Friday, April 15, 2011

SVU/Bought 1 GMAC 7.125% Bond Maturing 10/15/2017 at 98.072/Bought 1 Belo Senior 7.75% Senior Bond Maturing 1/1/2027 at 92.5

The republicans were upset that the Democrats failed to bite on the GOP plan to cut taxes on those making over a million dollars a year to a top tax rate of 25% from 35%, while turning medicare into a voucher system for private insurance companies and thereby shifting the cost risks of healthcare to the nation's seniors.  

Medicare is after all a government subsidized health insurance plan primarily for the benefit of the middle class, and the GOP wants to put those folks at risk in their retirement years with their voucher system. This want stop the TBs from supporting this plan that is intended to screw most of them. Contrary to whatever the GOP is saying now, the voucher system will provide less coverage for more money than the current federally subsidized insurance program. CBO analysis The GOP plan shifts all of the risk to seniors and away from the government .   Vouchers Under A Different Name The Economist

The wealthy can afford to pay private insurance premiums during their retirement years, with or without another tax cut, though reducing the top tax rate from 35% to 25% for those fortunate souls making more than a million dollars a year will make it even easier for them to pay what will unquestionably be outlandish health insurance premiums in 2022. The NYT has a table comparing the proposals from both parties.

On the bright side, the OG will not be covered by the new voucher system and is thankful that the GOP does not intend now to implement the voucher system for those over 55 years at the present time.  The OG has seen the kind of medical bills the elderly incur, and recognizes the inevitable results flowing from the GOP plan.  Under the GOP plan, the seniors are supposed to use a few thousand dollars to buy private health insurance to cover their medical needs when hitting 80 in say 2025? Really?

SuperValu (SVU) shares rose 16.85% yesterday to close at $10.61 after the company said that it expected to earn $1.2 to $1.4 per share for its current F/Y year ending 2/2012. SEC Filed Press Release Reporting 4h quarter results   The consensus forecast was for $1.15. For the fiscal 2011 4th quarter, the company reported earnings of 44 cents per diluted share. The analyst reaction is discussed in this article at  MarketWatch. A discussion of the 4th quarter earnings report can be found at Supervalu. I do not own the common. Instead I own five different senior bonds and that stake provides me with enough incentive to monitor the company.   1 SuperValu 7.5% Senior Bond Maturing 11/15/2014 at 97.8 1 SuperValu 8% Senior Bond Maturing 5/1/2016 at 98.73 1 Albertsons 7.75% Senior Bond Maturing 6/15/2026 at 80 1 Albertsons 7.45% Senior Bond (now part of SVU) Maturing 8/1/2029  at 77 1 Senior 8.7% Albertsons' Bond Maturing 5/1/2030 at 85.75. All five purchases were made pursuant to the Junk Bond Ladder Strategy.   

The bonds reacted favorably to the news, but nowhere near as much as the common stock which is to be expected. (see e.g. trading history on 2014 senior bond at  FINRA)

My most recent post on SVU is one from March 2011 which discussed a favorable article in (subscription publication):  SVU  A follow up article on SVU was published yesterday in

1. Bought 1 Belo Senior 7.75% Senior Bond Maturing 1/1/2027 at 92.5 Last Wednesday (see Disclaimer): Belo owns 20 television stations (nine in the top 25 markets).  A listing of its stations can be found at page 3 of its 2010 Annual Report.  As shown on page 17 of that report, the company reported a profit of 86.906 million dollars or 83 cents per share in 2010.  For 2010, operating revenues totaled $687.395 million.  Belo spun off its newspapers into a separate company in 2008 and that company trades now under the name A.H. Belo Corporation (AHC).  The bond that I bought is now an obligation of  Belo Corporation (BLC).  

Belo's long term debt is discussed at page 26 of its 2010 Annual Report. The total LT debt as of 12/30/2011 was 897.11 million dollars. 

The current consensus estimate made by 4 analysts is for an E.P.S. of 56 cents in 2011 and 91 cents in 2011. BLC Analyst Estimates

This is a link to the FINRA information on this bond.  It is currently rated B1 by Moody's and BB- by S & P.

This is a link to the prospectus:  Interest is paid semi-annually on 6/1 and 12/1. This bond is senior unsecured debt, see page S-15: "The Offered Securities will be unsubordinated and unsecured obligations of the company ranking pari passu with all existing and future unsubordinated and unsecured obligations of the Company".

The confirmation states that the current yield at my total cost is 8.306% and the YTM is 8.52%.  

2. Bought 1 GMAC 7.125% Note Maturing 10/15/2017 at 98.072  Last Wednesday (see Disclaimer):  This GMAC note pays interest monthly.  The FINRA page on the bond shows that the rating is B1 by Moody's, same as the Belo bond mentioned above.  I intend to hold this bond until maturity unless I becoming very concerned about the credit risk. 

