Tuesday, August 21, 2012

Sold 400 ACG at $8.44/ADDED 200 of the Canadian ETF CLF:CA at 19.87 CADs/UBCP/ADDED 2 Sears Holding Senior Secured 6.625% Bonds Maturing 10/15/2018 at $89.75

USATODAY has published a number of stories about the excessively generous salaries and benefits paid to many federal government employees. When private employers were laying off employees during the Near Depression period, USATODAY published a story pointing out that federal government employees making more than a $100,000 per year jumped from 14% to 19% of the government's workforce during the first 18 months of the recession. Think about that one for a few seconds.

In just the transportation department, there was just one person making more than $170,000 at the start of the Great Recession and then another 1,690 persons were added to that rarefied level 18 months later. The average federal employee was paid $71,206, compared to $40,231 in the private sector according to this report.

Back in the day, when the OG was a much younger OG, government employees were paid less than those working in the private sector, and part of the appeal was the generous post-retirement benefits. Now, the government pays more and provides better post-retirement benefits than the private sector.

Ridiculous is the only appropriate characterization. On this issue, I agree with the republicans. 

Last week, USATODAY published a story pointing out that 21,000 federal employees have pensions that currently pay them more than a $100,000 per year.

FactCheck.org calls an ad approved by Obama as "badly misleading" that accuses Romney of personally approving a tax "avoidance" scheme and for suggesting that Romney may have paid zero to 10% in taxes. The ad is referring to the "Son of Boss" tax avoidance scheme used by Marriott and other corporations.

After reading some material on the "Son of BOSS" tax scheme, I would have to disagree with FactCheck on just the "Son of Boss" issue. Romney sat on Marriott's Board of Directors and Chairman of its audit committee which approved the fictitious losses exceeding $70M as part of the Son of Boss tax scheme. An account of this history can be found in articles published by Bloomberg and CNN.  This is a link to the decision by the Court of Claims affirming a summary judgment for the government against Marriott. Marriott International Resorts, L.P. v. United States It would have been better for Obama to spell it out better, by simply stating that Romney approved of Marriott's use of an abusive tax shelter but did not himself develop this scam which originated from "tax professionals". KPMG to Pay $456 Million for Criminal Violations ABC News

Does Romney deny that he approved using the Son of Boss tax fraud scheme when he was a member of Marriott's Board and/or Chairman of its audit committee?  If so, he can plainly make that statement, yes or no, rather than dancing around it.

The thrust of the commercial, however, is to suggest, without any proof, that Romney may have used abusive tax shelters himself to skirt his personal tax obligations. In that respect, I would agree with FactCheck's criticism. There is an insinuation in the commercial that Romney will not release his tax returns prior to 2010 because he may have used the same or similar tax schemes. That insinuation  leaves the viewer asking "is that why Romney want release his returns". I would agree that there is no proof supporting that implication.

A more important issue, which I will soon discuss, is how the wealthy are able to pay a tax rate similar to a factory worker, even by using entirely legal means, and whether the end run around a progressive tax structure is in the nation's best interest. We do know that Romney's tax rate on over $45 million in income for 2010-11 is less than 15%, close to the tax rate for a married couple with a net income of $40,000.  That is a relevant issue for Americans to decide this November.


The GOP House Republican Todd Akin, who is running for the U.S. Senate seat in Missouri, told an interviewer that "legitimate rape" rarely results in pregnancy. In his view, it would be rare that a rape would result in pregnancy since a woman's body knows how to deal with it. This is a common view among abortion opponents, whose sole source of support is an article written by a general practitioner John Wilkes and published by an anti-abortion Christian group in 1999.

 If there was a pregnancy after a rape, then he would not be in favor of "attacking the child" with an abortion.  CNN.com

Akin is basically stating a position by abortion opponents that women will falsely claim rape in order to take advantage of the rape exception. Ryan opposes that exception. Akin just did not state the matter in accordance with standard GOP obfuscation and decorum. Now, the GOP is worried that he will lose to the Democrat incumbent which is the real reason why he is now being pressured to quit.

