Wednesday, November 2, 2011

Sold: 1 Cincinnati Bell Senior Maturing 2020 at 102.25 & 1 Quicksilver Senior Maturing in 2016 at 98.5

I have maintained that the Greeks would not put up with any austerity for more than a year. The P.M.'s decision to hold a referendum in Greece indicates to me a lack of support for the "austerity" measures among both politicians and the Greek people. The Greek government said late yesterday that the referendum was still on, notwithstanding reports earlier in the day that it was dead in the water. CNBC  The P.M. still has to convince the parliament to go for it, and his majority is at best razor thin now.

Even if the Greece Parliament refuses to approve a referendum, it really does not matter in the long term. At most, the European banks and governments have bought themselves a few months by propping up the Greeks with their latest bailout scheme.

Hopefully, financial institutions around the world have learned some easily understood lessons from what has happened over the past several years. I seriously doubt that the doofuses who run most of those institutions are capable of learning anything from history. If anything is learned, the lesson in their memory bank will vanish after a few years of good times. How long did it take John Corzine to sink M F Global with a leveraged bet on European sovereign debt?  And, when the SEC allowed investment banks to increase their leverage in a 2004 rule change, how long did it take for the Masters of Disaster to blow up their firms?  2004 SEC Rule Change (Dec. 2008 Post)

The simple lesson, which would be obvious to any sensible person with a modicum of common sense, is that money should not be lent to some people or governments in any meaningful sums- AS IN NEVER. These borrowers are not difficult to spot. Their promise to pay back a loan is meaningless to them. The lender is a schmuck for giving the borrower money. Generally, those borrowers are irresponsible and will go through life with an innate inability to live within their means, but feel that they are entitled to live in a manner exceeding their incomes and future prospects. Lying and fraud will be second nature to many of them.

Millions of individuals received loans in the U.S. during the housing bubble based on false financial information and no realistic way to service the loan over an extended period. But it is not their fault that they bought a home that they could not afford, given to them on the basis of knowingly false financial information. Someone else is always responsible for the consequences of that individual's decision, a freedom from responsibility frequently coddled and encouraged by Democrats.

The financial institutions just gave a wink in the eye, since ultimately those loans would be sold and repackaged in satanic creations, and then sold to brain dead investors around the world who actually relied on the ratings without doing any thinking or paying any attention to readily accessible information. Profit was to be made by everyone in the financial chain, as long as the mill was kept running, and some other schmuck would end up paying the piper after buying the worthless crap turned out by the Masters of Disaster.  

The Greek government and people should not be lent money by any financial institution located outside Greece-As in Never. It is not questioned by anyone that the Greeks have lied to the EU about their true financial condition since applying for membership in the EU. Now, they are mad and unhappy about having to spend less of other people's money and to actually being asked to pay their tax obligations. Liberals call that austerity. The Greeks wanted the benefits of EU membership without even coming close to adhering to obligations of that membership, and that mental condition of entitlement is not to going to change.  The entitlement mind set is firmly engrained into millions of people in developed markets, but it is appears to be a national pastime in places like Greece. {The Greek Patronage State Greece-Entitlement Society Run Amok Greece-Citizens in Aggressive Denial, see also Michael Lewis article in Vanity Fair}

The WSJ published a story earlier this week about the Nabors Industries giving its Chairman $100 million in cash.  That amount exceeded Nabors third quarter income. Apparently, Nabors is making that payment because this individual is giving up one of his two titles.

The WSJ has a table detailing the compensation of the highest paid corporate executives for the 2000 decade.  Richard Fuld (Lehman Brothers) and Angelo Mazilo (Countrywide)  were among those richly compensated "Value Creators".  It is impossible for to avoid sarcasm when I view how much some of these people were paid for failure.

In many cases, the shareholders lost money while the CEO's made off with a bundle. Most of the CEOs listed in this table are not founders of the company but merely hired hands who are richly rewarded by the Board of Directors.

1. My Inflation Number is Running Really Hot: I received notice from BlueCross BlueShield of Tennessee that my health insurance premium was going up by 23.5% on 12/1/11.  I have a major medical policy with a $5,000 deductible.  I have never been in the hospital as a patient, never had any surgery, do not drink or smoke, and do not now have and have never had any condition requiring medical treatment. In short, RB added for good measure that the Old Geezer is one fine physical specimen for someone of such an advanced age.

The government's inflation number has no relevance to my inflation rate. The owners equivalent rent computation which has restrained the CPI numbers recently, is totally irrelevant to my expenditures and consequently a bogus number. I own my own home, without a mortgage, and have no intention of renting my own home or any other property. When the non-cash owner's equivalent rent is excluded from CPI, the cash inflation rate over the past year rises to 4.6% over the past year, rather than the 3.9% number reported by the government. PDF 

My cash inflation rate is running really hot, probably closer to 8% when money market yields are at zero due to the Fed's Jihad against the Saving Class.  Insurance costs are far more significant in my cost structure than in the government's numbers, and that would be true for most older folks who are not big spenders. Those insurance costs include several types of policies. The aforementioned health insurance premium is very significant, but costs are also rising for automobile (no accidents or tickets-super safe driver),  home (never had a claim) and umbrella insurance (never had a claim).  Another important item for me would be energy costs, both power and gasoline.

2. Sold 1 Cincinnati Bell 8.375% Senior Note Maturing in 2020 at 102.25 Last Friday (Junk Bond Ladder Strategy(see Disclaimer): This bond was bought at 96.8. Bought 1 Cincinnati Bell Senior Bond Maturing in 2020 at 96.8 (December 2010 Post). I have been selling some junk bonds bought near par value on pops above par value. I still own 3 of the Cincinnati Bell senior subordinated bonds maturing in 2018. 
3. Sold 1 Quicksilver 7.125% Senior Note Maturing in 2016 at 98.5 Last Friday (Junk Bond Ladder Strategy)(see Disclaimer): I did not see much appreciation potential in this bond.  It also has one of the lowest coupons among bonds owned as part of this strategy. So I sold it.

I am going to wait to reinvest the proceeds from these recent bond sales until I have a chance to review a few quarterly earnings reports.  I am looking at a few private firms that I have yet to release their results.

I am not likely to do much for the remainder of this year, unless I am afforded better opportunities to buy. I do not view the substantial decline over the past two days as providing that opportunity.  I am already sitting on a too much cash earning nothing, and have little desire to raise more of it.  While I used the rally in October to lighten up further, refusing to buy into the proposition that all was well with the world, I was surprised about how quickly the European situation has taken a turn for the worse.  I am fed up with the Greeks. I can only imagine how the Germans feel about them. 

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