Tuesday, December 6, 2011

Added 50 of the Stock CEF ADX at $9.77/Gingrich and President James Garfield

The decline in the market yesterday, occurring around noon, was caused by reports that S & P was going to put Germany and five other "AAA" rated European nations on negative credit watch. CNBC  WSJ  Reuters Bloomberg In addition to Germany, that list includes France, the Netherlands, Austria, Finland and Luxembourg.  After the close yesterday, S & P put 15 European nations on credit watch. This signals that there is a 50% chance of downgrades occurring within 90 days. WSJ The S & P missive is reproduced in this Barrons blog. At least this action will keep the pressure on the EU leaders to effectively deal with their problems.

This kind of news was sufficient for me to buy a triple short stock ETF near the close as a hedge for the remainder of this week. I am not likely to keep that kind of hedge for very long. Since I am comfortably in the profit territory this year on my hedges, I am willing to take a loss in exchange for the pacifier effect those securities sometimes have on the OG.

Newt Gingrich, the current leader among GOP aspirants for the Presidency, believes that child labor laws are "truly stupid". CNN  He also made the following statement: "Really poor children in really poor neighborhoods have no habits of working and have nobody around them who works".

Gingrich says that Bachmann is "factually challenged", (The Hill's Blog) an obvious point, but what about Newt's professorial declarations from Mount Olympus?  Gingrich is Michelle's equal in the factually challenged department.  One of his latest whoppers was an assertion that people could use food stamps to travel to Hawaii, PolitiFact.  The factcheck organization PolitiFact has rated five factual statements made by Gingrich with its ignominious "Pants on Fire" classification.  Possibly Newt is less factually challenged than Michelle but it would be a close call.

FactCheck.org recently published an article challenging the veracity of Newt's claim, made in a Fox News interview on 12/3/11, that he never supported "cap and trade" legislation.

Maureen Dowd wrote another column exploring Newt's hypocrisy. NYT Senator Coburn, the Republican senator from Oklahoma, said that he was not inclined to support Gingrich. Coburn added that there are leaders "that instill confidence, leaders that are somewhat abrupt and brisk. Leaders that have one standard for the people that they're leading and a different standard for themselves."

I have been reading a book about the republican President James A. Garfield, whose was murdered shortly after his term began. If Garfield was running among the current crop of GOP hopefuls, he would be clearly head and shoulders above all of them, though the TBs would not be capable of recognizing it. The book was written by Candice Millard and titled Destiny of the Republic: A Tale of Madness, Medicine and the Murder of a President.  A book review can be found at the NYT.

While Garfield was shot, he was really not murdered by the assassin but by his doctors.

Frequently, in this blog, I refer to True Believers as a term describing those who are incapable of learning with their ossified brains. Their beliefs are so immutable that no amount of factual evidence can change their opinion. Reliable factual evidence, inconsistent with those beliefs, is ignored or dismissed, and a considerable amount of effort is made to avoid any information source likely to provide such information. While most members of one political tribe fit neatly within this classification, without rational dispute, there is no single belief system common to all TBs but only a similarity in the mental processes for evaluating information and forming opinions. Paul Krugman has a handle on the TBs running for the GOP presidential nomination, and even used the phrase "true believer" in his column yesterday.  NYT

Garfield's doctors were acquainted with the scientific findings of Joseph Lister, the pioneer of antiseptic surgery, who had proven that sterilizing surgical instruments and other sterilization techniques reduced complications and deaths among patients. As noted by Millard in her book, American doctors were presented with that proof and chose to reject it, in a manner consistent with how TBs normally reject reliable evidence inconsistent with their pre-existing beliefs. In short, Garfield was murdered by a group of TBs, and only one of them, a deranged TB, pulled the trigger.

After Garfield was shot, there was no sterilization of surgical instruments. Instead, a doctor stuck his hand inside the President's body searching for the bullet. Without question, Garfield's attending physicians first tortured him and then killed him with their incompetence. Today, a person with a similar gunshot wound would have most likely been released in a couple of days from the hospital. (NYT on Garfield medical treatment)

1. Added 50 Adams Express (ADX) at $9.77 Last Week (see disclaimer): I will periodically add to my ADX position when the spirit moves me and the discount to net asset exceeds 15%. This brings me up 709+ shares. I am reinvesting the dividend. I also waited until the year end distribution went ex dividend. I will sometimes "buy the dividend" but only when the share price falls by an amount greater than the dividend a day or two before the ex dividend date, and the price is within my buy target range. A recent example of those coincident events was the 50 share purchase of FFBC at $14.87

The 2011 ADX year end distribution was 50 cents per share, of which 42 cents was a long term capital gain distribution. The Adams Express Company Meets 6% Annual Distribution Commitment The ex dividend date for that distribution was 11/17/11 and it will be paid to me in stock on 12/27/11. 

This CEF invests mostly in large capitalization stocks, usually what I would characterize as a value investing approach. Occasionally, I have been critical of some decisions made by the portfolio manager. For example, the fund at one time had a large unrealized capital gain in AIG. When it became apparent that AIG was in trouble in 2008, the fund continued to hold onto the shares far longer than I viewed as defensible.  

Last Friday, the fund closed at a -15.46 discount to its then net asset value per share of $11.45. The dividends subtract from NAV, just like dividends paid by mutual funds.  

For those unfamiliar with this fund, it was started before the 1929 stock market crash along with a number of other closed end funds. About Adams Express Many of the stock CEFs back then used leverage and did not survive the crash. (see paper by Harvard Professor on CEFs before the 1929 Crash at bubble_1929.pdf) Buying stocks with borrowed money at prices prevailing in the late 1920s, was not a good idea. ADX, General American Investors (GAM), Petroleum and Resources (PEO), Central Securities (CET) and Tri-Continental (TY) were the only stock CEFs that survived the Great Depression and are currently available for purchase. TheStreet

Fund webpage: Adams Express Company 

This is a link to the last filed SEC FORM N-Q for the period ending 9/30/11. 

This is a link to the shareholder report for the Q/E 9/2011: ADAMS EXPRESS COMPANY - FORM N-30B - SEPTEMBER 30, 2011

This is a link to the shareholder report for the Q/E 6/2011:   ADAMS EXPRESS COMPANY - FORM N-CSRS - JUNE 30, 2011

The largest holding has been and will likely continue to be the CEF Petroleum and Resources (PEO). ADX and PEO share office space and employees:

ADX Ten Largest Holdings as of 9/30/11

ADX page at the  Closed-End Fund Association.

Morningstar has a three star rating on the fund. As noted in the Morningstar report available to subscribers, ADX has never supported a dividend with a return of capital and has paid dividends every year since 1934.

Adams Express closed at $9.76 yesterday.  The closing net asset value per share from 12/5/11 was $11.59, creating a discount to net asset value at that time of -15.96.

In addition to the triple short stock ETF purchase yesterday, I sold my last leveraged municipal bond CEF which I will briefly mention in the next post. 

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