The recent purchase of 3 GMAC bonds, done over the increasingly virulent opposition of Headknocker, demonstrates more than words alone the impact of the Fed's Jihad Against Savers on the Old Geezer. That Jihad, virtually unprecedented, except for the period during Great Depression, is now in its third year, as the Fed has forced the transfer of wealth from responsible Americans to those who behaved badly and deserve nothing more than a spanking. 

My confirmation states that the current yield at my total cost is 7.206% and the YTM is 7.343%.  

This is what my junk bond table looks like with several recent additions and the loss of the 10.5% 2012 United Refining bond to an early call:

I am not able to capture all of the junk bonds, currently owned, with one account snapshot so I broke it into two snapshots:

Links to discussions about each purchase can be found in the Gateway Post for this Strategy: Junk Bond Ladder Strategy).  I am satisfied with the diversity and maturity schedules in this bond ladder strategy.  I can afford to take the credit risk.

In the foregoing lists, there are two investment grade bonds, a Prudential senior bond maturing in 2012 and a PMA Capital bond maturing in 2018, that are not part of the Junk Bond Ladder Strategy. {The PMA Capital bond use to be an exchange traded bond and is now an obligation of Old Republic International (ORI). Bought 100 PMA Capital Bond  at 10.01   Old Republic recently sold 550 million in debt (8-K) with the intent of redeeming 107.4 million of the PMA Capital debt which was assumed when ORI acquired PMA Capital. See page   S-6,  Prospectus}

My most fundamental strategy involves the generation of a constant stream of cash flow that is used to buy more income generating securities.  Today, I received the following amounts from the junk bonds:

3. Richard Lehmann Column in Forbes:  Richard Lehmann recommends in his Forbes' column that investors hedged their portfolios for inflation now. I am not yet ready to short U.S. treasuries, as recommended in this column. I do agree with Lehmann that the federal government underestimates inflation.

I would estimate that my cost of living is up over 5% year-over-year. Since I own my own home, and do not have a mortgage, it would be ridiculous to say that my cost of living needs to reduced by the hypothetical adjustment called "Owners' Equivalent Rent", which assumes that the consumer rents his own home. Housing related costs make up close to 42% of CPI according to Lehmann.  Since home prices have fallen, my "owner equivalent rent" has been going down and therefore there is little or no inflation after this adjustment for me after the phony adjustment. But, as I just mentioned, there is actual inflation for me running at over 5% now.

This "owner equivalent rent" adjustment would make sense for those youngsters buying their first home today.  It is just incredibly absurd for the large number of citizens who own their homes unencumbered by a mortgage and those whose mortgages currently exceed the value of their homes. If a homeowner can not refinance and has to pay or default on such mortgage, then there is no deflation benefit associated with the decline in home values. 

4. Randall Forsyth's Column in Titled "Party Like It's 1937": I thought that Randall had a thoughtful column published in March 2009 that helped to accelerate my re-allocation out of short term bonds and into stocks. (article March 2009 ) The Fed had just announced QE 1.  The OG is always interested in historical parallels, and I discussed his article in one of my posts that month.  Stock Rallies and Quantitative Easing (March 2009)

In this March 2009 column, Randall summarized a historical precedent from the Great Depression period.  Stupidly, the Federal Reserve tightened monetary policy after the stock market crash in 1929, and that policy response accelerated the economic downturn and probably turned a garden variety recession into a really serious Depression.  After FDR was elected, the Federal Reserve embarked in 1933 on a quantitative easing program and the stock market thereafter had one of its largest percentage rallies in history.  This is a quote from my March 2009 post:

"Randall Forsyth had an interesting column in this week's Barron's. Prior to reading it, I was aware the the stock market experienced some of the largest percentage rallies during the Great Depression.  I was also aware that the Federal Reserve tightened after the stock market crash which only aggravated the problem.  I knew that the market bottomed in 1932. Forsyth reminded me that there was a powerful stock market rally starting in 1932, with prices quadrupling, that coincided when the Federal Reserve started to aggressively buy government securities, called quantitative easing by nerds and printing money by the rest of us (now printing money is done electronically with bleeps).  The decline from 1929 to 1932, however, was steeper at a 86% decline than our current bear market, but the current decline was over 50% since the highs in October 2007 before the rally earlier this month.  Maybe the market got it right with its first reaction to the Fed's announcement last week. NYT Central Banks Detonate the Quantitative Easing Monetary Nuclear Option  

There is a common valuation technique in a bear market, which I will describe with a phrase: "It is bad and it is never going to get any better". The here and now, what is happening this minute and day, becomes the best forecast for as long as a human can see, which is not very far.  Maybe it is due to the slow motion effect of real time living, where days seem long and a year becomes an eternity when one dwells on the passage of minutes or days rather than the ebb and flow of history in the minimum unit of years. Generally, somehow and someway, the economy sinks and then prospers, then sinks and expands again.