Akin believes that the "heart of liberalism really is a hatred for God and a belief that government should replace God". Liberals in his view want to separate us from God, who is the source of our "individual liberties" and consequently those evil liberals want to "tear the heart out of our country". Todd Akin - Wikipedia

Does Mr. Akin sound like a True Believer, someone who will always be incapable of forming opinions based on a careful assimilation of reliable information and then exercising good judgment with an open mind?

Akin is in no sense a conservative but one of legions of pretend conservatives currently infesting the GOP. Perhaps he would be in favor of burning those nasty liberals at the stake, a tried and true method of freeing evil spirits from the non-believers.

After a night of drinking and partying, a group of GOP lawmakers and their staff jumped into Israel's Sea of Galilee to be closer to God.  NBC Politics One GOP Congressman, Kevin Yoder from Kansas, felt it was necessary to shed all of his clothes. Other GOP lawmakers felt that it was only necessary to partially disrobe before embarking on this communion. It was reported that, unlike Jesus, the GOP lawmakers did not walk on water.

The GOP is currently attempting to repeat its 2004 successful Swift Boat styled attack ads. Those ads were funded by the usual list of large GOP donors and were rated as untrue by independent fact checkers. FactCheck.org  The new campaign is being funded by a newly formed group called the "Special Operations OPSEC Education Fund" that disclaims any party affiliation and professes only to have  a desire to educate the public. The organization refuses to list its donors. According to the head of this new organization, it is irrelevant that this new organization shares offices with two GOP consulting firms in Alexandria, Virginia, and its spokesman worked for the Bush Administration. The group is non-partisan and independent because they say so, just like that Swift Boat organization funded by T. Boone Pickens, JrHarold SimmonsAubrey McClendonSam Fox, Robert Lindner, and of course Bob J. Perry; the usual cast of characters whose interest is solely to bring the voters facts. The new swiftboating group charges Obama with leaking sensitive information about the Bin Laden raid, but refuses to provide any information supporting that claim. CNNGuardian (UK)Swift Vets and POWs for Truth - Wikipedia,

To the "loud and enthusiastic" cheers of an appreciative Iowa crowd, Hank Williams Jr. called Obama a "Muslim President who hates farming, hates the military, hates the U.S. and we hate him". NBC NewsMetromix Des Moines That was relatively mild for this TB compared to his earlier remark comparing the President to Hitler.  


Over the weekend, I heard several voters express a favorable view of Paul Ryan because he at least had a plan, which is just another reality creation. His "plan" is to cut taxes for the wealthy and corporations by $4.1 trillion dollars and to cut spending by $1.7 trillion. An Unserious Man Is that a plan?

Those cuts come mostly from Medicaid, Medicare, food stamps and other programs for the poor and middle class. He will not provide further specifics in his budget. He claims that eliminating deductions will offset that $4.1 trillion in revenue cuts, but refuses to specify which deductions would be eliminated by the GOP. It is impossible to come anywhere close to that number unless there is a wholesale slashing of middle class entitlements such as the home interest deduction, earned income and child tax credits, and the exclusion from income of employer provided health care. I previously discussed this issue in Romney's Tax Plan and more information can be found at FactCheck.org

PolitiFact gave a "Pants on Fire" rating to an attack ad sponsored by the National Republican Congressional Committee that claimed Democrats supported a plan to gut Medicare in order to pay for a "big government healthcare takeover". There are many self-styled "conservative" organizations who do not believe that telling the truth is a conservative value.


It was not surprising to read that United Bancorp cut its quarterly dividend to 7 cents from 14 cents. I have mentioned that possibility in several posts since the payout ratio was close to 100%.  I recently pared 50 shares and will continue to hold 100 shares plus the reinvested dividends. Sold 50 UBCP at $10.05 On the day of this announcement (8/16), the stock fell 12.73% to close at $8.23 on 55,592 shares. The average daily volume was just over 4000. The market cap at the closing price last Thursday was reduced to just over $35M. UBCP is a very small bank with twenty branches located in Ohio. The operating banks are known as "The Citizens Bank" and "The Community Bank", Martins Ferry | The Citizens Bank | The Community Bank2011 Annaul Report. I am not going to complain about the CEO James Everson failing to take a pay cut since he has a significant ownership stake in bank and will suffer along with the other shareholders. UBCP Major Holders His annual salary is shown at $284,000 at UBCP Profile.  I may buy back those 50 shares at below $6.5.

