Wednesday, July 20, 2011

Obama Praises 3.7 Trillion Dollar Bi-Partisan Plan to Cut the Deficit/EK Bonds/Google at $600/AA/KODAK 2013 Bond/KO/Bought 100 IGI at 20.7 in Roth IRA

Jeff Greenfield  wrote a column in The Washington Post, postulating that a third party would emerge in the U.S. and win the 2012 Presidential and congressional elections in the event of a U.S. default. I am inclined to agree that a third party will emerge, primarily at the expense of the GOP. 

I have sometimes mentioned that my core inflation rate is running close to 5% now, the "MeFlation" rate. Needless to say, the "owner equivalent rent" non-cash component to the Labor Department's CPI computation is irrelevant to my personal inflation rate. I fail to see the relevance of a computation that attempts to estimate what I would pay in rent for the house that I own without a mortgage. Zweig discusses the importance of the "MeFlation" in a 2010 article in the WSJ.  When planning for retirement, that is an important number to take into account, as explained in an article at   The  Morningstar. Over a thirty year time span, inflation can erode the value of one's savings in a major and expected way, particularly when one loses focus on the "MeFlation" rate and instead accepts the government's number as the appropriate number.      

There was an interesting historical tidbit in the NYT book review of "Railroaded: The Transcontinentals and the Making of Modern America", a new book written by Stanford history professor Richard White.  Collis Potter Huntington's private railway car hit a young woman, Johanna Grogan, in 1880.  Ms. Grogan worked for $2 a week in a nearby hotel and gave most of her earnings to her parents who were trying to support ten children. Bloomberg

At first, Huntington, a millionaire several times over, made a public offer to pay for the young woman's medical expenses. When she died after an amputation, Huntington was presented with a bill for $622 to cover Johanna's medical bills and burial expenses. He refused to pay it, asking how would he protect himself from "swindle" as long as he showed "substantial sympathy". It is always upsetting to the TBs to actually disclose the sordid history of railroad barons buying politicians by the boatload, a well documented fact from their era, along with their refusals to adopt the most basic safety precautions in the pursuit of profit. Any accurate historical account is anathema to the TB who much prefer creating their own reality. An advocate for responsible capitalism is equivalent to being anti-capitalist to them.

Joe Nocera argues in his NYT column that Rupert Murdoch has "Fox-ified" the Wall Street Journal. While the WSJ editorial page, which I do read, has always been skewed to the far right, I have noticed that extremism gradually creeping into the main body of the newspaper when the article discusses politics. (see:War at the Wall Street Journal: Inside the Struggle To Control an American Business Empire"  by Sarah Ellison) I noticed that the overall quality of the journalism started to decline before Murdoch acquired the paper. And, as one would expect, the quality declined more after Murdoch gained control, though those standards are still way higher than the "fair and balanced" network. As shown by recent events involving phone hacking, the "conservatism" of Murdoch's minions does not include respecting laws governing privacy, which I thought was one of those pesky Real Conservative values. 

Obama praised a 3.7 trillion dollar plan hatched by conservative and liberal senators to reduce the deficit. MSNBC NYT This is a link to the plan: The Gang of Six's plan  This does appear to be the first bipartisan plan.  Default on the debt is clearly a catastrophic option entertained only by reckless and stupid people. I am generally in favor of a plan that would include revenue increases from closing loopholes, as well as significant spending reductions. Apparently, this plan has both, and at least has some balance to it.

The GOP House members are totally lacking any balance whatsoever. They are totally out of balance type of people. It would be fair to say that Eric Cantor, the Speaker of the House, is a both a zealot and a reactionary who takes his orders from Grover Norquist. I heard the statement about identifying Cantor's boss from a former Reagan official last night.  Cantor has already thrown cold water on the bipartisan deal hammered out among the senators.

Perhaps Cantor could listen some to Ronald Reagan rather than to the zealots and Know Nothings. The debt ceiling was raised 18 times under Reagan, Factcheck.  This is a link to an audio address given by Reagan in 1987 on the importance of raising the debt ceiling: YouTube Those remarks by Reagan are quoted in Dana Milbank's column in  The Washington Post.  Those comments by Reagan are far too mature for the GOP mob in the House, who seem to lose their spendthrift ways when voting for earmarks impacting their own districts. NYT

David Brooks, a republican, has some perceptive comments about the GOP and their incompetence in failing to seize a compromise offered to them by Obama.  NYT  The article is particularly perceptive on why they are so incompetent.

