account since the ones that I own pay qualified dividends. I ended up buying some METPRA in a retirement account which I would have preferred not to do, simply because the price was just too ridiculously low at the time, and I had some cash.
I put a couple of my recent buys of ING hybrids (ISF AND INZ) in the retirement accounts due to concerns about a deferral and the tax consequences of a deferral. So I will make exceptions but generally I follow those general rules outlined above.
I also keep small positions in 3 mutual funds in a retirement account and each of those cost me about 50% at the lowest depth of the market meltdown. I did a Roth conversion which worked out great for them since they were down so much.
One reason that I am up about 30% in my retirement accounts since October 2007, adjusted for the two subsequent contributions, is due to this approach. I had a lot of bonds and bond like investments in my retirement accounts. And, I have done extremely well with those individual security selections. Some of my limited number of stock selections made in the IRAs, like the lottery tickets CBG at $2.39 or DD at less than 17 were made in the Roth. Those are limited exceptions also. I will occasionally put one of my lottery tickets in a retirement account.
CATHIE: THE POINT THAT I MADE IN THE LAST POST, ABOUT TAXATION WHEN THE AMOUNT IS WITHDRAWN, IS NOT APPLICABLE TO A ROTH ACCOUNT (ASSUMING NO PREMATURE WITHDRAWAL) BUT JUST TO THE TRADITIONAL IRA WHEN WITHDRAWALS ARE MADE WITHOUT PENALTY AFTER 59 1/2. I think you said that you had a Roth rather than a traditional IRA.
ReplyDelete