First Trust/Aberdeen Global Opportunity Income Fund (own) declared its regular monthly distribution of 13 cents per share.

The solar market has been in the dumps for a long time. Proof is shown in the Guggenheim Solar ETF Fund Chart. After undergoing an ignominious 1 for 10 reverse stock split last February, the adjusted price high, shortly after launch in February 2008 was $278 and the ETF is now trading below $18. Have the solar stocks hit bottom yet? No one really knows. The author of this article Solar Stocks Have Caught Fire. Will It Last?, published by Motley Fool, argues that it will last. I read the article since I have a LT position in PWER. Bought 50 PWER at $4.66-LT Category That is my sole ownership stake in this sector.

1.  Added 2 Sears Senior Secured 6.625% Bonds Maturing 10/15/2018 at $89.75 Last Thursday-Main Taxable Account (Junk Bond Ladder Strategy)(see Disclaimer): A few days ago, I discussed this bond and have nothing to much to add. Item # 1 Sears Senior Secured 2018 Note

I would note that the upcoming rights offering for the Sears Hometown Stores is now expected to generate $446.4M of gross proceeds for Sears Holdings. When Sears originally announced this proposal, it was stated then that Sears would expect to receive $400 to $500 Million. Sears Holdings Provides Update On Status Of Separation Of Its Sears Hometown And Outlet Businesses - Apr 30, 2012

FINRA Investor Information on this bond

Prospectus: Final Prospectus

Last Friday, S & P revised the outlook to stable from negative. TEXT-S&P S & P has a recovery rating of 1 on the 2018 Senior Secured bond. The denotes an estimated 90% to 100% recovery in the event of a default.

I now own 3 of these bonds in the main taxable account and one in the ROTH IRA. That is my limit.

Bought 1 Sears Holding 6.625% Senior Secured Bond Maturing 10/15/2018 at 83.25 (September 2011)

Bought 1 Sears Holding 6.625% Senior Secured Bond Maturing 2018 at 90.50-Roth IRA (May 2012)

I have at times considered selling the 1 bond purchased at $83.25, but have never noticed a buyer willing to accept just one. I have seen buyers willing to accept two or three. With 3 bonds in that account, I have acquired more liquidity in case I desire to sell all of the bonds. I had no liquidity with one bond.

Now that my 3 bond position is more liquid, one reason for adding two more, I may elect to sell those three bonds when and if the price rises into the 92-95 range. I would be leaning strongly toward selling at above 95.

For the two bonds bought on 8/16/12, my confirmation states that the current yield is 7.348% and the YTM is shown at 8.725%. The bond is currently rated a B2 by Moody's and B by S & P.

Sears reported its earnings on the day of this last bond purchase.

For its second fiscal quarter, Sears Holdings reported an adjusted  loss of 86 cents per share, down from ($1.18) in the year ago quarter, on $9.467B in revenues. Domestic inventories declined by $512M to $7.9B "driven by both improved productivity and store closures". Total debt decreased to $3.3B as of 7/28/12 from $3.5B on 1/28/12. The Sears Hometown and Outlet Store transaction, a rights offering, is "on track to raise $446.5M of gross proceeds" in the third quarter. The "margin rate increased 100 basis points and selling and administrative expenses declined".  

As of 7/28/12, the company had cash balances of $406 for its domestic operations at the end of the quarter. During the first half of 2012, Sears used $231M to reduce debt, another $164M for post-retirement benefits and $161M for capital expenditures and other working capital needs. Those cash uses were partially offset by a cash inflow from the sales of properties. Sears had $1.6B available under its domestic credit facility. 

Previously, Sears estimated that its minimum pension contribution for fiscal 2013 would be between $380M to $430M, down from a prior estimate of $740M, due to a recent change in the law.   

Comparable store sales for U.S. Sears stores declined by 2.9%. K Mart same store sales declined by 4.7%.

I viewed it as material that Sears first lien borrowings were $941 million as of 7/28/12. That is the amount borrowed under Sears secured credit facility. The 2018 senior secured is in effect a second lien bond that would attach to inventory and credit card receivables in excess of the first lien: Form 10-Q at pages 7-8.