One of the few politicians to make any sense to me on this debate was Senator Conrad (D-ND) in his interview on MSNBC last night. He was one of the Gang of Six that produced the bipartisan plan.

A recent poll showed that 71% of the American people disapprove of the way the GOP has handled these negotiations. CBS News The remaining ones are no doubt TBs and assorted Know Nothing zealots who do not even realize that the House GOP members are trying to screw them.

The stock market took off when Obama spoke about the bipartisan plan yesterday. It clear that Obama is willing to compromise, which includes entitlement cuts, but is understandably unwilling to throw the poor and the middle class to the wolves which is the extreme reactionary position of House GOP members, presented to the Democrats on a take it or leave it basis.

I will discuss the extremist GOP House plan tomorrow, which attempts to impose virtually the entire burden on the poor and middle class without even making an effort to close tax loopholes to raise revenues. According to the zealots, revenues can not be raised by a single dollar even by closing an abusive tax loophole. I have thoroughly discussed already how the Ryan budget plan, approved by 235 House GOP members, gives the middle class the shaft on Medicare. GOP's Plan To Bankrupt the Middle Class;  See also: Kaiser Health News, Ryan_Letter.pdfCBO ReportPolitiFact and

1. Alcoa (own): A Credit Suisse research report summarized in Barrons, claims that AA shares are undervalued, based on that firms assessment that aluminum prices are sustainable at current levels. The firm reiterated its outperform rating. Based on the firm's downgrade of AA's E.P.S. estimates for 2011-2013, I do not believe that outperform rating is justified, assuming the investor accepts the CS forecast.  AA is a cyclical company and the new forecast calls for an E.P.S. of $1.7 in 2013, up from $1.40 in 2012. At over $15 per share, the P/E is close to 11 times earnings, which would be cheap for a consumer staple, whose earnings are steady and reliable. An 11 P/E for a cyclical company, a couple of years into an up cycle, is more of a reasonable valuation, or within the zone of reasonableness, suggesting there is not that much upside over the next year unless those estimates prove to be too conservative. Part of the problem is the increasing input costs that are slowing earnings growth. 

2. Sold 5 shares of Google at $600 Last Monday (see Disclaimer): I had previously pared my stock allocation based on the economic slowdown and the increasing possibility of another recession. LB is In a Slow Mo Trading Mode While Preserving Recently Raised Cash Stash (see video interview with Robert Shiller). Last week the NY FED reported that is manufacturing index remained below zero for July: Empire State Manufacturing Survey 

The OG is moving toward a safety net of income paying securities and a large cash allocation.  When the OG enters this capital preservation mode, no position is safe from disposition. RB howled in protest of this sale, noting that it would not have sold the shares for less than a $1,000.  The OG pointed out that Headknocker still owns a lot of stocks. "None that the RB wants", a voice was heard in reply.  Given the significant pare of the stock allocation during the Spring, I am already comfortable with the level of my reduced exposure and find it increasingly difficult to find anything else to sell.  

Google closed yesterday at $602.55, up $7.61 for the day.

3. KODAK (own Two 2013 senior bond only): The price of this bond has fallen steadily since the ITC rendered an inconclusive decision on EK's patent infringement case against Apple and RIMM.  ITC Decision on EK Patent Litigation A WSJ article  highlights this recent decline and Wall Street's growing concerns about Kodak's ability to survive.  The current rating on the 2013 bond is Caa2 by Moody's and CC by S & P.  FINRA The bond has continued to slide, falling close to 10% in value since the ITC decision. EK is losing money and burning cash.

RB Bought 1 Eastman Kodak Bond Maturing 2013 Junk Bond Ladder Strategy

4. Coca Cola (own)(Common Stock Dividend Growth): Excluding items, KO reported 2nd quarter earnings of $1.17 per share based on 5% worldwide volume growth excluding recently acquired cross-licensed brands, primarily Dr. Pepper. This was one cent better than expectations. North American volume was even in the quarter excluding those new cross licensed brands.  KO estimates that the earthquake and tsunami in Japan will reduce full year results by 3 to 5 cents per share.