Ultimately, it is foolish to extrapolate the present into the indefinite future. This is sort of obvious looking back at a few centuries, but you would never know it based on how investors value companies based on a year or two of declining earnings caused by the latest in a long series of economic calamities.  Maybe it is due to an incomprehensible inability to "remember" much of anything that happened more than a few minutes ago.  It is sort of affliction of the human race, always predicable, to forecast the present condition into the indefinite future.  Understanding investor psychology is always important, which is one reason why I read Professor Schiller's book Irrational Exuberance as soon as it was published in 2000. Home Page of Robert J. Shiller Irrational Exuberance  Animal Spirits. . . . 

For some companies, managed by the arrogant and ignorant, though highly compensated and rewarded for failure, the sun will never return and they will be relegated to the dustbin of history by the downturn. Leverage does work both ways in case anyone needs to be reminded.

Most major companies will survive and prosper during the next upturn.  Many of these companies are now traded at levels prevalent in the early 1990s or even 1980s, as if nothing has transpired in the last twenty years, or at least nothing good.  I have mentioned several that I have recently purchased with strong hands and a long gaze into the future. . ."

In his most recent column, Randall points out something that happened in 1937.  FDR has just been re-elected to a second term. There was a considerable amount of pressure for the Fed to tighten monetary policy and for the federal government to reduce spending.  Both monetary and fiscal stimulus were in fact withdrawn and the economy sank back into a Depression, continuing the severe downturn until the government started to borrow and spend funds necessary to finance the nation's involvement in WWII.  

I have been taking a number of steps to increase my cash flow into my accounts this year.  Some of that cash flow is now earmarked for incremental purchases of a few large cap stocks whose shares offer decent value for the buck. By small incremental purchases made with cash flow, I mean purchases using between $500 to $1500, spaced out in time, largely coinciding with interest and dividend payments received from existing positions.  I will also be adding to some stock CEFs with high dividends. Some cash flow will be used to buy LTs for the RB's entertainment as always. 

It remains to be seen whether the world will repeat what happened in 1937 to 1940.  That scenario is a plausible outcome, and consequently worthy of some planning for it.  A more likely scenarios, in my view, is that GDP growth in the U.S. will top out in the first half of 2011 and then slide toward anemic positive growth later in 2011 and into 2012.  Overly optimistic scenarios that have supported the rallies in more speculative and small cap names will be splashed with cold water, and large caps will start to outperform the stock sectors that led the rallies off the March 2009 lows. 


  1. Having my COBRA healthcare expire, at 60 I had to find insurance here in CA. The Aetna Cartel denied me for a $5500 deductable, despite I only take 10mg medicine for slight high blood pressure. They clearly aren't insuring anyone over 50 unless you want a 30-60% "co-insurance conjob". Cost for that would have been $258/month! I payed into Medicare for 40 yrs. I managed to get approved on Kaiser for a $5K dedutable/$276/mo.! This article sums up how I feel about these crap-heads like Ryan.

  2. It is easier to obtain health insurance in Tennessee at more reasonable rates. I have coverage with BlueCross of Tennessee with a $5000 deductible. I contribute to a HSA every year, and have not been withdrawing anything from that health savings account since I incur no medical expenses.

    My plan does pay for a physical once a year and a flu shot without regard to the deductible.

    Still, even though I am in good health, my plan started to increase significantly on a yearly basis after I turned 55 even with no loss experience. Without looking, I believe that the premium increase has been over 10% and it is a major cost in my CPI.

    When I question middle class voters who regularly support the GOP, I have found that they are operating with a great deal of false information about what that party has done for them compared to the wealthy.

  3. You have some astute comments about Republicans. But you always give the folly of the Democrats a pass. I hoped to see some comment about Obama's Wednesday speech.

  4. I do frequently criticize the Democrat's mentality that inevitably falls under the rubric of throwing money at a problem. I was critical of the Obama stimulus program, not so much in the amount, but how the money was going to be spent. For the most part, it was typical of the modern Democrat mind set, relieve suffering temporarily without regard to the long term consequences. While there was not that many shovel ready projects, the nation does need to spend well over 700 billion on infrastructure projects. It would have been better to spend the money on those kind of projects that would be providing jobs and stimulus for years to come, rather than the kind of transfer payments that made up the bulk of what the Democrats' stimulus plan.

    The GOP is my target now, since they are the ones gaining power and their shortcomings are obvious and potentially dangerous. Ultimately, if I had to summarize their problem in a sentence, they are almost without exception unable and unwilling to search for or to consider any information inconsistent with their beliefs, which are held with the conviction of a religious zealot with a closed mind uninterested in nuisance. They learned nothing from the Great Depression or the recent Near Depression, or the role their beliefs played in creating the conditions for both as just one example. Their belief in tax cuts for the wealthy as a magic elixir for economic growth obscures the processing of information on the underlying reasons for economic stagnation and no wage growth adjusted for inflation, or any analysis of why the Bush policies failed so miserably even after the 2003 tax cuts. In short, unable to learn by experience, they will keep repeating the same mistakes over and over again forever.

    The GOP is more serious about cutting spending, but tax increases are also part of the solution and there is no give at all in that area from them, even though David Stockman and other thinking conservatives realize that a tax increase is part of the deficit solution.