Description of 2018 Senior Secured Notes at page 7

Common shares:  Sears Holdings (SHLD)

2. Added 200 CLF:CA at 19.87 CADs last Thursday (Canadian Dollar Strategy)(see Disclaimer): As previously noted, I have a stash of Canadian Dollars bought when the USD was stronger against the CAD than now. I use that stash to buy securities on the Toronto Stock Exchange.

I am purchasing dividend paying securities. I receive those dividends in Canadian dollars after the 15% withholding tax. With those dividends, and capital gains received occasionally after selling a position, I increase my Canadian dollar stash, thereby enabling me to buy more securities that pay dividends in Canadian dollars. The purpose of this strategy is multifold as explained in Canadian Dollar (CAD) Strategy.

Part of the reason is diversify holdings beyond assets priced in the USD. I have more faith in the Canadian and Australian governments to behave responsibility than my own.

I would not anticipate that the U.S. government will be able to solve its looming budget crisis due mostly to an uniformed electorate who have grown use to receiving benefits without paying for them   and a dysfunctional political system. The two political tribes are becoming increasing rancorous and dysfunctional, where politicians from both political tribes play fast and loose with the facts, actively engage in deception, and are more interested in achieving and maintaining power over any other consideration. In short a fair and responsible approach to solving this problem appears to be out of the question.

I am very negative on the USD and U.S. government bonds long term. At the moment, U.S. government bonds are the beneficiary of the turmoil in Europe and a U.S. Federal Reserve's policy to create money in order to buy that debt. While much handwringing is focused now on Europe, the EU is actually making progress toward fiscal sanity, while the U.S. government still has the peddle to the metal. Please spar me the idiotic and delusional reality creation common among GOP tribe members that the BUSH tax cuts for the wealthy paid for themselves rather than being a primary cause of the current budget deficits along with the recent Near Depression. McConnell: 'No evidence whatsoever that the Bush tax cuts actually diminished revenue' It is impossible for anyone to reach a reasonable compromise with the Modern Day GOP that would involve raising revenue and cutting spending. And those spending cuts would have to be limited to social programs benefiting the poor and the middle class to secure GOP support.

When perceptions change about the safety of the USD, which will happen as the government continues to run up annual deficits of over a trillion dollars per year, USD priced assets may not look anywhere near as attractive to the thundering herd in the not too distant future.

Many are concerned about the upcoming fiscal cliff. I am not one of those persons. The automatic spending cuts and the elimination of the Bush tax cuts, both implemented as result of inaction and paralysis, may end up being the only way Congress can address the problem using both revenues and spending cuts. Jumping off that fiscal cliff may temporarily be unnerving but ultimately will prove to be just what the doctor ordered for the long term fiscal well being of the U.S. government.

CLF is a very low cost ETF that invests in Canadian government securities. The expense ratio is .17%.
CLF Overview - iShares ETFs The sponsor is iShares Canada. This fund uses a 1 to 5 year bond ladder strategy.

I now own 700 shares. Dividends are paid monthly in Canadian dollars:

On the day of my last purchase, I took a snapshot of the holdings.

Holdings as of 8/15/12
Quote: iShares 1-5 Year Laddered Government Bond Index Fund, CLF - (TOR) closed at 19.91 CADs yesterday.

3. Sold 400 ACG at 8.442 (see Disclaimer): I am not a fan of U.S. government debt. ACG uses leverage to buy low yielding U.S. government debt. Consequently, I have bought and sold it several times, harvesting relatively small gains after clipping dividends. This last sale resulted in a $85.62 profit on the shares:

2012 ACG 400 Shares +$85.62

Item # 1 Bought 400 of the Bond CEF ACG at $8.19 (5/31/12).

See also: Sold 500 ACG at $8.122 (December 2011)Bought 200 ACG at 7.85 August 2011ADDED 200 OF THE BOND CEF ACG at $7.98 October 2011ADDED 200 OF THE BOND CEF ACG at $7.98 October 2011Sold 200 ACG at 8.35 August 2010; SOLD 200 ACG 8.45 August 2010Added 400 ACG at 7.85 May 2010; Bought 200 ACG at $8.12 in Roth May 2010.

I am now back to owning no shares.

ACG: 8.44 -0.01 (-0.12%) 

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