I have quit reinvesting the dividend to buy additional shares based on the current price.  After selling some shares to book profits (from the 2009 lot), I currently have an average cost per share of $50.83:

132.998 Shares of KO Unrealized Gain= $2,459.41 As of 7/20/2011

I discuss the reasons why KO falls under my dividend growth strategy in several posts:  Item # 1 Barrons Recommendations and My Trades; Item # 2 KO. I still own some shares bought at 38.72 (March 2009). The remaining shares were bought with reinvested dividends, and open markets purchases: ADDED 50 KO AT 54.26 (April 2010); Bought 50 KO at 53.77 (April 2010).

Coca-Cola rose $2.2 a share yesterday, closing at $69.32.

5. Bought Back 100 of IGI at 20.7 in ROTH IRA (Coping with the Federal Reserve's Jihad Against Savers Strategy)  (see Disclaimer): IGI is a closed end investment grade bond fund that I have bought and sold many times. I would refer anyone interested in it to those posts. Added 100 IGI at 19.65 (MARCH 2011); Added 100 of the CEF IGI at 19.78 (February 2010); Bought 100 CEF IGI at $19.89 in IRA (February 2010); Sold 100 IGI at 21.26 In IRASold:100 IGI @ 20.75 (November 2010); Sold 100 IGI @ 20.76 (May 2011). I noted in that last post that my trading profits in this CEF totaled $328.8, plus dividends. I am content with making anything on the shares.

Briefly, I would just mention that this fund pays monthly dividends at the current rate of 10.45 cents per share (Distributions) and has a term date for liquidation in 2024. It is ex dividend today, and yields close to 6% at a total cost of $20.7. As discussed in the foregoing posts, the term date provides some interest rate protection that would not be present in a bond fund, with similar securities, that has not made a commitment to return investor's money at a date certain. The managers of a term date fund also have to keep in mind that all bonds will have to be sold by a date certain, so many of the bonds owned by the fund will mature before that liquidation date.

Sponsor's web site:  IGI Details
Sponsor's List of Holdings:  IGI Holdings as of 5/31/2011
Last SEC Filed Shareholder Report:
Link to Morningstar page: Unrated
IGI Page at the  Closed-End Fund Association

Western Asset Investment Grade Defined Opportunity Trust closed at $20.71 in trading yesterday, down 35 cents (more than the dividend). I normally do not buy the dividend. I do not view buying a dividend to include buying a security the day before the ex dividend date when the decline in the share price is greater than the dividend.  So, even though IGI is ex dividend today, I do not view my purchase yesterday as buying the dividend given he decline in price being 36 cents at the time of my purchase and the dividend being 10.45 cents. IGI was probably selling at a small discount to its net asset value yesterday.

IGI is discussed in this recent article published at Seeking Alpha.

IGI closed yesterday with a net asset value per share of $21.46. Based on the closing price of $20.71, the discount to net asset was at - 3.49%. The stock is ex dividend for its monthly distribution today.

At least in the ROTH IRA, the dividends are tax free and so the yield is close to 6% tax free when this security is bought in that account.

I made several other trades on Tuesday that I will discuss in the next post.


  1. Nice trade on GOOG ! If it was me, I'd be counting my blessings.

  2. GOV- offering priced @ 25.40- if it plunges to near 24.27 support, worth looking at, that would be 6.5% yield or more...@ 25.25 now.
    They bought UN building recently cheap 100% leased.

  3. SBRA- offering -near $15 now. With add-on, it's over 10 mil shares.

  4. re: SBRA, money flow came in @$15.18, fyi, and seems to fall @ 15.25 just on hourly chart, I would deduce(guess!)the offering priced @ 15.25 based on this crude analysis of trying to see where 10K share buys coming in and fading.(my .02)
    15.18 looks safe for over 8% yield, not sure the dilution.

  5. Bought back HBC-A, it has good rel strength, their cap ratio is best of bunch, worth a look near $24, $23 is better but got 1/2 position 24.18, will wait for more.
    Anything under $24 is good, imo.
    Taking a stab(falling stab?) on SBRA 15.20.

  6. I am not familiar with Sabra Healthcare REIT. I will take a look at it.

    As a class of securities, I would agree with Rob Arnott that they are not good values now. So, I will not buy an a REIT CEF or ETF now, but I will consider buying individual issues. I am considerably underweight REITs now. I have the following common stock positions that are immaterial in their totality: 130 share position in CWH, 100 shares of BDN and 50 shares of DRE. I also have some minor positions in REIT preferred stocks such as GRTPRF acquired at $2.9 during the Dark Period, and two SHO preferred issues that were recently acquired.

    I will reference an interview with Arnott that is worth reading in tomorrow's post. It can be found at Morningstar.